HI555 Unit 5 Denial Analysis Example

From the Payer's Words to the Hospital's Doors: A Unit 5 Denial Analysis That Re-Sorts 3,970 Claims by Where Each Problem Began

[Student Name]

Purdue University Global

HI555: Revenue Cycle Management

Unit 5 Denial Analysis

[Instructor Name]

[Date]

Bellcourt Health, its claims, denials and every amount are composite; the sources cited are real.

Two Denial Rates, Defined

Denial rates are reported several ways, and the choice changes the story. This analysis uses two for one quarter, both initial rates, meaning denials on first submission before any appeal.

1. Claim denial rate: the count of claims denied at least in part when first sent, over the count of every claim sent that quarter. For the quarter, 3,970 of 41,800 claims, or 9.5 percent.

2. Dollar denial rate: billed charges on those denied claims divided by all billed charges. For the quarter, $38.6 million of $312 million, or 12.4 percent.

The dollar rate is higher because inpatient claims, which are large, are denied more often than clinic claims. Every figure below states whether it counts claims or dollars.

Table One: Denials by the Payer's Reason Family

Payers report denials with reason codes, which group into families. By count of claims:

1. Medical necessity: 1,050.

2. Coding and bundling: 870.

3. Eligibility and registration: 760.

4. Authorization and precertification: 610.

5. Missing information or records requested: 330.

6. Duplicate claim: 150.

7. Timely filing: 110.

8. Other: 90.

Most denial reports stop here. On this table, patient access appears to own the third-largest family and coding the second.

Why Reason Codes Mislead

A reason code describes the payer's objection, not the provider's failure. The authorization family shows the problem clearly. Of its 610 denials, a review of accounts found that 52 percent traced to scheduling and authorization work, where an authorization was never requested or did not match the service; 31 percent to emergency admissions never reported to the payer within the notice window; and 17 percent to payer error, in which a valid authorization existed and the payer failed to match it. One family, three origins, and only one of them in the authorization team.

The same is true of medical necessity denials, which often reflect documentation that did not show what a physician knew, and of coding denials, some of which are payer edits applied in error. Payer review practices, especially in Medicare Advantage, can produce denials for services that meet coverage rules (Office of Inspector General [OIG], 2022), so a share of every family belongs to the payer. Each insurer also writes its own edits and documentation rules, which means the same service can draw different reason codes from different plans (Gottlieb et al., 2018).

A reason code tells you what the payer said; only the account tells you where the problem was made.

Method for Assigning Origin

A random sample of 400 denied claims was read account by account. For each, a reviewer asked at which step the problem was created and assigned one of six origins: patient access and case management, clinical documentation, coding, charge capture and billing, payer processing, or unknown. The share of each origin within each reason family was then applied to that family's full count to estimate origins for all 3,970 denials. Unknown was capped as a design goal at 8 percent and came in at 7.3 percent.

Table Two: Denials by Origin

By estimated count of claims:

1. Patient access and case management: 1,390.

2. Payer processing: 690.

3. Charge capture and billing: 610.

4. Clinical documentation: 520.

5. Coding: 470.

6. Unknown: 290.

Re-sorted by origin, patient access moves from third place to first, with more than a third of all denials. Coding, which the reason families placed second, falls to fifth.

Table Three: What Each Origin Costs

Counts alone do not show what is lost, because some denials are overturned and others are written off. For each origin, the table gives the overturn rate on appeal, average rework cost per denied claim and final write-off for the quarter.

1. Patient access and case management: 38 percent overturned, $42 rework, $4.1 million written off.

2. Payer processing: 81 percent overturned, $35 rework, $0.6 million written off.

3. Charge capture and billing: 70 percent overturned, $30 rework, $0.9 million written off.

4. Clinical documentation: 29 percent overturned, $118 rework, $5.3 million written off.

5. Coding: 64 percent overturned, $55 rework, $1.2 million written off.

6. Unknown: 45 percent overturned, $40 rework, $0.7 million written off.

Net cost, write-off plus total rework, ranks the origins differently again. Clinical documentation comes first, at about $5.4 million, or roughly $10,300 per denied claim, because these denials fall on large inpatient claims and are rarely overturned. Patient access is second in total, at about $4.2 million, but costs about $3,000 per claim. Payer processing generates many denials but loses little, since most are overturned.

Why Dollars and Counts Disagree

Patient access denials are numerous because they arise on every kind of visit, including small clinic claims. Clinical documentation denials are fewer but concentrate on inpatient stays where a missing piece of documentation can cost the whole claim. A department judged by count will focus on registration; one judged by dollars will focus on documentation. The analysis reports both so that each department can see its share honestly.

The Preventable Share

Denials originating in patient access, clinical documentation, coding and charge capture are preventable in principle by the hospital's own processes. Together they make up about 75 percent of denials by count. Payer processing denials are not preventable but are recoverable, and the high overturn rate suggests the appeals team is handling them well. Administrative work of this kind is costly in itself (Tseng et al., 2018), so prevention saves rework as well as write-offs.

Handing Each Origin to an Owner

1. Patient access and case management: eligibility checks on every admission and an emergency admission notice worklist built from eligibility responses.

2. Clinical documentation: concurrent review for the diagnoses most often denied for medical necessity.

3. Coding: a review of the bundling edits that produced most coding denials.

4. Charge capture and billing: the charge reconciliation recommended in the previous unit.

5. Payer processing: a monthly list of payer errors sent to each payer's provider representative.

Reading the Two Rates Together

The gap between the two rates is itself a finding. When the dollar rate runs well above the claim rate, as it does here, denials are landing on large accounts, and the revenue at risk is higher than the claim count suggests. A quarter in which the two rates converged would mean the opposite.

Limits

Origin estimates rest on a sample of 400 extended by reason family, and reviewers sometimes disagreed on origin. The quarter may not reflect seasonal changes in enrollment, which affect eligibility denials in January more than in other months.

References

Gottlieb, J. D., Shapiro, A. H., & Dunn, A. (2018). The complexity of billing and paying for physician care. Health Affairs, 37(4), 619-626. https://doi.org/10.1377/hlthaff.2017.1325

Office of Inspector General. (2022). Some Medicare Advantage organization denials of prior authorization requests raise concerns about beneficiary access to medically necessary care (OEI-09-18-00260). U.S. Department of Health and Human Services.

Tseng, P., Kaplan, R. S., Richman, B. D., Shah, M. A., & Schulman, K. A. (2018). Administrative costs associated with physician billing and insurance-related activities at an academic health care system. JAMA, 319(7), 691-697. https://doi.org/10.1001/jama.2017.19148