Knowing the True Opportunity Loss of Denials: Why Does It Matter?
Sept. 22, 2015
By Cory Herendeen and Matt Szaflarski
Hospitals understand that denials represent a significant cause of revenue opportunity loss, but they often don’t know the true extent of the loss and the impact of the most common root causes of denials at their institutions. This nebulous understanding often contributes to an uninformed allocation of resources and a misguided commitment to untenable solutions.
Evidence for this lack of awareness among hospitals was found in responses to a poll at a recent Crowe Horwath LLP webinar, in which 68 percent of respondents revealed that they were not sure what percentage of their organizations’ denial opportunity loss was due to coordination of benefit issues within the emergency department.
Assessing Lost Opportunity
Denial management solutions offered by Crowe link standardized 835 files (payer remittance) with 837 files (electronic claim) and patient accounting data to help organizations identify the sources of systemic denial-related problems, target the problem areas, and, ultimately, reduce the impact of denials on financial performance.
In addition, Crowe has developed a standardized method to help organizations calculate the true opportunity loss of denials. Essentially, the method links fully resolved account data with 835 data to determine the “realization gap” – the difference between nondenied and denied patient accounts. Identifying this gap allows organizations to quantify the opportunity loss on each dollar that is denied.
To help organizations more fully grasp the opportunity loss story behind their denial metrics, Crowe also has mapped the 164 American National Standards Institute (ANSI) standardized denial reason codes into 10 distinct categories and grouped them according to high, moderate, and low risk, based on their potential to decrease net revenue. See Exhibit.
Mapping denials according to these categories can greatly simplify an organization’s efforts to compare denied accounts with fully resolved accounts and identify where most denial-related losses are taking place.
Exhibit: Crowe Denial Mapping
Source: Crowe analysis
Top Causes of Denials
The most recent Crowe® Revenue Cycle Analytics (RCA) benchmarking analysis reveals that an average of 8.1 percent of initial claims receive a denial that affects timely and accurate resolution. According to the Crowe analysis, the three top causes for these denials – authorization/pre-certification, requests for additional information, and coverage and eligibility – account for denials on 5.4 percent of submitted claims.
In addition to volumes of types of denials, the analysis focuses on the opportunity loss associated with these denials. For example, problems with the timely filing of claims (one of the most common causes of denials) are associated with a realization gap of 20 percent, or an opportunity loss of 20 cents on every dollar denied.
Developing Action Plans
Armed with a map of denials according to reason codes and information about the net revenue impact associated with each, organizations can then take action:
- Segment the data to target specific areas of opportunity for improvement, and focus resources in the areas of highest net revenue impact. An example would be the untimely filing of Medicaid claims for radiology services provided by three physicians. Using the 835 and 837 files and patient accounting data allows an organization to pinpoint net revenue opportunities using a variety of variables including:
- Attending physician
- Service location
- Diagnosis/procedure codes
- Denial category
- Prioritize action areas by plotting denial segments according to 1) highest net revenue impact and 2) ease of implementation, factoring in variables such as resources required, cost, and length of time to implement. Denials that have high impact and low difficulty should be addressed first.
- Develop action plans. This includes creating a multidisciplinary denial improvement management committee to oversee the initiatives, identifying significant stakeholders for each action plan and assigning ownership to them, and employing specific initiative trackers for each action plan to monitor progress.
- Track the financial impact of the action plans according to 1) denial prevention benefit: reducing the risk of resolving accounts at lower realization rates and 2) denial resolution benefit: closing the denial realization gap with improved denial resolution practices.
Without a handle on data such as this, hospitals miss out on important opportunities to gain insight and develop workable action plans based on more in-depth probes of denial root causes. By calculating the true opportunity loss due to denials at their institutions and identifying the largest leaks, they can use the data to develop action plans and track the financial impact of denial management initiatives.
The Crowe Revenue Cycle Analytics (Crowe RCA) solution was invented by Derek Bang of Crowe Horwath LLP. The Crowe RCA solution is covered by U.S. Patent number 8,301,519.
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