How to Reduce Claim Denials and Automate Revenue Cycle Management: A Step-by-Step Guide

Balancing patient care with cost control is always challenging. This guide will help you understand denial management, reduce denial rates, and automate your revenue cycle management. Plus, discover expert tips for boosting revenue and streamlining operations.

In this article, you will find:

• An overview of the denial management process
• Common reasons payers deny claims
• Two types of denials in RCM
• How to automate denial management
• Effective strategies of denial management in RCM 
• How MedCare MSO can reduce you denials rate by up to 1.2%

Understanding Denials in Revenue Cycle Management

Denials in revenue cycle management happen when an insurer rejects a healthcare provider’s claim, meaning the provider doesn’t get paid. However, with strategic denial management, providers can resolve and prevent these denials, ultimately maximizing revenue.

Revenue cycle management is how a healthcare organization handles financial transactions for patient services.

Efficient RCM is vital for healthcare organizations because it supports their financial health and involves multiple departments, including patient registration, billing, and payment collection. RCM goals are to maximize revenue, reduce errors, and maintain compliance.

10 Common Medical Coding and Billing Mistakes That Lead to Claim Denials

Let’s explore what potential reasons lead to claim denials in your revenue cycle management: 

1. Claim Not Specific Enough

Each diagnosis must be coded with the highest level of specificity using the full number of digits for the code. For example, ICD-10 codes include anatomical locations and laterality (right or left side), which must be reflected in the claim. Always ensure that the most specific code is used to avoid denials. This helps prevent confusion and ensures accurate billing.

2. Missing Information

Claims may be denied due to missing details such as the date of accident, medical emergency, or onset of symptoms. It’s important to double-check all fields on the claim form to ensure nothing is omitted. Make sure supporting documentation, such as medical records or incident reports, is included when necessary to provide a complete and accurate claim submission.

3. Timely Filing

Claims submitted outside of the required time window are often denied. For Medicare, claims must be filed within 12 months of the service date. Payers have specific deadlines, and it’s crucial to verify each payer’s timely filing requirements to ensure claims are submitted on time. Even if submitted before the deadline, claims received after the cutoff date may still be denied.

4. Incorrect Patient Information

Ensure the patient’s name, date of birth, sex, and policy number are accurate when submitting claims. Incorrect or incomplete insurance details, including group numbers and patient relationship to the insured, can lead to denials. Double-check that the correct insurance is listed, especially if the patient has multiple insurance policies, and ensure the diagnosis matches the procedure performed.

5. Coding Issues

Using outdated coding books or incorrect codes can result in claim denials. It’s essential to use up-to-date resources like CPT, ICD-10, or HCPCS codes to prevent billing errors. Claims should only include services documented in the patient’s medical records. If the service isn’t documented, it will be considered as not performed, and reimbursement may be denied.

6. Duplicate Billing

Duplicate claims are often the result of human error, such as resubmitting a claim instead of following up on a previous one. A claim may also be duplicated if a procedure is canceled but not removed from the patient account. Claims systems are programmed to detect duplicates, so it’s important to review all claims carefully and use proper coding or modifiers when submitting services that might appear to be duplicates.

7. Upcoding or Unbundling

Upcoding is the practice of using a higher-paying code than what was actually performed, while unbundling refers to billing separate codes for services that should be grouped together. Both practices are illegal and can result in severe consequences. Understand the correct use of CPT codes and modifiers to avoid fraud, and ensure services are billed according to established guidelines to remain compliant.

8. Insufficient Documentation for Medical Necessity

Medical necessity is a key factor in claim approval, and insufficient documentation can lead to denials. Payers, including Medicare, often require additional medical records, such as physician notes or diagnostic reports, to support the necessity of the services provided. Always ensure that each element of the patient’s medical history is documented and that records justify the level of service billed.

9. Referral or Prior Authorization Needed

Certain services or procedures require prior authorization or a referral from a primary care physician before submission to the payer. It’s important to understand the difference between a referral (issued by the physician) and prior authorization (issued by the payer) and obtain both when required. Even if prior authorization is obtained, the claim must meet medical necessity, be submitted on time, and be filed under the correct provider for reimbursement.

10. Services Not Covered or Coverage Terminated

Eligibility verification is crucial to ensure that services are covered under the patient’s insurance plan. Always confirm that the patient’s insurance coverage has not expired, and check if there are any service caps, such as for physical therapy or behavioral health. Verify eligibility before services are provided, and make sure to include any necessary prior authorization or supporting documentation for covered services to avoid denials.

Types of Denials in RCM

Denials in revenue cycle management can broadly be classified into two categories: hard denials and soft denials. While some professionals refer to these categories as “clinical,” “technical,” or “administrative” denials, the more practical approach is to focus on how these denials are handled, based on their severity and potential for appeal.

Though terminology may vary, the core distinction lies in whether the denial can be resolved with additional documentation and correction or whether it requires a formal appeal due to its final nature.

