AR or the Accounts Receivable process is the most crucial component in the Revenue Generation Cycle. An efficient AR that involves the success or loss in terms of the rate of denials &/Rejection medical claims process can have a positive or negative impact on the Medical Billing practice.
With the changing healthcare the ever nagging thought – how to reduce Claim Denials & Rejections, and increase Medical Billing Practice Revenue collection, is one of the most important concerns in Revenue Cycle Management (RCM) and its optimization.
Revenues Impacted
Healthcare service providers have seen anywhere between 3-5 percent of net revenues lost as a result of claim rejections by Medicare, Medicaid, and other insurance providers. The year 2014 statistics showed that up to 25 percent of claims submitted to insurance companies were turned down because of errors that could easily be identified and managed.
Inefficiencies in the medical billing process such as claims paid below the contracted rates, or services that are never billed, can impact revenues negatively. Most companies, even with a seamless billing process, are known to experience a claims rejection rate of 10 percent on the first pass, or with more complex patient rates, it may climb higher.
Claims adjudication can be expensive especially when refilling and resubmitting, with costing going up to $25 per claim or even higher. Hence, optimizing the claims submission process brings in higher benefits with the first-pass payment rate, and thus shortens the A/R billing cycle.
One of the important mistakes or misunderstandings in the Revenue Cycle Management process is that denials and rejections are mentioned in the same breath! There is a difference:
- Rejected Claims – those that do not meet the specific data requirements or the basic format necessary are rejected. The rejected claims are not processed because they are not considered to have been “received” by the payer, and thus do not make it into the adjudication system. A rejected claim can be resubmitted when the error (or errors) is corrected appropriately. It’s important to note that beneficiaries of a rejected claim cannot be held liable because the services were never actually billed. However, some rejections are not appealable given if they have been rejected on the first instance of posting a claim.
- Denied claims – they have been received by the adjudication system of the payer, and cannot be resubmitted because the payment determination has already been decided upon. A denied claim can, however, be appealed by the request of the payer to necessitate the proper modifications, additional required documents, etc.
The processes necessary to effectively overturn the ruling of rejection is different from that of denial. Understand how this would translate into losses?
- Suffering the increased costs of appealing the denial. Also, reduced reimbursement from many players impacts income generation
- Some Rejections that are not appealable will translate to a loss of income for services provided
An annual audit for the assessment of efficiency and effectiveness of Revenue Cycle and Accounts Receivable is the first step towards Denial Management.
How do I reduce my RCM losses?
- Ensure that correct medical provider information has been submitted
- Ensure correct patient information
- Ensure error-free diagnosis or point-of-service code is entered into medical billing software
- Ensure that the treatment and diagnosis codes match properly
- Conduct Workflow Analysis which includes the accounts receivable (AR) process, billing/expenses, supply costs, sales prospecting, and closing, denials, utilization review and, staffing.
- Plugging the gaps by understanding the underlying reasons for claim denials – services not covered, a medical necessity not established, prior authorization not obtained, claims filed incorrectly, supporting documentation missing, timely filing, etc
Investing time into the denial management strategy can minimize the impact on the medical billing practice.
Making an effort to reduce the amount of denied claims will require additional effort as the direct cause can be slightly more difficult to sniff out.
Once workflows are assigned to process denied and rejected claims separately, the bottom line of that organization will improve immediately.
In conclusion, being reimbursed for your claims is imperative:
- Provisioning of effective payment denial and appeal tracking services will result in better-than-average reimbursement rates.
- Implementing better accounting practices and remove as many denials as possible
- Consistently following up and ensure claims resolution to accelerate your cash flows and reduce your outstanding A/R days.
- Maintaining payer’s claim processing timelines and follow up diligently.
FAQs:
1. What is Accounts Receivable (AR) in medical billing?
Accounts Receivable (AR) refers to the outstanding payments owed to healthcare providers for services rendered. It is a critical part of the Revenue Generation Cycle, influencing the overall revenue collection and cash flow of medical practices.
2. What is the difference between rejected and denied claims?
Rejected claims are those that do not meet basic data requirements and are not processed by the payer; they can be corrected and resubmitted. Denied claims have been processed but were not approved for payment; they can be appealed but require additional documentation or modifications.
3. How do claim denials and rejections affect revenue?
Claim rejections can lead to significant revenue losses, often between 3-5% of net revenues. The cost of resubmitting claims can also add up, with expenses reaching $25 or more per claim, further impacting cash flow and revenue.
4. What are common reasons for claim rejections?
Common reasons for claim rejections include incorrect provider or patient information, missing documentation, errors in diagnosis or procedure codes, and claims submitted outside the required filing period.
5. How can practices reduce their claim denial and rejection rates?
Practices can minimize denial and rejection rates by ensuring accurate submission of provider and patient information, conducting thorough workflow analyses, investing in denial management strategies, and regularly auditing their Revenue Cycle and AR processes to identify and address inefficiencies.
With almost 12 years of experience in healthcare revenue cycle management, this Revenue Cycle Specialist brings deep expertise in medical billing, claims optimization, and practice profitability. Shares industry-backed insights focused on improving collections, reducing denials, and driving operational excellence.
