By Ryan Chapin, Executive Director of Strategic Solutions, AGS Health
LinkedIn: Ryan Chapin
LinkedIn: AGS Health
With hospitals, health systems, and other provider organizations already squeezed by higher operating costs and lower operating margins, a surge in the volume and complexity of claim denials is an unwelcome source of a potentially multimillion-dollar revenue leakage that few organizations can afford to ignore.
Exacerbating the problem are increasingly complex reimbursement requirements, stricter prior authorization rules, and payers’ advanced adoption of artificial intelligence (AI), forcing provider organizations to fight harder for every dollar they are owed.
To counter these forces, revenue cycle management (RCM) leaders must abandon their “Good Enough” mentality and adopt a new perspective on plugging revenue leakage from denials—one that includes a hybrid approach coupling intelligent automation with global service solutions to reduce the cost of denial recovery and make it feasible and profitable to pursue a larger share of denials.
More Than ‘Good Enough’
In today’s technology-forward environment, healthcare finance leaders can now analyze RCM data at higher volumes and with greater accuracy. It is also easier to anonymously share and compare data through industry benchmark reports, which have historically been a highly effective and reliable method for helping RCM leaders understand how their organization’s performance compares to peer groups.
However, this has also led to a degree of complacency when it comes to pursuing appeals.
Healthcare leaders now accept a relative percentage of denials as unavoidable. By leveraging their deep analytics pool, they can easily identify and pursue high-impact denials and develop remediation strategies to prevent future ones. However, the perfect storm of limited resources, skyrocketing denial rates, and higher costs to rework or appeal denials has forced many to raise their appeal threshold. This has skewed traditional benchmarks, which can cause deeper problems in the denial management process to be overlooked.
In short, overreliance on traditional benchmarks has given rise to a ‘Good Enough’ mentality.
For example, hospitals often leverage data from third-party analytics and/or EHR vendors to measure their performance against that of their peers to identify gaps or areas needing improvement. However, as the overall peer group performance deteriorates due to higher denial tolerance, the Good Enough mentality makes underperforming hospitals appear to be doing well. Using traditional benchmarking means higher amounts left on the table no longer raise red flags because everyone is doing it.
This mentality comes at a cost. Smaller balance claims appear inconsequential when viewed individually, but their aggregated total adds up quickly. This is why increasing the threshold for acceptable losses can have a significant impact on an organization’s revenue stream.
The impact of uncollected balances amid surging denial rates is reflected in the benchmarks traditionally used by organizations to measure performance. As a result, relying on them as the sole method for establishing a “safe zone” for pursuing denials can be misleading. A better measure encompasses traditional performance metrics and considers the impact of having access to appropriate tools, resources, and strategies.
A New Denials Management ROI
Traditionally, denial management involves extensive manual efforts and costs. Estimates suggest that a single claim can cost up to $124.50 to submit, correct, and resubmit. Healthcare finance leaders responding to a Healthcare Financial Management Association survey reported an average cost-to-collect of 3.74 percent, translating into $187 million for a health system with $5 billion in revenue.
Leveraging the right combination of outsourcing and technology can reduce the threshold for acceptable losses by lowering the cost of appealing claims. For example, leveraging offshore teams to augment denials management reduces reliance on limited internal resources and allows providers to manage denials with reduced labor costs. Tapping into global talent pools also helps maintain high levels of efficiency while controlling operational expenses, freeing internal teams to pursue more complex, higher-value appeals.
Providers can also follow payers’ lead by deploying advanced artificial intelligence (AI) and automation tools for claims scrubbing and error detection. These systems can automatically identify errors and flag claims before they are sent out, reducing the likelihood of denial.
Several technology tools have emerged with the potential to enhance denial management:
- Automated clinical appeal generation that reconciles clinical and billing history
- Predictive models to scan for and correct issues before billing
- AI agents to manage even complex phone calls regarding denied claims
By leveraging these tools to prioritize high-return denials and reduce manual interventions, AI and automation solutions have already demonstrated their ability to make pursuing a larger volume of denials profitable. According to the HFMA survey, finance leaders who leverage automation for revenue cycle operations reported having an average cost-to-collect of 3.51 percent. Nearly 40 percent of respondents reported an average cost-to-collect of 2.9 percent or less. For a health system with $5 billion in revenue, that amounts to $175.5 million, or $11.5 million in savings from using automation.
