How 4 healthcare complexities are driving up claim denials

March 18, 2022

Updated from original, published June 25, 2019

Today, 90% of insurance claim denials are avoidable, yet they’re still occurring on a massive scale at healthcare organizations across the country — many times for simple reasons like missing patient identifier information or spelling errors. And given the ever-changing complexities around claims management and processing, it comes as no surprise that approximately 3.8% of insurance claims submitted are denied on first submission. And that’s not considering the expense of rework — this added effort also drives up hospitals’ total cost to collect. A denied claim costs roughly $118 to rework, and as much as 50-65% of claims are never reworked. Although a large portion of these denials are preventable, only about two-thirds are recoverable. That means gaining real traction in reducing claim denials rests heavily on denial prevention. According to research from the American Medical Association, the industry wastes $17 billion each year through claims errors.

There is no perfect solution, but there is help on the way. According to the 2021 Internet of Healthcare Report, 54% of executives pointed to claims management as benefiting most from the adoption or expansion of AI.

If we know claim denials are draining the industry of resources, why haven’t we solved the problem?

Today, the claims management process is far too complicated for any one solution to solve alone — continual changes in payer policies create an added level of complexity, claims management processes are too decentralized, human error and process inefficiencies are plaguing the industry and so on. Because of this complexity — and despite being largely preventable — denials cost hospitals $407 billion annually, making them one of the most talked about challenges facing healthcare today. And they are a growing problem. Hospitals and other health systems simply don’t have the people, the procedures or the time to solve for the complexity afflicting our claims management processes — from workflow inefficiencies and insufficient resources to overly complicated claims management policies among payers.

1. Resources are stretched thin, and processes are fraught with error

Although accuracy and thoroughness are critical when managing claims, the resources required to manage the processes are often stretched too thin to handle the large volume of work. That’s because healthcare employees are often overworked with multiple competing priorities, and many hospitals lack the resources — such as staff, time or budget — needed to touch every patient account. That’s partially because today, even though providers can choose from an almost never-ending list of technologies and tools to help manage their business operations, 38% are still using manual claims denial management processes, according to the 2021 Internet of Healthcare Report.

Aside from being time-consuming and burdensome to healthcare employees, providers and clinicians, manual claims processes are incredibly susceptible to human error — errors that cost healthcare organizations time and money. Understanding the problem and being able to solve it are two different things, however.

Unfortunately, most organizations don’t have additional labor to dedicate to more frequent checking — whether that be the status of the authorization, the status of the claim or the most up-to-date eligibility information. To help quantify the problem: It takes a staff member around 12.64 minutes on average to manually check one patient’s eligibility and 14 minutes to check a claim status. At those rates, even entire teams of healthcare employees dedicated to these tasks don’t have the capacity to keep up with the influx of work, leaving money on the table for services rendered by healthcare organizations across the country.

Because of these time and capacity constraints, many organizations primarily focus their time and resources on the high-dollar accounts. That means low-dollar accounts are often outsourced to a third-party vendor — reducing a hospital’s visibility into the causes behind their denials — or they slip through the cracks altogether. All these missed payments from low-dollar accounts add up — and accounts that are worked are often plagued with errors due to the unmanageable, complicated claim process. Healthcare employees just aren’t humanly capable of handling the high volume of manual data entry necessary to submit clean claims 100% of the time. The result? Burned-out employees and downstream denials costing healthcare organizations millions of dollars in lost revenue that could have been avoided.

2. Denials management and financial clearance processes are too decentralized

Unfortunately, the process today is often too decentralized for many hospitals to manage efficiently and thoroughly. But organizations can get ahead of many denials with a proactive approach to claims management and a dedicated team focused on denials prevention. One best practice healthcare organizations are using is to centralize these processes, helping to build an infrastructure of dedicated teams and accountability among those handling their claims.

Building a centralized denials team helps create accountability and allows organizations to focus not only on claims management, but also on claims denial prevention. This is important because finding and preventing the root cause of denials has a much larger financial impact on their bottom line than working to overturn denials. But frequently one of the biggest issues is that the process is often handled by employees wearing multiple hats with many competing priorities. For example, the employees handling insurance eligibility are not only checking for eligibility, but also are gathering patient demographic information, providing pre-service instructions, answering questions, handling financial counseling, answering phone calls and more. The result? There’s often not enough time to handle the volume and collect the necessary information for reimbursement. That leads to more patient balances to be collected at a later point in the revenue cycle — and that’s not always an easy task. To make matters worse, 72% of clinicians are expecting administrative burden to become even worse.

Lack of transparency and sharing of data between the various teams handling denials is another result of this decentralization. Today, many hospitals still have separate reporting by entity and don’t always share critical data. Despite that, most healthcare executives agree that a proactive denial prevention process should be grounded in analytics, using data to determine and solve the reason for recurring denials. Transparent reporting and sharing of data help organizations uncover these insights and trends to prioritize the denials work. Increasing transparency internally and externally helps hospitals share important data to find the root cause behind their denials, allowing them to see the bigger picture.

