Businesses in all industries commonly have trouble collecting on sales, but claims denials represent a special challenge for healthcare providers. It is estimated that between one and three percent of a typical healthcare organization’s revenue is lost due to denied claims. For a $100 million hospital, this could mean losing up to $3 million a year. For the individual or group physician with less bargaining power, the loss percentage could be even greater.
Getting paid for work should not be this difficult, but healthcare economics is fairly complex, perhaps only surpassed by the complexity of medicine itself. In addition, over the past few years, there has been a significant increase in demand in the healthcare industry for increased and higher quality information. This demand comes from a number of sources—including payers, purchasers, patients, regulators and standards bodies. The definition of quality for the information you provide depends on the rules established by those who are demanding the information. To further complicate matters, these rules often change.
This situation is only going to get worse as more attention is paid to accountability, quality and transparency in the healthcare industry. The players are becoming more powerful. Because of this, their information is getting more detailed and sophisticated.
Business intelligence can help. Using the data you already own, and capturing a fairly small amount of additional data directly related to claims denials, can mean the difference between being on the defensive or the offensive. Tactically, this means adding revenue that, in this case, drops right to your bottom line. Strategically, this means having greater control of your sources of revenue and better information to make key investment and operational decisions.
The answer lies in managing your data effectively to slice, dice, sort, sum, combine and distill claims denials for revenue management decision-making purposes.
Revenue Management in Healthcare Provider Organizations
Revenue management in healthcare provider organizations is very complicated. Getting paid for your services involves numerous payers. Such payers include private insurance, governmental agencies, self-insured employers, patients who can pay and those who cannot pay. From an outside perspective, it seems surprising that providers ever make money.
Evidence suggests the following about denied claims:
•Fifty percent of denied claims are never re-filed. This suggests that providers are too busy to work their way through the complexities to get this revenue or that they do not know it can be recovered.
•Ninety percent of denied claims are preventable. This suggests that providers are tripping over the myriad rules imposed by payers without even knowing it.
•Sixty-seven percent of denied claims are recoverable. This suggests that providers can make a profitable difference simply by knowing more about how to manage their revenue.
Here is a short list of problems associated with denied claims:
1.Complicated rules. Every payer has its own set of rules. However, it is not just the number of payers that creates problems. It is also the fact that each one has their own range of products and programs, with different rules applied to that product or program.
2.Ever-changing rules. You cannot simply create a submission form for each product or program for each payer. You must also be ready to respond as the rules change several times per year, driven by new customer groups and the payer’s own financial goals.
3.Pressure-cooker situations. There are time limits for submitting the first claim and for submitting corrected claims. Because the usual limit is sixty days, you should process denials first. This means that other work that adds value to your organization must be put on hold. If you do not process the denial within the sixty-day window, even after spending significant time, money and effort reworking the claims, then it is too bad. You will be out twice (once for the lost revenue, once for the rework effort). Meanwhile, you still have to bear the cost of the service and (very likely) the treatments.
4.Lack of critical information. A denial usually is returned with a simple “no.” It is your responsibility to contact the payer for further information about the denial and how to correctly submit the claim. Even if you receive an explanation with the denial itself, you must search for the required data and hope it was correctly completed by clinicians who treat the patients. These clinicians are not trained in revenue management; consequently, what you are asking them is to provide information that does not fit their operating model, making it even more difficult to obtain the data you require.
Payers and purchasers are growing in size and complexity, and they are banding together to become even more powerful. They all have one goal in mind: to maximize the value of care. This means improving quality while reducing cost, and cost to them means revenue to you.
How Business Intelligence Can Provide Tactical Help
Addressing the problem of collecting and preventing denied claims requires operating with best practices in a number of areas. These areas include policy, communications, education, processes and, of course, data.
Best practices suggest that you need information to analyze and prioritize the reasons for the denials, the revenue impact of those denials, the recovery process effort and the success or failure of those recovery efforts. The ultimate goal is to know enough about the claims you are submitting to be able to predict denials and, therefore, prevent them from happening.
