What is denial management in healthcare?

Millions of healthcare claims are denied annually, costing providers billions in lost revenue and expensive appeals. A 2024 survey shows that around 15% of all claims submitted to private payers, Medicare Advantage and Medicaid managed care plans are initially denied. Since most involve charges of $14,000 and above, the stakes are worryingly high. Frustratingly, more than half of these denials are eventually overturned, but not before providers have spent an average of $43.84 reworking each claim. With hospitals and health systems spending almost $20 billion on denial management in 2022 alone, this administrative tug-of-war with payers brings a substantial toll. While some denied claims are valid, there’s no doubt that many are avoidable, as evidenced by the number that are successful on the second try.

This is where effective claim denial management strategies and solutions come into play. Understanding the root cause of denials in healthcare and implementing the right systems ensures that claims are right the first time. This article looks at the importance of denial management, strategies for improvement, and why more providers are shifting from defense to offense by putting automation and artificial intelligence (AI) at the heart of their claims management processes.

The importance of denial management in healthcare

A traditional denial management definition in healthcare might focus on the steps needed to resolve denials after they occur. The reality is much broader. Providers need a proactive strategy that addresses why claims are denied in the first place to prevent them from occurring in the future.

Claims may be denied because the insurer doesn’t consider the treatment medically necessary, believes there’s a cheaper alternative available or doesn’t cover it because the patient’s insurance doesn’t cover it. Sometimes, the culprit is an erroneous billing code or typo. Providers avoid costly and time-consuming rework by ensuring that claims are accurate, compliant, and complete at the start. As denials become more common and costly, streamlining denial management is increasingly urgent.

The provider-payer relationship

One of the major challenges for providers is the shifting relationship with payers. According to a survey by the American Hospital Association (AHA), 78% of hospitals say interactions with commercial payers are getting worse, with 84% noting the rising costs of complying with insurer policies. Providers report spending more time on prior authorizations, yet the growing pile of denials includes pre-authorized services. The pattern of claims being denied and then granted on appeal drains financial resources, delays patient care and contributes to staff burnout.

Moreover, payers have been much faster in adopting AI-based technology, allowing them to process and deny claims at an unprecedented rate. Providers that rely on traditional denial management methods are starting to fall behind.

The denial management process: how it works

Healthcare denial management involves four key steps:

1. Track all claims from submission through final adjudication and identify denials as quickly as possible. Denials should be categorized by type, payer and service to identify trends and understand underlying issues that need addressing.
2. Investigate the cause of each denied claim, such as coding errors, missing documentation or non-adherence to payer guidelines. This stage often involves collaboration among billing teams, coders and clinicians to pinpoint what went wrong.
3. Rework the claim by gathering missing data or documents and correcting errors before resubmitting the claim to the payer for reconsideration. This will also include monitoring the outcome to see if the appeal is successful.
4. Prevent future denials through improvement measures such as staff training, updates to billing software, and ongoing payer policy reviews. A preventive approach ensures claims are managed without a hitch and keeps revenue flowing.

Strategies for effective healthcare denial management

Prevent denials upstream with accurate patient access

Because so many denials originate early in the revenue cycle, patient access should be the first target in any denial reduction strategy. Experian Health’s Patient Access Curator solution uses AI-powered data capture technology to collect and verify patient information in seconds. A single click checks eligibility verification, coordination of benefits (COB), Medicare Beneficiary Identifiers (MBI), coverage discovery and financial information to determine the patient’s propensity to pay quickly and accurately. Staff no longer need to run multiple queries and can have confidence that their claims are built on the correct data.

Watch the webinar to learn how Patient Access Curator shifts denial management upstream and propagates clean data throughout the revenue cycle.

Process denials more efficiently with workflow automation

A second strategy is to automate the denials workflow to alleviate the administrative burden on staff and expedite the appeals process. Denial Workflow Manager automatically identifies denials, holds, suspends, zero pays and appeal status so staff can follow up quickly, without the need for manual reviews. They’ll have the time and intel to rework the denials that are most likely to be overturned, resulting in maximum cash flow. When used alongside ClaimSource®, they can do all this using standardized protocols with claim and denial information on the same screen.

Denial Workflow Manager provides American National Standards Institute (ANSI) reason and payer codes and descriptions so staff know precisely why a claim was denied. Reports and responses can be forwarded to Health Information and Practice Management Systems to facilitate better coordination. The tool also provides advanced analytics to identify trends and inform tactics for further improvement. This significantly reduces the overall time and cost associated with managing denials.

The future of denial management in healthcare

While automation has lifted healthcare denial management out of inefficient manual processes, AI takes predicting and preventing denials a step further. AI Advantage^TM enhances the denial management toolkit with two new offerings:

• Predictive Denials uses the provider’s own claims data from within ClaimSource to identify claims that are most likely to be denied, so staff can step in to take corrective action before submitting the claim.
• Denial Triage analyses and segments denials that do occur so staff can focus on reworking claims with the highest potential for reimbursement.

With these tools, providers can eliminate guesswork, reduce denials and minimize financial losses. But it’s not just about finding more innovative ways of working: payers have already made huge strides in using AI to deny claims at speed and scale. The future of denial management in healthcare will hinge on technology, and providers will need to adapt to keep up with the fierce competition.

Find out more about Experian Health’s Denial Management Solutions and see why they’re top-rated by clients in the 2024 Black Book^TM RCM User Survey.