Understanding revenue cycle management and denials
Providers, such as physicians or hospitals, submit claims to insurance companies that include, among other information, patient demographics and insurance, diagnoses, MS-DRGs and/or HCPCS codes, and charges. Revenue cycle management’s goal is to receive accurate, complete, and timely reimbursement for provided patient services, which is a complex and resource-intensive process.
According to the Healthcare Financial Management Association (HFMA), revenue cycle management includes “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.” These functions could be broken down into four main categories:
- Claims preparation (for example, patient registration, insurance eligibility, benefit verifications, and preauthorization).
- Claims submission (for example, charge capture, medical coding based on medical record documentation and claims transmission).
- Claims management (for example, payment posting, denial management, and patient collections).
- Reporting and analysis.
Claim denial is “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for health care services obtained from a health care professional.”8 Payers can deny an entire claim or provide only a partial payment. Initial denial rate is tracked at the claim level (number of claims denied/number of claims submitted) and at the dollar level (total dollar amount of claims denied/total dollar amount of claims submitted).
Denials are classified as hard versus soft, and clinical versus technical or administrative:
- Hard denials result in lost revenue unless successfully appealed (for example, lack of medical necessity).
- Soft denials do not require appeal and may be paid if a provider corrects the claim or submits additional information (for example, missing or inaccurate patient information, and missing medical records).
- Clinical denials are based on medical necessity, including level of care determination (for example, inpatient versus outpatient) and length of stay. They can be concurrent and retrospective and typically start as soft denials.
- Technical or administrative denials are based on reasons other than clinical (for example, failure to preauthorize care or lack of benefits).
According to the Advisory Board’s 2017 survey of hospitals and health care systems, 50% of initial denials were technical/demographic errors, 20% medical necessity, 16% eligibility, and 14% authorization. Forty seven percent of those denials came from commercial payers, 33% from Medicare/Medicare Advantage, 17% from Medicaid, and 3% from other payers.9
Determination of medical necessity may vary by payer. As an example, let’s look at inpatient admissions. According to the Medicare Two-Midnight Rule, inpatient admission is appropriate “if the admitting practitioner expects the beneficiary to require medically necessary hospital care spanning two or more midnights, and such reasonable expectation is supported by the medical record documentation.”10
Medicare guidelines acknowledge that a physician’s decision to admit a patient is based on complex medical factors including, but not limited to:
- The beneficiary history and comorbidities, and the severity of signs and symptoms (also known as Severity of Illness or SI).
- Current medical needs (also known as Intensity of Service or IS).
- The risk of an adverse event.