Denials continue to cost providers millions of dollars each year, not only in claims denied but in resources dedicated to denial and appeal management programs. Of the $3 trillion in claims submitted by hospitals in 2016, an estimated 9 percent of charges were initially denied.1 As many as one in five claims are denied or delayed, according to PNC Financial Services Group.2 For the typical health system, that equates to as much as 3.3 percent of Net Patient Revenue, an average of $4.9 million per hospital, at risk due to denials.
Some providers cite a recent increase in erroneous payer denials, particularly related to medical necessity and precertification, which have required the addition of resources to manage appeals.3 While 63 percent of denied claims are recoverable on average, appeals already cost providers roughly $1,182 per claim, or as much as $8.6 billion in administrative costs nationally.
As organizations grow and more services are made available, the complexity of claims processing and denials has increased as well. Patients are often transferred between specialists and settings, requiring the submission of multiple claims. Constant changes to payer and regulatory requirements exacerbate the challenge, as an oversight or misinterpretation of a change can easily end in lost reimbursement.
According to the Advisory Board, however, about two-thirds of denials are recoverable, and 90 percent are preventable. Hospital leaders must work aggressively to prevent denials while continuing to fight those that occur. This requires consistent processes, reliable tools, and collaboration between all areas that support the denials management program.
Focus on the Front-End
A good place to start in a denial prevention strategy is to find out why denials are occurring in the first place. This requires leveraging data to identify root causes for reoccurring problems. Once identified, health systems can be proactive in adjusting workflows to prevent costly errors and delays. This may involve initiating flags and checkpoints to ensure that all steps are complete prior to claim submission.
Rigorous documentation on the front end is critical to avoiding initial denials. According to a study by Change Healthcare, the largest percentage of denial causes are associated with front-end processes:
- Registration/Eligibility 23.9%
- Missing or Invalid Claim Data 14.6%
- Authorization/Precertification 12.4%
- Medical Documentation Requested 10.8%
“Much of the information needed to get a claim to the right payer with the right core data about the patient is gathered prior to service. So the 30 to 40% of denials seen downstream are the result of registration and pre-service related challenges—issues that can and should be prevented” (Rethinking Denials Management).  Staff must be proactive in obtaining the necessary preauthorization and documentation, especially to avert high-dollar denials.
Health systems need to be savvy in their denial prevention techniques, using all available tools to support their efforts. To effectively address denials, providers need an intimate knowledge of the reasons behind their denials as well as the payer’s rules related to those issues. Rather than waiting for a payer to request additional information or deny a claim, they should be proactive in reaching out and sending relevant data and documentation, especially for high dollar cases.
Technology can assist providers in reporting – tracking denials by type, dollar amount and payer. Some organizations are building work queues and hints into their EHR to remind staff of payer policies and procedures, for example. Others separate denials into work lists based on whether they require additional documentation or if they necessitate appeals.3 These steps give organizations a big advantage in preventing erroneous, recurrent denials.
Another successful prevention technique is recording exchanges with payers for proof should a payer deny a claim for lack of authorization or medical necessity. Submitting this documentation early in the process often stops the denial before it officially goes on the books and can significantly shorten the appeals process. Organizations also find that payer denial patterns begin to change once a payer discovers that the hospital is recording exchanges and can submit proof of authorization if challenged. The number of claims initially denied often decreases over time.
A key to a successful denials management strategy is a multi-disciplinary approach with leaders representing both the clinical and financial sides of the organization. Denial management teams should have representation from Patient Access, Utilization Review, Health Information Management, the Business Office and clinical areas. Involving clinical departments increases awareness of their role in the claims and billing process, particularly with issues related to medical necessity, coding, and documentation.
Coding needs to know, for example, the importance of staying on top of payer policies and ensuring that claims are submitted with appropriate documentation. The extra time taken to ensure that each claim is as clean as possible prior to submission can prevent having to later overturn it with an appeal, which speeds reimbursement and cash flow.
To help each area better understand its impact on denial performance, proactively share information about department-relevant denials and actions taken to appeal those claims. This is also an opportunity to conduct root cause analysis of recurrent denials and determine prevention strategies at the department level. At each level of the organization, goals and performance measures should be tied to denial performance for improved awareness and accountability. 
Denials may not be going away, but systems are available to more effectively prevent and respond to denials moving forward. With further collaboration, integration, and communication between all parties, providers will see success in reducing the high cost of denials.