Utilizing AI-driven workflows, automated follow-ups, and global outsourcing teams for denial recovery yields an improved ROI, including for previously written-off claims. It also enables more complete coverage of Accounts Receivable (A/R).
Best Practices
Following best practices by ensuring a hybrid approach that combines global outsourcing and intelligent automation will create a more cost-effective and scalable solution for managing denials. To effectively manage a complimentary in-house/offshore approach, integrate the following six strategies:
- Strategic Planning: Develop a clear team collaboration plan that outlines goals, assigns tasks, and specifies each team’s individual responsibilities. Integrate careful task allocation to equitably balance the workload and effectively manage workflows, thereby optimizing business operations.
- Equitable Treatment: Reinforce the idea of a unified “team without borders,” regardless of geographic location, fostering a collaborative dynamic to tackle challenges, brainstorm solutions, and freely share insights.
- Clear and Effective Communication: Establish open communication channels and set clear expectations to manage the team and ensure alignment effectively. Evolve communications from transactional exchanges to meaningful dialogues to promote a culture of openness.
- Building Trust: It is essential to form relationships based on mutual respect and understanding, which improves operational efficiency and fosters a culture of openness necessary to overcome challenges and achieve shared goals.
- Continuous Shared Learning: Adapting and learning from challenges, being receptive to feedback, and utilizing lessons learned through a collaborative process are all crucial to refining the hybrid model and enhancing team performance.
- Leverage Technology: AI platforms allow healthcare organizations to efficiently manage inventory and enhance A/R resolution by enabling a more streamlined assignment of inventory. This ensures tasks are allocated for the most effective work distribution and that the team can work seamlessly towards shared goals.
Finally, seek AI and automation solutions that prevent denials and optimize recovery through predictive analytics and real-time claim monitoring. A Wisconsin-based regional health system with $871 million in revenue took this approach to manage its persistent challenges with tracking and responding to changes in payer denial behavior.
The organization significantly enhanced work efficiency and performance by deploying AI-driven denials prioritization and advanced analytics solutions, including a 40 percent improvement in the overturn dollar rate within one month. The health system also achieved a 5:1 ROI over the first year, with its 4 percent denial dollar overturn rate improvement resulting in incremental overturn dollars of $725,000.
It also leveraged actionable analytics by combining monthly analyst-style insight reports with consultative review sessions to identify opportunities for prevention. For example, analytics identified instances where patients were denied multiple times for authorization, allowing the organization to address the existing issues and proactively plan for these denial scenarios.
The analytic focus on AI-driven automation for denials also enables finance leaders to shift their focus from benchmarking to continuous improvement. Implementing a proactive and aggressive approach to monitoring denials and eliminating root causes using real-time data and dynamic key performance indicators (KPIs) such as denial volume and denial amount allows provider organizations to adopt more agile and responsive approaches emphasizing continuous optimization of their denial recovery processes. Meanwhile, leveraging machine learning enables proactive reduction of future denials by learning from historical data.
AI and analytics also enable finance leaders to leverage real-time reporting to make data-driven decisions. For example, advanced analytics can help providers focus on appealing denials with patterns that suggest a higher success rate, maximizing reimbursement efficiency without overextending resources.
Finally, real-time data helps providers monitor trends and adjust denial management practices when needed. When coupled with dynamic AI-powered reporting, it also offers actionable insights.
A New Denial Management Outlook
Surging denial rates, workforce limitations, and rising costs associated with reworking claims mean fewer denials can be ignored as acceptable losses. The complacency that comes with over-reliance on traditional benchmarks and makes it acceptable to overlook a sizable portion of the revenue stream must be replaced with a data-driven focus on optimal denial management strategies.
Bringing together advanced AI and automation with a hybrid internal-global services team can transform the way providers approach denial management. Adopting a more proactive, technology-driven approach will help provider organizations maximize revenue recovery and improve operational efficiency.