Revenue Cycle

Navigating medical necessity denials: Strategies for successful resolution

March 8, 2024 7:00 am

Just as hospitals, health systems and physician practices are dealing with unprecedented financial and operational challenges, denied claims continue to rise — especially medical necessity denials. The impact on providers and patients is significant.

Medical necessity is the term used to describe “healthcare services or supplies needed to diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine.” There are often discrepancies between providers and payers about what is medically necessary for a patient. Each patient is unique and has a unique set of healthcare needs and circumstances. However, many denied claims are caused by administrative issues, including claims being miscoded or submitted without the documentation needed to meet the payer’s medical necessity requirements.

The impact of medical necessity denials

Regardless of the reason for the denial, the impact can be significant for providers and patients. The top impact for providers is lost revenue in the form of delayed or inaccurate reimbursement or, in some cases, complete write-offs of the claim. For financially struggling organizations, medical necessity denials can cause significant cash flow issues as denied claims move through the appeal process.

Another impact on providers is the need to allocate scarce resources to research denials and submit appeals. It’s not just clinical staff shortages that organizations are dealing with; revenue cycle staff are also in short supply. Avoidable medical necessity denials only exacerbate this challenge and add additional stress to already overworked staff.

For patients, the impact of medical necessity denials comes in the form of delayed care or surprise bills. When claims are denied due to medical necessity, procedures may be pushed out until the denial can be resolved. This can lead to a deterioration of the patient’s condition and result in avoidable emergency department trips or hospitalizations. When a claim is denied for a service that was already rendered, patients may end up receiving a bill for something that should have been covered. Both instances can negatively impact the patient experience and result in poor patient satisfaction scores.

Strategies for preventing medical necessity denials

There are four proven methodologies that can help organizations reduce avoidable medical necessity denials.

  1. Increase focus on accurate documentation and coding. Payer requirements for necessity are complex and change often. Between March 2020 and March 2022, there were more than 100,000 payer policy coding and reimbursement changes. Staying abreast of such a large number of changing payer requirements can be challenging for even the most seasoned revenue cycle professional. At the same time, payers are using increasingly sophisticated technology to identify and flag potentially problematic claims. These two factors alone make it critical that providers increase their efforts to accurately code claims and submit all necessary documentation the first time.
  2. Implement a comprehensive, ongoing education program. Education and ongoing training can help mitigate medical necessity coding and documentation issues. In addition to onsite training and mentorship for new staff, organizations should require coders and other billing staff to maintain American Health Information Management Association (AHIMA) or AAPC credentials and to complete continuing education credits. It can also be helpful to assign specific staff to own a particular payer or set of payers, with special attention paid to those with the most medical necessity denials. Implementing an incentive program for billing specialists based on key performance indicators around medical necessity denials can also be helpful.
  3. Leverage technology to its fullest potential. Many electronic health records (EHRs) offer sophisticated coding tools that can help reduce claim errors. Tools such as claim scrubbers flag claims that are missing information or contain potential coding errors prior to submission so they can be fixed before hitting the payer’s adjudication system. According to AHIMA, these tools include a “medical necessity database to identify the complete set of codes and capture important complications that are frequently missed in a large, complex record.” The tools, says AHIMA, can also “perform diagnosis code edits, medical necessity edits, procedure code edits, claim-level technical edits, outpatient prospective payment system (OPPS) edits, and file format edits.” Automation technology can also be used to help streamline and simplify the appeals process.
  4. Perform regular documentation and coding reviews. To effectively address documentation and coding issues, organizations must first identify them. Billing specialists with a strong background in documentation should meet regularly with clinicians to discuss the issues and opportunities. Regular reviews performed in a collaborative environment can help identify denial patterns, pinpoint errors and root causes, and reveal opportunities for improvement. Included in the discussion should be key performance indicators (KPIs) with which to compare medical necessity rates with industry benchmarks and competitors, as well as with past performance.This type of open, regular communication can foster an environment of trust and collaboration and lead to long-term improvements in medical necessity denial rates.

One of the most significant actions currently underway is the final rule of the 2024 Medicare Advantage and Part D Final Rule (CMS-4201-F). Along with prior authorizations, the rule proposes to address medical necessity determinations among Medicare Advantage Organizations(MAOs). MAOs have been called out for their high number of “inappropriate” prior authorization and medical necessity denials. The problem, according to the American Hospital Association, is that many MAOs have created their own criteria for medical necessity determination, and these criteria are inconsistent with other MAOs. This inconsistency makes it difficult for providers to know when a treatment is deemed medically necessary and/or requires prior authorization. “Currently, obtaining this information requires significant provider and staff time and hassle spent combing through a myriad of payer websites and policy manuals.” Managing these contracts can cost health systems millions annually.

While issues like medical necessity and prior authorizations gain increasing attention at the federal level, it is unlikely that providers will experience significant relief anytime soon. Therefore, providers can expect more of the same when it comes to medical necessity, coding, documentation and reimbursement.

The benefits of partnerships

For organizations looking to better navigate the challenges of medical necessity, partnering with revenue cycle experts can be a great opportunity. A report by Kaufman Hall indicates that 63% of health system leaders have at least one outsourcing solution, with revenue cycle processes at the top of the list.

Revenue cycle partners typically have built teams of highly skilled talent pools that, when combined with the latest automated technology, can significantly improve coding and documentation quality. The best partners are those that make heavy investments in education, especially around payer requirements. This enables them to reduce medical necessity issues and associated revenue loss.

The bottom line

In these challenging times, providers need to do all they can to protect their revenue streams from the impact of medical necessity denials. Outsourcing all or a portion of the revenue cycle can help organizations achieve optimal revenue efficiencies faster and with lower costs and less overhead.


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