Claim Denials - What Are They and How Can They Be Reduced

claims file folder

Denial claims can be a major source of frustration and financial losses for busy, hard-working clinicians. Denial claims are those rejected by insurers due to coding errors, lack of documentation, or other errors. They can cause a lot of lost time and revenue, so it is important to reduce denial claims for the financial health of your practice.

How? Read on to learn six simple methods you can begin implementing today. But first, consider how denial claims, denial claim rates, and reworked denial claims function.

A Closer Look at Claim Denials

Claim denials can happen for various reasons, but the primary cause is usually failure to meet billing requirements. Therefore, there are various types of denial claims, including:

  • Duplicate claims: Billing for the same service twice, either by accident or on purpose
  • Up-coding: Charging a higher rate than what is appropriate, either intentionally or unintentionally
  • Unbundling: Billing for individual components of a service that should be covered by one code and reimbursed at a bundled rate
  • Inappropriate modifier use: Knowingly or unknowingly using the wrong modifier, which indicates that a particular service is distinct from another and requires a different reimbursement rate
  • Inaccurate patient status: Inputting incorrect patient status codes, which indicate the stage of care your patient is in at the time of service
  • Incomplete documentation: Failing to include appropriate documentation with your claim
  • Pre-certification: Failing to submit your pre-certification authorization along with your claim
  • Time limits: Failing to submit your claim within the payer's claim filing time limit

Other types may include: provider out of network, bundling, procedure not covered by payer, and medical necessity requirements not met.

An Overview of Denial Claim Rates

Medical billing typically involves calculating the number of denied claims. The denial rate is an important statistic to help you identify and correct issues related to coding accuracy and authorization issues.

How Are They Calculated?

Denial claim rates are calculated in three steps:

  1. Select a specific time frame
  2. Add the total dollar amount of denial claims submitted by your payers
  3. Divide it by the total dollar amount of claims submitted within the given time frame

For example, suppose your total denied claims over six months equaled $20,000, and you submitted a total of $200,000 of claims in that period. You would divide $20,000 by $200,000, making your denial rate 10%.

What Is the Industry Average Denial Claim Rate?

The industry average denial claim rate is anywhere between 5% to 10%, with the ideal rate defined as below 5%. Such a low rate indicates that you have a healthy cash flow.

Breaking Down Reworked Denial Claims

Reworked denial claims allow you to resubmit claims after the payer originally denied them. It is a valuable tool because it helps you recuperate payment for services rendered.

The Reworked Denial Claims Process

Reworking a denial claim starts with identifying the reason for the initial rejection. Then, you can correct it in one or more ways:

  • Submit additional documentation
  • Revise the claim submission
  • Appeal your treatment decision with more evidence to prove why the payer should pay the claim.  

To be accepted, the reworked claim must meet all the requirements of the original claim and be within the payer's guidelines.

Reworked Denial Claims Averages

On average, reworked claims cost $25 per claim for independent practices and $181 per claim for hospitals. In addition, as many as 60% of denials never get reworked.

However, a study conducted by Change Healthcare revealed that 63% of initially denied claims were recoverable after resubmission.

6 Ways To Prevent Denial Claims

Denial claims can hinder you from receiving service payment and damage your practice's financial health. Thankfully, there are several ways you can prevent denial claims, including:

  • Follow guidelines and regulations for coding practices and processes
  • Stay up to date with changes in coding and billing rules
  • Verify patient information and insurance benefits
  • Use advanced RCM and medical billing software
  • Hire or train a team of medical billing experts
  • Outsource your RCM and medical billing processes

Leverage Outsourced Medical Billing To Manage Denial Claims

Denial claims can wreak havoc on your bottom line if not properly managed. As a busy clinician, it is understandable that you do not have time to focus on chasing denials and submitting paperwork. And with the ongoing staffing shortage plaguing the healthcare industry, you may be unable to find skilled staff to manage your denial claims efficiently, accurately, and correctly.

That is where PUREDI can assist you. Our combination of robust, advanced medical billing software, industry experts, and tailored billing services work synergistically to protect the financial health of your practice. We manage the entire medical billing process so you can focus on what's truly important — your patients and growing your practice. Contact us today to see how our various solutions can help reduce your denial claim rates and boost your revenue.

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