Practices, clinics, and hospitals across the country use a substantial amount of resources reacting to claims management issues. In fact, 25–30% of the nation’s total health care expenditures are direct transaction costs for inefficiencies associated with claims management (American Medical Association (AMA)). To remedy claims issues such as payment reconciliation and claims follow-up, healthcare revenue cycle professionals implement the denials management process.
Denial variance refers to the difference between the expected reimbursement from payers and the actual amount received after claim denials and underpayments. This variance is a critical metric in the denials management process because it highlights the gap between projected revenue and actual cash flow. Healthcare providers can use denial variance management to understand why this gap exists, identify patterns in denied claims, and implement measures to reduce it over time.
By tracking denial variance, revenue cycle management (RCM) teams can pinpoint the root causes of denials, whether they stem from coding errors, medical necessity, or eligibility issues. Understanding these denial reasons allows healthcare organizations to adjust workflows and make necessary improvements in medical billing and front-end processes to prevent future denials. A proactive approach to managing denial variance can also improve overall cash flow, reduce write-offs, and support profitability for healthcare practices.
Implementing effective denial variance management helps providers streamline the denial management process by focusing on key denial trends and developing targeted prevention strategies. With the right data and technology, like automation and machine learning, healthcare teams can not only reduce denial rates but also increase net revenue by ensuring more claims are processed accurately on the first submission.
Denials management is the process in revenue cycle management (RCM) that focuses on understanding why claims were denied by insurance companies or other payers. This is followed by implementing denials prevention and workflow solutions, and diving deep into claims analysis.
Specifically, denials management consists of the following steps:
Identify top reasons for claim denial
Analyze the data
Align team workflow
Discover preventative steps
Initiate a denials prevention plan & rework claims
Measure success (Did you receive reimbursement?)
The following article breaks down these steps..
Essentially, this step consists of gathering information about your denied claims and either inputting data manually or using a tech solution to organize your findings. First off, you’ll need to aggregate as many of your claims as possible.
Though tedious, you’ll need to look through all of the Claims Adjustment Reason Codes (CARCs), or generalized reasons for denial found on your 835s, as well as the Remittance Advice Remark Codes, or supplemental explanations for monetary adjustment or policy information advice for remittance.
After you’ve gathered your data, it’s time to sort through what you’ve collected. At this stage your denials are already organized in columns for year/quarter, CARC, billing provider, rendering provider, etc. (whether automatically with a software like Rivet or manually using something like Google Sheets or Microsoft Excel). It’s now time to drill down into the data and analyze trends.
Do you know your average denial rate? If you don’t, now’s the time to find out. You’ll want at least three months of data to get a good look at trends.
While the industry average rate of denial is 5 to 10%, the recommended rate of denial is below 5%, according to the American Academy of Family Physicians. Unfortunately, it’s the new normal to have a denial rate above 10%. In fact, the national average denial rate is now at 11%; a 23% increase since 2016 (Change Healthcare 2020 Revenue Cycle Denials Index).
In this step, the front-end, mid-cycle, and backend teams must be consulted. Meet as a team or separately to ask what processes are being followed to fulfill each person’s job title. Maybe that’s asking team members how they work a difficult claim. Or maybe that’s how they go about registration or eligibility. You’ll likely find that most, if not all, team members have unique ways of completing the tasks they’ve been given.
Approximately 66% of denied claims are recoverable, but 50–65% of denials are never reworked and lack of claim rework may be due to your team’s current workflow. A few teammates may have extremely efficient workflows, but how will you know until you speak to your team? Align the best way to work denied claims based off of success rates.
The Kaiser Family Foundation found that between 86 and 90% of denials are actually preventable, so in this step you’ll be uncovering ways your team can prevent denials and make solution plans. In step #3 you should have gathered a wealth of information and realized where issues are happening on your team. Is it at the front end with registration? Is it in medical coding? You should have a lot of data at this point, so you’ll need to do some form of triaging to find where to begin.
The trends discovered should get taken care of immediately under your prevention plan. Whether issues are found in registration, coding or somewhere else, you can and should build a plan and continue to rebuild plans as you go. Remember: You aren’t solving every problem your team has in this first iteration of the prevention plan. You’ll likely need to perpetually return to this step to tweak, or course correct, for your team as you continue to monitor your claims.
Once you’ve done the big job of gathering all the data you currently have available, you’ll need to make a plan of how to keep your data current so you never have such a huge undertaking again.
Next, set realistic goals. A good productivity benchmark is sending 55-65 appeals a day with an appeal success rate of 80-85%. Look into the backlog and make a goal for “no claims over X dollars over 40 days” or “no high-dollar denial over X days.”
As you get more and more out of your data, you’ll be better equipped to shift top priorities as needed and make the most of your team. It can be difficult to overcome issues without as many employees as you’d like, but you can consider obtaining software (like Rivet) to help you batch claims, establish process consistency, easily view trends, and track improvement.
Rivet allows you to manage all of your analyses, auto assign denials to specific team members, manage denials with notes and timely filing deadlines. Request a Rivet demo now to discover the software’s capabilities as a denial management service!
1. What is denial variance management?
Denial variance management is the process of tracking and addressing discrepancies between expected and actual payments from payers due to claim denials or underpayments. It helps healthcare providers identify the root causes of these variances to minimize revenue loss.
2. Why is it important to manage denial variance?
Managing denial variance allows healthcare providers to pinpoint why certain claims are not fully reimbursed and take steps to prevent these issues in the future. This improves cash flow and supports the financial health of the organization.
3. What are the common causes of claim denials?
Common causes include coding errors, lack of prior authorization, eligibility issues, and missing documentation. Addressing these denial reasons helps reduce denial rates and improve overall revenue.
4. How does denial variance impact revenue cycle management?
High denial variance can lead to lower net revenue and increased write-offs, impacting the healthcare organization’s bottom line. Effective denial variance management enables RCM teams to understand and mitigate these impacts.
5. What role does automation play in denial management?
Automation streamlines the denial management process by reducing manual tasks, improving data accuracy, and speeding up the appeal process. This allows RCM teams to focus on strategic efforts that improve the denial rate and overall financial performance.
6. How can denial variance management improve cash flow?
By identifying and addressing the causes of denied claims, providers can reduce unpaid balances, lower write-offs, and increase timely payments, ultimately enhancing cash flow.
7. What tools help with denial variance management?
Tools such as practice management software, EHR systems, and revenue cycle management software can help track denial trends, automate processes, and ensure follow-up on denied claims. Machine learning solutions also support data analysis for better accuracy.
8. How can healthcare providers prevent denials?
Providers can prevent denials by ensuring accurate coding, verifying eligibility and prior authorization requirements, training billers on denial prevention, and using denial management services to streamline workflows.
9. What metrics are essential for tracking in denial management?
Key metrics include denial rate, denial variance, appeal success rate, and time taken for follow-up. These metrics help organizations monitor performance and identify areas for improvement in the denials management process.
10. How often should denial variance be reviewed?
Regular review, ideally monthly or quarterly, helps organizations stay on top of denial trends and make adjustments in a timely manner to improve reimbursement outcomes.