Denied Claims Means Denied Revenue – Part 1


Many providers just accept denials as an unavoidable part of the revenue cycle. But the damage caused by that mindset goes directly to the bottom line. Denial-related write-offs increased more than 90% between 2011 and 2017, costing medium-sized hospitals approximately $3.5 million in missed revenue opportunity [1]. To add insult to injury, the number of successful appeals has decreased by 9% for commercial payers and 10% by Medicaid [2]. 

But it’s not just about lost reimbursement. Hospitals must also understand the cost of working the appeals process, not to mention the impact of delayed cashflow. Medical Group Management Association estimates the average cost to rework a denied claim is $25 [3]. For large practices and health systems, that really adds up. Salary, overhead, benefits—they ’re all a part of the equation.

67% of denied claims are never worked, adding up to 3% of lost provider revenue [4].

In a time of decreasing reimbursement and escalating patient payments, hospitals can’t afford to let money slip out the back door. The good news is that 90% of denials are avoidable, making it one of the most effective opportunities to decrease write-offs and increase revenue [5]. 

Internal Factors

The first step in reducing denials is to understand what causes them. Listed below are the tactical areas within the provider organizations with greatest responsibility for denials, all of which can be addressed with improved workflow efficiencies and automation technologies [6].  

  • 23.9%  Registration and eligibility 
  • 14.6%  Missing or invalid claims date
  • 12.4%  Authorization & pre-certification issues
  • 10.8%  Medical documentation requested
  • 10.1%  Service not covered
  • 5.8%  Medical coding and medical necessity problems
  • 3.5%  Untimely filing

External Factors

In addition to the internal factors leading to denials, there are increasing external factors that are, for the most part, beyond a provider’s control. The Advisory Board lists three less obvious areas now impacting the rate of denials [7]. 

  • Automated reviews. Payers are now using sophisticated algorithms to spot potential DRG downgrades, as well as medical necessity issues.
  • More complex criteria. Payers are choosing to add their own requirements on top of those recommended by the CMS.
  • Increasingly complicated payer contracts. Requirements for things like medical necessity and technical specifications can vary significantly from payer to payer. Because of this, maintaining claim submission compliance becomes more difficult.

Another surprising trend is the high rate of denials for Medicare Advantage providers and beneficiaries. According to a recent report by the HHS Office of Inspector General, the problem is “widespread and persistent.” [8] In 2016, Medicare Advantage Organizations (MAO) denied 8% of provider payments and 4% of prior authorizations for beneficiaries. That equates to 36 million denied claims and 1 million prior authorization claims. Yet 75% of those denials appealed were overturned. The findings in the report suggests the high overturn rates “are a sign of persistent claim denial problems in the Medicare Advantage program.”

Audits by the CMS of MAOs between 2012 and 2016 found denials to be one of the top audit violations identified each year. In 2015, more than half of MAO contracts were found to be inappropriately denying care and payment requests [9]. It was also found that many of the MAO denial letters provided insufficient information, making it hard or impossible for the denial to be appealed. This may be the reason only 1% of providers or beneficiaries submitted an appeal. Beyond the damage to a provider’s revenue stream, unnecessary denials—especially denied care requests—put patient health at risk, certainly not the outcome MA plan beneficiaries would expect. 

While some MAOs have been fined or suspended, the HHS OIG has encouraged CMS to increase its oversight, especially for those with suspiciously high denial or overturn rates.

But the external factors don’t stop there. The abundance of complex government regulations, along with their frequent updates, is also implicated in increasing denial rates [10].

Against the Odds

In a time when providers are struggling to do more with less, having to deal with increased denials—especially those beyond their control—seems exceptionally cruel. It’s already hard enough to maintain a positive revenue stream with decreased reimbursements and increasing patient payments. In our next blog, we’ll discuss what providers can do to help prevent process-based denials and how they can protect their bottom line from external denial factors.


[2] ibid