Denial Management 101 for Medical Billing: Remember the Basics

By Sara Larch  |  March 9, 2011

Denials managementEvery medical practice experiences claim denials.  Better performing practices have denial rates below 5%; other practices are seeing claims being denied 10%, 20% or in the extreme 30% of the time.  In Kareo’s newsletters, you can read many excellent articles about ways to improve your billing performance.  Each of us look continuously for an idea and an opportunity to improve our financial performance.  One of the best ways to evaluate your performance is to know why claims are being denied.  With that information you can determine what your practice needs to do differently to reduce the denials and increase the percentage of time that you get paid correctly the first time!

Why is this important?  For those of us who have been involved with physician professional billing for over 20 years, we saw our medical claims go out the door to the payers…..and we received our payments.  Over the years, payers created more barriers to getting paid and we agreed to those new payer contracts (referrals, claims data, etc.).  Payers have increased the sophistication of their computer systems so they can define different payment algorithms which mimic the contract requirements.  Years ago, claims were reviewed, processed and paid by individual claim processors.  Today, much of that work is being determined by the computer.  For some payers, it seems that the algorithm is "when in doubt, deny it."  In addition, payers are expecting that only a small percentage of medical practices will follow up on claim denials and resubmit them corrected or as appeals.  Thus, denying your claims saves the payer money.

So, let’s make sure that your medical practice has "the Basics" taken care of:

1. Measure the number of claims that are denied

2. Identify the major reasons for denial

3. Create a tracking/reporting process which will allow your practice to measure your performance over time

1. Measure the number of claims that are denied:  Tracking and reporting your claim denials will require knowledge of your billing practice management system.  It will also require entering your denials so that you can then report on them.  If your medical practice posts payments electronically, then this data will already be available to you.  If you are not taking advantage of electronic payments or not all of your payers offer this to you, then you’ll need to manually enter your denied claims (zero payment remittances) into your practice management system.  With that data entered, you’ll want to measure the following:

   A.  Total claims filed to a payer (number and total charge amount)

   B.  Number and dollar value (charge) of denied line items

   C.  Calculate percentage denied (B divided by A)

   D.  And calculate these percentages for your entire medical practice and also by payer, reason, provider, specialty, and location (if you have more than one office)

As you can see right away, this is going to provide you with some great content on which to analyze your practice’s performance.

2. Identify the major reasons for denial: In order to count the number of denials by reason, you first need to determine the categories that you are going to utilize to track all of your claim denials.   The list below identifies the most frequent denial reasons that medical practices experience:

   -       Registration  (examples:  Insurance Verification, Incorrect Payor, Cannot Identify Patient)

   -       Charge Entry (examples: Invalid procedure or diagnosis codes )

   -       Referrals & Pre-authorizations

   -       Info from Patient

   -       Duplicates (example: 2nd CPT on same date)

   -       Medical Necessity (example: ICD-9 and CPT mapping)

   -       Documentation

   -       Bundled/Non-covered (example: Modifiers)

   -       Credentialing

Don’t hesitate to customize this list.  As you become more familiar with your denials, you may identify a new category.  I remember first tracking denials in my medical practice.  We had not included "info from patient" in our reason list.  As we started tracking and reporting our denials, our billing team kept asking "what category are we using when the  payer won’t pay us because the payer needs some information from the patient?".  We had not realized the frequency with which that was happening and subsequently added the category so we could know the number of claim denials and could understand how to approach this with our patients and our payers.

3. Develop a tracking/reporting system that will allow your medical practice to track your performance over time:  Since it is 2011, I’m going to assume that most practices have some sort of denial reporting.  If you do not, then I challenge you to make that a priority.  If you do have denial reporting, ask yourself if you are getting the level of detail that you need to really make a difference going forward.  Do you have actionable data that will ensure you can make the necessary changes and track the improvement over time?  Let me give you an example:

A medical practice has a large percentage of claim denials due to registration related issues.  This practice has three locations.  Their claim denial data is:

Registration denials are 10% for the entire medical practice for all locations.  With just this data, what would the next action plan be to reduce registration denials to below 2%?

Now, if you had the location specific information below….what would you do?

                                      Location A         Location B       Location C

Registration denials            4%                     22%                   15%

Without the location specific data, you don’t know that you need to start your improvement and training projects in Location B, then Location C, with only a refresher at Location A.  Without the location specific data, you might consume immense time and resources by focusing on Location A because it is your largest location when actually the previsit and visit processes at that location are going really well and your efforts are required at the other two locations.

Having comprehensive details about your claim denials will allow you to focus on the most frequent reason denials are occurring and in the most efficient way because you’ll know if it is payer, location, specialty or provider specific and you can use only the resources necessary to reduce your claim denials and increase your collection performance!

Ask yourself if you are following the basics of denial management.  I consider denial data a "roadmap for change" in my medical practice.  Every time you reduce your denial rate you bring more money to the bottom line of your medical practice – not only do you get paid correctly but you have eliminated all the rework required when a claim is denied. 

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