THE TRUTH ABOUT
DENIALS
What Every Manager Should Know about
Denial Key Performance Indicators
January 18, 2013
THE TRUTH ABOUT DENIALS

Learning Objectives
 Differentiate key denial performance indicators
from generic denial performance indicators
 Understand the difference between “hard”, “soft”
and “misclassified” denial codes
 Show why “hard” denials are the “money” denials
and how to prevent and report them accurately
 Describe the difference between denial prevention
and denial processing and why hard denials are
prevented, not managed
 Show the denials on which to focus process
improvement efforts for the greatest benefit
 Demonstrate a full range of revenue cycle key
performance indicators
2
ALL DENIALS ARE NOT EQUAL


Determining the right denial benchmark
to shoot for can be difficult when
standards from industry organizations
range from targets of 5% to <1%.
Experienced denial managers learn that
simply decreasing denial rates doesn’t
always lead to cash in the bank as some
denials represent lost cash while others
represent misclassified insurance.
3
DENIAL MANAGEMENT
MATURITY

The maturity of an organization’s denial management
system will affect the quality of it’s denial processes and
it reporting.
Denial Reporting System
4
PRE-DENIAL PREVENTION
Denial Prevention
Activities an
organization engages in
to prevent denials from
occurring
5
POST-DENIAL PROCESSING
Denial Management System
Processing
Denial Processing
Activities an
organization engages in
once a denial has
occurred
Pt Account/UM
Training
“Soft” Denial Mgmt.
- Resubmission
“Hard” Denial Mgmt.
- Appeals
Data Analysis
- Reporting, Lessons
6
CONTINUOUS IMPROVEMENT
CYCLE
Denial Management System
Prevention
Processing
Pt Access/UM
Training
Pt Account/UM
Training
Technical Pre-Cert
“Soft” Denial Mgmt.
- Resubmission
Clinical Pre-Cert
“Hard” Denial Mgmt.
- Appeals
“OK –to-Delay”
Data Analysis
- Reporting, Lessons
7
DENIAL MANAGEMENT
MATURITY
The figure below depicts
growth in denial
management maturity over
time
Optimized
Reporting
Level
Refined
Reporting
Level
Initial
Reporting
Level
Distinguishes
“Preventable” from
“Unpreventable”
Distinguishes
“Covered” (Payable)
from “Non-covered”
At each level, an
organization becomes
more attuned to what's
most important - Cash!
Denial Rate Includes
all Denials
8
ASSESSING DENIAL MANAGEMENT
PERFORMANCE

Many organizations misperceptions of the
value of denials is clouded by unclear
information. Unclear information can
overstate the impact of reported denials.
9
ASSESSING DENIAL MANAGEMENT
PERFORMANCE

Develop Key Performance
Indicators (KPIs)

Denial KPIs are quantifiable
metrics that benchmark current
denial performance against
desired denial performance. As
such, they should provide
context for your denial
performance reporting by
showing how you compare to
best practice standards. When
determining KPIs, a key
challenge will be deciding which
“best practice” KPIs to
benchmark against.
10
KEY PERFORMANCE
INDICATORS

Develop Key Performance
Indicators (KPIs)
 Denial KPI sources
include:
• Healthcare Financial
Management Association
• American Association of
Healthcare Administrative
Management
• Hospital Accounts
Receivable Analysis
• The Advisory Board
HFMA
HARA
AAHAM
11
KEY PERFORMANCE
INDICATORS

Key Performance Indicators (KPIs)

As the table below illustrates, KPI standards can range from conservative
to aggressive. A key factor in reporting will be whether KPIs include or
exclude unpreventable denials. Since those dollars were never available
to begin with, reporting them inappropriately will overstate patient
access’s role.
Benchmark
Approach
Percentage of Gross
Revenues
Conservative
< 4.00%
Moderate
1.00% - 3.00%
HARA (Mid-Atlantic)
Aggressive
0.08%
HARA (Mid-Atl., 200-399 Beds)
Aggressive
0.04%
Organization
HFMA
Advisory Board

