Denials in medical billing are a common and costly problem for American healthcare institutions. Every time an insurance organization refuses to cover expenditures, a clinic loses time, resources, and finances. When we speak about large healthcare institutions, such denials can result in multi-million-dollar annual costs if strict measures are not taken to address them.
Research by the American Hospital Association (AHA) shows that approximately 15% of all claims submitted are denied after the first review. We’re pleased to report that 90% of such denials may be avoided through process optimization and staff training. The blog post will discuss the causes of denials and tactics to minimize losses.
What Are Claim Denials?
Medical institutions encounter denials in medical billing when an insurance organization checks a submitted claim and notifies the counterparty that it will not cover all or part of the services. Clinics receive data in the form of a denial code and an Explanation of Benefits (EOB) or an Electronic Remittance Advice (ERA), in which the insurer details all reasons for non-reimbursement.
Professionals should understand the key differences between a denial and a rejection.
- A rejection means that documents were not processed due to simple inaccuracies, including missing required data or incorrect formatting. Medical institutions may quickly correct the inaccuracies and resubmit the documents to the insurance company.
- In the case of a denial, the insurer reviews the documents but does not transfer funds due to limited coverage, insufficient forms, incorrect coding, etc. Such claims will require significant additional work or an appeal to obtain funding.
Knowing these nuances allows medical staff to respond quickly and reduce expenditures.
Top 10 Denials in Medical Billing
Every year, insurers reject approximately 70 million claims, so healthcare organizations must work to streamline their medical claims processes. In this section, we will discuss the most widespread reasons for denials in medical billing and how to avoid them.
1. Missing or Inaccurate Patient Information (CO-16)
Minor inaccuracies, such as misspelled personal data, incorrect dates of birth, or missing digits in the insurance policy number, will prevent the organization from matching the claim to a specific user.
You must verify data at every appointment and implement automated compliance monitoring tools to avoid denials in medical billing.
2. Prior Authorization or Pre-Certification Absent (CO-197)
Some services, including CT and MRI imaging procedures, surgeries, and the administration of certain medications, require authorization from the insurer before services can begin. Recently, many companies have added microrequirements, under which even a single missing test in the authorization request may result in a denial.
You can avoid problems by reviewing authorization requirements during the planning stage and monitoring data in the electronic health record (EHR).
3. Instability of Eligibility and Expiration of Insurance Coverage (CO-27)
Healthcare organizations often encounter situations where a person has current insurance coverage at the time of their last visit. Still, their policy may expire, or their terms may change a few weeks later. We live in an era of constant changes to the Affordable Care Act (ACA) subsidies and Medicaid regulations, which increases the risk of eligibility volatility.
You must verify eligibility for services in real time at the moment of service delivery.
4. Lack of Medical Necessity (CO-50)
Sometimes insurance organizations argue that the service provided was not “necessary” for the diagnosis listed on the bill. They use AI and natural language processing (NLP) to scan medical records to find keywords that justify the level of care provided.
When submitting documents, ensure that the medical record clearly justifies the procedures and treatments. Specialists must utilize proper diagnostic codes to confirm services rendered and avoid denials in medical billing. If you are new to a payer, review its medical-necessity policies.
5. Duplicate Claim or Service (CO-18)
This issue occurs when a claim with the same person, payer, and service dates is submitted multiple times. Sometimes, billing specialists resubmit documents because they have not received reimbursement, even though the first claim is still being processed.
Always check the status of your application on the insurance company’s website before resubmitting to avoid duplicate claims.
6. Claim Submission Expired (CO-29)
Each insurance company sets a time limit for medical facilities to submit claims, e.g., 6 months or 1 year. If documents are held in the internal coding process for too long and do not reach the payer promptly, you will not be able to receive reimbursement.
We recommend setting up an automatic reminder for claims as the 60-day deadline approaches.
7. Payment Coordination Issues (CO-22)
Some patients have multiple policies, e.g., primary insurance from their employer and supplemental service from their spouse. In this case, it’s essential to use the correct payment order to prevent denials in medical billing. If the claim is received by the secondary provider first, you won’t accept payments.
At each doctor’s office visit, ask your patients how many health insurance policies they have.
8. Coding Specifics and “NOS” Pitfalls (CO-11)
Payers often refuse payments when the “Not Otherwise Specified” (NOS) code is utilized. If you use a general code when the guidelines provide more specific options, you will get denials in medical billing process.
We recommend avoiding generic code and continually upgrading your coders’ skills.
9. Complex Services (CO-97)
Sometimes, an insurance company considers a specific service to be part of a larger package it previously paid for. Some related procedures or consumables are not paid for separately by counterparties.
Always check for changes to medical coding rules to learn more about complex codes.
10. Service Provider is Not Accredited (CO-B7)
Suppose a new doctor joins a clinic, but the healthcare facility submits an application before their accreditation is complete; the counterparty will likely reject it.
You should implement centralized accreditation control and not transfer applications from new specialists.
Strategies to Prevent and Reduce Denials
Studies show that each denied claim costs between $25 and $50 to rework. It makes prevention more cost-effective than remediation. Reducing the failure rate requires a multi-layered approach that includes the following steps.
- Improve front-end data accuracy. Automated tools should check insurance coverage not only at the time of appointment scheduling, but also 24 hours before the appointment and at the time of registration. It helps identify cases of last-minute policy expirations. Specialists should use software that prevents registration from being completed if key fields do not match the payer’s database format.
- Strengthen coding and documentation practices. If a record doesn’t specify the exact location or severity of a condition, the coder can’t assign the highest level of detail, which may lead to denials. We also recommend using AI-based verification systems. These don’t simply track missing fields; they compare procedure and diagnosis codes with databases of different payers.
- Implementing a denial management system. You may use a dashboard to aggregate denials in medical billing process from different counterparties. It will allow managers to notice if a specific insurance company changes its pre-approval algorithms, affecting hundreds of applications. Advanced software also includes a high-risk alert feature.
Reducing payment denials for insurance companies depends not only on correcting errors, but also on preventing them. Effective medical billing depends on staff actions, including proper healthcare claims processing and the correct use of technology.
The Role of Analytics in Denial Management
In recent years, the healthcare sector has shifted from reactive to proactive denial management enabled by analytics. Most insurance companies are using AI to automate reviews. Healthcare organizations must also adopt smart systems to protect their profits.
One key area of development is using data to identify recurring patterns. Specialists don’t evaluate each denial as a separate event. They use advanced analytics platforms to identify leaks in the revenue cycle.
Visual tools group denials in medical billing by code, department, and service provider. Research shows that 30% of “medical necessity” denials originate in a single department, indicating that management should focus on staff training.
Predictive analytics prevents denials in medical billing even before submission. Before a claim leaves the system, AI compares it with millions of historical records. If it detects patterns, it notifies specialists to request a manual review.
In the event of a denial, analytics can predict the likelihood of a successful appeal. If the data shows that a particular payer never reverses a denial, the system may recommend abandoning the appeal to avoid wasting time on a futile battle.
Conclusion
Managing denials in medical billing is a crucial component of healthcare activity. The impact of such denials can be mitigated through proactive tactics. Medical institutions must address root causes, including incomplete patient data, coding errors, authorization issues, and more. These problems can be avoided through the use of technology, staff training, and streamlining work procedures.
Institutions experiencing high delayed payments rates can partner with BooksTime. Our specialists are ready to offer personalized solutions to overcome these issues. Focus on root causes to recover lost revenue and improve customer experience.
