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Sep 30, 2020

The Financial Impact of Denied Claims: It’s Bigger Than You Think

Updated May 24, 2022  |  Published September 30, 2020 by Helen Farnen

RXNT Cost of a Denial

The phrase “claim denied” is enough to stop any practice administrator or healthcare provider in their tracks. A denied claim doesn’t just mean time-consuming rework. It also means delayed or lost revenue and additional burdens on resources. While one claim denial may not appear to have much financial impact, the cumulative effect of these denials can result in staggering revenue loss.

Breaking Down the Cost of Denied Claims and Rework

The financial impact of a denied claim is two-fold: first, in the lost (or delayed) revenue and second, in the cost to rework the claim. Healthcare providers spend approximately $118 per claim on appeals in rework costs. Reworking reduces profitability and efficiency through duplicative administration, draining practice liquidity.  

While most of these costs and efforts can be avoided, approximately 63% of denied claims are recoverable. Yet, research indicates that 50% to 65% of denied claims are never reworked. That’s a significant amount of revenue and profit left on the table. 

For the remaining denied claims, additional effort and expense is 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. Clean claims contain no errors, are only filed once, and aren’t 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. Plug your numbers into this calculator to figure out what these claims and the associated rework are costing you.

Claim Denied? 4 Reasons Why

There are several reasons a claim may be denied. We’ve ranked them below from most to least common. 

  1. Utilization

A whopping 25% of denied claims are due to utilization issues. Many of these come down to missing or expired pre-authorization codes. Other areas of concern include experimental treatments and downgrades of diagnosis-related groups. 

  1. Coverage 

Close behind utilization issues are coverage-related denials at 21%. This category includes non-covered services, which may be deemed medically unnecessary under the patient’s insurance policy 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.

Other coverage-related denials to be aware of include:

  • Documentation and verification issues
  • Coordination of benefits between multiple insurance plans
  • Eligibility restrictions
  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. 

  1. Coding errors

Coding 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. Some insurance companies will also deny claims that have bundled services or services that should be reported separately. 

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

  • Verify eligibility regularly. 
  • Ask about changes in coverage and patient information at each visit. 
  • Provide regular training to coding and billing staff on common services, codes, diagnoses, as well as pre-authorization and insurance requirements.
  • Analyze and address the most common reasons for denials of claims at your practice.
  • Monitor your clean claims ratio on a regular basis.
  • Use advanced claims scrubbing and editing tools.

Claims Scrubbing: the Most Effective Way to Reduce Denials

Claims scrubbing can help practices increase their clean claims ratio and decrease denials. There are many internal efforts you can take to improve the accuracy of your claims submissions. However, manual entry always leaves room for error, particularly when dealing with multiple providers, services, and insurance plans. Claims scrubber tools detect and eliminate errors by measuring them against payer rules, internal practice rules, and any coding or billing updates.

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 clearinghouses and payers. Ideally, this feature should integrate into your practice management solution to increase the efficiencies of administrative processes.

At RXNT, we understand how overwhelming it is to juggle countless claims, track their status, and address any errors before submitting them for review. As part of our Practice Management solution, 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. Want to see the features in action? Get a quick, no-pressure demo.


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