Claim denial rate: how to calculate it and reduce it in your Healthcare Center

• Healthcare providers consider a claim denial rate above 10% a red zone for a center’s financial stability. 
• In 2022, the claims denial rate for the Healthcare Industry was 11% (Crowe RCA benchmarking analysis). For the average-sized health center, according to Crowe, that means 110,000 unpaid claims a year.
• In an earlier report, Change Healthcare found that each claim can cost approximately $118 or $8.6 billion annually. 

There’s no question that the claim denial rate directly impacts a facility's revenue stream. Another fact centers should consider is that often, denied claims take much longer to pay or that, in some cases, they don’t get paid at all.

A high claim denial rate can happen for multiple reasons, and sometimes, these have more to do with your process than with payers, from errors or inconsistencies in patient information, including misspelled names, incorrect policy numbers, or outdated demographic details. 

Discovering the root causes and implementing effective strategies into your process can significantly help reduce claim denials, leading to a solid financial future for your facility.

What is a claim denial?

A claim denial refers to the refusal of an insurance company or payer to honor a request by a healthcare provider to pay for the services rendered to a patient. Contradictions can stem from various reasons, such as coding errors, lack of pre-authorization, incomplete documentation, or failure to meet the insurer's requirements. Understanding the reasons behind denials is crucial in addressing and preventing them.

How do you calculate the claims denial rate?

This key performance indicator (KPI) quantifies the percentage of claims denied by payers compared to the total number of claims submitted within a specific period. 

The formula to calculate the claims denial rate is

Claims Denial Rate = (Number of Denied Claims / Total Number of Claims Submitted) x 100

A lower claims denial rate indicates a more efficient revenue cycle and better operational performance for a healthcare center.

Understanding and monitoring this rate helps identify potential issues in the claims process, enabling operational staff to take proactive measures. 

Key considerations for calculating claims denial rate

• Accurate denial data

Ensuring the accuracy of data related to denied claims is crucial. Regularly update and maintain records to reflect the most recent denials.

• Regular monitoring

Establish a consistent schedule for monitoring and recording denial rates. Regular monitoring helps in identifying trends and patterns in claim denials.

• Data segmentation

Segment data based on various factors such as denial reasons, types of insurance, or specific departments to gain a more comprehensive understanding of where the issues lie.

• Use data analytics

Data analytics can efficiently track and analyze denial rates, enabling a more accurate assessment and giving insights on lowering this rate.

What percentage of insurance claims are denied?

Statistics suggest that the percentage of claims denied can vary significantly across healthcare providers and payers. On average, the denial rate in the healthcare industry hovers around 5% to 10%. However, for some facilities, this rate can be higher, causing substantial financial strain and administrative burden.

How many claims are denied each year?

1 in 7 claims get denied, amounting to over 200 million rejections annually.

Annually, healthcare centers grapple with a substantial volume of denied claims. Research indicates that billions of dollars worth of claims are denied annually in the United States alone, leading to significant revenue losses and administrative expenses for healthcare providers.

Common claim denial causes

Knowing the common reasons behind claim denials can better equip individuals to prepare and submit claims successfully. Here are key factors contributing to claim denials:

Lack of or inaccurate information

• Missing or incomplete details in the claim form.
• Inaccurate information is provided, leading to discrepancies.

Policy coverage exclusions

• Claims for incidents not covered within the policy.
• Violation of specific terms or exclusions outlined in the policy.

Late or missed filing

• Failing to meet the stipulated time frame for filing the claim.
• Missed deadlines or delayed submission, resulting in denial.

Lack of documentation

• Inadequate or missing supporting documents to substantiate the claim.
• Failure to provide necessary proof or evidence.

Pre-existing conditions or misrepresentation

• Claims related to pre-existing conditions undisclosed during policy application.
• Misrepresentation or false information provided during the application process.

Claimed amount exceeding coverage limits

• Claim amounts surpass the coverage limits specified in the policy.
• Inconsistencies between the claimed amount and the policy coverage.

Non-adherence to procedures

• Not following the correct procedures or protocols required for claim submission.
• Failure to comply with the insurer’s claim filing guidelines.

Lack of notification

• Not informing the insurer promptly about the incident or claim.
• Delayed or lack of communication about the claim event.

How can Healthcare Centers lower their claim denial rate

Accurate coding, robust documentation, and streamlined processes can lead to fewer denials and more successful claim submissions for Healthcare Centers. How can they improve these aspects: 

1. Invest in staff training and education

Invest in comprehensive training programs for staff involved in coding, billing, and documentation. Ensuring they stay updated with coding changes, payer policies, and compliance regulations can reduce errors leading to denials.

2. Look for medical billing and coding specialists

A healthcare scheduling service specialized in medical billing, insurance verification, or coding can meticulously review medical records to assign the appropriate codes for procedures and diagnoses. This precision is crucial to prevent denials due to coding errors.

As such, trained staff can keep abreast of the latest healthcare regulations and insurance policies and ensure that claims comply with evolving standards, reducing the likelihood of denials due to non-compliance.

Specialists can also follow up effectively on submitted claims and address any rejections or denials promptly to help rectify issues and perform efficient resubmissions to secure reimbursement.

3. Optimize documentation and coding accuracy

Accurate and detailed documentation of patient encounters is crucial. Ensuring proper coding and compliance with payer requirements decreases the chances of denials.

4. Automate coding process

Implement robust billing and coding software that can flag potential errors, automate claims submissions, and assist in compliance with coding guidelines, reducing human errors.

5. Foster effective communication with payers

Establish clear lines of communication with insurance companies to clarify policies, address issues, and resolve disputes promptly.

Final thoughts

The impact of claim denials extends beyond just financial losses, affecting the overall efficiency and quality of patient care. However, when Healthcare Centers understand the causes, leverage data analysis, and implement proactive strategies, they can significantly reduce their claim denial rate, ensuring a smoother revenue cycle and patient experience.