3 reasons claims denials are on the rise

The COVID-19 pandemic has introduced countless complications and challenges to the healthcare industry over the past two years.

From our own data, we’ve seen a rise in telehealth, delayed care and provider burnout.

Now, we’re also seeing an increase in claims denials.

Medical claims are one of the most important pieces of healthcare data around. Healthcare organizations mine the detailed diagnosis and procedure information to inform commercialization decisions, increase sales, improve health outcomes and more.

Perhaps more importantly, medical claims play a crucial role in a healthcare provider’s revenue management cycle. An accurate, up-to-date and complete claim can be the difference between reimbursement or a claims denial and audit.

Like the other trends, claims denials were growing before the onset of COVID-19, with one-third of respondents from a Fierce Healthcare poll saying their hospital had exceeded the “denials danger zone” of 10%.

The pandemic, however, has intensified the issue, and claims denials may continue to rise as the healthcare ecosystem changes.

What is a denial of claim?

A medical insurance claim denial occurs when a health insurance carrier or provider rejects an individuals’ request for them to pay a medical bill. The payor first receives the request and then determines whether it’s payable.

Claim denials can be quite costly and cause revenue leakage. In fact, Change Healthcare found that each denied claim cost about $118, contributing to about $8.6 billion in appeals-related administrative costs.

The average claim denial rate typically falls between 6 and 13%. Healthcare providers consider a rate above 10% the “denials danger zone.” Change Healthcare found a claims denial rate of 11.1% upon the first submission through the third quarter of 2020.

And interestingly, claims denial rates were highest in the Pacific Coast and Northeast, where there were the highest first waves of COVID-19. Both regions reached 13% claims denials on the first submission in 2020.

Definitive Healthcare data shows 3.9% denial of Medicare inpatient claims and 1.8% denial of Medicare outpatient claims.

Change Healthcare found that 86% of denials are potentially avoidable. It also found that providers do not resubmit 65% of denied claims.

So, if most denied claims are avoidable, why are claims denials on the rise? Let’s explore three reasons:

1. Increased workload and shortage of staff
2. New documentation
3. Backlogs of procedures and claims denials

1. Increased workload and shortage of staff

First up: increased workloads and a shortage of staff have contributed to the rise in claim denials.

We’ve all felt an enormous amount of pressure and stress caused by the pandemic. Healthcare professionals, many working on the front lines during the height of COVID-19, have been impacted the most.

This has created two major problems: there’s too much work that needs to be done, and not enough people to do it.

In particular, healthcare providers’ workloads have exceeded limits throughout the past few years of the pandemic. Increased workloads could leave more room for mistakes. In fact, a study published in the Journal for Healthcare Quality found that heavier workloads led to more medical errors.

Additionally, due to the immense pressure and stress of the pandemic, many healthcare professionals have left their positions, leading to a physician shortage.

Increased staff attrition rates, coupled with reprioritization during the pandemic, also likely contributed to a disruption in training available to employees. This is significant, as ongoing employee education is a vital element of effective claims processing. Constantly changing staff may also make it harder to maintain standards across work.

This has made hiring, training and retaining qualified employees difficult. Since claims processing is complex, it’s beneficial to have expert-level employees and ongoing education to keep up with shifting standards.

Combined, workload and staffing shortage problems have created an incredibly difficult labor market for healthcare professionals and organizations to navigate.

With challenges, however, come opportunities for improvement. Healthcare organizations can support their staff by balancing their workloads, hiring enough employees and providing ongoing training. These steps may, in turn, reduce the amount of claims denials.

2. New documentation

New documentation is another reason claims denials have increased.

COVID-19 introduced new claims, codes and procedures, all of which required strict documentation. The adoption of telehealth added unique intricacies and ambiguities to the already complex healthcare industry. As a result, there were widespread documentation errors because of these changes.

Hayes, a healthcare technology company, found that an astounding 40% of claims related to COVID-19 care were denied in the first ten months of 2021.

Hayes’ analysis showed the top reasons for the denials include:

• No documentation
• Secondary diagnosis/documented but not billed
• Additional information needed

It’s not just new technology that can be problematic. New procedures can also lead to increases in claims denials.

Take, for example, COVID-related antibody tests. Healthcare professionals often used pre-existing CPT codes to code the tests. Mispayments occurred because payors were paying below Medicare’s set price, leading to as high as 43% improper denial or mispayment rate in 2020, according to XIFIN data.

To reduce claim denials in the future, it’s critical for providers to stay current with changes to regulations, claims processing and procedure guidelines.

3. Backlogs of procedures and claim denials

Backlogs of both procedures and claims denials are a third reason claims denials are rising.

For much of the pandemic, there were delays in non-emergency elective surgeries, causing a backlog of surgeries. Most healthcare facilities are back up and running as usual now, so they are working through the build-up of rescheduled procedures.

This is easier said than done, of course, as healthcare facilities must also tackle the physician shortage and burnout while handling new surgical procedures. Completing the backlog could be problematic.

McKinsey describes four ways healthcare providers can work through their backlogs more efficiently and effectively:

• Manage capacity and predict future patient demand by leveraging analytics
• Improve operational efficiency by transforming inpatient and operating room throughput
• Decrease unneeded care deferrals and instill confidence by engaging with patients and providers
• Increase effective capacity in optimization of current resources

While these measures can help, it can still take a long time for some practices to catch up. Our data shows that, depending on the specialty, it can take months to years for a healthcare provider to work through their procedure backlog.

With a backlog of procedures comes a backlog of claims denials. Once these denials start to pile up, it makes it even more difficult to efficiently work through new denials coming in.

Over the next few months and years, providers can implement medical devices, technologies and methods to efficiently work through their backlogs. In turn, less backlog will likely help reduce claim denials.

So, what can be done about rising claims denials?

Now that COVID-19 is becoming endemic and we’re reaching some level of new normalcy, there are a few things to consider in preventing avoidable denied claims.

First, unified corrective action plans can help manage coding, auditing and denials. By implementing these plans, providers can address compliance risk and revenue risk.

In addition, it would be beneficial to build out denials resources. These resources might include continual education for employees, analytics, implementation of advanced technology and appeals expertise.

Lastly, healthcare providers can work to prevent claims denials by improving claims screening, increasing communication across teams, building payor relationships and identifying at-risk areas, like areas related to COVID-19.

Learn more

As we progress through and past the COVID-19 pandemic, there will surely be more lasting effects on the healthcare industry. Healthcare commercial intelligence can give you insights into the most current industry trends and developments.

To explore more about how you can leverage Definitive Healthcare’s intelligence to create new paths to commercial success, start a free trial.