More than half of U.S. hospitals reported negative profit margins for 2022, the worst year hospitals have faced since the start of the pandemic, according to Kaufman Hall. Physician practices fared no better, with 90% saying that soaring expenses outpaced revenues last year, a Medical Group Management Association (MGMA) survey shows.
At the same time, private and federal payers are taking longer to process claims, putting pressure on providers to submit clean claims the first time. As a result, a growing number of healthcare organizations are shifting their audit priorities away from a strict focus on compliance toward robust denial management programs that include denial analytics, leveraging a broader expanse of data that allows auditors to uncover sources of persistent errors – certain procedures, coders, providers, specialties, or facilities, etc. – to help boost the bottom line.
The goal of these denial management programs is to increase revenues by identifying errors earlier in the process, maintaining good relationships with coders and providers, and maximizing revenue flow to hospitals and practices.
Denial Trends Reveal a Need for Immediate Action
From 2021 to 2022, claim denials increased across professional (+2%), hospital inpatient (+9.6%) and outpatient (+6%) claims, according to the MDaudit Annual Benchmark Report. Time to initial payer response to claims also increased: three days for professional claims, four days for hospital outpatient claims, and 6.5 days for hospital inpatient claims. For those claim categories, the average response time is three business weeks, which makes denials a costly proposition.
The cost of each denial is significant, averaging nearly $300 for a professional claim, $600 for hospital outpatient claims, and $5,800 for hospital inpatient claims. One in eight professional visit claims are denied, as are more than 25% of hospital claims. Top reasons for denials include claims submission and billing errors, duplicate claims, bundling issues, and pre-certification or pre-authorization problems.
While having a denial management strategy is important regardless of payer, organizations should pay particular attention to Medicare claims, which comprise 82% of all denials. Inclusive of medical review, federal auditing programs return $8 for every $1 spent, so it’s unlikely efforts to ensure the accuracy of claims will subside. In fact, the federal Health Care Fraud and Abuse Control (HCFAC) Program and the Medicaid Integrity Program are receiving nearly $2.5 billion in FY 2023, an $80 million increase from the previous year.
In September, BlueCross BlueShield of Tennessee agreed to repay overpayments in the amount of $7.8 million on 210 of 270 Medicare Advantage claims the Department of Health and Human Services (HHS) Office of Inspector General (OIG) audited for 2016-2017. The following month, the OIG published a report accusing the Highmark Senior Health Plan of receiving $6.2 million in overpayments from the Centers for Medicare and Medicaid Services (CMS) for MA beneficiaries.
While the OIG’s current focus is on health plans, there is no doubt that those payers will turn to their providers to recoup their losses due to improper reimbursements. That is in addition to the slow-down in response times to claims filed.
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.
Risk-Based and Prospective Audits Can Reduce Denials
Historically, most audits were retrospective, examining adjudicated claims data to determine what providers and coders could have done differently to maximize the claim value without overcoding or undercoding. Since the claim had already gone to the payer, denied claims would have to be reworked, a manual and time-consuming practice. Things began to change in recent years, when a growing number of organizations began to focus on prospective audits, which identify and correct errors before claims leave the facility or practice.
On one hand, by uncovering the source of persistent errors through retrospective audits, affected coders and providers could receive education on the proper rules regarding the coding errors, which improves the quality of future coding.
On the other hand, while prospective audits can catch any errors that could result in a denial, holding up every claim would severely impact revenue.
“The correct strategy is to use both methods to maximize the utility of auditors while keeping a firm grasp on a facility’s finances,” says Dana Finnegan, Director of Market Strategy for MDaudit. “Benchmarking data shows that organizations deploying both auditing methods achieve better outcomes.”
According to MDaudit analysis, prospective audits increased by 31% in 2022, compared to 2021. The correct ratio of risk-based to prospective audits will vary by organization and the issues uncovered, but a 50/50 mix would not be surprising.
Let’s take a large group practice. Using data analytics on retrospective claims data can identify the outlying diagnosis codes, facilities, physicians, and coders that are causing denials. Audit staff are used strategically to tackle these outliers in order of largest missed revenue opportunity, uncovering the source of issues and providing education and coaching to relevant staff. Going forward, auditors can prospectively focus on this subset of codes, coders, and providers to monitor performance while also doing routine audits of providers and coders across the organization.
Single Platform Tracks Denial Management Activities
Audit functions such as denial management using disparate spreadsheets and manual processes won’t achieve the revenue gains that providers need, nor will it protect an organization from an increasing number of federal audit initiatives. Ideally, providers need a single platform that delivers workflow automation, risk monitoring, augmented intelligence, and built-in analytics and benchmarking capabilities.
End-to-end denials analytics technology can pre-emptively protect against revenue leakage by identifying and resolving systemic risks based on historical data and applied insights. Providers can reduce claim denials by proactively addressing issues through a closed-loop feedback process among insights, actions, and outcomes to manage high-impact denials and improve overall revenues.
Take a deeper dive into the impact denials have on an organization, and how you can approach denials through this powerful webinar, Best Practices for Strengthening Revenue Integrity in 2023.