HFMA MAP Keys – What you need to know
12
CORE MEASUREMENTS – HFMA MAP
KEYS

HFMA MAP Denial KPIs

Measure:


Purpose:


Initial Denial Rate – Zero Pay
Trending indicator of % of claims not paid
Value:
Indicates your ability to comply with payer
requirements
 Indicates the payer’s ability to accurately pay the claim


Equation:
Number of zero paid claims denied
Number of total claims remitted
13
CORE MEASUREMENTS – HFMA MAP
KEYS

HFMA MAP Denial KPIs

Measure:


Purpose:


Initial Denial Rate – Partial Pay
Trending indicator of % of claims partially paid
Value:
Indicates your ability to comply with payer
requirements
 Indicates the payer’s ability to accurately pay the
claim


Equation:
denied
Number of partially paid claims
Number of total claims remitted
14
CORE MEASUREMENTS – HFMA MAP
KEYS

HFMA MAP Denial KPIs

Measure:


Purpose:


Denials Overturned by Appeal
Trending indicator of your success managing the appeal
process
Value:
Indicates opportunities for payer and provider process
improvement
 Improves cash flow


Equation:
Number of appealed claims paid
Total number for claims appealed and finalized
15
SUPPORTING MEASUREMENTS

Supporting Denial KPIs

Measure:


Purpose:


Initial Denial Rate – Zero Pay – By Category
 Patient Type
 Service
 Physician/Provider
Trending indicator of % of claims not paid by category
Value:

Indicates trouble areas in your ability to comply
with payer requirements or in the payer’s ability to
accurately pay the claim
16
INTERPRETING DENIAL
REPORTS
 Roughly 25 codes will appear most often on claims
 Of those 25, roughly 1/3 represent lost reimbursement from
payers.
 The remaining 2/3 indicate a lack of coverage and as such
represent a lost opportunity for up-front cash collection!

Some Claims Should be Denied
While every denial is associated with a dollar amount,
not all denials represent lost dollars from healthcare
payers.
 The key to understanding where the money lies is an
understanding of what a denial description
represents. Out of the hundreds of denial codes that
may appear on a remittance advice:

17
INTERPRETING DENIAL
REPORTS

Common Denial Report Definitions




Denials: A claim line item or service line item that
results in no payment including rejected claims
Soft Denial: A temporary or interim denial that has the
potential to be paid if the provider takes effective followup actions.
Hard Denial: A denial that results in lost or written-off
revenue. Hard denials are often tracked in patient
accounting information systems using transaction writeoff codes.
Preventable Denial: A hard denial resulting from
action or inaction on the part of the provider of services.
Preventable denials always involve elective services
that could have been delayed or deferred.
18
INTERPRETING DENIAL
REPORTS

Common Denial Report Definitions

Clinical Denial: Denials of payment on the basis of
medical necessity, length of stay or level of care. Clinical
denials may be concurrent (while the patient is still inhouse) or retrospective (after the patient is discharged),
and typically begin as soft denials. Includes delay of
payment where further medical or clinical clarification
may be required. In such cases, these “payment delay”
denials must be categorized as such.
19
INTERPRETING DENIAL
REPORTS

Common Denial Report Definitions


Technical/Administrative Denial: A denial in which
the payer has notified the provider by way of the
remittance advice process with specific information
describing why a claim item is denied. This is typically
done via remark and/or explanation of benefits reason
codes. Includes delay of payment where additional
documentation including coding clarification, requests for
medical records and/or requests for itemized bills. Like
clinical denials, technical “payment delay” denials must be
categorized as such.
Nearly all patient access denials are technical in
nature.
20
INTERPRETING DENIAL
REPORTS

Commonly Misclassified “Denials”


A special class of “denials” deserve attention because
they don’t represent opportunities for payment from
3rd party payers…. They are actually indications of
non-coverage.
When such services are recorded as payment
denials, the following can occur:
Resources are misallocated in the pursuit of appeals or
recoveries from insurance companies
 Self-pay reimbursement suffers when critical
opportunities for up-front collections are missed
 Customer service suffers when patients are given the
mistaken impression that services will be covered by
insurance.

