Franklin, Tenn.-based Community Health Systems has seen increasingly aggressive payer behavior on the commercial and Medicare Advantage fronts in recent quarters, creating significant financial headwinds for hospitals, executives said during the company's Oct. 24 earnings call.
"We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients for several quarters now," CEO Tim Hingtgen said. "In response, we have enhanced our utilization review program and centralized physician advisory services to ensure our patients are placed in the correct care status and that we receive appropriate payment."
CHS' physician advisor program has achieved a high rate of reversal on initial payer denials but the rate of denial activity by payers continues to grow and pressure the health system's top line, according to company executives.
"We are making incremental investments in our centralized patient financial services processes and teams, as well as our physician advisor program to continue to advocate for the appropriate classification of care for our patients and payment for the services our health systems provide," Mr. Hingtgen said.
CHS has also seen significant increases in downgrades by managed care plans, as well as initial denials, with more than half of the incidents coming from Medicare Advantage, according to CFO Kevin Hammons.
"While denial activity is not new, the tactics used by the payers have become more aggressive, and we have experienced an approximate doubling of denials in the [third] quarter compared with the prior year, which is an increase above our expectations," Mr. Hammons said. "This resulted in an approximate $10 million headwind for the quarter."
Payer denials have largely focused on claims affected by the two-midnight rule, which mandates that hospital stays shorter than two midnights be considered outpatient care. However, according to Mr. Hammons, this is only part of the issue.
"Maybe the two-midnight rule is the impetus, but we're seeing payers be more aggressive across many areas of denials," he said. "They're expanding the population of claims they deny, and while most of this activity is in Medicare Advantage, we're also seeing more denials in the commercial book as well."
In addition to an increase in denials, CHS said it is also experiencing a significant slowdown in the claims adjudication process.
CHS has been working to appeal denied claims, with some success. Mr. Hammons reported that about 25% of cases involving stays longer than two midnights were successfully overturned, though 70% of claims are still awaiting final adjudication. This protracted appeals process, coupled with the growing rate of initial denials, is a challenge expected to persist in the coming quarters.
Looking ahead, hospitals are likely to face ongoing denial pressures, making it critical for leaders to invest in programs that support accurate care classification and robust appeals strategies.