With ongoing market challenges in the healthcare industry, pressures are mounting to ensure greater efficiencies throughout the revenue cycle, and denial performance is one measure to watch.
Historically, hospital executives have used the final denial write-off rate metric – the posted final denial transactions over net revenue for a given period of time – when monitoring their organization's denial performance. Through its Revenue Cycle Analytics, Crowe Horwath LLP receives daily transactional-level feeds of patient accounting system data from more than 750 hospitals. Through studies on denial tracking, Crowe has found that while the final denial write-off rate metric provides directional insight into some of the issues related to the systematic revenue cycle, it does have weaknesses.
In response, Crowe has developed a new denial realization gap method to address these weaknesses and monitor lost revenues on denials. This method uses both an organization's electronic remittance (835) and patient account system information to separate its fully resolved accounts into two distinct populations: denied and nondenied. The difference in the realization rates (payment rates) between the two populations is known as the denial realization gap. The product of an organization's denial realization gap and its gross initial denials equates to an organization's true opportunity loss due to denials. In short, the new method's focus on standardized account-level data allows an organization to gain greater clarity on denial performance.
Weaknesses of the denial write-off rate metric
Final denial write-offs are prone to errors due to human interpretation. Though processes might be in place to define when the appropriate denial transaction codes should be used, many organizations struggle to implement the necessary controls to ensure incorrect postings are identified and resolved in a timely manner. Organizations traditionally rely on employees to record manually the correct amount and the correct reason. Without tight controls, this process is prone to human interpretation errors that often lead to the understatement of denials.
Final denial write-offs are not informative enough to identify the root cause. Each facility is responsible for creating write-off categories to align with denial issues and for training staff on the proper use of each code. While many organizations have stringent write-off processes, sometimes an inappropriate code is used. In addition, final denial transaction codes typically are not detailed enough to accurately define the root cause of the net revenue loss. One example of this is a claim where an initial denial is issued due to a mistaken patient eligibility issue, and subsequent denials are issued due to a lack of pre-authorization based on the previously misidentified payer. Staff might record this event as a pre-authorization final denial, but this does not take into account the misidentification of the payer as the root cause.
Final denial transaction codes are not standardized across the market. Unlike the standardized claim adjustment reason codes that appear on most if not all of the remittance advice received by providers, final denial transaction codes largely are created at the discretion of each facility. This makes it difficult to compare a facility's performance against the market. Benchmarks do exist for final denial write-offs as a percentage of net revenue. However, many benchmarks do not discriminate between the types of denials. What is the benchmark for final denials occurring due to an unattained pre-authorization? Unfortunately, the traditional method does not lend itself to an answer for this or any similar question.
While the final denial write-off metric should continue to be monitored, these weaknesses have created challenges for organizations attempting to appropriately diagnose denial-related issues. The denial realization gap method addresses these challenges and helps organizations take a fresh look at how denials affect their bottom line.
The new standard: the "denial realization gap" method
The denial realization gap method provides an organization the opportunity to both accurately identify the impact of denials and pinpoint opportunities for operational improvement. The method compares two separate and distinct populations of an organization's fully resolved accounts. The difference in the realization rates between denied and nondenied accounts is known as the "denial realization gap" and represents the true opportunity loss of the organization's denials. Using this method, an organization can attack its denial issues in two ways. First, the prevention of denials effectively limits the size of the "denied population." Second, improving denial-resolution processes can decrease the gap between the two populations.
An organization can use the denial realization gap method if it has the ability to manipulate and combine 835 and account-level data. The Crowe denial realization gap method can help by providing an automated calculation, standardized trending, guidance on targeting areas of the greatest net revenue opportunity and nationwide benchmarking.
The benefits
There are four primary benefits revenue cycle directors will gain after implementing the denial realization gap method into their organization's denial management framework.
1. Eliminate inconsistencies in denial processing. The method depends on electronic remittance postings as opposed to human intervention, which removes the risk of a human misinterpreting the appropriate transaction code or amount of a denial when resolving an account.
2. Target denial root causes. The method introduces additional data elements such as service lines, procedure codes, diagnosis-related group codes and American National Standards Institute codes, which allows for a targeted approach to identifying denial root causes (e.g., registration errors, invalid coding, failed claim edits) and the opportunities for improvement that will provide the greatest net revenue impact.
3. Benchmark performance. The denial realization gap method uses the standardized ANSI claim adjustment reason codes, which can be an applied by all organizations. This eliminates the use of inconsistent denial transaction codes and provides an environment where one organization's performance when receiving an eligibility-related denial reason code can be easily compared with the market.
4. Track financial impact. An organization can track its denial performance in a variety of ways to follow current performance and the impact of implemented initiatives on prevention and resolution. Envision hospital leadership that has identified a $10 million denial opportunity using the realization gap method. By tracking the reduction of initial denials, leaders can use the realization gap to quantify the impact of any implemented initiatives. Likewise, by continuing the use of the method, an organization can track trends and changes to its realization gap, which provides valuable insight into the organization's denial-resolution efforts.
Know the true opportunity loss due to denials for your organization
Healthcare organizations consistently strive to improve revenue cycle efficiencies to counteract both upcoming and ongoing market challenges. The first step is to understand the true opportunity loss of denials on an organization's net revenue through the use of the denial realization gap method. It's time to revolutionize the denial management framework to begin to identify and eliminate revenue leakage.
Brian Sanderson is a principal with Crowe Horwath LLP and can be reached at +1 630 574 1607 or brian.sanderson@crowehorwath.com.
Matt Szaflarski is a revenue cycle specialist with Crowe and can be reached at +1 630 586 5229 or matt.szaflarski@crowehorwath.com.
Rachel VonDielingen is a revenue cycle specialist with Crowe and can be reached at +1 630 990 4414 or rachel.vondielingen@crowehorwath.com
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