21
INTERPRETING DENIAL
REPORTS

Commonly Misclassified “Denials”




Lack-of-Coverage Denial: A denial that results when
non-covered services are provided. These preventable
denials are usually the result of insufficient or
ineffective insurance verification.
Unpreventable Denial: Hard denials resulting from the
delivery of emergency services that could not have been
delayed or deferred.
Demand Denial: A claim sent to Medicare specifically for
the purpose of obtaining a denial when a Medicare
beneficiary has signed an Advance Beneficiary Notice
(ABN).
Short Pay Denial: A denial that occurs when the payer
incorrectly pays a claim. Typical underpayment denials
include invalid per diem, invalid case rate applied and
claim paid at diagnosis-related group (DRG) rates in
22
error.
INTERPRETING DENIAL
REPORTS

Commonly Misclassified “Denials”

Rejected Claims: Claims that are rejected by a
payers’ EDI system and returned to the provider
unprocessed. These claims represent non-payment
by the payer unless the provider adds or changes
information to allow the claim to be resubmitted
and adjudicated properly.
23
INTERPRETING DENIAL
REPORTS

Avoid overstating the patient access role


Demand or Required Denials: All denials are not
preventable. In fact, in cases where patients have
secondary insurance, confirmation of denials by the
primary insurance may be required before the secondary
insurer will process the claim.
Expected Non-Covered Service Denials: When
insurance benefits are appropriately verified, patients
may be proactively asked to pay for non-covered portions
of larger claims. In such cases, insurance will be billed in
order for covered services to be paid.
24
INTERPRETING DENIAL
REPORTS

Avoid overstating the impact of denials

While an organization will want to track such denials it is
important to separate these “expected, unpreventable” denials
from the preventable type. Including them without qualification
will overstate both their financial impact and the access
management role.
25
A TALE OF TWO HOSPITALS
• Same Unpreventable Denial Profile – Vastly Different Reporting
Hospital A
Hospital B
$500,000 in Gross Charges
$500,000 in Gross Charges
Denial
Description
Billed
Charges
Action
Denial
Description
Billed
Charges
Action
Pre-Existing
$20,000
Billed Payer
Pre-Existing
$20,000
Ref. to F.C.
Demand Denial
$10,000
Billed Payer
Demand Denial
$10,000
Billed Payer
Non-covered
service
$10,000
Billed Payer
Non-covered
service
$10,000
Payment Plan
Inactive plan
$10,000
Billed Payer
Inactive plan
$10,000
Payment Plan
No authorization
$10,000
Billed Payer
No authorization
$10,000
Rescheduled
12%
Collection
Delay
2%
Accelerated
Collections
Denial Rate:
Denial Rate:
26
A TALE OF TWO HOSPITALS
What’s the Lesson?
Not a penny more came from insurance!
Hospital A
Hospital B
$500,000 in Gross Charges
$500,000 in Gross Charges
Denial
Description
Billed
Charges
Action
Denial
Description
Billed
Charges
Action
Pre-Existing
$20,000
Billed Payer
Pre-Existing
$20,000
Ref. to F.C.
Demand Denial
$10,000
Billed Payer
Demand Denial
$10,000
Billed Payer
Non-covered
service
$10,000
Billed Payer
Non-covered
service
$10,000
Payment Plan
Inactive plan
$10,000
Billed Payer
Inactive plan
$10,000
Payment Plan
No authorization
$10,000
Billed Payer
No authorization
$10,000
Rescheduled
12%
Collection
Delay
2%
Accelerated
Collections
Denial Rate:
Denial Rate:
27
WHERE DO WE FOCUS OUR
EFFORTS?

A tangled web of cause and effect relationships spread the
blame for denials across the revenue cycle. However, the place
to start is wherever we can prevent denials from occurring.
28
FOCUS ON PREVENTABLE
DENIALS

Develop a “zero-tolerance” mindset for
preventable denials

Some issues are totally within the control of an
organization. As previously indicated, preventable denials
are considered as such because they are “avoidable”. They
are caused by either actions or inactions by the provider
organization. Leading organizations ask two key
questions when a denial occurs:
Was the denial preventable?
 How could a preventable denial have occurred if we had the
appropriate processes and controls in place?

