Revenue Cycle Management Journal
Source: The Academy of Healthcare Revenue

Preventing Payment Discrepancies with Thorough Analysis Activities

March, 2007 – As reported in The Academy’s March 15th e-Brief, recent studies have shown some shocking figures:  nationally, providers and insurers are paying $20 billion a year in administrative costs for denials and denial management, with the cost split evenly between the industries.1 Insurers are increasingly turning to claim denials and underpayments as a way to bolster their profit margins, using high-tech screening systems to review and deny providers’ claims based on often-obscure contract regulations.  To respond to these tactics, best-performing providers have placed an even higher emphasis on tracking and analyzing all denials to prevent denial-generating errors in the future.  This can also help to greatly reduce the administrative costs involved in appealing denials.

One primary reason why denial tracking and analysis activities help to significantly reduce payment discrepancies is by giving revenue cycle leaders a clear understanding of these discrepancies’ root causes.  By drilling down to the root causes of denials and underpayments, providers can assign accountability for internal process breakdowns that cause these payment discrepancies, and revise processes through the revenue cycle to prevent those discrepancies in the future. 

Although organizations can realize many financial and operational benefits from thorough root cause analysis of payment discrepancies, traditionally some organizations have not allocated sufficient resources to performing this function.  One area in which many healthcare providers have particularly fallen behind is in the use of information technology.  However, as many organizations have realized, implementing automated denial management systems to assist in analysis efforts can be an extremely important element in controlling payment discrepancies—which cause hospitals to write off an average of 3.4 percent of their gross revenue every year, according to Academy research. 

Hospitals can—and have—certainly utilized internal staffing resources to analyze denials.  However, denial management systems can typically perform such functions quicker—tracking and trending the amount of payment denied, payer and insurance plan details, referring service provider (e.g., physician office), internal and external reason codes for denials, the DRG, ICD-9, and/or CPT code for the denied services, and more. 

One organization to implement a denials management system is Ocala, Florida-based Munroe Medical Center.  Revenue cycle leaders at this 380-bed acute care facility knew there was a problem with denials, but until they tracked the number of denials in a month by hand, they were unaware of the extent of the problem: on average, 44 inpatient cases at a cost of $284,000 per month were being denied.  To respond to this issue, the organization implemented a web-based denial reporting tool to enhance the capabilities of its automated contract management system that was previously implemented.  Remittances are checked for variances between expected payments and what the hospital actually receives, and when a claim is denied the contract management system tags the denial with a code that indicates the type of denial, its status, and the reason the claim was denied.  The denial tracking tool then extracts this information from the contract management system and creates reports on the types of claims being denied and the third-party payers involved.  These reports are very useful in guiding denial appeal activities and contract negotiations with payers, as well as identifying root causes of denials so that processes can be optimized to avoid those types of denials in the future.  As a result of implementing automated denial tracking systems, Munroe Regional Medical Center was able to recover $1.1 million in denied revenue in a 7-month period, which accounted for 86% of the net revenue denied during that time.2

Although implementing automated denial tracking systems can represent a significant cost for healthcare providers, the increased net revenue that these systems can ultimately result in—not to mention the reduction in administrative costs spent appealing denials—make investment in automated denial tracking and management systems an option that should receive very careful consideration from revenue cycle leaders.

1 Vanessa Fuhrmans, “Billing Battle: Fights Over Health Claims Spawn a New Arms Race,” The Wall Street Journal, 14 February 2007.

The Academy of Healthcare Revenue
The Academy of Healthcare Revenue is a membership-based community that provides healthcare leaders with objective research focused specifically on the healthcare revenue cycle. Members receive an unlimited supply of all research--including benchmarking and best practice reports, implementation tools, monthly journals, attendance to virtual conferences, and more--designed to enable them to improve their revenue cycle processes and financial health from within. Furthermore, The Academy's membership offering is tailored to team members throughout the revenue cycle, from executive leadership to patient access, coding, billing and collections, and clinical staff, helping to drive process improvement efforts revenue cycle-wide. Revenue Cycle Management is one of four journals written by The Academy of Healthcare Revenue monthly.

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