Denial Management in Healthcare - Definition, Types, and More (2024)

Insurance claim denials can be a huge thorn in the side of any healthcare practice, potentially costing millions if not handled correctly.

This comes as no surprise as health insurance companies are notorious for making providers jump through hoops. With all of the complicated language and endless clauses and obligations to consider, denial management can be a real nightmare!

It doesn’t have to be so difficult though.

We’ve come up with a guide to help you navigate the denial management process and minimize unnecessary costs and labor.

What is Denial Management in Healthcare?

Denial Management is an extremely important part of improving the Revenue Cycle Management (RCM) of any medical practice. Through this process, clinics are ultimately able to improve the quality of services they offer to their patients.

There are four steps to denial management:

1. Identify that a claim has been denied and investigate the root cause of denial.

2. Manage the steps involved in correctly filing, and, wherever possible, reversing denials. This can involve directly routing claim denials, creating standard workflows, and creating specialized online tools.

3. Monitor the denial management process by logging and categorizing all claims and auditing the work of your employees.

4. Prevent or reduce the risk of future denials by revising processes, re-training staff, or adjusting workflows.

To learn more about running a clinic, check out our complete guide to private practice management.

5 Claim Denial Types

There are five main types of claim denials and they involve:

1. Hard denials cannot be reversed and result in written-off revenue or lost revenue. This type of denial can be appealed if it results from some errors.

2. Soft denials are temporary and can be reversed with the right follow-up action. The reasons for soft denials can range from missing or incorrect information to coding or charge issues. This type of denial doesn’t need to be appealed.

3. Preventable denials are hard denials that are caused by the actions of the medical practice such as late submission of claims or incorrect codes.

4. Clinical denials are hard denials that are based on things such as medical necessity or level of care.

5. Administrative denials are soft denials that can be appealed. The insurer provides a cause of denial that can be rectified in some cases.

Claim Denials vs Claim Rejections - What’s the Difference?

Denied Claims

Claims denial is when a claim is received and processed by the insurer but payment is denied. The reasons for this can vary. For example, a claim can be denied because of some critical errors that were initially missed, or be in breach of either patient or provider obligations.

In such cases, it's not possible to simply submit a claim with the correct or updated information. You have to start a denial management process that involves two main steps:

1. Determine the cause of denial. The insurer will usually provide an Explanation of Benefits or Electronic Remittance Advice (ERA) with information on why the claim was denied.

2. Appeal the denial. Once you have determined the reason for the claim denial, you can submit an appeal. You can send back any claim to the payer for additional processing.

Keep in mind that if you resubmit a denied claim without making an appeal, the new claim will be treated as a duplicate and will automatically be denied also. This will only cost your practice more time and money.

Rejected Claims

Unlike denials, rejected claims are not processed and do not need to be appealed. They usually happen when the provider fails to meet the data requirements.

Common mistakes that lead to rejections include clerical errors or mismatched procedures and ICD codes. For example, even if a single digit on the patient’s insurance number is missing or incorrect, the claim will automatically be rejected.

Once the insurer rejects a claim, they will send it back to you, the provider. These claims will not show up on an ERA.

Then, you can correct the mistakes and resubmit the claim without an appeal since it never enters into the insurer's system and won’t be treated as a duplicate.

New to running your own clinic? Make sure to follow our steps for working as a private practice manager!

5 Most Common Reasons for Denial in Medical Billing

#1. Missing Information

Missing information is one of the most common reasons for an instant denial

You have to keep in mind, however, that even filling out the claim form entirely and accurately does not necessarily guarantee that all the necessary information has been provided.

This is because insurance companies usually provide complex requirements that often call for additional information, such as:

• Whether the patient received a referral

• Whether another treatment was attempted prior

• What kind of testing the patient has undergone

To have these types of denials reversed, make sure to send the missing or incorrect details to the insurer as soon as possible.

#2. Typos

Another frequent reason for a denied claim is because of typos. Mistakes such as misspelling a patient’s name, an error in the claim date, or the wrong billing code can cause your claim to be denied.

However, you can appeal these denials and possibly have them reversed if corrections are made quickly.

#3. Patient Obligation

In some cases, a denial is coded as a patient obligation. There are several reasons this can happen and it’s the insurance company that should specify them.

Some of the most common contractual issues include:

• The patient deductible is not met

• A referral was required but not received

• The service is not covered

• It was unclear due to missing information whether the claim was covered

• The claim was made to the wrong issuer

#4. Contractual Obligation

Health insurance companies and medical practices usually have contracts with their own specific conditions and obligations. Failure to meet these are also to blame when claims are denied.

The following are examples of typical issues caused by contractual obligations:

• The claim was filed too late

• The claim was already paid

• The provided services or treatments were unnecessary and their necessity could not be proven

#5. Noncovered or Excluded Procedures

Most health insurance companies don’t cover all procedures and have certain exclusions such as therapies or treatments for pre-existing conditions.

However, these kinds of exclusions are becoming less and less common due to the Affordable Care Act, under which they are obligated to cover 10 Essential Health Benefits.

In case you have such claims that have been denied, they were most likely denied due to an incorrect code or billing mistake, not because the procedures aren’t covered.

Conclusion

Though claims denials can be costly and frustrating sometimes, you can minimize their negative impact on your clinic with effective denial management.

The most important aspect of denial management is following the correct appeal process based on the denial reason:

• Missing Information

• Typos

• Patient Obligation

• Contractual Obligation

• Noncovered or Excluded Procedures

Just keep in mind that you should only appeal (if appropriate) a denied claim that has been processed and deemed non-payable. Meanwhile, you can simply correct and resubmit a rejected claim that hasn’t been processed by the insurer.

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