29
FOCUS ON PREVENTABLE
DENIALS

Develop a “zero-tolerance” mindset for
preventable denials

Since a zero-tolerance mindset naturally assumes the
denial could have been prevented, process improvement
efforts should focus on breakdowns in denial prevention
processes which usually include:
Communication
 Verification
 Documentation


A zero-tolerance approach to such process breakdowns
ensures that preventable denials won’t occur.
30
FOCUS ON PREVENTABLE
DENIALS

“Zero-Tolerance” in Practice

Examples of zero-tolerance operational practices include:
Policies and training to communicate the organizations
approach to prevention – eliminate excuses
 Controls are established to ensure policies are executed
 Preventable denials are categorized, valued and assigned
 Preventable denials rank as “stand-alone” errors in quality
policies for patient access departments
 Reports indicate that preventable denials are rare and
decreasing

31
PREVENTION FOCUS AREAS
ACROSS THE REVENUE CYCLE

Patient Access - Scheduling


Typical denials
 Inpatient-only procedures performed on an outpatient
basis
 Outpatient procedures performed on an inpatient basis
 Failure to obtain pre-certification/pre-authorization
Scheduling Best Practices
Schedulers are fluent in payer contract requirements
 Non-emergent services are scheduled 12 or more hours in
advance to allow time to obtain pre-certification
 Physician offices are educated that only they can provide the
clinical information that allows hospitals to pre-certify cases.

32
PREVENTION FOCUS AREAS

Patient Access - Scheduling

Scheduling Best Practices (continued)
Surgeries are verified against inpatient only list
 Collect complete information prior to surgery in accordance
with InterQual , Milliman or other criteria
 Medical necessity is validated to prevent ABNs
 Non-certified elective services are delayed
 “OK to Delay” criteria is established with scheduling
providers

33
PREVENTION FOCUS AREAS

Patient Access - Pre-Registration

Typical denials
Pre-certification not obtained
 Non-covered services


Pre-Registration Best Practices
Complete insurance information is obtained
 Specific service line item eligibility is verified manually
when electronic verification systems offer only general benefit
information

34
PREVENTION FOCUS AREAS

Patient Access - Pre-Registration

Pre-Registration Best Practices (continued)
Service line item level insurance verification is performed
(electronically or manually)
 Non-covered services are explained to patients so that
self-pay collections processes can begin
 Voice-certification technology is utilized to support precertification appeals
 Include denied dollar information in registrar quality
reports

35
PREVENTION FOCUS AREAS

Patient Access - Registration

Typical denials
Certification not obtained
 Non-covered services
 Member not eligible


Registration Best Practices
Registration staff is trained to recognize complete
orders
 ABNs are issued
 Registrar is focused on “100% financial
clearance”

36
PREVENTION FOCUS AREAS

Patient Access - Registration

Registration Best Practices (continued)
Service line item level insurance verification is
performed (electronically or manually)
 Address validation performed
 “OK to Delay” criteria is established with
referring providers
 Include denied dollar information in
registrar quality reports

37
PREVENTION FOCUS AREAS

Ancillary Services

Typical denials


Medically unnecessary services
Ancillary Services Best Practices
Ancillary staff are trained to recognize complete orders
 Ancillary staff are trained to issue ABNs
 Ancillary staff are educated about NCDs and can explain
them to patients

38
PREVENTION FOCUS AREAS

Case Management

Typical denials
Clinical information doesn’t support stay
 Clinical information not provided in timely manner


Case Management Best Practices
Contacts every payer for certification of stay
 Provides information to payers in timely fashion
 All denied services are appealed
 Reviews physician documentation for rationale

39
PREVENTION FOCUS AREAS

Case Management

Case Management Best Practices (Continued)
Initiates discharge planning at admission
 Involves attending physicians in appeals
 Is fluent with contract terms
 Responds to clinical documentation requests in 14 days
 Is a member of the denial task force
 Utilize voice-certification technology to support authorization
appeals

40
PREVENTION FOCUS AREAS

Discharge Planning

Typical denials


Untimely discharge resulting in carved out
days
Discharge Planning Best Practices
Discharge Planning is initiated at admission
 Families are advised of discharge options

