Close the Loopholes on Outpatient Claim Denials

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Original story posted on: December 9, 2019

Proactive measures in claim denial management can recoup lost revenue.

Unfortunately, the majority of healthcare organizations encounter claim denials on a regular basis, often, habitually. Though claim denials may be an unavoidable reality in the world of healthcare, ineffective claim denials management can result in even more lost revenue.

A 5 to 10 percent denial rate is the industry average; keeping the denial rate below 5 percent is the ultimate objective. Designing automated processes can help ensure that your organization has lower denial rates and healthy cash flow.

Identifying denials and the specific reasons behind the cause of each is the first step toward designing a process to better claim denial management. However, there is no simple formula that can be used to collect relevant data on claim denial statistics. 

Each payer constructs its own policy for denying claims, as well as the communication procedure of the claim denials to the provider. As a result, the industry does not have an established strategy for providers or payers to analyze and generate claim denials data. The considerable differences in how often health insurers deny claims, and the reasons used to support the denials, indicate a severe lack of standardization in the health insurance industry.

It is challenging to decipher payer language when it comes to claim denials due to a lack of consistent standards. For example, two payers could deny the same claim, each using different codes and different methods of communication to inform the provider of the reason.

Potential denials that hospitals are subject to demonstrate that most of them are avoidable. Some examples are:

  • Services not covered by the payer
  • Missing information, such as incorrect patient demographic data and technical errors
  • Duplicate claim submission
  • Service already adjudicated
  • Lack of medical necessity (CMS NCD/LCD/Payer-Specific Medical Policy)
  • Device-to-procedure edits (device-dependent procedure requiring device C code)
  • Medically unlikely edits (MUEs) exceeded
  • The policy does not cover diagnostic services (benefits/policy coverage issue)
  • Incorrect revenue codes (CPT-to-revenue code mismatch)
  • Implants charged undersupply revenue code instead of implant revenue code
  • Procedure performed is not covered by the pre-certified authorization
  • Claims denied incorrectly

Many of the top claim denial reasons are preventable; however, many providers continue to make the same mistakes. For instance, if the individual reading the explanation of benefits (EOB) doesn’t understand or recognize the error, the provider can lose that revenue as well. Managing claim denials proactively rather than reactively is the only solution. Promoting collaboration through the different departments involved will help foster connectivity of information between the front-end staff and the medical billing teams to minimize specific errors and to ensure that each patient’s plan covers services.

Because a denial affects only one part of the healthcare revenue cycle, often providers will relinquish reimbursement rather than changing processes.  

Prevention of Denials
Focusing on submitting cleaner claims may be the key to overcoming claim denials. Identifying possible denial-causing errors before payers see them will lead to improved and timelier claims reimbursement.

Knowing the payer’s initial claim determination could result in a more successful response. Assuming the patient demographics are correct, the insurance information is accurate, the patient is eligible for coverage, and all pre-certifications and authorizations were obtained, there are other common errors for which to check. 

Claim rejection checklist:

  • Correct procedure/service code
  • Correct revenue code
  • Appended modifier, if appropriate, including anatomical and outpatient therapy modifiers
  • Supporting documentation in reference to the service(s)/procedure(s) and diagnosis(es) reported 
  • Authorizations capture service(s) to be performed
  • The accurate provider is on the claim form
  • No unbundling

The National Correct Coding Initiative (NCCI) identifies edits that ultimately affect claim submission and payment. The Column One/Column Two Correct Coding Edits and the Mutually Exclusive Edits list code pairs that should not be reported together on the same date of service. Under some well-documented circumstances, the provider is permitted to “unbundle” these services by appending the appropriate modifier.

Denials related to bundling issues should be reviewed to ensure that documentation supports the use of a modifier. If so, an appropriately used modifier may reverse the denial.

When the services/procedures performed are NCD- or LCD-dependent, ensure that the presenting sign/symptom/diagnosis is considered medically necessary to cover the service/procedure.  

Denials for “medical necessity” are frequently a result of coding inaccuracy. Correct diagnosis codes are essential, and equally important is validating the coding accuracy of the service/procedure.  

Payer Contract Language
Payer contracts include varying requirements ranging from medical necessity criteria to technical specifications. These small but meaningful differences can make it hard to submit compliant claims. The following are examples of payer-specific billing guidelines and requirements:

  • Evaluation and management codes (facility)
  • Revenue codes
  • Payer denied procedure due to it not being covered in an outpatient setting
  • Worker’s compensation billing guidelines regarding non-coverage of specific diagnoses
  • Payer not recognizing drug administration hierarchy for initial service
  • Payer is requesting RX number, NDC number, unit of measure, and units dispensed
  • Payer considers pelvic and transvaginal ultrasound when done together "a standard of care," without each having a different diagnosis, showing medical necessity for each being done at the same session

Appeal Process
Even the most efficiently administered claim denial management system will most likely never reduce claim denial rates to zero. However, a successful process can make a positive financial impact on this part of the healthcare revenue cycle. 

When implementing an appeal process for claim denials, a provider can work with payers to either deliver the proper information required for claim reimbursement or present their case as to why the claim should not have been denied. If properly structured, providers can recoup lost revenue through the claim appeals process. 

However, an appeal process for claim denials can drain resources and require excessive time. In October 2016, the American Hospital Association (AHA) reported that three-quarters of appealed Medicare claims remained at the administrative law judge (ALJ) level for longer than the 90-day statutory limit.

With resources already stretched to the limit within healthcare organizations, it may behoove them to focus efforts on ensuring that claim submissions are as clean as possible to avoid the resource- and time-intensive appeals process.

The Bottom Line
Taking preventive action to create clean claims and reduce the incidence of denied claims is essential for keeping the cash flowing. Some denials may be inevitable. Still, most are avoidable, so reducing their number is doubly important, because denial is both an interruption in cash flow and a drain on expenses when it must be investigated and corrected or appealed. These claims are far more expensive to process, on average, than the initial claim. 

Given that an ounce of prevention is still worth at least a pound of cure, it can be instructive to explore the opportunities available through preventive action to create clean claims and reduce the incidence of denied claims.

Programming Note:
Listen to Susan Gatehouse report this story live today during Talk Ten Tuesday, 10-10:30 a.m. EST.

Susan Gatehouse, RHIT, CCS,CPC, AHIMA-Approved ICD-10-CM/PCS Trainer

Susan Gatehouse is the founder and chief executive officer of Axea Solutions. An industry expert in revenue cycle management, Gatehouse established Axea Solutions in 1998, and currently partners with healthcare organizations across the nation, to craft solutions for unique challenges in the dynamic world of healthcare reimbursement and data management.

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