Optimal MD Solutions

Physician Billing & Management Service

Mission Critical: Developing a Claims Denial Management Strategy

As any seasoned practice manager knows, medical claim denials are more than an annoyance; they can break the back a practice’s financial stability. The AMA’s Heath Insurer Report Card showed that in 2009, Medicare denied 4% of all submitted claim lines, and private insurers had an average denial rate of 2.8%.

Don’t think 4% sounds tragic? Let’s look more closely: A hypothetical group practice has 10 physicians, each generating $250,000 in net revenue per year. Accepting a loss of just 3% slashes $75,000 from the practice’s annual revenue. And this example assumes that all claim line items have an equal value, which we know is never the case. In fact, billable charges with a higher dollar values are denied most frequently. This further inflates the total loss to the medical group. Unless you’re Berkshire Hathaway, an annual bleed rate of $75,000/year will put your business under before you know what hit you.

These days, a medical practice’s operating expenses easily exceed 50% of its total revenue. With thin margins defining the financial success or failure of a group practice, you have to develop an aggressive denial management strategy.

Adopting a Claims Denial Management Strategy may sound complex and time consuming, and yes, there is effort involved in setting one up. However, a streamlined plan can establish a more efficient billing and collections process that is worthwhile and pays huge dividends.

Here are six easy steps to managing the process in your practice:

  • First, put someone in charge. You will need a responsible party who knows what to look for, where to look for it, and how to address the problems. This supervisor might assign tasks to other staff members, but she will keep tabs on the big picture.
  • Standardize the way denials are posted in your accounts. Data entry personnel often record denials as contractual adjustments, annihilating all opportunity to find and correct problems. With standardized posting procedures, you can pull meaningful reports from your practice management software and identify denied line items.
  • Create a denied claims log. This will serve as the starting point for the denial management process. From here, you can track claim numbers, dollar values, corrective measures, and the dates of resolution. Some practice management software products will automate this process, or it can be done manually. Bottom line: It should be done.
  • Track denial reason codes. To reduce denial occurrences, your practice must understand the causes. Are claims denied due to timely filing limitations? Are patients out of network? Were services considered medically unnecessary or uncovered?
  • Take corrective measures, also known as closing the loop. Many claim denials are caused by errors at the practice level. For example, missing modifiers, unbundling, inadequate documentation, mismatched age or sex with a procedure code, are each denials that can be remedied by educating office staff in coding and billing rules. If the denied claims log reveals that patient eligibility is not verified consistently, changes to your registration process might eliminate this denial. Perhaps you find that physicians are ordering services without authorizations, and lack of authorization numbers are causing claims to kick out. Again, simple physician education and procedural changes will reduce future denials and expedite payment.
  • Embrace efficiency. If your system allows for automation, use it. Electronic tickler files can serve as your denied claims log. The American Medical Association has a Claims Workflow Assistant tool. This is free, and includes appeal letter templates that you can customize to suit your practice’s needs.

Speak with your claims processing clearinghouse. Most offer online access that allows you to monitor your claims traffic. Acknowledgement reports from insurers will let you know when claim batches are received or rejected. Claim scrubbing tools at the clearinghouse or payer level will frequently identify denials and the corresponding denial reason. If your clearinghouse offers “real time claims adjudication,” you can make minor corrections online (changes to an ICD-9 code or CPT code), and immediately resubmit the claim. Why wait weeks for the explanation of benefits to arrive? Handle it on the spot when you can.

Unaddressed claim denials are as serious as the holes in the hull of a ship. Over time, revenue leakage will sink the entire vessel. Using these easy steps, practices can increase clean claims submission and elevate collection rates to help keep the practice financially viable for many years to come.


Author: Melanie Tisman

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