41
PREVENTION FOCUS AREAS

Health Information Management

Typical denials
Untimely submission of copies of requested records
 Coding discrepancies


Health Information Best Practices
Records are coded in a timely fashion
 Coding quality is validated by an external firm
 Physicians are queried when documentation is unclear
 Physician documentation education is provided
 Assists registrars for ABN purposes
 Is represented on the denial task force

42
PREVENTION FOCUS AREAS

Health Information Management

Health Information Best Practices (continued)
Coding professionals can remove incorrectly posted charges
 Transcription is timely
 HIM is fluent with contract terms
 Responds to clinical documentation requests within 14 days
 Sanctions for incomplete records are extended to unanswered
queries

43
PREVENTION FOCUS AREAS

Patient Accounting

Typical denials
Untimely Filing
 Inaccurate revenue codes due to outdated chargemaster


Patient Accounting Best Practices
Has a designated denial unit with payer-specific appeals
experience
 Rejected claims are corrected timely
 Rejections are investigated and corrected
 Monitors charges that are entered on wrong accounts
 Denied claims are appealed
 Clean claims are rising

44
PREVENTION FOCUS AREAS

Patient Accounting

Patient Accounting Best Practices (continued)
Patient Accounting is fluent in contract terms
 Copies of appeal materials are maintained
 Contract management module is current
 Charge master is regularly updated to reflect current CPT and
revenue codes

45
PREVENTION FOCUS AREAS

Chief Medical Officer

Typical denials


Insufficient documentation to support medical necessity
Chief Medical Officer Best Practices
Has regular contact with medical directors of payer’s with
high denial rates
 Provides physician education to physicians with high denial
rates
 Provides feedback to physicians about clinical denial rates
 Educates physicians about LCDs and NCDs
 Participates in denial appeals demonstrating to CMS or 3rd
party payers the efficacy of treatment or technology

46
PREVENTION FOCUS AREAS

Information Systems

Typical denials
Incomplete interfaces result in incomplete coding transferred
to bills
 Inadequate reporting results in poor denial analysis


Information Systems Best Practices
All information systems modules installed timely
 Ad-hoc reports prepared to assist in denial management
analysis
 Documentation collected electronically
 Contract management system installed and updated

47
PREVENTION FOCUS AREAS

Information Systems

Information Systems Best Practices (continued)
Extract denial information from X12 835 remittance advice
 ABN system integrated bi-directionally
 Information system includes 3-day crossover reports
 Voice certification systems utilized
 Real-time eligibility system utilized with detailed insurance
benefit information
 Physician order and payer authorization are auto-archived to
the document imaging system

48
PREVENTION FOCUS AREAS

Compliance

Compliance Best Practices
Appropriate audits of performance are conducted:
 Remittance Advice Reviews
 Write-off Adjustments
 Zero-Payments
 Registration and Insurance Verification Quality
 Educational programs are offered to employees and medical
staff
 Claims denials are reviewed for potential False Claims Act
potential

49
MORE ABOUT DENIAL KPIS

Benchmarking performance against industry standard KPIs is a critical
component of revenue cycle processing improvement. In this presentation,
we’ve also demonstrated that focusing on the right KPIs is the most costeffective way to implement your denial management program. Focusing on
the right KPIs is also important across the entire revenue cycle.
50
MORE ABOUT DENIAL KPIS
Denials (Net Revenue)
Indicator
Best Practice
 Overall denials rate
< 1 - 3%
 Clinical denials rate
< 1 - 3%
 Technical denials rate
< 1%
 Underpayments additional collection rate
> 75%
 Appeals overturned rate
40% - 60%
 Electronic eligibility rate
> 75%
 Physician pre-certification double-check rate
100%
 Case managers time spent securing
authorizations rate
< 20%
 Total denial reason codes
< 25
51
QUESTIONS
52
CONTACT INFO
John Thompson, PMP, CHAM, CRCR
Principal, Access Management and
Technology Innovation Services
jthompson@coalitionrc.com
(301) 802-3078
53