Denied medical claims are a barrier to growth for medical billing. High-denial claims lead to reduced revenues, delayed increase in cash flow, or increased operational costs, all of which inhibit a practice’s ability to grow.
Not only do high denial rates in the healthcare environment negatively impact the billing aspect, but they also represent business performance issues. In many practices, denials may be considered part of doing business; however, high denial rates slowly degrade the profitability, efficiency and future growth of these practices.
This article looks beyond basic explanation and issues an analytic explanation of how high-denial claims inhibit growth, and the effects of high-denial claims on each part of the revenue cycle.
The Direct Financial Impact: How Denials Drain Revenue
The income cycle is fundamental to all medical practices, and high denial rates disrupt the entire cycle. If a claim is denied, the timing of the payment changes—if you do not manage to follow up on it, there is a possibility that you will never be able to recover your anticipated payment. Over a period of time, the cumulative effect of these loss of funds creates a large financial loss to the practice.
According to industry data, denial rates for claims are typically at least 20% and considerably higher for some specialties; and most practices do not resubmit denied claims at all. So, as a practice, you essentially leave money on the table not due to a lack of provision of services, but due to a failure of the billing cycle to recoup payment.
The other unfortunate aspect of denied claims is that they lengthen the practice’s income cycle. Practices are waiting/working to collect amounts from patients for longer periods of time than they intended or planned because they spend a significant portion of time doing task-oriented work related to denied claims as opposed to simply billing for services rendered. This increases the A/R amount; and this significantly impacts the cash flow required for day-to-day operations such as payroll, technology upgrades and facility improvements.
In the long run, this creates a situation that limits a practice from being able to invest in opportunities for continued growth and development, creating a barrier to scalability due to denied claims.
Administrative Burden: The Hidden Cost of Denial Management
One of the most overstated effects of high denial rates is the amount of work associated with them. There is a lot of energy associated with reviewing, correcting, documenting and presenting each one.
This extra work creates a situation where billing teams will not be able to focus on their jobs, such as processing new claims or optimizing their work. Essentially, they are continually regressing rather than progressing because they are generally focused on errors they have already made.
High denial rates typically lead to:
- More work for the billing/coding staff
- Time-consuming rework and appeal
- Operational inefficiencies within the revenue cycle
- Increased cost per administrative claim
Not only does this slow down operations but it also raises the cost to collect revenue. The practice is spending more money to collect the revenue they have already earned.
Cash Flow Disruptions: Why Growth Becomes Unpredictable
A consistent amount of cash coming into the business will help a fast-growing healthcare practice continue expanding. However, high denial rates Minimize the predictability of revenue, which makes it difficult to expand.
Delayed payment results from denied claims bringing havoc into the financial rhythm of a practice (affecting many areas such as the ability to manage expenses, hire staff and invest in new services).
Practices with frequent denials suffer from erratic revenues, which directly impact their ability to make decisions and negatively impact confidence and stability when experiencing high denial rates; therefore, the ability to grow a practice is inhibited. The amount of cash flow impacts the confidence of the organization in making an investment to expand.
Preventable Errors: The Biggest Operational Weakness
One of the most important insights reported in various studies in our industry is that most of the denials from payers are preventable; therefore, high denials rates are not necessarily just luck; they are also a result of poor work processes that have been established.
Most denials are avoided from errors that take place on the front-end, such as inaccurate patient information, verification of patient eligibility for reimbursement with the payor, and incorrect coding. These errors occur on a regular basis at the front end and once they accumulate from the number of claims being processed; they can lead to huge amounts of money being lost by the practice.
Common preventable causes include:
- Some examples of common errors that are easily preventable include:
- Incorrect patient demographic information
- Insurance eligibility has not been verified
- Incorrect or outdated codes have been used on the claim
- Prior approval is missing from the claims submitted to the payor
- The claim submitted to the payor was actually submitted two times to the payor.
Thus repeated patterns of production errors, they show the lack of an efficient system. Processes are not being optimized; rather they continue to cycle through the steps of correction and rework, which inhibits growth.
Impact on Staff Productivity and Burnout
In addition to having a financial impact, high denial rates impact the many people involved in the billing process.
When staff members must continually address denied claims, they are faced with excessive increases in their workload. The repetitive nature and frustration associated with the work they do leads to decreased productivity and in many instances, burnout.
