Sep 30, 2020

The Financial Impact Of Denied Claims in Medical Billing: Bigger Than You Think

Helen Farnen  |  Updated August 3

RXNT Claim Denial Refresh Blog V3

On the surface, a denied claim may not appear to have a large impact on practice finances. However, the cumulative effect of these denials can result in staggering revenue loss. That’s why the phrase “claim denied” is synonymous with time-consuming rework, delayed or lost revenue, and additional administrative burdens for healthcare providers and practice staff.

How Much Do Denied Claims Cost Medical Practices?

There are two parts to the financial impact of a denied claim. First, you have the delayed, or worse, lost revenue. Second, you have the costs associated with reworking the claim in an attempt to get it approved and often lengthy appeals processes. This cost can range from about $30 on the low end to as high as $117 per claim. Even if we take the lowest estimate ($30), just 50 denied claims per month adds up to $18,000 in rework costs annually. That doesn’t even factor in the initial cost of submitting claims, the fact that many of these reworked claims may be denied again, and of course, the effect on cash flow. 

Most of these costs and efforts can be avoided by better claims submission practices. Still, as many as two-thirds of all denied claims are recoverable. Yet, research indicates that up to 65% of denied claims are never reworked. That’s a significant amount of revenue left on the table. For the remaining denied claims, additional effort and expense are required to bill patients, which leads to payment delays, assuming payments are received. Net the cost of such actions and follow-up, practice profitability is reduced again, with some claims written off entirely. 

If you’re not sure how much money you’re losing to denied claims, take a closer look at your clean claims ratio. Claims are clean if they:

  • Contain no errors
  • Are only filed once
  • Are not rejected or denied due to preventable reasons

By calculating the number of claim denials your practice receives each week and the average reimbursement dollar per claim, you can estimate your weekly, monthly, and yearly revenue loss. You can also use this denied claims calculator to determine how much denied claims and the associated rework are costing you.

The Top 6 Reasons Medical Claims are Denied

There are several reasons a claim may be denied, but most of them will fall into one or more of the following six categories. 

  1. Prior Authorization
    Claims may be denied if necessary prior authorization is not obtained prior to a procedure or visit. Payers continue to expand the number of procedures and visits that require prior authorization, so it stands to reason that this is one of the most common reasons for denials. In fact, a whopping 25% of denied claims are due to utilization issues. Many of these denials come down to missing or expired pre-authorization codes. Other areas of concern include experimental treatments and downgrades of diagnosis-related groups.

  2. Coverage
    Coverage is another common source of denials, accounting for 21% of them. This may be due to services that are not covered by the patient’s insurance or are determined to be medically unnecessary due to the diagnosis code used on the claim. This mistake often comes down to a miscommunication between the provider’s diagnosis and the back office’s coding.

    Each payer has distinct eligibility standards and requirements for documentation. If claims staff are unfamiliar with the payer or these requirements have changed, you may experience more denied claims as a result.

    Other coverage-related denials to be aware of include:
  • Documentation and verification issues
  • Coordination of benefits between multiple insurance plans
  • Eligibility restriction
  1. Incomplete Information
    15% of denials are a result of incomplete information. Claims may lack the necessary patient, insurance, billing, or coding information. Errors in patient demographics and insurance information fall into this category as well.

    Manual input and failure to verify information are two of the biggest reasons for these inaccuracies. A simple typographical error, misspelling, or transposition of numbers will likely result in a costly denial.
  2. Coding errors
    Errors and incomplete information rank equally for claim denials. 15% of denials are coding-related. These errors include mistakes with CPT and ICD-10 codes, as well as crosswalks and modifiers. The 2023 CPT E/M code set contained nearly 400 editorial changes, so there is plenty to keep up with in this category.

    Insurance companies may also deny claims that have bundled services or services that should be reported separately.

  3. Coordination of Benefits
    If a patient has more than one health insurance plan, you may receive a denied claim due to the coordination of benefits (COB). The patient will need to update their COB before the claim can be approved.
  4. Claim Filing Delays
    Payers have set required days of service, which makes expedited claim submission and rework critical. If you exceed this limit, you’ll receive a denied claim.

How Practice Solutions Can Help Reduce and Address Denied Claims

While there are several different kinds of mistakes that can result in denials, you can take these actionable steps to reduce and avoid them:

  • Leverage automation: You and your staff cannot be expected to retain information about every insurance payer’s policies, medical codes, and related changes. Instead, lean on software with built-in automation to select the correct code and pull in insurance as well as patient information. 

  • Verify: Make it a best practice to verify eligibility regularly and ask about changes in coverage and patient information such as addresses at each visit. 

  • Train: Provide regular training to coding and billing staff on common services, codes, diagnoses, as well as pre-authorization and insurance requirements.

  • Analyze: Examine and address the most common reasons for denials of claims at your practice.

  • Measure: Monitor your clean claims ratio on a regular basis. You can use RXNT’s Practice Management dashboard to view an aging snapshot. This dashboard shows pending payments from payers and patients as well as provider charges and payments. This solution can be used to pull reports such as the percentage of reimbursement received per claim.

  • Scrub and edit claims: Make sure of advanced claims scrubbing and editing tools. Manually scrubbing claims is tedious and leaves plenty of room for human error. RXNT’s Practice Management solution validates claims before submission and thoroughly scrubs them. If an error is found, the claim is returned to the practice before being submitted to the payer. 

  • Be timely: The most effective claims scrubbing features will provide real-time status of the claim, any errors, as well as the steps that must be taken to address them. That way, billing staff can ensure they send error-free claims to clearing houses and payers. Ideally, this feature should integrate into your practice management solution to increase the efficiencies of administrative processes. Make sure your team is managing denied claims on a daily basis.

We understand how overwhelming it is to juggle numerous claims, track their status, and address any errors before submitting them for review. As part of our Practice Management software, our claims scrubbing and denial management features work together to raise your clean claims ratio and address the issues that are more likely to be resolved. Your staff can easily track claims throughout their entire lifecycle.

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