Unpacking the True Cost of Appealed Claims and What Gets Left on the Table

Claim denials are more than administrative hiccups to healthcare providers, it is a drain in revenue, inefficiencies and a cash flow chain-reaction. Most organizations concentrate on cutting the denial and the appeals process, but do not spend any time in measuring what denied and appealed claims actually cost. Even fewer are able to evaluate what is silently left to the table. Ambiguous rejections may reclaim some income, although it is a time taking, labor intensive and capital intensive process with results being very unpredictable. The Journal of Managed Care & Specialty Pharmacy reports that the burden of denied claims totals around $260 billion annually.

In this blog we untangle the cost of claim denials, where the missing revenue is buried in the denial cycle and what are sound strategies to lessen the real cost, and bolster revenue cycle.

Claim rejections are an inseparable part of the healthcare revenue cycle, yet the cost of claim denials along with their causes are terrifying. The reasons are different including eligibility problems and documentation absence as well as coding problems and medical necessity lack.

Denials take two major categories:

• Soft Denials: Temporal and reversible in nature, and may often need further details.
• Hard Denials: The denials that are permanent and cause a loss of revenue.

Although the denial may be overruled by appeal in some cases, the appeal is long, resource-consuming, and not always effective.

The easiest effect of a rejected claim is delayed payment. This has an impact on cash flow and also makes the revenue to be collected over long periods. However the expenses are more than this initial postponement:

Staffing and administrative work: Something that requires research, correction, resubmission, and follow-up due to every refusal does have its price: billers and coders are pulled away by it, performing less constructive tasks.

Technology + analytics: The purchase of denial management tools or clearinghouse also consumes expenses.

Risk of compliance: The likelihood of compliance errors being made is high in constant reprocessing and it can lead to consideration of audits and other penalties.

Patient dissatisfaction: Patients also become dissatisfied when they are unclear on how the bill was calculated after receiving denials. The result of this is either prospective delay or avoidance of payment or even switching practices.

Although it is necessary to appeal declined claims, it is not a free process. The cost of claim denials may have a direct and indirect impact on your overall revenue

1. Labor and Resource Costs

Appeals entail elaborate filing, clinical case histories, telephone calls to insurance plans, and the need to focus on various departments. This is not a difficult task and can take up to 30 to 60 minutes depending on the complexity of an appeal. Consider that the billing department is coughing up hours a day trying to appeal various claims which would be equivalent to taking useful human capital away, which is an indirect effect on the cost of claim denials

2. Lagging Cash Flow

Otherwise, appeals usually make this process last 30-90 days no matter how successful they are. This lag creates havoc in revenue predictions and constrains cash flow, particularly within smaller practices or rural hospitals that depend on steady payments of reimbursement.

3. Low Appeal Success Rates

Every appeal does not result in victory. Actually, the rates of instances of appeal overturn is usually between 35-55 percent depending on the payer and the type of the claims. This implies that as much as sixty-five percent of appeal work done might not be fruitful hence the labor of many hours is spent without gaining a penny.

4. Opportunity Cost

The actual cost of what is not done is frequently great. The hours of time spent overturning rejected claims are hours spent that cannot be used to focus on improved front-end effort, optimal coding, employee training or strategic financial planning. This results in a vicious cycle of pursuing lost money as opposed to avoiding its loss in the first place.

On the one hand, healthcare providers usually appeal high-value claims, as they seem to be more expensive to pursue than their value. Also, low-dollar claims are often written off, sometimes having no legal basis at all. However these little losses accumulate as the cost of claim denials seem to have an impact on the overall revenue

What is left behind can be illustrated by examples

Low-value denials: Claims that are less than $100 are usually unchecked, particularly, in high-intensity settings.

Partial denials: In cases where a procedure is partly paid, the underpaid feature is at times accepted without disputing it.

Bundled services: Wrong bundling of services results in denials which are not considered by many teams.

Secondary insurance claims: They are more complicated and are usually abandoned in case primary insurance is not covered.

To understand the true financial impact, healthcare organizations must consider:

• Denial rate = Total denied claims / Total submitted claims
• Appeal rate = Denied claims that are appealed / Total denied claims
• Success rate = Appeals that are paid / Appeals submitted
• Cost per appeal = Total cost of appeal process (labor, time, tech) / Number of appeals

Example:

• You receive 1,000 denials per month.
• You appeal 400 of them.
• 200 are overturned.
• You spend $100 per appeal.

That’s $40,000 in appeal costs for a $200,000 recovery, a 5:1 return. But 600 denials were untouched, possibly losing another $150,000. And of the 400 appealed, $20,000 was wasted on unsuccessful appeals.

Tracking these metrics is essential to building a smarter, more cost-effective denial management process.

Healthcare providers ought to implement a multi-pronged approach in order to avoid this loss of revenue and to minimize the cost of appeal

1. Front-End Optimization

• Pre-authorizations of eligibility prior to services as rendered
• Proper checking and typing of patient data
• Educating Personnel on documentation and coding standards

2. Denial Analytics

• Use artificial intelligence -enhanced RCM to discover underlying causes and trends of denials.
• Establish denial dashboards in order to track payer performance and employee error.

3. Prioritize Appeals Strategically

• Expend efforts on high value denials or denials with high past denial success rates.
• Establish absolute limits of appeal vs. write off.

4. Build Strong Payer Relationships

• Arrange payer- provider reviews on a regular basis.
• Alternate negotiate specific contracts, or better terms with regularly refused services.

5. Leverage Outsourced Expertise

The process of appeals can be simplified and advanced analytics can also be used by RCM consultants and third-party denial management vendors to collect more revenue at a faster rate.

Making appeals to overturned claims is a must the cost of claim denials might be more costly than many healthcare providers are aware. But the real risk is the stuff that is left behind: unworked denials, dime-sized losses, and untapped rejections.

Not only can healthcare organizations recover their lost revenue by identifying all costs involved and taking proactive and data-driven initiatives, but also by enhancing their financial criteria and making their healthier. The point is not only to struggle against the denials but to avoid the occurrence of the same.

And once you are prepared, access the proactive denial management strategies with experts like BillingParadise and establish an approach that encourages cash flow and staff productivity, that is when you need to do it.