Blog Post

Death by a Thousand (Pay) Cuts: The Increase in Payer Denials

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Provider organizations around the country are struggling with increased payer denials, the result of many small changes rather than a single sweeping policy update. In flooding provider organizations with denials, payers have triggered an increase in administrative burden, overhead, and staffing. Senior leaders are facing an inflation in the number of days claims languish in accounts receivable (A/R), waiting longer to get paid despite investing significantly more time, effort, and resources on resolving onerous denials.

The Source of the Increase

In 2018, the U.S. Department of Health & Human Services Office of Inspector General completed a study of organizations accepting Medicare Advantage plans and found that these organizations overturned 75% of initial denials between 2014 and 2016. During the 2015 portion of this study, CMS found that 56% of the audited contracts had issued inappropriate denials. Although overturns are a positive achievement, it is becoming more and more difficult in today’s healthcare environment to understand the root causes of denials and to respond to them in a timely fashion.

The major factors driving the trend in increased denials include:

  • A higher volume of administrative and coding denials.
  • Automated claims adjudication that allows payers to administer increasingly complex payment logic.
  • Ever-changing rules and guidelines around what constitutes a “clean” claim.

So, how did we get here, and what does it all mean?

Increases in denials are the by-product of payers attempting to control costs by increasing their scrutiny of clinical care and process requirements. This scrutinization typically manifests as non–denial codes (e.g., requests for information) that are received and resolved through the denials workflow, ultimately delaying but not denying claim payment. Flooding organizations with such requests increases the administrative burden (e.g., workflow development, system configuration, staffing, printing, mailing) needed to interpret the request, identify relevant documentation, and send the response in a timely fashion. This burden is extended when staff must follow up with payers to ensure provided documents are forwarded to the appropriate department within the organization to continue the claims evaluation process. More than ever, provider organizations are advancing their internal data-analytics capabilities in order to understand payer claims-processing tactics.

Complicating Factors

The trends described above have led to a complex reimbursement environment that is underscored by challenges within individual payer and provider organizations, including suboptimal payer-provider relationships and the use of third parties in the billing and collection process.

Challenges in the Payer-Provider Relationship

Denial follow-up efforts are requiring provider organizations to interact with payers more frequently in order to:

  • Clarify payer billing policies.
  • Process claims appeals.
  • Resolve systematic claims-payment issues.

In turn, payers can be slow to act or unresponsive to providers’ communication attempts. While follow-up efforts proceed at the payer’s pace, the A/R continues to age. These delays can be compounded by payers’ use of third-party claims processors, requiring coordination with the claims processor that ultimately becomes the responsibility of the provider organization. When a health plan delegates financial risk and responsibility to another entity, understanding who is responsible for payment can be confusing. In such a scenario, coordinating communication between all parties becomes critical for assigning true payment responsibility.

Provider Organization Challenges

Revenue cycle organizations have their own challenges, particularly with respect to the use of third parties, which can blur the lines of accountability. Outsourcing arrangements between provider organizations and revenue cycle vendors often lack clarity as to which entity is responsible for identifying denial trends and implementing upstream processes to prevent them. This can lead to limited or delayed action. (A more detailed overview of revenue cycle outsourcing best practices is available here.)

Separate from these challenges, provider organizations may also need to involve individual clinicians or patients in their denial follow-up efforts. Doing so can make it hard to resolve outstanding claims issues due to the difficulty of contacting the appropriate party and/or securing the correct information needed to resolve the issue in a timely way.

Addressing Denials: A Team Effort

To counteract the trend of increased claims denials, leaders from across the provider organization need to partner with each other to develop and execute a coordinated approach. This effort should include leaders from revenue cycle, managed care, and other areas (e.g., information services, business intelligence) working collaboratively to design and implement strategies to reduce, forecast, and proactively avoid denial-related issues.

We will discuss strategies for engaging and operationalizing these stakeholders with key initiatives in a separate post.

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