How to prevent silent denials from eroding a hospital’s margin

Finding ways to avoid commercial denials has been a priority of health systems in recent years. Yet even as hospitals implement process improvements, commercial payers have upped the ante, issuing more denials for clinical reasons than ever before.

These denials, including medical necessity denials, tend to be associated with higher dollar values and pose an increased challenge for hospitals because overturning them requires a clinical perspective.

When analyzing their denial challenge, many providers only review the overall denial rate or overturn rate. But these metrics do not account for clinician conservatism regarding medical necessity decisions, which can introduce inaccuracies that can have an impact on reimbursement before a claim is submitted. This type of denial, called a silent denial, can profoundly affect revenue integrity.

Causes of silent denials

Silent denials emerge from clinicians’ conditioned behavior in the utilization review (UR) process. Such denials can be a consequence of actions, or inactions, by both case managers and physicians.

Case managers. Silent denials can often result from a case manager’s efforts to operate efficiently in the face of their many responsibilities, some of which directly affect quality and key hospital priorities. When they receive cases, case managers use a predetermined first-level criteria set to run a “rough” review on whether a case looks like it might be inpatient or outpatient. However, many of these cases are not clear-cut. If a case manager’s experience of a payer’s past responses suggests that a payer won’t accept a case as inpatient, the case manager may, in an effort to be efficient, decide there’s no need to send that case for a physician adviser review and simply classify the case as outpatient, when further review would in fact have determined the case to be inpatient.

Such behavior is understandable but ultimately is not “efficient” and negatively impacts appropriate reimbursement. One physician adviser we talked with noted, “Every case is different, even though they may look similar. A case’s nuances can have huge effects on patient status, and first-level criteria sets don’t account for them. These nuances are often easily overlooked, even by physicians.”

Likewise, case managers sometimes simply accept the results of first-level criteria when a physician adviser is not available to review further. Denial reports show these claims as appropriately paid outpatient cases, whereas they actually represent payment shortfalls.

Attending physicians. Effective UR requires the cooperation of treating physicians because only they can amend the clinical record to defend an outpatient or inpatient order. However, many physicians view administrative tasks related to hospital reimbursement as a distraction from delivering patient care. Some silent denials occur because treating physicians do not follow a physician adviser’s recommendation or don’t recognize the importance of patient status.

The physician adviser corroborated this point: “As an attending, I didn’t care about UR. I just didn’t have the time. Today, at my hospital, 1% to 2% care about UR, 20% to 30% are completely uninterested, and the rest don’t view UR as a priority when they’re trying to keep people alive.”

Even when engaged with UR, attending physicians sometimes hesitate to change a case to inpatient because it could lead to a concurrent denial and a confrontation with payer medical directors during peer-to-peer reviews. Few organizations provide training to help guide treating physicians through these payer discussions, and the prospect of enduring this ordeal can make some physicians uncomfortable.

“The concurrent review process is frustrating,” the physician adviser said. “Payers would call when I’m eating lunch and ask these detailed questions. I’d need the case to answer. Sometimes, they’d start by asking for my NPI number. I’d give up. Nobody wants to deal with that.”

Even if they do feel comfortable negotiating with payer medical directors, this process takes more time from patient care. Unsurprisingly, some physicians will leave a case as outpatient to avoid the distraction.

Detecting silent denials

Each of these above causes represents a failure of UR that reduces reimbursement in the same way as a denial but without leaving evidence indicating the true source of the problem. Determining the severity of a silent denial problem requires hospital finance leaders to dig deeper into their organization’s analytics. In particular, executives should watch for higher observation rates, risk of mortality rates and average cost of care.

They may also experience an artificially higher case mix index (CMI) when compared with peer organizations. Inaccurate patient status for “gray cases” — those more complex cases with ambiguous medical necessity — can inflate patient acuity for CMI and severity-of-illness calculations and raise red flags.

A low denial rate and a high appeal success rate may seem encouraging, but when combined with the above metrics, they could signify problems. A low medical necessity denial rate with a high observation rate could be a sign that insurers are seeing only clear-cut inpatient cases and that providers are misidentifying less-complex inpatient cases as outpatient. A high appeal success rate could indicate that only the easiest cases to appeal are reaching payers in the first place.

Once hospitals confirm that they have a silent denial problem, they need to take steps to correct it, with a focus on processes, people and technology.

Implement consistent processes

Managing a silent denial problem requires hospitals to first ensure that all cases undergo the same UR process, without exception. Often, providers may focus their UR on individual conditions or specific payers (for instance, Medicare patients or cases for a particularly challenging payer).

