Grounding denials before takeoff through strategic technology and data integration
Despite considerable advancements in revenue cycle technology, provider organizations continue to wrestle with ongoing denials. Complex billing codes, payer rule changes and regulatory requirements continue to contribute to this disruptive problem.
Jonathan Wiik, vice president of health insights at FinThrive, observes that although most hospital services are certainly reimbursable, rising denials stem from factors such as non-compliance with documentation requirements and increased scrutiny by payers. He notes that organizations that incorporate denials prevention into their daily operations are better equipped to identify and resolve denials more effectively. "These providers are using denials management systems, robotic process automation (RPA) and clinical and financial data to tackle denial challenges more effectively," explains Wiik.
In this discussion, Wiik addresses primary obstacles and best practices for preventing denials, revealing key payer strategies and effective provider responses. He also examines how leading health systems are systematically preventing denials from occurring.
Q: Why has the word “denials” been a buzzword in the healthcare industry for years?
Wiik: Denials have remained a hot topic because they have dramatically increased over the last decade, particularly post-COVID-19. Data shows that denial rates are now two to four times what they were previously. According to Clarivate HBI, the denial write-off rate was about 4.6% of net patient revenue in 2023, up from 0.6% in 2018. The industry benchmark has typically hovered around one percent.
Several factors have influenced the surge in denials. From a capitalistic perspective, payers are aggressively managing care to ensure larger margins, exacerbated by the commercial payer market nearing monopoly status. When one factors in the uninsured, self-pay and the large number covered by government programs, hospitals possess limited negotiating power—only roughly 25% reside in commercial plans. Concurrently, while the U.S. excels in trauma care, the public views healthcare as neither affordable nor effective in improving mortality rates or life expectancy. These perceptions have led managed care to demand more accountability in healthcare delivery and outcomes.
Q:What are the top three reasons denials continue to be a huge challenge that few provider organizations have been able to combat?
Wiik: A primary issue is prior authorizations that are either improperly recorded or fail to meet requirements. Care downgrades are also increasing due to incomplete documentation of the severity of a patient’s condition. Furthermore, overutilization of care, such as unnecessary extensions of inpatient stays, leads to many denials or requests for further documentation, as payers relentlessly enforce guidelines like average length of stay. Documentation requirements have also intensified with technological advancements, the adoption of ICD-10 and an increase in chronic conditions.
Additionally, weakened payer margins heavily impact denials. While payers had higher profit margins and fewer claims during the peak pandemic years, falling medical loss ratios (MLR) led to record-high rebates. With margins dropping and claim volumes increasing again, payers have turned up the heat in their utilization review over the last 24 months. The shrinking commercial payer market, influenced by regulatory changes, an aging population and more self-funded plans, has also prompted payers to cut claim payments.
Finally, the rise in Medicare Advantage (MA) enrollees over traditional Medicare has afforded private payers the ability to apply cost controls to a larger population and, in turn, more denials for hospitals. MA claims incur higher denial rates than most other payers today, significantly burdening hospitals with the need to justify care despite high overturn rates on appeal. Consequently, major hospital systems are increasingly opting out of MA plans in their entirety.
Q:What are some best practices for tackling the problem head-on?
Wiik: Best practices for fighting denials include staying current with prior authorization requirements, utilizing machine learning and deploying denials management platforms. These strategies ensure every claim meets known requirements and firmly holds payers accountable to their contracts.
Organizations most successful in managing denials have adopted a holistic strategy, which encompasses rigorous management of prior authorizations to ensure providers are reimbursed accurately and that any deviations result in prompt payer notification and retro-authorization. Additionally, denials prevention and authorization solutions that incorporate automation and machine learning play a vital role in the revenue management strategy. These solutions systematically address denials at every stage and effectively bridge the gap between what a provider submits from their electronic medical record (EMR) and what the payer requires for seamless payment processing.
By integrating denials management solutions into the EMR, organizations gain a comprehensive view of the denials landscape, allowing them to identify potential documentation issues and contractual discrepancies early. Authorization tools further support this approach by providing a real-time front-end defense that helps ensure prior authorizations are confirmed and payer rule changes are updated daily, preventing denials before they occur.
Q:Can you give an example of a customer who is strategic in their denials management approach?
Wiik: Certainly. One of our large health system customers has been quite innovative and is a prime example of how to embed strategic denials management into your culture successfully. It meticulously reviews all claims before they go out to catch potential denials early and identify recurring issues. Its comprehensive strategy encompasses not just technology but also people and processes, ensuring all components function at peak efficiency.
As part of its integrated approach, this organization hardwires specific payer rules into its post-denial processes for future reference or challenges the denial until it is resolved. It adeptly uses technology and analytics to understand where contracts are causing problems, identify key risks and assess propensity to pay. Additionally, strong collaboration between clinical and financial teams has significantly lowered denial rates.
For example, the health system is capitalizing on data and analytics to identify key factors leading to clinical denials. It now uses RPA to hold claims with these specific clinical indicators, pending documentation review. Using FinThrive's technology solutions, it has improved denials management capabilities, preventing more denials and gaining the confidence to strategically decide which claims to appeal and which to dismiss.
As a final point, Wiik emphasizes that integrating smart technology into workflows is essential for providers to proactively manage and mitigate denials, thereby safeguarding revenue. "A denials prevention platform enables providers to conduct detailed analyses of the root causes of denials and underpayments, including issues related to eligibility, claims and contracts, offering an unparalleled level of granularity.”
