Several factors are contributing to a rise in healthcare claim denials ranging from baby boomers moving into their Medicare phase to flaws in the Office of the Inspector General audits of hospitals, alleged by the American Hospital Association.  As CFOs know, the process gets more expensive as it gets more complex.  We take a look at claims complexities and some creative solutions in this article.

Healthcare Claim Denials are Rising

The reasons for the increase in healthcare claim denials are complex, so some solutions are getting creative.

Healthcare IT News notes tha “Few hospitals would admit to not having a denials management program, yet one in five claims for services already rendered is denied or delayed,” in an article on “Rethinking Denials Management”.  The “rethinking” part involves questioning whether an “administrative approach” is the right solution.  A better solution, according to the article comes when you realize that “about two-thirds of denials are recoverable, and 90 percent are preventable. The problem is that many provider organizations view denials as a back-of-the-house, patient-handling problem, although studies reveal that 30 percent to 40 percent of denials are attributed to registration errors. Another problem is that denials are often addressed as administrative issues when there are often clinical factors involved.”

Sandra Wolfskill, director of healthcare finance policy at the Healthcare Financial Management Association (HFMA) has some related ideas for CFO level solutions.  Quoted in Healthcare Informatics, Wolfskill sees the problem like this:  “At the high level, CFOs are being challenged by a lot of stress on operating margins, which is another way of saying profitability. Reimbursement rates are declining, in most cases, and so it’s the struggle with ‘How do I bend the cost curve to continue to be viable in this environment where I am seeing payer mix shifts going from the commercial world over to the government world?’”

As to what’s driving these challenges, Wolfskill points to certain trends including the movement of the baby boom generation into Medicare. She observes that hospital profitability “is being influenced by the Baby Boom generation coming off employer-based health plans and moving into the Medicare world, be it through traditional Medicare or Medicare Advantage. There’s also the impact of the changing reimbursement models, whereas we’ve lived in a fee-for-service world, for a very long time, and so the emphasis was on volume, such as how many chest x-rays, how many MRIs, could I do? In the value-based world, we now are confronted with the issue of risk, and if we assume risk in our contracts with our payers, how do we control for that risk and how do we manage that risk?”

RevCycleIntelligence reports that compounding the healthcare claim denials challenges is the finding by the American Hospital Association (AHA) that “hospital audits performed by the federal watchdog “regularly include fundamental flaws and inaccuracies, both in the OIG’s [Office of the Inspector General] understanding and application of Medicare payment rules and in the procedures the OIG uses to conduct the audits,” according to Melinda Reid Hatton, AHA’s General Counsel.

Burden of Compliance, Healthcare Claim Denials

In this chart showing hospitals’ burden of compliance, the expense for “Billing and Coverage” is second highest in this study by the AHA (download full 30 page PDF).

This is especially critical in light of an AHA study showing that hospital systems spend $39 billion annually on regulatory compliance as reported in a related article in RevCycleIntelligence.  The range of compliance mandates is a factor in the cost.  “A review of federal laws and regulations revealed that providers had to comply with 629 discrete regulatory mandates in nine domains as of March 2017. The domains were quality reporting, value-based reimbursement models, meaningful use, conditions of participation (CoP), program integrity, healthcare fraud and abuse, privacy and security, post-acute care, and medical billing and coverage verification.”

That’s a lot of compliance on the plate of a CFO’s collections team just trying to work on reducing healthcare claim denials.  Healthcare IT News suggests that the solution lies in analytics.  “Today, any good denial prevention/resolution process should be grounded in core analytics – using data analysis to determine where the problems lie. Root causes can originate anywhere – from patient access and registration, insufficient documentation and coding/ billing errors to payer behavior and utilization/case management. Once the cause is identified, it must be analyzed to determine which has the greatest impact: a certain physician, service line, or payer; a certain type of code; or a process in need of a redesign in both the clinical and revenue cycle areas. Reducing denials takes an organization-wide effort that must include multiple disciplines.”

And reducing healthcare claim denials can stand a bit of creative thinking.  Looking back to the Healthcare Informatics article we see this suggestion from Sandra Wolfskill:  “The second big challenge is denials. I send claims out to my payers, and do they pay me or do they issue a denial? And how do I mitigate and reduce a number of denials that I have to deal with on a regular basis? We’re seeing some organizations doing some very interesting things. They are having conversations with the payers, and saying ‘If you’re always denying this device, can we come up with way that you can see the patient’s record, in a secure and encrypted environment, and decide right then and there if you’re going to find the medical necessity that you are looking for and you’ll pay it?’ As opposed to, the payers denying it automatically, then the provider organization sends the records, the payer then agrees that it should be paid, and pays it, which takes more time and resources to accomplish. So how can we streamline? How can we cut the cost of transactions and cut the cost of billing and collecting, but also allow the payer to protect their interest and allow us, the hospitals, to be paid appropriately for the things that we do?”

As rules and regulations increase one new solution that may have some merit is the rise of “Physician Advisors to help navigate reimbursement rules. An article in RevCycleIntelligence reports that “CMS and other HHS agencies alone published 49 rules in 2016, leaving providers to read and understand roughly 24,000 pages of health policy, not including the rising use of sub-regulatory guidance that enforces administrative rules”.  Whew.  That’s a lot of reading and interpretation for a physician that is just trying to help patients stay well.  The detailed article documents a number of practices by one of the first Physician Advisors at ProHealth Care in Wisconsin.  Juliet B. Ugarte Hopkins, MD, who herself has been a hospitalist physician, explains in the article that, “Doctors go to school to learn how to take care of patients. They do not go to school to learn governmental and payer rules for things like whether or not billing is appropriate for inpatient. I’m like a bridge when it comes to explaining it to the doctors in a way that they can understand.”

The SSI Group spends a considerable amount of time understanding trends, challenges, and solutions so we can build on best practices into our revenue cycle software suite of modules.  We will continue to report on developments for healthcare claim denials and the impact on hospital revenue cycle teams.