Denial Management in Healthcare – Be Proactive

Medical biller working on claim denials at a computer.

Denial management in healthcare – sounds like a topic that Chief Financial Officers and Revenue Cycle Directors are very interested in. However, in today’s environment, where every bit of lost revenue counts at the bottom line, CEOs and Board members are also interested in this topic. When hospitals large and small are closing, when the head of a state hospital association said recently that all of the hospitals in the state are threatened with closure due to finances, it is time for a good look at preventable denials and denial rates.

In this Article …


A Few Recent Statistics on Claim Denials

A report by Change Healthcare, a company specializing in revenue cycle management and other technology solutions, had some interesting 2022 denials data in the healthcare industry:

  • The average denial rate is almost 12% in 2022, an increase from 10% in just 2 years.
  • Denial rates varied from a low of 12% in the southern plains states to 17% in the Pacific region.
  • Front-end revenue cycle issues account for 41% of denial reasons. Although this is a decline from 46% in 2019, it is still the most common reason for denied claims.
  • The most frequent reasons for denied claims are related to registration/eligibility, missing or invalid claims data, requests for medical documentation, and authorization/pre-certification issues.


Is there Low-hanging Fruit that can Prevent Denials?

One estimate of avoidable denials is 82%! Unfortunately, as many as 1 in 5 of those claims denials are not avoidable. So what are some of these claims denial management strategies you can use before submitting claims?

Registration and patient access staff

Ensure your registration and eligibility screening process are working properly. Get a sense of the reasons for denied claims for lack of correct insurance coverage or other health plan coverage. Do a root cause analysis if necessary. Are registration staff capturing demographic and insurance coverage before or during the initial visit? Are you using the capabilities of your revenue cycle management or electronic health record systems as extensively as possible? Most modern systems will have reporting capabilities that can be utilized as a part of your denial management process. And many systems have automated eligibility inquiry capabilities that can reduce denials from unrecognized lack of eligibility.

Claim Submission

Strive to get claims accepted the first time they are submitted. This means ensuring that there is no missing or invalid information on claims submitted for payment. Again, analyze why claim denial occurs. Ensure your staff is using every feature of your medical billing software to send clean claims to the claims clearinghouse.

Advance Beneficiary Notices

Deal with claims for non-covered services up front as well. Medicare and other payers have frequency limitations on some types of services. Make sure the staff is completing an Advance Beneficiary Notice with patients before the service is rendered. That way, even if your claim is denied, you can bill the patient for the service.

Prior Authorization

If you need prior authorization for your services, make sure it is requested and in hand before the service. Sometimes, health insurers have been known to issue medical claims denials even after they authorized the service. That said, if a planned service requires an authorization, get one before providing the service!

Medical Necessity

Another issue that a healthcare organization can and should deal with before providing a service is reviewing the medical necessities of the services. Payers like Medicare have Local and National Determinations of medical necessity for a wide range of services. Every specialty physician practice should be successfully identifying the medical necessity of the services they provide.

Medical Coding

Finally, there are medical coding errors. Modern electronic health record systems can assist patient care providers with automated tools to achieve accurate coding of services and diagnoses. Of course, these types of coding systems are only as good as the underlying documentation entered by the provider. But they can be an improvement over manual processes.


And now for the Harder-to-Reach “Fruit”

If you are having claims denied, what now? Well, now you are stuck making your way through a claims appeals process.

Appealing denied claims

All payers will send an explanation of payment or remittance advice. Find the claim adjustment reason codes on this documentation to see why the health insurance company denied the claim. This code will point you to the reason for the claim denial, and set you on the path for appealing the denial. Is the insurance company asking for medical records? Are they questioning the patient’s eligibility or the medical necessity of the denied claims? Depending on the state, most insurance companies are required to respond to appeals of denied claims, with some including time frames for a response.

Pro tip: don’t just resubmit the claim! Most insurance companies use automated systems for claims processing. When a resubmitted claim is reprocessed, it will likely simply be denied again with the same claim adjustment reason codes.

Keep track of the reason codes, and use them to avoid future claim denials.


Unrecoverable Claim Denials

There are at least three reasons for an unrecoverable claim denial.

Lack of patient eligibility or covered benefits. Payers are very sensitive to the issues of eligibility and covered benefits. While many insurance companies base their marketing on providing “health care”, they really are only financing a defined set of health care benefits to their enrolled populations. Even healthcare organizations like Kaiser, which employs providers and operates hospitals, set limits on the extent of benefits they cover.
Lack of provider eligibility. It is not uncommon that healthcare providers in a group practice setting are not all credentialed with all health insurers offering coverage in the geographic area. Make sure patients are seen by the credentialed providers in the group. This is essential to patient satisfaction.
Untimely filing. All claims denied hurt, but this one is among the most avoidable. Other reasons for claim denials may be somewhat inscrutable, but claims submission timely filing limits are very straightforward. Don’t let this be a reason for missing out on getting your claims reimbursed.


For information related to denial management in healthcare, check out our post on Medical Billing/Revenue Cycle Management in Healthcare Organizations. And remember, applying denial prevention tactics is much easier than all the denial management work after a denial has been received. Find ways to analyze your denial trends, and work to prevent denials as much as possible.

When you need proven expertise and performance

Jim Hook, MPH

Mr. James D. Hook has over 30 years of healthcare executive management and consulting experience in medical groups, hospitals, IPA’s, MSO’s, and other healthcare organizations.