What are the Different Types of Denials in Medical Billing?

by | Published on May 20, 2022 | Insurance Verification and Authorizations

Denials in Medical Billing
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Earning sufficient revenue to cover overhead expenses and provide quality care is a major challenge for healthcare practices and hospitals. In addition to numerous declining reimbursements, government regulations, and third-party requirements, medical billing denials are the main concern for sustaining a successful medical business. Denials and delayed or incorrect reimbursements from payers are the results of inefficient coding and billing. Getting professional support is a viable solution. There are different types of denials and partnering with an experienced physician billing company can help prevent them.

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Change Healthcare: Most Medical Billing Denials are Preventable

Findings of the Change Healthcare 2020 Revenue Cycle Denials Index show that about 85% of denials are preventable, but nearly a quarter (24%) of these cannot be recovered. The analysis revealed worrying statistics:

  • The average denials rate is up 23% since 2016, topping 11.1% of claims denied upon initial submission through the third quarter of 2020
  • Since the onset of COVID-19, denials have risen 11% nationally.
  • The highest denial rates are in regions with the highest first-wave of COVID-19 outbreaks
  • Half of the denials are caused by front-end revenue cycle issues (Registration/Eligibility, Authorization, Service Not Covered).
  • The top denials cause remained constant since 2016: Registration/ Eligibility, approaching 27% of denials.

Common Causes of Medical Billing Denials

Claim denials come under two categories: hard and soft. A hard denial is when the insurance refuses to pay the claim because the service is not covered. Even appeals may fail to reverse or correct a hard denial, leading to lost revenue. Soft denial is when an insurance company reviews a claim and rejects payment due to an issue like missing data or lack of documentation. Soft denials are temporary and have the potential to be revered if the provider makes the necessary corrections on the claim or provides the required information. Physician billing companies are well aware of the reasons for claims denials and help practices implement proactive strategies to prevent them.

  • Missing or invalid claims information: A denial can be triggered when a claim form is incomplete. Missing or wrong data on a claim could be everything from social security numbers to plan codes, modifiers, addresses, and other demographic and technical errors. The Change Healthcare 2020 study found that missing or invalid claim data accounted for 17.2% of medical billing denials and 26.6% are caused by patient registration/eligibility issues. Insurance verification plays a key role in preventing eligibility denials in medical billing.
  • Medical coding errors: Coding issues in the bill will result in a payment denial. Errors include: missing codes, wrong codes, using the wrong coding system for the insurer, standard of care does not align with the included diagnosis codes, or undercoding and overcoding which occurs when the claim contains higher-level CPT or HCPCS codes than what is supported by medical necessity, medical facts, or the provider’s documentation.
  • Duplicate claim or service: This type of denial occurs when claims are resubmitted for a single encounter on the same date by the same health care provider for the same beneficiary for the same service. Duplicates account for up to 32% of Medicare Part B claim denials.
  • Lack of coordination of patient benefits: Some patients may have multiple payers. Claims must be submitted to the primary insurance first, and depending on the need, the balance is submitted to the patient’s secondary and tertiary insurances. Reasons why coordination of benefit denial occurs include:
    • Estimate of benefits is missing
    • Another insurance is considered primary
    • The member has not updated additional insurance information

Coordination of benefits is necessary to determine which payer is the primary, secondary, and tertiary insurance to ensure that the correct payer’s pay and duplication of payments is prevented.

  • Service not covered: This type of denial occurs due to neglecting to perform insurance verification to determine if the procedures and services being provided are covered under the patient’s current benefit plan. Service Not Covered accounts for 57.7% of claims denials, according to the Change Healthcare 2020 Revenue Cycle Denials Index.
  • Medical necessity: A top denial reason (accounting for 6% according to Change Healthcare), medical necessity denials are hard denials. The reasons for this type of denial are:
    • Inpatient criteria have not been met
    • Inappropriate use of the emergency room
    • Length of stay
    • Inappropriate level of care

Medical necessity denials need an appeal to request reconsideration

  • Service already adjudicated: This type of denial occurs when a service is already included in another claim/payment which was already settled.
  • Authorization/Pre-Certification: Payers have specific prior authorization requirements and when these are not met, claims are denied. Moreover, these rules tend to change frequently and unexpectedly and practices would have to resubmit forms for denied claims in accordance with the payer’s updated specifications.
  • Time limit for filing has expired: Insurance companies have strict time limits for claim submission, including a deadline to submit reworked claims and reviews to check codes and coverage. Inpatient medical coding errors accounted for 81% of complex claim denials in the fourth quarter of 2015, and correcting them can cause delays that go past the submission deadline (https://itechdata.ai/).

Strategies to Prevent Claim Denials

Though most medical billing denials are preventable, the problem continues unabated. Medical Economics reported on a study that identified the factors responsible for the rise in claim denials as “a lack of denials resources, such as expertise to support appeals and data for root cause analysis, as well as staff attrition and training, growing denials backlog, and legacy technology”.

Implementing a denials-prevention strategy that includes the following can help reduce the risk of claim denials:

  • Know the types of denials your practice is receiving
  • Track denials – identify the source and root cause of denials
  • Monitor clean claims ratio
  • Prioritize medical billing and coding oversight
  • Determine what remedial measures to take and where they will have the greatest impact
  • Choose end-to-end revenue cycle management software
  • Utilize advanced analytics and artificial intelligence

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Outsource Strategies International (OSI) uses the right strategies to prevent claim denials.

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Last but not least, choose the right partner – a reliable physician billing service provider that will provide dedicated support to manage your revenue cycle. An expert will work with you to identify problematic trends in denials and reduce your denials by implementing best practices for medical billing, coding, and insurance verification and authorization.

Natalie Tornese

Holding a CPC certification from the American Academy of Professional Coders (AAPC), Natalie is a seasoned professional actively managing medical billing, medical coding, verification, and authorization services at OSI.

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