What Is Denials Management?

Medical billing denials management is the process of investigating, analyzing, resolving, and preventing denied insurance claims for medical services provided by a physician or other qualified healthcare professional.

Healthcare professionals send medical claims to healthcare payers, like Medicare or commercial health insurance companies, for payment of medical procedures, services, or supplies. The payer adjudicates (evaluates and determines the outcome for) the claim in a timely manner. If there are no issues with the claim, the payer pays the contracted amount. The provider receives payment, and the healthcare organization gains revenue. When a claim is rejected or a denial occurs, however, the healthcare provider does not receive reimbursement for the medical care provided to the patient.

Common reasons for rejected or denied claims include coding errors, duplicate claims, lack of medical necessity, patient eligibility issues, and insufficient documentation. A high denied-claims rate hurts a physician practice’s financial bottom line because they aren’t getting payment for services rendered. Managing denials to decrease denial rates helps healthcare providers ensure they are billing medical services properly and receiving adequate payment for their services in a timely manner. Effective denials management can significantly improve the healthcare practice’s financial health and patient satisfaction.

Before diving into denials management, it’s important to discuss the terms claim rejection and denial. Different entities may have their own definitions for these terms or use rejection and denial interchangeably. A typical view in the healthcare industry is that a claim rejection is caused by incorrect or missing data and occurs before the claim has been fully processed by the payer; for example, a payer or the provider’s clearinghouse or claims scrubber scans the claim and finds there is no insurance subscriber listed or a Medicare number is invalid, causing a rejection. A denial on the other hand applies to a claim that the insurance carrier processes and deems unpayable. Providers may have to follow one set of requirements for handling rejections and another for denials. An individual responsible for denials management may work on both rejections and denials to reduce delays in claims processing and payment.

What Is the Denials Management Process?

The denials management process in medical billing helps healthcare organizations ensure their medical providers are properly compensated for medical services, procedures, equipment, treatment, and care.

Here are key steps in the denials management process:

1. Understand and identify denials: The first step in denials management is to identify claims that have been rejected due to clerical deficiencies or denied by the insurance company. Most states require insurers to pay claims within 30 or 45 days. Practices should run reports of outstanding claims beyond a set period (such as 45 days), reach out to the payer (using the process outlined by the payer), and inquire on the status of the claim. Many payers have portals providers can easily access to identify a claim, see the status of denials, and either apply the corrections to the claim or start the appeals process. Billers also must regularly check the payer’s explanation of benefits (EOB) and electronic remittance advice (ERA) statements for claims to identify denials and see what caused them.

2. Analyze and categorize denials: Once denials and rejections are identified, practices should categorize them based on the reason. Common categories include coding errors, duplicate claims, lack of medical necessity, or issues with patient eligibility. It’s important to analyze the causes to identify patterns or trends. This helps in identifying systemic issues that are leading to a high number of denials. Many rejections and denials are the result of obvious errors, such as late filing, being illegible, wrong patient identifier information (for example, wrong address, age, or gender), and no preauthorization. Sometimes the issue is just a case of wrong, insufficient, or nonexistent documentation. Errors on a practice’s end are avoided easily by double-checking claims prior to submission.

3. Correct and resubmit claims: After the reason for rejection or denial is understood, the practice corrects and resubmits the claim, if appropriate based on the case and the procedure outlined by the payer. This may involve providing additional documentation, verifying patient eligibility, double checking the payer’s EOB to ensure correct and compliant claims submission, or correcting coding errors such as separately reporting bundled codes or applying incorrect CPT^® codes, diagnosis codes, and modifiers. Payer policies, including Medicare local and national coverage determinations, are resources to peruse for payer coverage rules, including details about medical necessity, coverage limitations, and claim requirements. After reviewing the claim, the medical biller or denials professional makes the necessary changes and may include a documentation addendum before resubmitting.

4. Appeal when necessary: If a claim is denied, the provider must determine if the denial was appropriate and if the claim error was on the provider’s end, so they can correct and resubmit it. An appeal is made if the denials specialist or biller disagrees with a coverage or payment decision. If the claim was submitted correctly and the insurance company should have reimbursed the provider according to the payer’s EOB, then an appeal is necessary. With Medicare appeals, the Social Security Act establishes five levels in the appeals process:

• Level 1: Redetermination by a Medicare Administrative Contractor

• Level 2: Reconsideration by an independent review entity

• Level 3: Decision by the Office of Medicare Hearings and Appeals

• Level 4: Review by the Medicare Appeals Council

• Level 5: Judicial review in a U.S. district court

Medicare has different CMS forms for each level of denials appeals.

5. Prevent future denials: The final step in the denials management process is to use the information gathered to prevent future denials and rejections. This could involve training staff on correct medical coding practices, talking with the provider about improving documentation, or implementing better patient eligibility verification processes at the front desk.

These steps can help improve revenue cycle management and ensure providers are adequately compensated for their services.

