Want to Reduce Denials Among Healthcare Claims? There’s a Workflow for That

Healthcare organizations are always looking for ways to save money — so what if they could retain 15%-25% of overall revenue? It’s possible, using workflows designed to resolve issues in billing and coding before claims are submitted.

According to MDaudit research, claim denials increased across the board in 2022, both in terms of number of denials and the average amount of each denial. More than half of denied claims are never reworked – translating into $3.5 billion left on providers’ tables – and the price tag is hefty for those that are. The average cost to rework a claim is $25-$31. Consider the number of denied claims in a month and multiply that number by $25 to get a rough estimate of the additional funds your organization is spending to rework claims.

Denied claims also reduce revenues and drive up days in accounts receivable (A/R days) for those claims that are approved following the initial denial. Thus, the key to preserving revenue integrity is to avoid denials in the first place, putting into practice workflows that allow auditors to prospectively check claims before they are submitted.

Claim denials and amounts increase across the board

Claim denials increased from 2021 to 2022 across professional (+2%), hospital inpatient (+9.6%) and outpatient (+6%) claims, according to the MDaudit Annual Benchmark Report. Top reasons for denials include claims submission and billing errors, duplicate claims, bundling issues, and pre-certification or pre-authorization problems – all of which could be caught by implementing a prospective auditing workflow.

A closer examination of claim denials shows that in 2022:

  • 12% of professional claims were rejected, with an average charge of $288
  • 26% of hospital outpatient claims were rejected, with an average charge of $602
  • 27% of hospital inpatient claims were rejected, with a $5,810 average charge
  • 10% of telehealth claims were rejected, with an average denial of $280
  • 28% of COVID-19 charges were rejected, with denial increases noted among all claims categories

More denials also slowed response times to initial claims, increasing by three days, from 10 to 13, for professional claims, four days from 11 to 15 for hospital outpatient claims, and 6.5 days from 10 to 16.5 for hospital inpatient claims.

Further, 82% of all claim denials were associated with Medicare, so hospitals and health systems must pay particular attention to workflows around claims submissions to federal payers – who have redoubled their efforts to ensure the accuracy of claims, receiving nearly $2.5 billion in FY 2023 for the federal Health Care Fraud and Abuse Control (HCFAC) Program and the Medicaid Integrity Program. That’s an $80 million increase from the previous year. Inclusive of medical review, Medicare program integrity activities return $8 for every $1 spent, so it’s unlikely the federal government will roll back such an effective program.

To increase the percentage of claims that are paid the first time and preserve revenue integrity, hospitals and health systems must focus strategically on identifying and prioritizing the greatest risk of denials.

Uncover errors that cause denials before they occur

Claim scrubbing software can help organizations improve first pass rates, but such systems use blunt tools that often miss subtleties that can leave hundreds or thousands of dollars on the table in missed reimbursement. The goal is to submit correct and complete claims the first time by reducing errors and uncovering coding trends that can affect similar claims across the enterprise.

Hospitals and health systems should take a three-pronged approach to introducing workflows that identify and prioritize the risk of denials:

  • Use data analytics to uncover trends
  • Audit claims prospectively to reduce denials
  • Use risk-based audits and education to alleviate systemic issues

Examining remittance data with powerful analytic tools can unearth systemic denial trends while monitoring the overall effectiveness of mitigation programs. Audit staff should analyze denials by revenue code, DRG, patient type, procedure code, and diagnosis code to identify root causes. Focusing on denial trends before claims are submitted helps discover high-risk areas of denials and allows issues to be corrected before a denial occurs.

Prospective auditing has caught on as a valuable tool to review and fix charges prior to claim submission. Across our clients, prospective audits increased by 31% in 2022. Prospective audits, which use historic and third-party market data, can be added to existing retrospective audit workflows for providers, coders, and facilities as part of regular reviews.

Risk-based audits can address potential problems before they become more serious revenue and compliance issues. Because the nature of risk changes dynamically, revenue integrity teams should rely on real-time data and analytics to keep pace with changing risk profiles. Across our users risk-based audits increased 28% across professional and hospital billing in 2022. Any risk mitigation program must include appropriate education of providers and coders to reduce future coding errors.

Revenue integrity programs more important than ever

Healthcare continues to feel the impacts of the global pandemic, with more than half of all hospitals reporting negative margins, according to consulting firm Kaufman Hall. That makes establishing and maintaining a robust revenue integrity program a critical success factor for hospitals and health systems.

Using predictive analytics to examine claims before they are submitted can increase revenue while improving A/R days. What’s more, prospective auditing reduces the incidence of errors going forward while promoting consistent claims coding and billing practices.


Dana Finnegan, MDaudit

Dana Finnegan is Director, Market Strategy, MDaudit.