The impact of claims denials on the financial health of healthcare

It might be tempting to think that things have settled just a bit in the volatile healthcare market. As the industry worked through the height of the pandemic and into the new normal, hospitals and healthcare systems are, for the most part, able to offer full services and elective surgeries.

However, despite that bit of good news, U.S. hospitals are dealing with increased labor and supply costs, and a healthcare workforce crisis, both of which likely contributed to approximately half of U.S. hospitals finishing 2022 “with a negative margin as growth in expenses outpaced revenue increases.” ^{[1] [2]}

An additional issue plaguing the industry is an increase in claim denials. They have become among the most pressing financial trends for providers to handle, and they end up hurting the pocketbooks of both healthcare providers and patients. High deductible health plans are also leaving many patients with very unfavorable financial experiences, which, holistically, can affect their outlook on their entire episode of care.  

Cloud-based, HIPAA-compliant ERP solution provider Sage, recently sponsored a roundtable on trends in revenue cycle management. The aim was to get a better sense of how well healthcare providers are managing RCM, what they are measuring to determine success and what the impact of claim denials is on their financial picture.

While their hospitals and healthcare centers have long had to deal with claims denials, the number of denied claims continues to rise and payers are showing little inclination to help solve the problem, according to several roundtable participants.

When it comes to effective revenue cycle management and governance, where are you are seeing successes, challenge and areas needing improvement?

Shkysi Cummings: We just went live with our very first electronic medical record at the end of October. That’s probably our biggest success as a hospital because prior to the implementation, more than 90% of the process was paper-based. Within that success, there is a lot of development and areas for improvement. We are looking at our policies and our contracts to ensure that all of our documentation is adequate, and that everybody has one single source of truth around how we should be operating as an organization.

Sherri Liebl: I would assume most people are struggling with the same thing. The number of prior authorizations that are coming through, and the requests for those authorizations, are crazy. We continue to acquire organizations throughout Central Minnesota, and I think some of the big wins for us have been going to a single billing office (SBO). Payer policies dictate that “you need to provide this service in an ambulatory surgery center,” or “you need to provide it in a clinic setting.” We don’t have these types of facilities in some of these communities, because it just doesn’t make sense. Some of the payer policies are not looking at what’s best for patients.

Angela Shelton: We are a little unique in that, instead of being a hospital that purchased physician practices, we are a physician group that purchased a hospital. Because of that, our core group is in Georgia, and our hospital is right across the river in Alabama. We now have a group in Tennessee, a group in Florida and, of course, we have both Georgia and Alabama clinics. We are struggling a little bit with our different lines of trauma versus hospital versus traditional elective clinic for orthopedics. My position was actually created three years ago. Our biggest challenge is trying to get ahead of some of the changes that are happening, especially on the denial end. I’ve been in this field for 30 years,  and denials are nothing new. But it seems that payers are more aggressive with denials than ever. They seem to have taken advantage of the pandemic to slow pay and deny whenever possible.

Suzanne Lestina: At the University of Chicago, we have two hospitals on the Hyde Park campus. We have Comer Children’s Hospital, and the University of Chicago Medical Center. We also have a community hospital, Ingalls Memorial, where we just implemented Epic. So we do have a shared business model within the revenue cycle from front to back now, which is absolutely fantastic. We have responsibility for professional billing as it relates to out hospital-based clinics. We also have professional services that are billed under the University of Chicago Physician Group. Centralized scheduling supports all of our clinics, both on campus and off campus, but they do not report to the revenue cycle. We work closely with compliance and legal on regulatory changes, charge audits and revenue integrity issues. We’re finally all on one system, and we’re starting to see economy of scale as a result.

How are you managing revenue cycle management and analytics, what are you measuring, and how are you acting on relevant data?

Lestina: We have shared goals across the revenue cycle that we break down into smaller lead measures that each team is responsible for monitoring and reporting on. We review our measures weekly. We leverage our Epic data for reporting as well as several analytic tools. Our focus is on reducing aged AR over 90 days, cash acceleration and reducing avoidable write-offs.

Cummings: We are mostly fixed funded. There is one portion of our revenue that is not fixed, which is fee-for-service based. As far as measurements go, we’re not really focused on days sales outstanding, because the majority of our funding comes in equal increments every month. We are basically looking at any inefficiencies that exist within the system to get claims out the door.

Our strategy is really to reduce any inefficiencies that we have. We have committees set up with the clinical teams, and throughout the revenue cycle, to address any specific cross-functional things that need to be addressed. We rely on these committees heavily to raise issues and identify gaps. With the analytics, while relatively new, the aim is to use those findings to inform discussions, first and foremost, with government around funding. That’s going to be a key driver for us, because the majority of our revenue is from government.

Cecilia Gonzalez: We have a couple of key performance indicators that we do monthly for the upper leadership. We are focusing a lot on contractual adjustments because we’re seeing that those are creeping up. Much of this is due to changing medical payer policies. In addition, we do a smaller- scale KPI on denials. We have a new denials dashboard that we started about six months ago.

Shelton: We use the HFMA MAP Keys for our monthly analysis to see how we’re doing and to benchmark against peers. That has been extremely helpful, especially as the payers have been getting more aggressive with denials and holds, or just being slow about paying. On a day-to-day level, we use Power BI [business intelligence] to create dashboards. Those enable each one of our analysts and their supervisors to know how they’re doing in terms of their collections for the month. This lets us better understand who is having trouble or struggling, so that we can jump in and help.

