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Background of ‘Denials’ Claim denials are an inescapable problem for hospitals and health systems throughout the country. Revamping the claim denials process is at the top of most hospital CFOs’ minds.
Definition of ‘Denials’ The formal definition of a medical billing denial is, “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for healthcare services obtained from a healthcare professional.”
Definition of ‘Denial Rate’
  • The denial rate represents the percentage of claims denied by payers during a given period.
  • This metric quantifies the effectiveness of your revenue cycle management processes.
  • A low denial rate indicates cash flow is healthy, and fewer staff members are needed to maintain that cash flow.
How to calculate ‘Denial Rate’? Add the total dollar amount of claims denied by payers within a given period, and divide by the total dollar amount of claims submitted within the given period.
Industry benchmark for ‘Denials’ The industry benchmark for medical billing denials is 2% for hospitals.
Keeping the denial rate below 5% is more desirable.
Industry Facts
  • In medical practices, medical billing denial rates range from 5-10%, with better performers averaging 4%.
  • Some organizations even see denial rates on first billing as high as 15-20%.
  • For those providers, one out of every five medical claims has to be reworked or appealed.
  • Rework success rates vary from 55-98%, depending on the medical denial management team’s capabilities.
  • After all these efforts fail, the final write-offs range from 1-5% of Net patient revenue.
Impact on Revenue
  • In an average 300-bed hospital, 1% of net patient revenue can mean $2 million to $3 million dollars a year – significant by any standards.
  • In addition, one out of every five medical claims has to be reworked or appealed and the Rework costs average $25 per claim.


Top 30 Reasons for Denials:
Denials Code Description
197 Precertification/authorization/notification absent
96 Non-covered charge(s)
16 Claim/service lacks information or has submission/billing error(s) which is needed for adjudication
49 This is a non-covered service because it is a routine/preventive exam or a diagnostic/screening procedure done in conjunction with a routine/preventive exam
204 This service/equipment/drug is not covered under the patient’s current benefit plan
50 These are non-covered services because this is not deemed a ‘medical necessity’ by the payer
38 Services not provided or authorized by designated (network/primary care) providers
227 Information requested from the patient/insured/responsible party was not provided or was insufficient/incomplete
56 Procedure/treatment has not been deemed ‘proven to be effective’ by the payer
B9 Patient is enrolled in a Hospice
165 Referral absent or exceeded
119 Benefit maximum for this time period or occurrence has been reached
51 These are non-covered services because this is a pre-existing condition
15 The authorization number is missing, invalid, or does not apply to the billed services or provider
226 Information requested from the Billing/Rendering Provider was not provided or not provided timely or was insufficient/incomplete
97 The benefit for this service is included in the payment/allowance for another service/procedure that has already been adjudicated
95 Plan procedures not followed
236 This procedure or procedure/modifier combination is not compatible with another procedure or procedure/modifier combination provided on the same day according to the National Correct Coding Initiative or workers compensation state regulations/ fee schedule requirements
B5 Coverage/program guidelines were not met or were exceeded
149 Lifetime benefit maximum has been reached for this service/benefit category
200 Expenses incurred during lapse in coverage
45 Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement
140 Patient/Insured health identification number and name do not match
179 Patient has not met the required waiting requirements
B20 Procedure/service was partially or fully furnished by another provider
125 Submission/billing error(s)
B7 This provider was not certified/eligible to be paid for this procedure/service on this date of service
198 Precertification/authorization exceeded
100 Payment made to patient/insured/responsible party/employer
55 Procedure/treatment is deemed experimental/investigational by the payer


Errors commonly originate in several areas of the revenue cycle. They are:

How to Minimize Denials?

Managing the claim denials can increase your organization’s revenue and collections rate while improving patient satisfaction.

Let us look at few of tips to help streamline your process to promote a healthier, more efficient Denials Management. The Denials Management must happen at various stages:

  • Training stage:
    • Train the staff on:
      • Payer contract requirements
      • National and Local Coverage
      • Issuing Advanced Beneficiary Notices (ABNs)
      • Determinations
      • Explaining coverage to patients
      • Recognize complete and accurate orders
    • Physician documentation education should be provided
  • Scheduling Stage:
    • Non-emergency services to be scheduled at least one day in advance. This will allow time to obtain prior authorization.
    • Medical necessity is validated
    • Capture the patient data accurately prior to the visit
    • Ensure that the demographic data is verified properly, so that there are no missing modifier, no wrong plan code or no Social Security numbers
  • Pre-Registration Stage:
    • Staff should get complete insurance information from the patient
    • Ensure that the patient insurance ID is accurate
    • Need to perform Line-item level insurance verification
    • Check whether the insurance policy is in active state or not
    • Ensure that there are correct and invalid ICD or CPT codes, and no code is omitted
    • Non-covered services need to be reviewed with the patients, so that self-pay collection process can begin
  • Registration Stage:
    • Ensure that the patient information viz., name, DOB, and address are captured accurately
    • Insurance verification process need to be performed efficiently
    • Advanced Beneficiary Notices (ABNs) to be issued for non-covered services
    • The Registrars should be focused on financial clearance
  • Patient Case Management Stage:
    • Communicate with physicians is patient stay does not meet coverage criteria
    • Initiate discharge planning at admission stage itself
    • Review inpatient admissions and stays prior to discharge, to verify stay meets criteria for coverage
    • Ensure that the records are coded accurately
    • Physicians need to be queried for unclear or missing documentation
    • Identify and remove incorrectly posted charges
  • Post Denials Stage:
    • Denials need to be appealed in a timely fashion, ideally, in a week’s time
    • Rejected claims are corrected in a timely manner
    • Provide information to payers in a timely manner
  • Controls Stage (set controls to minimize the Denials):
    • Organize the Denial management process: Ensure that you have an organized system to keep track of your Denials.
    • Implement an Electronic Health Record (EHR) System: EHR system can verify patient eligibility in real-time basis and it is proven that implementing it, has helped in decreasing the denials significantly. EHR system also helps in quickly tracking the reason for denials and immediately file and appeal.
    • Root cause analysis: Understand why the claims were denied in the first place.
    • 80-20 rule: You can observe that 80% of the Denials happen because of few major reasons. If those can be controlled, majority of the Denials can be reduced.
    • Categorize: Quantify and categorize Denials by tracking, measuring and reporting trends by payer, procedure, doctor and department.
    • Task force: Create a team to analyze and prioritize the Denial trends.
    • Payer negotiations: Work with payers to eliminate contract requirements that often leads to denials overturned on appeals.

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Jagannadha Rao

Jagannadha Rao

Chief Operating Officer

Jagan, a Project Management Professional (PMP) and Six-Sigma Green Belt Certified Professional, has more than 20 years of experience in leading teams, and providing process improvement ideas to Business users. His business acumen and strong expertise in understanding the processes helped the Clients with significant productivity and cost savings over the years. Currently, Jagan is working on providing Business Intelligence solutions, that enables the Clients for better decision-making, and building efficiency in the overall process.

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