3. EDI transactions are complex and imperfect

Many healthcare organizations use electronic data interchange (EDI) transactions to handle large volumes of information and expedite reimbursement. For instance, electronic eligibility checking is the most widely adopted electronic transaction today. So why are 23.9% of claims still denied due to eligibility and registration issues? That’s partly because of a broken billing process across the revenue cycle and disadvantages that come with the current electronic data interchange options.

Let’s look at the current options around eligibility and authorization a 270/271 and 276/277 example. Prior to a patient’s visit, the 270/271 inquires and identifies the healthcare benefits and eligibility associated with a patient, but often the responses don’t have complete information, causing an additional touch for staff to fix the missing information from the front end. There are limitations with EDI transactions after a patient has received care, too. The 276/277 options are also limited by the information they return — organizations may know a claim was rejected because of missing information, but won’t necessarily know what information is missing. The industry is struggling with this issue because many inquiries about status are still done outside the EDI transactions. And manually checking each claim requires exponentially more staff than most organizations can hire, not to mention more room for human error and the added cost to collect. Reprocessing claims drives up labor costs as billing staff are forced to devote more time to unpaid claims. The capacity constraints show up in the numbers, too: Up to 65% of denied claims are never resubmitted.

These denied claims trigger effects that disrupt other aspects of the hospital’s finances, too. For example, after a payer denies a claim, administrators are forced to chase the denial, which often requires making multiple calls to the ordering physician and working closely with the payer. This is time-consuming and may not always lead to reimbursement. The claim then sits in accounts receivable until it is adjudicated, which can take weeks — even months. Not knowing where claims stand in the adjudication, and for what reason, has a negative impact on days in A/R and contributes to writing off accounts as uncollectible. To have a significant reduction in these uncollectible claims and improve an organization’s overall cash position, organizations need to know more information, sooner.

4. Payer complexity continues to increase

Payer complexity is nothing new — it’s a moving target for which organizations need to have a proactive process in place to stay on top of their denials. Unfortunately, there’s not always someone assigned to the task of reviewing and keeping up with payer policies. Insurance companies are increasingly leaning on utilization management techniques like prior authorization to avoid payment, and even after patients receive authorization, their insurers may still refuse to cover treatment costs right away. All of these additional touches to patient accounts are increasing the overall cost to collect for hospitals across the country.

Submitting clean claims (claims that were accurately processed and reimbursed the first time they were submitted to the payer) significantly reduces denial rates but is increasingly challenging due to complex and changing payer reimbursement policies and procedures. That’s partly because authorizations vary by payer, so hospitals are constantly battling denials as payers require authorization for more types of procedures or adjust policies without any notification to providers. That’s not including the large volume of claims that do not require authorization at all, yet organizations still check their necessity, which is wasted time.

Of the services that do require prior authorization, many include high-cost services or procedures, or services that may be considered unnecessary all together, making the authorization window a critical time period for preventing rejections and denials. But with increasing regulatory requirements and the added complexity of value-based care coming into play, claims management has only become more complicated for healthcare providers to manage. And as these value-based care models begin to replace traditional fee-for-service structures, healthcare organizations are anticipating added strain on their already-declining claim reimbursement rates.

Tackling the problem: Hospitals are optimizing the process with AI and automation

Human error, payer complexity, broken processes and strained resources — all these tangled challenges contribute to the fact that hospitals across the country are losing the war against denials. And as reimbursement dollars shrink and complexity continues to increase, more and more healthcare organizations are considering a different approach to tackling the claims denial challenge: AI and automation

Meet Olive, an AI workforce built specifically for healthcare

Olive was designed to interact with EMRs, insurance portals and other healthcare applications the same way a human would — only faster, smarter and more securely. The best part? Olive automates common claims management processes 24/7, never fatigues and is less error-prone than a human.

For instance, at one midwestern hospital, Olive was trained to access the EMR/EHR work queues and automate claim status checks, emulating all of the manual steps associates had once done, but checking the status of claims seven times faster than human employees.

In addition to giving hospitals significantly more capacity, leveraging Olive in claims management processes helps centralize efforts and uncover valuable data and insights into denials. That’s because Olive provides better and faster information that will reduce denials — and the reason for denials — by identifying trends and issues with claims that need to be solved before submission.

Olive was built to handle payer transactions with speed and ease. For instance, if Olive doesn’t find eligibility information on her first check, she deploys a search for benefits among other health plans commonly serviced by the health system to uncover the necessary information to prevent a denial. And by checking eligibility, authorization and claim status early, frequently and more thoroughly than your human employees have the bandwidth to, Olive accelerates cash flow and increases successful appeal efforts, impacting the organization’s revenue recognition and resolving recurring denials.

The growing administrative burden in healthcare is costing the industry over $1 trillion annually — and that is why our solution aims to reduce burnout while unleashing $1 trillion within the industry. Learn more about Olive today and see how we can help your organization.