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Claims Denial Reasons and How to Fix It

November 9, 2015

Are you in denial?

Denials are claims that get processed by a payer but are not paid as expected. ‘Denial’ is a word that no Community Health Center (CHC) likes to hear. The word itself conjures up visions of bright red ink stamped boldly across a claim… DENIED… you’ve messed up and now you will not get paid! Once you’ve wallowed in your shame, you quickly shuffle the denied claim to the trash heap and vow to do better next time.

The other side of this coin are CHCs who are in denial (pun intended) about their denials. When we ask about a CHC’s denial rate, we often hear the staff person proudly state that their denial rate is 1%. This is rarely true and virtually impossible to achieve. A denial is not a claim that NEVER gets paid. A denial is a claim that does not get paid as expected the first time.

So let’s begin by reviewing the correct formula for measuring your center’s denial rate: Divide the number of denials received into the number of claims submitted. If 2,500 claims are submitted and 151 are denied, the denial rate is 6%. By Medical Group Management Association’s (MGMA) Performance and Practices of Successful Medical Groups, better-performing medical groups have, on average, 4 percent claims-denial.

Searching for clues

At PMG we like to think of ourselves as the denial detectives. While it would be much easier to concentrate on all the claims that were paid, in revenue cycle management, our job is to focus on the claims that did not go well. We scrutinize our clients’ denied claims, searching for clues (the reason for the denial). When we find a clue, we can pinpoint the core issue in the revenue cycle process that is causing the denial, then we work to correct those problems and prevent similar denials in the future.

The most basic method of correcting denials is identifying the denial, finding the solution, and then correcting and resubmitting the data. We find that it is more effective and frankly more lucrative in the long run to create a denial avoidance plan. Although this seems fairly straightforward, it is not always the case.  PMG clients have the enviable position of having specialists in place that troubleshoot their denials.

Once the denials are categorized they are assigned to the appropriate department to research and determine corrective action. Since we find that aggregate information is where pockets of denials (money) exist, PMG’s team likes to begin by running a report of all claims for a given period; paid and unpaid. This provides us with the information we need to map out a plan of attack.

1. Aggregate 

2. Measure

3. Categorize

4. Research

5. Correct

6. Return to Step 1

Coming back to the scene of the crime

Always keep in mind that if these denials are occurring now, they have likely occurred before. So once you find the corrective action, apply it to your outstanding AR. PMG’s approach to applying newly found knowledge when it comes to AR cleanup is to flank the AR.  That is, we attack the AR from the newest claims (recent denials) and the oldest ones simultaneously.  PMG’s team consists or front end charge processors, AR Analysts, Coding specialists and EDI Specialists. The AR Analysts sort the unpaid AR (aggregate) to identify the reasons (categorize) for failed validation, rejection or denial.

The categories are assigned to specialists in EDI, Coding, Compliance or billing who research the issue and develop a solution. Once the source of the failure is identified and corrective action taken either manual or automated edits are put in place to avoid those failures in the future. This multi-pronged approach allows PMG to evaluate claims processing from three different perspectives.  However, the communication of each team’s findings to both the client CHC and other PMG teams is the key to avoiding claims failure in the future.

Looking to the future

While there are many things you can’t control — shrinking budgets, uncertain federal funding, an ever-increasing number of patients — optimally managing and reducing denied claims is very much possible. By taking a good, hard look at your revenue cycle process and following a few best practices, you can turn claim denials into a new revenue source and stop leaving hard-earned money unrealized.

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