Effective claims denial management enhances revenue: claims denial management has become a critical component of a hospital's strategic effort to offset the adverse impact of Balanced Budget Act payment reductions

Healthcare Financial Management, August, 2002 by Jackie Hodges

Only seven months after implementing a claims denial management program, Forrest General Hospital in Hattiesburg, Mississippi, reduced its outpatient claims denial rate by more than 100 percent, Forrest General had decided to develop the program as part of a larger revenue-integrity initiative, At the start of the program, the facility's outpatient claims denial rate was 18 percent of submitted charges; now, it is 7.4 percent of submitted charges. That difference translates into the retrieval of thousands of dollars each month of what previously would have been lost revenue to the organization (see sidebar on page 46).

Healthcare providers are beginning to recognize the potential of effective claims management to counter the continuing effects of declining payments and increasing cost pressures. Indeed, these adverse effects will continue to be felt for years to come. The Balanced Budget Act of 1997 completely changed the payment landscape for providers, and without Congressional relief, hospitals face additional payment cuts estimated at $21 billion over five years. (a) These Medicare payment reductions, coupled with external forces causing hospital costs to rise, have made it incumbent upon healthcare financial managers to look more closely at their revenue integrity and related internal processes that may be contributing to margin reductions. Claims denials are an effect of a lack of revenue integrity and contribute to the negative total Medicare margins that many hospitals are experiencing today

Revenue integrity depends on compliance with proper revenue-cycle processes from the point where the patient is referred to the organization to the payment of the claim. These processes function sequentially to produce the desired patient outcome and to generate the bill for services related to that outcome. Each process adds critical information along the way to contribute to a total picture of the care rendered and the cost of that care to the patient and/or the third party payer. If any of these processes are not functioning properly mistakes may become compounded along the way leading to denial of the claim. Such mistakes typically take the form of inaccurate or missing data.

ROOT CAUSES OF DENIALS

Inadequate information technology (IT), changes in billing and coding regulations, and staff who lack appropriate training regarding the details of new requirements all contribute to a high rate of claims denials.

A hospital's claims-denial rate often is related to the quality of the hospital's information systems. Traditionally hospital budgets focused primarily on obtaining clinical technologies required to remain competitive in the marketplace. Many hospitals lack adequate information systems for tracking documentation and billing to allow financial managers to identify and resolve revenue-integrity problems. To perform the types of analyses that can reveal the roots of such problems, hospitals require information systems with database software applications capable of generating reports that present claims-related data at various levels of detail.

Many hospitals also are experiencing increased claims denials as a result of the BBA-mandated shift from cost-based to prospective payment systems (PPSs) for most hospital-based services. Until 1997, prospective payment was limited to the DRG system for inpatient services. The introduction of new PPSs for other service lines has caused hospitals to change the way they document, charge, and bill for services rendered. Each PPS, from the resource-utilization-group (RUG) system for skilled nursing facilities to the case-mix-group (CMG) system for inpatient rehabilitation facilities, has its own set of rules regarding documentation and billing.

Problems with implementing these new payment methodologies are among the leading causes of the inaccuracies that result in claim denials. Staff members, particularly those who serve on multiple units, now are expected to understand fully the new PPS payment rules, yet all too often they lack sufficient training to fulfill this expectation. Moreover, the change in payment requirements has shifted responsibility for coding and billing to employees who traditionally have not performed these functions, exacerbating problems with data integrity that are due to employees' lack of training or experience.

For example, the Medicare outpatient PPS, which was implemented on August 1, 2000, materially changed the process for outpatient billing and payment by converting the traditional percentage-of-charges payment method to a payment system based on the CPT/HCPGS coding classification system. The majority of these codes are generated through the charge description master rather than through the health information management department. This shift in coding responsibility without the commensurate training, support, and monitoring of staff involved is perhaps the greatest cause of service-level denials for outpatient claims. The fundamental coding rules and guidelines have not materially changed, but the way the codes are generated has.