Billing teams that should be focusing on creating efficiencies and accuracy will find they spend the majority of their time on damage control. Over time this damages morale, performance, and leads to an expanding negative feedback loop with more errors leading to more denials.
When a team is experiencing stress and excessive work, they will be less able to perform their work accurately leading to even more denials, thus compounding the issue.
Patient Experience and Trust: An Overlooked Consequence
The effects of claim denials extend beyond just your operations and have implications for the patient as well. When a claim is not paid, the patient is generally responsible for paying that claim. When this happens, patients receive unexpected bills, are confused about the reasons for the bills, and become frustrated with their provider. If a patient feels they’ve been billed incorrectly, they will lose confidence in the provider, which may result in the patient delaying treatment or not returning for treatment because of concern about being billed incorrectly. This will affect both patient retention and the number of services the practice provides.
Ultimately, poor billing experiences create damage to a provider’s brand and reputation, making it difficult for that provider to attract and retain new patients – creating another barrier to growth.
Slower Operational Growth and Limited Scalability
To expand, a health Care business must invest in the following:
- New technology
- Skilled employees
- Expansion of services
However, high denial rates often limit these investments.
A practice operates under tight financial constraints when a large portion of revenue is lost or delayed. Thus, they cannot grow; they are limited to running the bare minimum.
Practices can only grow by utilizing surplus revenue and achieving operational efficiency. Denial rates eliminate both, which makes scaling very challenging for practices.
The Bigger Picture: Why Denials Are a Strategic Problem
Denials are often thought of the as a technical matter by most of the competition but really they should be considered to be a strategic issue.
High denial rates are indicative of the following:
- – Weak front end processes.
- – Lack of automation.
- – Poor workflow management.
- – Insufficient employee training.
These are not stand-alone issues but instead they are issues that influence the entire revenue cycle. If practices do not correct, resolve or fix these issues they will not be able to sustain future growth.
How Reducing Denials Unlocks Growth
The good news about reducing the number of denied claims is that it can quickly improve a practice’s performance. When denials are eliminated from your practice, you will also experience the following:
- Increased predictability of revenue
- Improved cash flow
- Decreased Administrative Cost
- Increased staff productivity.
Key strategies to reduce denial impact:
1.Develop strong front-end verification processes
2. Incorporate automated claim scrubbing tools
3. Track and analyze denials statistics
4. Provide regular training to your staff on coding and compliance
5. Establish a structured follow-up system.
By working on the prevention side of things, rather than fixing them after they occur, you will be able to materially improve the overall financial health of your practice.
Final Thoughts: Denials as a Growth Indicator
Claims that have been denied can lead to many issues, both from the perspective of billing and operationally. A practice’s denial rate is a strong indicator for how effectively that practice is being run and can relate to slow growth, unstable income, and high costs in administration personnel. Conversely, practices that take an active approach in managing their denial rates will provide a platform for growth and success.
To put it more simply, if you wish to increase your practice, managing denial rates is the first step. In the world of medical billing, every timed denied claim represents a growth opportunity.
FAQ’s
Why are claim denials considered a major barrier to growth?
Claim denials create a negative effect on healthcare providers by limiting revenues, delaying payments, and increasing costs of operations, all of which can create challenges when trying to grow and provide a steady cash flow.
What percentage of claim denials are preventable?
Industry research has indicated that 80 to 90 percent of claim denials are avoidable if the provider implements appropriate processes, assigns accurate data entry into their systems, and has effective systems to verify claims.
How do claim denials affect cash flow?
Claim denials also delay reimbursement to the provider; increase accounts receivable days; and produce irregular revenue cycles that place the provider’s financial stability at risk.
What are the most common causes of claim denials?
Some of the most common causes of claim denials are; provider has incorrect patient data; coding errors; incorrect eligibility verification; no prior authorizations; and late claim submissions.
How can healthcare practices reduce denial rates?
The provider can take steps to reduce their denial rates by improving their front-end processes, using automated tools, training their staff, completing timely insurance eligibility verification and tracking claim denial trends.
Do claim denials impact patient satisfaction?
Claim denials frequently create additional incurred costs for patients due to unexpected bills being sent to them for services already received. When this happens, it often creates disappointment and lowers their trust levels and may lead to abandoned patient care from those who experienced the issue.