There are many revenue management tools to help your organization handle and resolve denials. Understanding business intelligence principles is essential to effectively use these tools tactically. For instance, the first few questions you should ask about denied claims are:
•What is the volume and dollar value of denials by patient type? Inpatient? Outpatient? Insured? Uninsured?
•What is the volume and dollar value of denials by payer? By payer type?
•What is the volume and dollar value of denials by denial level? Are they at the claims level (complete denial) or at the service level (partial denial)?
•What is the volume and dollar value of denials by reason code? Are there common patterns in the denial reasons so you can group them and fix them en masse?
•How much of this is under your control?
•How much control are you exercising in getting this revenue?
•How can you correct or, better yet, prevent these denials?
Tactically, you can make a big impact for both recovered revenue and productivity just by using this information to improve your claims collection processes. You can use the answers to the questions above to attack the claims denial headache by:
•Identifying and prioritizing issues by dollar value.
•Creating an action plan with goals, roles, responsibilities and success measurements.
•Capturing lost dollars that can be put to more productive use.
•Reducing rework, effort and cost.
•Increasing your responsiveness to changes in claims rules and even anticipating those changes.
As you can see, much of this business intelligence data is information you are probably already collecting and using.
While this is definitely helpful, there is an even better story to tell.
Turning the Tables
Your organization should not just address the claims denial problem and forget about it. Instead, use the data and insights you learned from managing your denied claims to your advantage at the bargaining table and within your own organization’s operational processes. For instance:
•Negotiation support. You are being pressured to deliver quality and cost by those who are buying your services and paying your claims. However, a payers’ quality is judged by how well they pay claims. Denials are costing you money (lost revenue, rework effort, slow receivables) and impacting your reputation. Armed with information about your denied claims and efforts to improve the cleanliness of those claims, you are better prepared to improve the situation. Various questions should be asked at this point. How does their record stack up against other payers? Are they the best or the worst at paying you for the work you do? Is their claims payment performance improving or degrading? This discussion could even precede the more substantive discussion about your rates, performance and quality.
•Streamlining the overall claims process. Understanding the process for getting clean claims through the system can help you streamline your total revenue management process. Are you coding for maximum effect? Are you using the correct modifiers to define the services you provide? Are your claims information-gathering processes clean and efficient? Are you overloading your clinicians with complex paperwork? Are you inadvertently putting your revenue management into the hands of the most junior people on your staff because it is considered grunt work?
By stepping back and looking at your total claims (and overall revenue) picture, you can even exceed the one to three percent in enhanced revenue typically gained by preventing dirty claims.
But Don’t Stop There
In healthcare organizations, like other commercial enterprises, revenue drives everything. By combining your revenue information with other information, you can multiply its value by a magnitude of five (at least). For instance:
•Investment decision support. Having visibility into trends and emerging patterns in revenue helps you decide many things. These include where to locate that next facility, what patient groups it should target and what type and size facility it should be.
•Staffing decision support. Revenue trends also tell you where your strengths are compared to where you want them to be. Consequently, this enables you to determine where to direct your recruiting and development efforts.
•Marketing message support. Revenue defines who you are as an organization, as well as where your organization is going. It is tangible and supports meaningful messages that resonate with payers, purchasers and, of course, patients.
•Operating efficiency analysis. How do you prioritize process improvement efforts? By understanding your total revenue picture, you can use trends to put a value on each proposed project and prioritize them more easily.
•Performance improvement support. The same is true when choosing performance improvement projects.
Having a base of structured data has strategic uses and benefits, which go beyond the direct tactical benefits of simply attacking denied claims. While acquiring this base can involve hard work and additional investments, it pays to be ahead of the curve.
Do not be at the mercy of those demanding information from and about you, whether it be claims information or anything else. Use your information to your tactical and, more importantly, strategic advantage.
In terms of denied claims analysis, begin by looking at what is causing the greatest amount of pain. Once you have completed this, develop a prioritized action plan to produce clean claims the first time. Determine the potential value in increased revenue and cash flow. You can also reduce rework and other value drains. Then look at the various ways you can further exploit your own data to use the situation to your advantage, both tactically and strategically.
Thanks for reading. As always, I look forward to your comments!