3 Reasons for Claims Denials—and 2 Ways to Reduce Them
By Krithika Srivats
In the often-changing world of payer rules, regulations, and code changes, claims denials hit providers fast and hard.
Payers deny nearly 15% of all claims they receive—including many that were pre-approved—only to have 54% of them overturned after lengthy and costly provider appeals. To make matters worse, the cost to providers nationwide to appeal decisions is approximately $262 billion every year.
Providers already face shortages of qualified healthcare professionals and shrinking margins. That makes denials more than an operational inconvenience—they’re a persistent threat to financial viability and the delivery of quality care.
Every provider I’ve met—from providers with single-person practices to hospital systems with thousands of healthcare professionals—wants one thing: to eradicate, or at least limit, clinical denials.
3 Reasons for Denials
Three major reasons underly why clinical denials occur:
Insufficient Documentation of Medical Necessity: It’s not enough to document the medical services a patient requires following an examination, testing, or diagnosis. Payers increasingly require detailed clinical evidence to justify services. Or they would rather have the patient treated in a less intensive care setting. Providers must ensure that all documentation—letters of medical necessity, progress notes or documentation for specific care services—clearly supports the diagnosis, treatment, or level of care provided to the patient. When this detailed information is lacking, payers often deny the claim even when the care was appropriate.
Prior Authorization Failures: Missing or incorrect prior authorizations are a leading cause of denials. As payers continually adjust rules and automate adjudication, scenarios emerge in which some prior authorizations are rejected when they should be approved. For these reasons, it becomes increasingly important to get claims right the first time.
Coding and Billing Errors: Simple clerical errors like mistakes in CPT/ICD codes, mismatched modifiers, or outdated codes will trigger denials. Often, these errors are due to office staff turnover, training gaps, or system limitations. No matter how they happen, mistakes set off an expensive cycle of rework and appeals.
Unfortunately, the Experian Health 2024 State of Claims provider survey suggests that these provider-related challenges will continue for some time:
75% indicate that claim denials are increasing
77% indicate that payer policy changes occur more frequently
67% indicate that the time it takes to be reimbursed is increasing
Providers, large and small, expect these issues to get worse before they get better.
2 Ways to Limit Denial Exposure
Fortunately, providers that employ the following strategies will go a long way toward preventing many denials and mitigating the impact of most.
No matter how often providers employ AI and analytics, train staff, or keep abreast of changing payer rules, policies, and reimbursement rates, claims denials won’t go away. At least not in the near term.
Since providers know that 15% of claims will be flagged by payers, it’s critical to have a plan in place to deal with this certainty. By adding the ideas below into this plan, providers can limit exposure by including in their plans the following steps, designed to address denials before and after they occur.
Before
Preventing a denial beforehand is the gold standard―when all providers can intercept any omissions or errors present in a claim.
The gold standard results from bringing together human expertise and technology:
Predictive analytics to identify denial patterns to ensure the claim doesn’t have any of the previously denied information
Automated workflows to flag denials for missing prior authorizations
Predictive models to show the propensity to overturn denials based on the payer, the claim, and the potential denial type
After
After the denial has occurred, it is important to use the most streamlined and effective processes to limit financial exposure, whether that’s staff time or simply getting paid for the work that’s been completed.
As payers concentrate on post-service denials by implementing payment integrity analytics, as well as auditing and validating clinical rules, the follow-up aspect of denials becomes more important and complex.
After-the-fact denials management actions to facilitate appeals:
Ensure clinicians use clinical denial root-cause analysis or data from past payer denial letters
Use payer-specific policies and line-of-business-specific medical guidelines and apply them to denied claims to ensure payer medical necessity levels have been met
Tailor the appeal request by aligning it with payer criteria
Request that clinicians analyze disparate, often siloed, medical records to identify record gaps required for appeals
Use automation to follow-up on technical denials and locate opportunities to resubmit the claim with required information
Conduct outreach to obtain any missing medical records using administrative resources
It Takes Change to Make a Change
Ultimately, finding a solution to the daily influx of clinical denials won’t be easy and will take a considerable amount of time to resolve. With the constant changes in the healthcare industry, although clinical denials won’t vanish, they can be dramatically reduced with the right technology and cross-functional teamwork. Many providers are navigating complex reimbursement scenarios and growing numbers of denials every year.
Providers can only effect change within their businesses, operations, and staff. To do so requires both cultural change within operations and internal workflow, as well as technological innovations. Improving the claims process is about shifting from a reactive cycle of denial/appeal to a model centered on people, AI, and actionable data to break the cycle.
Prevention isn’t just a financial strategy for managing claims denials, it’s necessary for long-term sustainability.
Visit sagilityhealth.com to learn more about Sagility’s Clinical Denials solution for providers.