Denials Management

Utilization Review: 5 Reasons Hospitals Lose Revenue

December 5, 2022 6:59 pm


US. hospitals are losing millions of dollars each year because of denials by health plans and government payers for acute care. But rather than continuing to take write-offs or forced reductions based on authorization issues, technicalities, or shifting care designations, hospitals can take proactive measures to ferret out what’s going wrong and prevent future losses. In most cases, an assessment and evaluation of the utilization review (UR) process will uncover numerous opportunities to improve organizational oversight, systematize processes, improve training, and create a feedback loop to ensure the right steps are taken at the right time to secure appropriate payment for the hospital and coverage for the patient.

For acute care hospitals, an assessment of their UR processes often uncover hundreds of thousands–or even millions–of dollars in lost revenue opportunity that could be realized by addressing medically appropriate patient status and adhering to the Centers for Medicare & Medicaid Services’ Two-Midnight Rule.

Although every hospital has unique challenges, major breakdowns in the UR process tend to fall into the following five areas, which are explored in detail below:

  • Department organization and management
  • Understanding and adoption of regulatory guidelines
  • Clinical acumen and understanding of clinical criteria
  • Revenue cycle integration
  • Efficient and accurate processes

Department Organization and Management

In U.S. hospitals, UR tends to report up through varyious departments and is frequently shuffled around as part of reorganizational shifts. Increasingly, this task lands in revenue cycle management. Wherever it sits, UR tends to be treated as a departmental function rather than as a critical discipline that requires nuanced understanding, robust processes, and surveillance mechanisms. Healthcare organizations need to commit to UR to be sure that what needs to be done is getting done, within the time frame necessary to meet regulatory and insurer requirements.

Compounding the issue oftentimes the person in charge of UR has either clinical or financial acumen but rarely both. That means only half the UR equation is understood, and the nuances of providing quality patient care and managing revenue while meeting insurer requirements are lost.

To address these issues and ensure sustainability and effectiveness, UR must be a discrete discipline managed by a hybrid leader who has the time, expertise, and resources to put actionable processes, monitors, and controls in place.

A UR program must have personnel and processes in place to ensure compliance. At the core, a hospital’s UR program is meant to optimize the quality and cost efficiency of healthcare services, while helping insured patients understand the benefits and limitations of their healthcare coverage.

Hospitals must ensure that both medical necessity and insurer compliance points are met when submitting a claim. Any missteps—from missing a deadline, to failing to get authorization prior to rendering services, to a host of other technicalities—can lead to reduced or denied payment and impact the payment the hospital receives.

An assessment of the UR department will help determine where gaps exist and make way for interventions such as UR training modules and recurring update touch points for clinical staff.

Understanding and Adoption of Regulatory Guidelines

Providers must ensure their documentation clearly supports services billed, and that the admission order clearly identifies the level of care. A series of hospital-documented and insurer-authorized steps must be adhered to from pre-admission through post-discharge within given time frames, as outlined by insurer policies. For example, at a basic level, the UR clinical staff in charge of the patient’s case needs to know the insurer, have a general understanding of its coverage policies and submission requirements, have contact information to seek necessary authorizations, and know the insurer’s deadlines. Evenutally, UR staff can perform a clean handoff to the revenue cycle management team.

Complicating matters is the fact that insurer policies usually are at least slightly different from one another. For example, most major health plans do not require that hospitals get authorization for observation; before changing its policy in July of 2018, Aetna was an exception. Likewise, Blue Cross Blue Shield began staffing its UR department on weekends, which effectively shifted its requirement to file for authorization within one business day of admitting a patient to within 24 hours. In both cases, anecdotal evidence from hospitals indicates that clinical staff unaware of these changes missed important deadlines, and denials spiked. Effective UR program management requires that critical touch points be known, set, and met.

Clinical Acumen and Understanding of Clinical Criteria

Realistically, to uphold a hospital’s true mission of providing high-quality care, it’s rarely enough to simply follow the rules of insurer evidence-based medical necessity guidelines, which often are ill-defined with room for interpretation. It is crucial for clinicians to know both the guidelines and when to bypass them: Insurers will make exceptions to guidelines if they have a compelling reason.

Clinical and UR staff must work together to build a case and submit it for insurer authorization in the time frames required. For example, let’s say a patient presents with only two of three medical necessity indicators for heart failure, and the insurer rejects the hospital’s request to admit the person as an inpatient. Based on other critical clinical factors, the nurse knows observation status will not suffice for this patient’s critical needs. In this case, the nurse should work with the overseeing physician and their UR counterpart to build a case for authorization of inpatient treatment, within what are often quick-turnaround insurer deadlines.

In fact, communication needs to flow across several teams (e.g., patient access, UR, patient financial services, managed care, and physician partners) for hospitals to have the best opportunity to advocate on behalf of patients and be paid accordingly and appropriately.

To find the balance between the art and science of providing medical care and meeting insurer demands, clinical staff members need to be given the knowledge, resources, and collaborative support to maintain quality and effective clinical reviews.

Revenue Cycle Integration

Considering that UR teams literally work with hundreds of different insurers from commercial health plans to government payers like Medicare and Medicaid to niche entities serving categories such as workers’ compensation, it is critical that the team working on insurance eligibility and notifications keeps an open line of communication with the UR team. Likewise, the UR team must promptly communicate any patient status changes that could affect clinical review submission.

Every UR program has a patient-interfacing clinical front end and insurer-interfacing financial management back end. Sadly, in practice, they rarely communicate, which often means the front end has no idea a submitted claim was denied or reduced, and the back end has no indication of whether or how to appeal the insurer’s decision.

Too often, patient access and/or patient financial service team members simply accept payment reductions without integrating with the UR team. In fact, Navigant research shows up to 60 percent of hospitals never appeal denials, which, for a mid-sized hospital with 350 beds currently adds up to about $3 million in losses per year.

Communication among teams could reveal, for example, that a patient’s circumstances warranted inpatient treatment, and evidence could be gathered to appeal and overturn the insurer’s decision. Such communication also could help identify areas for improvement, such as a documentation error or rule that affected the denial outcome. In addition, to ensure the hospital receives the full payment to which it is entitled, a process should be put in place to promptly inform all relevant parties within the hospital of policy changes that can affect coverage and a solid workflow implemented to notify insurance providers of patient status changes.

Without a constructive feedback loop, errors and write offs will continue to be made and hospitals will continue to suffer significant revenue losses.

Efficient and Accurate Processes

For effective UR program management, hospitals must understand the critical touch points internally across departments and externally with insurers. To do so, they must put the right processes, monitors, and controls in place to ensure cross-functional team members mutually understand what’s at stake and what’s needed to optimize UR programs.

Hospital UR leaders usually know where the money loss is because they can see upticks in denials. In fact, high rates of medical necessity denials and increasing observation rates are two signs something is amiss in UR. Conducting an effective UR audit and analysis generally requires about three months of deep assessment. Usually, the initial assessment is followed by six weeks of UR program redesign for optimization and pilot implementation, three months of review and iterative design, and, from there, milestone measurements and continuous improvement tweaks.

The benefits of undergoing an assessment to optimize the UR program go beyond the recovery and prevention of revenue losses due to insurer denials and downgrades. The process helps build consensus and strengthen alignment across hospital disciplines. Most important, institutionalizing a strong UR program helps hospitals fulfill their missions as patient care providers and advocates.


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