By Christine Fontaine

By rooting out-and addressing-the true causes of denials, Shore Health System was able to cut an already admirable denial rate by more than half-and save almost $1 million.

Denials have been endlessly discussed among revenue cycle leaders and continue to be a cause of revenue leakage for healthcare organizations. Industry statistics indicate that providers write off 3 percent to 5 percent of net revenue to denials. High-performing revenue cycle teams realize that they cannot continue to "manage" denials but must change processes throughout their organizations to prevent denials from occurring.

In 2009, Shore Health System, a two-hospital system in Maryland, had a denial rate of 1.2 percent-well below the current industry benchmark of 2 percent. Yet we were able to reduce that rate to 0.5 percent over the course of a year by digging into the causes of our denials and implementing process changes to prevent future denials.


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Technology and Analytics

Before you can tackle your denials problem, you need to be able to clearly and accurately define what your initial and final denial write-off rates are, and categorize your denials by types. With more than 250 American National Standards Institute remittance codes and manually posted payments-not to mention a lack of standardization-providers must roll up denials into specific categories, such as "no authorization," "no medical necessity," and "timely filing." Providers can then intelligently workflow these denials to the right person and aggregate patterns or trends across the revenue cycle.

If you don't have defensible data, then you won't be able to change processes. For example, when I was the director of revenue cycle operations at Shore Health System, the lab was a big part of our denials. The lab staff asked me how much we were losing in denials, and all I could say was "a lot" because I didn't have specific data to point to. As you can imagine, that approach got me nowhere. Due to the high volume/low dollars in our lab area, we had not invested in the resources or technology that would allow us to communicate with the lab about each denied account-so those dollars continued to be lost.

However, when we deployed denial analytics technology that clearly showed how much we were losing in denials due to lab and other issues, it allowed us to easily refer denied accounts to the lab to resolve. We then were able to work with the lab to put processes into place that would prevent those denials in the first place.

For example, some physicians were ordering a T4 and a TSH at the same time, but these could not be reimbursed because one could only be ordered based on the results of the other. Once we identified the root cause, quantified the dollars, and identified the physicians primarily ordering these tests, education and outreach resulted in this denial being reduced by more than 75 percent.

When working with specific departments or individuals to reduce denials, you need to ensure that you are reporting the actual loss, not the total dollars billed. So it is important that you have the 835 data and host transactions and adjustment codes. If you do not, someone can poke holes in the information you give them, and you will lose credibility and erode your ability to impact change throughout your organization.

Interdepartmental Collaboration

Effective denial prevention requires a committed team approach that is enterprisewide, including the clinical areas. At Shore Health, we had a denial prevention team that evolved over time. Once our approach became more granular-and aimed at root cause analysis-we became the "Revenue Defense Team." The team-which included representatives from patient accounting, case management, medical records, coding, contracting, compliance, and patient access-set a hospitalwide goal of "zero tolerance" for revenue leakage.

The team's primary responsibilities were to review all first-pass rejections, denials, and final denial write-offs, as well as to identify the process improvement initiative that was deployed to reduce the rework, inefficiencies, and lost revenue to the organization.

When developing a Revenue Defense Team, you need to have adequate resources and follow a systematic approach. A program plan, or charter, should be established. This should define the purpose of the project, how it will be structured, and how it will be measured for success. The plan should also include the team's vision, objectives, scope, and deliverables, as well as the roles and responsibilities of stakeholders.

This is not a one-time, isolated initiative; this is a long-term commitment and an ongoing process that combines departmental efforts and tracks success against key performance indicators (KPIs). (For examples of revenue cycle KPIs, see the key indicators identified by HFMA's MAP project.)

Root Cause Assignment

Industry statistics indicate that 10 percent of denials are not preventable, but couldn't we say that all denials are preventable if we really dig into the true root cause and ensure they don't happen again?

Trending the reasons for denials and digging into the root causes are critical to your denial prevention efforts. A root cause analysis should be performed for all denials and categories to avoid erroneous assumptions about contributing factors of individual denials.

The coded reason on a remittance advice does not help providers identify the true cause of a denial-it is too generic and used inconsistently. For example, if you receive a denial for "no authorization," do you immediately presume that an authorization was not obtained and that there is a problem with your financial clearance process? I have made this assumption in the past. However, on reviewing such a denial at Shore Health, we identified that we did obtain authorization, but on the day of service, radiology either changed the original order or "added on" a test. Once we were able to identify the true root cause and quantify it into dollars lost, we worked with radiology to ensure that our financial clearance team is now notified when orders are changed. We can then modify the authorizations that day, resulting in limited denials moving forward.

When reviewing denials, you also need to have an action plan that quantifies the dollars lost, the root cause, and the results once process changes are made. It doesn't have to be complicated, but it must track your results and your recoveries so you can celebrate your successes and continue with your process improvement approach.

All denials require a similar level of scrutiny, and providers must be able to report these by location, physician, category, type, root cause, recommended resolution, and outcomes of your efforts.

Prevention Leads to Success

By following these practices, our Revenue Defense Team at Shore Health System decreased first-pass denials by more than 70 percent, reduced the denial rate from 1.2 percent to 0.5 percent, and saved just under $1 million.

Many providers believe that denials are just part of the status quo-but they don't have to be. Denials can be prevented by using technology that can automate workflow and provide robust analytics, establishing a collaborative team approach to reduce denial rates, and determining the true root cause to improve processes.


Christine Fontaine, CHFP, CPAM, is vice president, revenue cycle solutions, OptumInsight, Eden Prairie, Minn., the former director of revenue cycle operations, Shore Health System, Easton, Md., and a member of HFMA's Maryland Chapter (cfontaine@caremedic.com).

Discussion Starters

Forum members: Please add your questions or comments about this article-in the comment section below, or via the Revenue Cycle Forum LinkedIn discussion board.

  • What is the biggest challenge your organization has in engaging clinical departments in denial prevention?
  • What limitations does your organization have in combating denials?

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Publication Date: Wednesday, September 07, 2011