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The Hidden Costs of Claim Denials

Beyond the obvious delays in payment for services rendered, there are many other ways that denials are hurting your revenue cycle performance.

The Medical Group Management Association (MGMA) recommends that a medical practice should shoot for a 95% or higher clean claims rate. The reality is that most practices struggle to even get close to that rate. The average clean claims rate usually hovers around the 75% to 85% range – meaning that 15% -25% of claims are initially denied.

Administrative Costs

The average administrative cost of reworking a claim once is $25.00 in administrative salary costs. Many claims may go through the process several times. For example, let’s say a practice file 1000 claims per month. 20% of those claims are denied (80% clean claims rate), which equals 200 claims at $25 each, or a conservative $5,000 in extra costs. This does not include office overhead, employee benefits, computer systems, clinician time, and electronic filing fees.

Another analysis by Change Healthcare determined that the total cost of reworking a denied claim was actually $118! By this definition, our example above costs the practice a whopping $23,600 per month.

Missed Deadlines

Another issue with claims denials, especially when there are a lot of them, is simply having the capacity to spend the time to rework them. Rejected claims can sit in a pile for too long, and end up missing timely filing deadlines – ending in a total loss of revenue.

When a claim is denied, it is as though it were never filed – the clock does not start over. If it is rejected twice, the situation is the same. When a backlog of denials is on someone’s desk, it is easy for some to get overlooked. Each payer sets its own timely filing deadline.

While it seems simple enough, many practices are so busy that out of all the denied claims out there – 65% of them are simply never reworked. Whether the practice decides that it isn’t worth it, doesn’t have the skills or resources to rework them, or just needs some drastic revenue cycle help, the results are the same. Huge losses in revenue could have been prevented.

Denials are on the Rise

To compound the problem of denials management, the numbers are on the rise – rapidly. An article in Modern Healthcare reports that 67% of healthcare leaders have seen an increase in denials. Many of these are “request for information” denials or the type that requires the clinical side to provide additional documentation.

Insurers are trying to keep costs down as they recoup losses from COVID-19, and as the population returns to clinics and regular healthcare. Stressed hospital systems are short-staffed, short on cash, and dealing with rising expenses and salaries. This latest onslaught seems like yet another hurdle that is challenging hospitals’ ability to stay in business.

Clean Claims is Just the Beginning

Professional revenue cycle managers know that once the clean claims rate improves, other KPIs such as Days in AR, Net Collections, and First Pass Resolution Rate also improve – resulting in even more measurable gains to the bottom line.

When an initial insurance claim is denied, this prolongs the process to get to a final patient bill. When a bill for services comes to the patient long after the visit, the collection efficiency drops drastically. Statistics show that the longer it takes to bill the patient responsibility portion of the bill, the less likely it is to ever see that money.

 

Does your revenue cycle need a complete overhaul? If you are uncertain what your clean claims rate is, or it is definitely on the lower end – Rise can help! We are a complimentary family of companies that specializes in revenue cycle and financial sustainability in the healthcare market. Whether you need to learn how to prevent denials, you need staff to tackle the piles of backlog, or you need software analytics – we stand behind you. Schedule a call with us to learn more.