How To | Denials Management

Avoiding the Costliest Denials

How To | Denials Management

Avoiding the Costliest Denials

Eligibility, outpatient medical necessity, and case management authorization continue to be three of the costliest denials. To avoid the negative effects of these types of denials, it is critical to implement an improvement process based on data.




Human factors are responsible for the denials that hit the bottom line the hardest.


In 2016, providers continued to struggle with the same people and process challenges that have triggered denials for years.

“We have a lot of consistency in what we see driving the denial world,” says Jacqueline E. Poliseno, director, consulting and appeals, Craneware.

Poliseno explains three of the costliest denial categories: insurance eligibility, outpatient medical necessity, and case management authorization.

Insurance Eligibility

“Subscriber eligibility is one of the most common reasons a claim rejects,” Poliseno says. “Eligibility is not only a high-volume denial, but also a costly denial because it always results in the entire claim being denied. It is important to both verify demographic information at every patient encounter to be sure you have the correct insurance plan on file and to ensure the services to be provided are covered.”

See related toolSteps for Confirming Patient Insurance Coverage Eligibility

Poliseno suggests that providers take advantage of tools that allow them to check for eligibility. “A tool is important, but so is having well-trained staff who understand the implications of not verifying demographics and checking eligibility,” she says.

In fact, human factors often lead to eligibility denials. Although this is understandable during emergency situations, mistakes often happen in non-urgent situations. “In some instances, the insurance information received from the patient is out of date or incorrect. In others, staff fail to confirm that a patient is active with the insurer on file or demographics go unchecked and the patient’s new insurance plan is not identified,” she says.

Time spent verifying patient eligibility before services are provided is crucial to ensuring claims are paid. It also allows for early identification in the event that patients have no coverage. In those cases, patients and providers can negotiate payment arrangements when appropriate, Poliseno says.

Outpatient Medical Necessity

Denials related to outpatient medical necessity are also frequent and costly. “Outpatient medical necessity is a high-volume denial, but these are line-level denials. The health plan may deny a particular lab test but the rest of the claim is paid,” Poliseno says. “Sometimes it is like searching for a needle in a haystack to determine what on a claim has not been paid.”

She recommends that organizations run all lab tests through an automated medical necessity checker, which can validate lab orders against payer rules for specific diagnoses. “There’s just no way that you can do that manually,” she says. “The tool needs to identify when a service is medically appropriate and when it is not a covered service so the patient and staff can deal with it right then and there.”

When services are identified as not covered, staff need to understand the next steps: Should they ask the patient to be responsible for the payment? Do they decline to provide the service? It should be clear how to respond when services do not meet medical necessity, Poliseno says.

Case Management Authorization

Other common and costly denials are often related to level of care assignment, such as inpatient versus observation, admission notification, and continued stay authorization. Level of care determinations are typically negotiated between the case management staff and the insurer. “Frequently, there are disagreements between the level of care the hospital believes is appropriate and what the payer is willing to authorize,” she says. “In addition, insurance companies expect hospitals to provide notification that patients are in beds within 24 hours of admission. After that, they look for regular clinical updates from case managers to justify why patients need to stay in beds.” Failure to come to agreement about levels of care or to provide the expected notifications and updates often results in entire claims being denied.

Because case management is such a demanding job, it is often easy for administrative tasks to fall through the cracks, Poliseno says. She recommends providing ongoing staff training. “Payer rules change frequently, so it is important that staff stay current with regular education,” she says.

Poliseno also recommends establishing processes to ensure that insurance companies are notified immediately after patient bed assignment and then provided with regular clinical updates. “Clinical information needs to be provided to insurers at the time of admission and then updated for each subsequent day,” Poliseno says. “When that doesn’t happen, the stay or days are denied for additional information or data required.” In addition, any authorizations from insurance companies should be logged electronically.

The Economic Impact of Denials on Two Hospitals


Lessons Learned

Poliseno offers the following advice to organizations looking to reduce their denials.

Create a leadership task force to direct action teams. Buy-in and direction from the top set the stage for process improvement aimed at denials. “Task forces can provide a high-level overview, but it takes energy at the ground level to make these ultimate changes,” she says. A task force might include directors from health information management/coding, patient access, accounting, and case management. Their goal should be to identify the root cause of denials and then clearly identify accountability for corrective action. “Having a group that can keep an eye on where you are headed is important, but you really need to deal with the problems at the department level,” she says.

Work with payers to resolve denials. “We often pit payer and provider against one another, when often, they can be very strategic partners,” Poliseno says. “Any opportunities to build bridges with payers and get them engaged are valuable.” She suggests communicating early and often with payers to resolve issues and prevent denials.

Aggregate your denial data for review with payer representatives.“One client hospital had a payer that was denying one particular case type over and over,” she says. “The client launched an aggressive appeal effort and overturned the vast majority of those denials. A review of that data with the payer was very powerful.”

Hire the right people. “I always encourage people to evaluate their business line and determine the key skill sets they need their employees to have,” she says. “It is important that employees understand the implications of doing the job wrong. You must have staff that can understand and appreciate the importance of the work that you are asking them to do.” To that end, revenue cycle leaders should make sure their job descriptions are appropriately matched against the jobs that need to get done and that staff are supported and well trained.

New Denials to Watch

Although Poliseno does not see any other causes of denials supplanting these three costly categories, she has noted a sharp increase in denials related to DRG validation. “We have seen a significant uptick in commercial plans auditing medical records for DRG validation,” she says. She points to one hospital system that had a request to pull more than 1,000 records for review, resulting in hundreds of denials. Although commercial plans have every right to audit, contract language that sets limits and expectations can protect organizations from overzealous activity, she says.

Looking ahead, Poliseno urges organizations to track their denials so they can improve performance. “There are still organizations that do not know what their top three reasons for a denial are,” she says. “Hospitals that don’t have a mechanism to track denials and trend issues will continue to experience significant losses from denials. Data is critical to driving an improvement process, especially related to denials.”


Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill., and a member of HFMA’s First Illinois Chapter.

Interviewed for this article:

Jacqueline E. Poliseno, RN, BSN, CPHM, is director, consulting and appeals for Craneware, Atlanta.\, and a member of HFMA's Massachusetts/Rhode Island Chapter.

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Laura Ramos Hegwer

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