What is the impact of denials on your days sales outstanding (DSO) calculations?

Melissa O’Dowd: It is interesting that so much of the conversation has been around denials. In our revenue cycle survey, we talked to nearly 700 finance and revenue cycle executives. One of the findings was that 60% of our survey respondents had their claims paid correctly for the first time over 80% of the time. If we broaden that out a little, 80% of respondents had their claims paid correctly the first time, over 70% of the time.

Gonzalez: This month we started focusing on managing our top five denials. We are looking at whatever improvements are needed or where there are opportunities. We are now adding quality metrics based on our payer contracts. These will help us focus on some of the key quality measures that the government is paying additional dollars for — such as depression screening and obesity screening.

Lestina: The other thing to take into consideration is the amount of work it requires to get an authorization. Additionally, we’re doing a lot of appeals, and appeals take forever. So, for example, if 30% of claims are denied, assume that 20% end up requiring an appeal to overturn the denial. When you look at the overall amount of claims that are getting paid versus denied or needing an appeals, it may be a higher percent, but it’s just taking longer, and cases are requiring more resources to get denials resolved.

Liebl: We look at contractuals on a regular basis. Bad debt is among these. We also look at any discrepancies between what we are getting paid and what we should be getting paid. We also have a lot of access issues, and our payers are not helping us with this. They are not willing to come to the table and help us move these things forward. As a result we are encountering numerous denials, and we are spending a lot of time on appeals. We are winning the appeals nearly 90% of the time. But the payers are not processing them quickly. The payers make it hard for us to do peer-to-peer reviews. They’re setting up times when our providers are not available because they are in clinic. The payers are stating this is the only time that works.

Shelton: Payers are making it more difficult with denials. Their tactics, if not addressed, erode the bottom line. We’re also having the same staffing struggles as other providers, so we’ve been looking at vendors for outsourcing where it makes sense. We’ve successfully outsourced some of our pre-certification work overseas. That has worked out well. We had tried to outsource some of our billing work, but that was less successful. I’m concerned about forthcoming legislative requirements and meeting the goal of transparency. We’re on board, but we need to determine how to best execute new rules without increasing staff and thus, expense. We’re pursuing artificial intelligence tools because it really is time to delve into payer quality metrics. But we don’t have the internal programming expertise.

We’ve added a whole department on the back end, just to work on things that are second appeals, third appeals, that sort of thing. And a lot of times we eventually get the money. But we’re spending more money to get the same payment, which is really adding to our cost. One of our largest payers, for example, is for our surgery center. They know their system is set up wrong and that doesn’t properly pay our implants. They know it’s an issue.

Conclusion

The percentage of medical services and appointments being done through telehealth continues to rise, and the healthcare industry shows no signs of slowing down with mergers and acquisitions. Those trends will further complicate revenue cycle management practices for many providers. The RCM executives in this roundtable clearly confirm the pain being felt by denials, the need to appeal cases and the slow turnaround for payment by many payers.

One solution is to better educate participating physicians who are medically coding many claims. Physician onboarding should include coding compliance. And when claims are denied, the hospital or healthcare center should take note of who prepared the initial claim submission and where it went wrong for the payer. The organization can then interact with the physician, review the correct process and tools and avoid a repeat of the error. 

New claims volume statistics

Organizations with the highest monthly new claims volume:

• Have relatively low days sales outstanding (DSO) compared to organizations with lower new claims volume (they may be more efficient)
• Write-off the highest total dollar value in claims each year (Logic: more claims, more write-offs)

Source: Sage Claims Research
September – October 2022

First pass claims rate statistic (paid correctly the first time)

Organizations with the highest first pass claims rate:

• Have relatively low DSO compared to organizations with lower first pass claims rate

Source: Sage Claims Research
September – October 2022

DSO statistics

Organizations with the lowest DSO:

• Have relatively high new claims submissions each month
• Have relatively high first pass claim rates
• Have a relatively low average value of each outstanding claim

Source: Sage Claims Research
September – October 2022

Average value of outstanding claims statistics

Organizations with the lowest average value of claims outstanding:

• Have a relatively low DSO
• Place the lowest relative priority on revenue cycle

Source: Sage Claims Research
September – October 2022

Panelists

SHKYSI CUMMINGS
Vice president of operational finance at the Bermuda Hospitals Board, Paget, Bermuda

CECILIA GONZALEZ
Director of revenue cycle at Community Care Network, San Antonio, Texas

SUZANNE LESTINA
Executive director of revenue integrity and strategic innovation at University of Chicago Medical Center, Chicago, Illinois

SHERRI LIEBL
Executive director of revenue cycle at CentraCare Health, Bowling Green, Kentucky

MELISSA O’DOWD
Healthcare industry principal at Sage, San Jose, California

ANGELA SHELTON
Chief revenue cycle officer at Hughston Clinic, Columbus, Georgia

About Sage

Sage helps healthcare organizations focus on strategic initiatives, increase efficiency and drive growth by delivering a depth of healthcare capabilities you won’t find in a traditional enterprise accounting software suite, providing the visibility, flexibility, and efficiency to manage finances, operations, and people across acute, ambulatory, and post-acute organizations.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}

---

^[1]. Fleron, A., Krishna, A., Singhai, S., The gathering storm: The transformative impact of inflation on the healthcare sector, McKinsey & Co., Sept. 19, 2022.

^[2]. Kaufman Hall, National Hospital Flash Report: January 2023, Jan. 30, 2023.