Comparison of Hard vs. Soft Denials in RCM

Denial Type	Hard Denials	Soft Denials
Definition	A firm refusal to pay a claim that requires a formal appeal for contesting.	Temporary denials that can be corrected and resubmitted with additional info.
Nature	Typically due to issues such as lack of pre-authorization, non-covered services, or filing errors.	Caused by administrative or procedural errors that are easier to resolve.
Process	Requires a more formal and often lengthy appeal process, with high chances of abandonment.	Can be resolved quickly by submitting correct information or documentation.
Subcategories	Includes preventable denials (due to errors or omissions) and clinical denials (due to clinical reasons like lack of medical necessity).	Often arises from missing or incorrect information (e.g., coding errors, eligibility issues).
Resolution	Difficult to resolve and often leads to lost revenue if not handled promptly.	Can be corrected with proper follow-up and resubmission, improving reimbursement chances.

Effective Strategies for Denial Management in RCM

A strong denial management strategy reduces claim denials and improves revenue cycle efficiency. Establishing a dedicated denial management team, tracking performance metrics, and addressing issues early can significantly lower denial rates.

• Aim for Minimal Denials: Preventable denials stem from avoidable errors in the revenue cycle process. Organizations that treat denials as rare exceptions rather than routine occurrences often maintain denial rates below 5%—some even as low as 2%. A proactive approach ensures errors are minimized at every stage.
• Set Industry Benchmark Goals: Tracking key performance indicators (KPIs) like denial rate, overall claim denial percentage, and denial resolution time helps organizations assess and refine their denial management process. Meeting or exceeding industry benchmarks ensures efficiency and financial stability.
• Address Denials Early: Denials can surface weeks after a patient visit, meaning the same issue may have affected multiple claims. Immediate action prevents repeated mistakes and speeds up resolution. If clinical input is needed, engaging providers early improves accuracy and response times.
• Monitor Denial Management KPIs: Denial management involves multiple departments, each contributing to claim approvals. Monitoring KPIs at every stage of the revenue cycle ensures accountability and continuous improvement. When all teams meet their respective benchmarks, the overall denial rate remains low.
• Use Denials as Learning Opportunities: Each denial highlights a potential gap in processes like patient eligibility verification, prior authorization, or credentialing. Reviewing denial patterns helps identify areas for improvement, strengthening prevention strategies and reducing future denials.

Key RCM Denial Management Benchmarks and Standard Targets

In revenue cycle management, professionals use specific benchmarks to evaluate the effectiveness of denial management processes. These benchmarks help organizations understand their performance and identify areas for improvement. Below is a table outlining key RCM denial management benchmarks along with their standard targets:

Benchmark	Description	Standard Target
Claim Denial Rate	Percentage of claims denied by payers. A lower rate indicates better performance.	5% or less
Net Collection Rate	Percentage of claims reimbursed after accounting for denials, adjustments, and write-offs.	At least 95%; ideally 97% to 99%
Clean Claims Rate	Percentage of claims submitted without errors that are accepted and processed on the first submission.	98%
Days in Accounts Receivable (A/R)	Average number of days it takes for a payer to reimburse a provider for services rendered.	30-40 days or less
Denial Resolution Time	Average number of days taken to resolve a denial.	85% of denials resolved within 30 days

These benchmarks come from the Healthcare Financial Management Association (HFMA), which helps healthcare finance leaders manage the complexities of the healthcare industry’s financial framework.

MedCare MSO Employs The Right Technology Solutions for Denial Management

You don’t have to manage RCM denial processes alone. Trust MedCare MSO’s advanced solutions to reduce your denial rates and recover revenue that might otherwise be lost.

MedCare MSO offers customized, comprehensive denial management strategies for every client and scenario. Our thorough approach addresses denial issues and enhances your current processes, preventing future denials from reoccurring.

We utilize advanced tools and technologies to prevent claim denials. For instance, we employ claim editor or “claim scrubber” software to evaluate professional and institutional claims from the payer’s perspective. This technology integrates a medical necessity database to identify missing codes and detect frequently overlooked complications, especially in large, complex records. Our solutions conduct thorough edits, including diagnosis, procedure, and medical necessity code checks, along with technical and file format edits.

Additionally, we use medical claim scrubber solutions that automatically pair ICD-10 diagnosis codes with the appropriate CPT/HCPCS codes, ensuring compliance with national coding standards and guidelines. Code check software and encoders further enhance accuracy and efficiency, saving both time and money by providing one-click validation for precise code usage.

Here’s how our IMMP strategy ensures a comprehensive approach to denial prevention:

• Identify: When a claim is denied, we immediately review the claim adjustment reason code (CARC) in the explanation of benefits (EOB) to understand the cause. Common issues include missing prior authorization, non-coverage, or incorrect patient details.
• Manage: Once the denial reason is clear, we take prompt corrective actions, such as correcting errors and resubmitting the claim. We ensure resubmissions are done within the required timeline to secure payment.
• Monitor: We closely track and categorize denials by type, date, and outcome. By analyzing insurance payers and reasons for denials, we gain insights that help us collaborate with insurers to reduce future denials.
• Prevent: We strengthen pre-billing processes by verifying eligibility, benefits, and coding accuracy before submitting claims. These proactive checks minimize errors and prevent preventable denials.

We have helped thousands of practices identify and overcome their unique workflow challenges, achieving industry-leading denial rates, with some even reaching as low as 1.2%. Yours can be next. Get in touch.