How Do Healthcare Claim Denials Affect Medical Practices?

When a claim is denied, the insurance company refuses to pay for the services rendered. For the provider, the financial impact of healthcare claim denials is loss or delay of payment and the additional cost of having to rework the claim. Too many denials will significantly hurt a healthcare providers’ revenue and their patient satisfaction. Here are the ways denials will negatively affect a practice or healthcare organization:

• Lost revenue: The most direct impact on a healthcare practice is the loss of revenue. If a claim is denied, the healthcare provider may not be compensated for their services, leading to lost income.

• Increased administrative costs: Denials also lead to increased administrative costs. The process of identifying, categorizing, analyzing, and appealing denials requires time and resources, which adds to the operational costs of a healthcare provider.

• Delayed revenue: Even if a denial is eventually overturned on appeal, the revenue is delayed. This can impact cash flow and make financial planning more difficult.

• Patient satisfaction: Frequent denials can also lead to patient dissatisfaction. If patients are billed for services that they believed would be covered by insurance and aren’t, having to pay out-of-pocket for healthcare services will lead to confusion and frustration.

Effective denials management helps prevent these issues, making it crucial to maintaining the financial health of a healthcare practice.

What Skills Are Useful in Denials Management?

Denial management requires a combination of detective work and common-sense problem-solving skills. Besides having the ability to process and reduce denials, a big part of managing denials is filing appeals. Anyone speaking with the healthcare insurance carrier regarding a claims appeal — whether it’s a biller, coder, denials manager, or provider — should have the knowledge and detailed information necessary to discuss that appeal and review the operative note or encounter note with the payer. The practice’s representative must be able to understand the rationale for documentation, coding, and billing, and be able to explain why the claim is correct, compliant, and should have been paid and treated differently.

Someone who is managing denials and appeals requires a specific set of skills, including:

• Knowledge of medical coding: Understanding HCPCS Level II, ICD-10-CM, and CPT^® codes and ensuring the codes support physician documentation will help prevent denials due to coding errors.

• Understanding insurance policies: Professionals in this field need to understand different insurance policies, coverage details in the EOB, and the reasons why claims might be denied.

• Analytical skills: The ability to analyze denial patterns and identify systemic issues is important for preventing future denials.

• Communication skills: Strong written and verbal communication skills are essential. Denials managers need to communicate with insurance companies, healthcare providers, and sometimes patients.

• Attention to detail: Given the complexity of medical billing and the potential for errors, attention to detail and investigating the reason for denials will help put an end to unnecessary denials.

• Problem-solving skills: The ability to solve problems and find solutions is important, especially when it comes to overturning denied claims.

• Knowledge of the revenue cycle: Understanding the entire revenue cycle will help to identify where issues are occurring, where the cash flow is bottlenecked, and how to fix it.

What Certifications and Careers Are Available in Denials Management?

In addition to working to resolve and prevent denials, denials management professionals give feedback to staff and providers to improve clinical documentation. The feedback facilitates ongoing documentation improvement to meet all requirements of the medical record and help avoid future denials. There are denials management courses and several certifications to help employees gain denials expertise and specialized knowledge in the healthcare industry:

• A professional coding certification demonstrates proficiency in coding of diagnoses, procedures, and services for physicians and nonphysician practitioners.

• A professional billing certification demonstrates skills related to maintaining various aspects of the revenue cycle, particularly patient and payer billing and collections.

• Inpatient and outpatient documentation expert certifications validate expertise in reviewing inpatient or outpatient documentation for accuracy to support coding and clinical requirements.

These certifications can help demonstrate a job candidate’s knowledge and skills in the area of denials management and appeals, making the candidate more attractive to employers who are hiring for the following positions in the healthcare industry:

• The denials management specialist identifies and analyzes denied claims, works to overturn denials, and implements strategies to prevent future denials.

• An appeals specialist prepares and submits appeals for denied claims. These specialists need to understand the reasons for denials and how to effectively argue why the claim should be paid in accordance with payers’ EOB and ERA statements.

• The revenue cycle analyst analyzes the entire revenue cycle, including denials, to identify areas for improvement. They may work on strategies to reduce denial rates and improve revenue.

• Although the medical coder is not exclusively focused on denials, medical coders play a crucial role in preventing denials. They need to accurately code services to ensure they are billed correctly and not denied by insurance companies.

• The billing manager’s role is to oversee the entire billing process, including denials management. They need to ensure that processes are in place to effectively manage and appeal denials. These roles require a good understanding of medical coding, insurance policies, and the healthcare revenue cycle.

A certified professional specializing in denials management can use their skills to reduce denied claims and increase practice revenue. Their expertise reduces administrative costs and improves reimbursement speed to ensure steady and predictable cash flow. By reducing denials, practices also can improve the patient billing experience, leading to enhanced patient satisfaction, increased patient retention, and referrals.

Last reviewed on Jan. 16, 2024, by the AAPC Thought Leadership Team