Is your medical practice’s denial rate on the upswing? If so, you have plenty of company.
Right now, 60% of medical groups say their denial rate is higher than it was at this time last year, according to a poll of 235 practices conducted by the Medical Group Management Association (MGMA). Each denial reduces your practice’s potential revenue, raises your administrative costs, and creates serious cash flow issues. Yet while some denials are unavoidable, many can be fixed.
Let’s dive deep into denials, explore ways to reverse the trend, and get your denial rate below the industry benchmark.
What Is a Denial Rate, Anyway?
Put simply, your denial rate represents the percentage of claims denied by payers. To calculate your denial rate, take the number of claims denied (for avoidable reasons) and divide it by the total number of claims submitted in a given time period.
What’s a Reasonable Denial Rate for a Medical Practice?
The industry standard benchmark for medical practices is a denial rate of 4%. Top-performing practices should strive to hit 2%. But doing so is increasingly complicated. Denial rates have been rising steadily industry-wide, from 9% in 2016 to 12% in 2022. What’s more, gross charge denials have grown to between 15% to 20% of the nominal value of all claims submitted.
Many practices don’t realize that it’s well within their control to reduce their denial rate. In fact, two-thirds of all denied claims are never appealed. That’s unfortunate, especially considering that 50% of appealed claims get reimbursed. If your practice isn’t working its denials and filing appeals, you have no shot of recapturing revenue that is rightfully yours.
Calculating the Revenue Impact of a Lower Denial Rate
So, why don’t all practices follow through on avoidable denials? Some shy away from it due to the accompanying administrative expenses. On average, it costs between $25 – $118 to work a single denial. Because about 25% of denials are never paid, some practices may think that the juice isn’t worth the squeeze. But that decision will cost your practice money in the long run.
To see why, take the example of a medical practice with $4,173,000 in denied or no-response claims. By working their denials process and getting closer to the industry benchmark of 4%, they can net a potential positive cash flow impact of more than $469,000.
| Changes denied/no response | $4,173,000 |
|---|---|
| 25% | $1,043,250 |
| At Net | $469,462.50 |
Top Challenges Preventing Practices from Working Their Denials
While practices often have the best of intentions, they often run into one of these three critical roadblocks while trying to work denied claims.
1. Staffing challenges
In a tight labor market, it’s difficult for practices to properly staff their revenue cycle functions. Even if they find the right employees, they must invest in training them on the many intricacies of denials management. This requires both time and money.
2. A mounting denials backlog
The latest data shows that between 15% to 20% of all claims are flat-out denied by payers. This is leading to huge backlogs of denials within practices, making it increasingly difficult for their staff to file appeals within payers’ tight deadlines.
3. Under-optimized technologies
To work denied claims effectively and keep pace with regulatory changes, practices need automated workflows and feedback loops. Yet many practices don’t have solutions capable of providing this level of visibility and efficiency.
How to Improve Your Denial Rate (and Overcome the Challenges)
The first step in fixing your denial rate is to know what your rate is right now. If you work with a clearinghouse, ask them to provide you with your denial rate. Be sure they only include unavoidable denials in their calculation. If you don’t use a clearinghouse, you’ll need to run your own denial transaction report down to the payer and CPT code level.
Once you do so, reviewing your denials and determining where they happen most often is critical. Denials can occur at various stages within the revenue cycle.
Front end
These include denials related to registration and eligibility, authorization and pre-authorization, and medical necessity. If you find most of your denials exist on the front end, that’s good news, because those are the most fixable ones. They’re also the most common. Often, we identify that between 50% and 60% of a practice’s total denials are on the front end.
Take, for example, inadequate eligibility verification. This is often a symptom of not capturing complete or accurate patient insurance information. Almost all these types of denials are completely avoidable. However, once incurred, 55% are unrecoverable. The takeaway: improving your practice’s benefits verification process on the front end will positively impact your revenue and reduce your denials rate.
Mid-cycle
Denials in the mid-cycle often involve medical coding-related issues. These can include missing or invalid claim data, services not covered, or avoidable care. A potential fix here is to require your coders to pass an initial quality review before hire and a monthly quality review to ensure 95% or higher accuracy. Another fix would be outsourcing revenue cycle tasks like coding to experts like our expert revenue cycle team here at UnisLink.
Back end
These denials come from the payer side, and as a result, they can land outside a medical practice’s control. Examples of back-end denials include requests for medical documentation and missing or invalid medical documentation.
Others
While not technically a step in the revenue cycle, other factors can lead to increasing denial rates. These can include issues with provider eligibility, unspecified billing issues, and claims denied by a patient’s primary insurer.
Best Practices to Reduce Your Denial Rate
Three more ways to tackle your toughest denial rate challenges:
Quickly address denials and their root cause.
The sooner you work your denials, the faster you’ll get paid. It’s important to note that denied claims take an average of 16 days longer to pay than claims not denied.
Create regular review and education timelines.
Review denial reports at a minimum monthly, and ask your team to review all denials in bimonthly meetings. Provide constant feedback and education to process and prevent future denials.
Audit your coders regularly.
Monitor their accuracy and turnaround time closely and perform monthly audits.
Will a low denial rate fix all my practice’s revenue cycle problems?
When assessing the health of your practice’s revenue cycle, denial rate is an important metric to track. But it’s not the only indicator of success.
Our team at UnisLink has identified seven must-have revenue cycle metrics for medical practices. In addition to denial rate, these include:
- Days in A/R
- A/R >120
- Average Revenue per Encounter
- Net Collection Rate
- Revenue Realization Rate
- Gross Collection Rate
Want to learn more about these metrics and how they give you more visibility into your practice’s revenue cycle capabilities? Get the details in our Power of KPIs eBook.
Dive Deeper: Don’t Let Denials Derail You! Explore our 5-part series packed with additional details and best practices information about denials. Read Part 1 now.