Initial claim denial rates put revenue cycle in tough spot

The problem with initial claim denials

Claim denials are a major issue for the healthcare revenue cycle. Yet, overall rates continue to increase despite investments from providers to curb denials, says Matt Szaflarski, vice president of revenue cycle intelligence at Kodiak.

Healthcare payers are seemingly denying claims at first to slow reimbursements to medical providers, he suggested. And while most claims are ultimately paid, healthcare providers are spending a lot of resources to overturn initial claim denials, as slower turnaround squeezes cash flow.

It can be challenging to determine why certain claim denial reason codes are increasing more than others, particularly for issues with medical necessity and requests for more information.

"Changing payor policies and billing rules often generate spikes in denials as providers hurry to modify workflows to comply with the new rules of the game," Szaflarski stated. "Specifically, on Request for Information denials, there appears to be a more prevalent practice for payors to request itemized statements for high-dollar claims from providers."

Meanwhile, healthcare providers have invested heavily in ways to streamline prior authorizations to prevent claim denials and improve timely access to care. Still, prior authorizations continue to be one of the most burdensome payer rules and regulations to manage for providers.

"There is certainly not less burden on providers relative to prior authorizations," said Szaflarski. "As denials have increased, providers have increased investment and focus on prior authorizations to reduce the risk of revenue leakage. This includes tighter policy enforcement on delaying elective procedures if authorization is not obtained."

These investments point to some revenue cycle improvements when it comes to prior authorization troubles. However, the problem with claim denials seems to have just shifted to other denial reason codes.

"It's been a relatively steady growth over the last couple of years, but the challenge is that initial denials continue to grow year over year despite significant investments made by providers," Szaflarski explained.

Denials lead to patient collection issues

While healthcare providers noticed an uptick in initial claim denials, they also encountered challenges collecting patient financial responsibility.

"The major challenge here that providers face is that insured patients are now making up more than 50% of all bad debt write-offs," Szaflarski explained. "This is to do with plan designs with higher patient responsibilities (i.e., high-deductible health plans)."

The average deductible amount in 2024 for patients covered by employer-sponsored health insurance -- which covers more than half of the U.S. population -- was $1,787 for single coverage, KFF reports. That amount is similar to the previous year's amount. However, it is 47% higher than the amount ten years ago, KFF stated.

In many instances, patient financial responsibility is beyond what patients can easily afford, according to Szaflarski. Claim denials are compounding the issue.

"Increased denials also increase the amount of time it takes to resolve claims with payors," he explained. "The patient usually doesn’t receive their patient statement until all of that work is completed, which can be months later. The longer a patient responsibility sits out there, the less likely a provider is to collect it."

A 2024 analysis from Kodiak also found that providers take longer to collect from patients the more that they owe. When patients owed more than $500 to providers, they were less likely to pay their medical bills. Meanwhile, the opposite was true for patients who owed $500 or less.

Many providers are refocusing on point-of-service collections to counteract recent patient collection trends, Szaflarski said. However, improving revenue cycle performance may still be a challenge due to claim denial rates.

"The revenue cycle has honestly never been more difficult and there are very few indications that this will change anytime soon," he explained. "As an example, for many years, a staple of a strong revenue cycle was to manage AR >90 days at 20% or less. Across the 2,100 facilities within our benchmarking database, no one is performing at that level; the overall market is now north of 35%."

"At the same time, revenue cycle leaders are under pressure to reduce costs while denials and patient responsibilities continue to rise," he concluded. "In short, we are in a situation where the focus needs to be on focusing the resources we have on the right problems at the right time."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.