Why your denials are skyrocketing (and 3 ways hospitals can respond)

Denials are reaching a crisis point for many hospitals and health systems. Both commercial and public payers are now denying about one in every 10 submitted claims, costing health systems up to 2% of net patient revenue¹. So what's behind the recent surge in denials—and what can revenue cycle leaders do to stop it?
 

Three major factors have led to the latest deluge of denials:

1. An overwhelming volume of automated reviews: Payer algorithms can quickly identify potential DRG downgrades and medical necessity issues, leading to a faster rate of denials.
2. Increasingly complicated criteria: Revenue cycle leaders report that payers are also using more complex criteria for claim submission and medical necessity requirements, often layering payer-specific requirements over the CMS suggested criteria.
3. The fine print in your contracts: Payer contracts include varying requirements ranging from medical necessity criteria to technical specifications. These small but meaningful differences can make it hard to submit compliant claims.

Revenue leaders must work to prevent and mitigate denials to get ahead of these new challenges.

Advisory Board researchers recently interviewed 50+ revenue cycle officials at health systems across the country, and identified several best practices to reduce denials and foster the recapture of revenue.

Many revenue cycle teams have long employed physician advisors to help appeal denials, but at top-performing organizations, these advisors are doing more than ever before. In addition to helping hospitalists conduct peer-to-peer reviews with payers, these advisors also are helping with utilization management and review, providing preauthorization and documentation education to other physicians, and even identifying potential government audit risks. 

These programs are not cheap. Organizations will likely need to hire personnel with unique skill sets and, ideally, have one advisor for every 200 to 250 beds. But the payoff can be worth it. High-performing physician advisors can drive significant ROI through reduced denials and audits, lower costs of appeals, improved documentation and coding accuracy, and better utilization review.  

See our report on how best practice organizations are structuring their physician advisor programs. 

Although physician advisors should play a key role in a denials strategy, these highly trained, expensive professionals cannot (and should not) be expected to tackle everything. Rather, use top-of-license care principles to assign the appropriate specialist to handle each of three tiers of responsibilities:

1. Technical denials specialists—who typically have an associate's degree—can handle medical record requests and non-clinical appeals, generally managing about 45 cases per day.
2. Clinical denials specialists—who are generally RNs—can handle all retroactive authorization and clinical audits, as well as reviewing Medicare, Medicaid, and managed care claims pre-billing.
3. Physician advisors—who have an MD or DO degree—can support the most complex cases, consulting on clinical appeals and writing clinical appeal letters when needed.

Some health systems opt to create even greater staff specialization, such as assigning specialists to work on claims within a particular care setting. This gives staff the chance to become familiar with inpatient- or outpatient-specific clinical guidelines. 

Similarly, some health systems segment their clinical and technical denial specialists by payer—allowing these specialists to learn their payer's coding language and requirements in depth, as well as to build relationships with the payer's team.

Building relationships with payers is important, but there are other opportunities to work with payers on denials management and mitigation. One health system discovered that 80% of authorization denials from one payer were actually overturned on appeal.

This was a headache to the health system, of course—but they realized that it must also be cumbersome and frustrating to the payer. As such, the system offered to open their medical records to the payer in exchange for presumptive authorization of patient status for same-day and ER-to-inpatient admissions. Since implementing the agreement, the health system has seen authorization denials drop to zero.

Read our Q&A with the system’s VP of revenue cycle to learn how this health system plans to minimize denials and improve the patient financial experience.

For over 35 years, Advisory Board has helped executives work smarter and faster by providing clarity on health care’s most pressing issues. Our team of 350 experts harnesses a network of 4,400+ member health care organizations to discover and share the industry’s most successful ideas.

Learn more at www.advisory.com/research/about-research.