Although this approach may seem appealing, hospitals likely pay an unacceptable price for such shortcuts: By allowing cases to slip through unreviewed, they are accepting blind spots that harm their revenue integrity. UR cannot ensure the accuracy of a case that isn’t reviewed. Worse, these cases pass through without leaving evidence in provider metrics, so providers cannot quantify the revenue consequences.

Providers also should make sure that the clinical factors justifying patient status are clearly documented in the medical record. A consistent documentation process will strengthen claims and support peer-to-peer and retrospective appeals when denials do occur.

Gain support of case managers and treating physicians

Establishing a consistent and universal UR process to handle every case is a necessary first step, but case managers and treating physicians must still support the process. Persuading them to do so in requires ongoing outreach and education.

Overcoming payers’ influence on case managers’ referral decisions requires hospital executives to demonstrate the value of a consistent UR process. The executives should show examples of cases whose original status changed to inpatient after a physician adviser review and identify the effect these cases have on payment.

Equally important, executives should include examples of cases physician advisers converted in the other direction—from inpatient to outpatient. These cases represent potential denial reductions and rework cost savings. It is important to emphasize how inconsistency in payer decision-making can cause payers to treat two very similar cases differently.

Likewise, educational outreach can persuade treating physicians to clarify documentation as it relates to patient status. An effective approach is to appeal to treating physicians’ focus on patient care by highlighting the benefits of compliance with the standard UR process and good documentation habits in general have on their patients and themselves. It should be explained to them how assigning each patient the correct status affects the patient’s eligibility for certain quality and value-based metrics, such as readmissions or mortality, which can affect physician quality scorecards. Treating physicians should also be reminded that clarified documentation upfront helps reduce the number of interruptions to their patient care efforts.

Improving efficiency with AI

A major challenge is contending with the massive amounts of data that need to be reviewed to identify every instance of a silent denial. Few hospitals can afford to perform manual reviews of all cases.

The most cost-effective and comprehensive approach to meeting this challenge involves artificial intelligence (AI). Using an AI approach, a hospital can automate initial case review and quickly sort results to determine which cases require a physician advisor review.

AI also can help physician advisers improve their efficiency. AI can use natural language processing to scour medical records for relevant medical facts and pair those facts with supporting medical research and the results of prior case reviews. The physician adviser then can have ready access to this information for reviewing a case, instead of having to undertake a time-consuming search of medical records for the important details. The ability to quickly make determinations based on facts and research minimizes the physician advisers’ reliance on subjective opinion, thereby helping to reduce denials and protect a hospital’s revenue integrity.

There are two important caveats to consider before applying AI for this purpose, however.

1. Ask the right questions at the outset of the process. Many health systems have found that, for AI to contribute meaningfully to UR, it is best to start with a foundation built from clinical intelligence. Current best practice involves drawing in sources of knowledge and data – such as medical research, prior case reviews, regulations, and best practices — beyond the limited value of first-level review criteria sets. (See also the sidebar below)

2. Don’t overlook the basics. Payers will still question a hospital’s medical necessity determinations. Hospitals therefore should ensure that clearly recording the factors justifying inpatient status is a required step in the UR process to support peer-to-peer and retrospective appeals.

A holistic approach

Diagnosing and correcting a silent denial problem starts with digging into quality metrics, including CMI, observation rate and mortality rate. Hospitals also have a new, practical and cost-effective tool in AI that can quickly help case managers and physician advisers make accurate medical necessity determinations. This tool, coupled with standardized UR processes and physician engagement through outreach and education, can greatly enhance and accelerate a hospital’s efforts to prevent silent denials and ensure it obtains appropriate payment for all its services.

Ingredients of effective AI

Hospital UR processes are particularly suited to the application of artificial intelligence (AI), especially with some specific characteristics.

For example, providers have found that imbuing AI with clinical intelligence from a diverse foundation of medical knowledge and data can meaningfully contribute to UR. These attributes enable AI not only to recognize key medical terms but also understand how they are used. For instance, “patient has a history of smoking,” “patient has no history of smoking” and “patient does not report a recent history of smoking” all convey different thoughts. AI must understand this nuance — not just the isolated term “smoking” —to provide the benefit of AI at scale.

Another key takeaway from providers that have implemented AI: Don’t overlook usability. Making AI easily accessible saves physician advisers time when reviewing cases. Even the most comprehensive repository of guidance will not provide much value if it requires physician advisers to perform lengthy searches every time they use it. Without AI serving up key facts and contextually relevant research, it is really just another library that physician advisers must dig through, which will not address resource constraints.