Claims denials are a big problem in healthcare revenue management, affecting providers’ cash flow and operational efficiency. In recent years, denial rates have surged significantly, with insurers denying nearly 19% of in-network claims and up to 37% of out-of-network claims in 2023 alone.
This escalation has translated into billions of dollars in lost revenue and increased administrative burdens, as hospitals and health systems spent nearly $20 billion in 2022 just to overturn denied claims. Despite these daunting figures, research indicates that up to 85% of denied claims are avoidable, often due to issues such as incomplete patient information, changes in healthcare plans, coding errors, and untimely submissions.
Understanding the top reasons behind claim denials and implementing effective prevention strategies is crucial for healthcare providers aiming to improve their clean claims rate, reduce accounts receivable days, and secure fuller reimbursements.
Types of Claim Denials
The types of claim denials are:
1. Hard denials
They are final refusals of payment from the insurer because the service or claim is not covered under the patient’s insurance plan. These denials usually cannot be overturned, even with an appeal, and result in lost revenue for the provider.
Example: Claims for services not covered by the insurance policy, such as elective procedures like LASIK or fertility treatments, or denials based on medical necessity where the insurer determines the service was not justified (e.g., inappropriate emergency room use or length of stay issues).
2. Soft denials
They are temporary denials that occur due to issues such as missing or incorrect information on the claim, coding errors, or lack of documentation. These denials can often be corrected and resubmitted for payment without a formal appeal.
For example, a claim might be denied because of incomplete patient demographic data, wrong billing codes, or missing prior authorization details. Once the provider corrects these errors or provides the required documentation, the claim can be approved.
3. Administrative denials
These denials occur due to issues related to the administrative aspects of the claim, such as incorrect billing codes, lack of prior authorization, or failure to meet specific payer requirements.
Example: When a claim is submitted without the necessary prior authorization. If a patient undergoes a procedure that requires pre-approval from their insurance provider, but the provider fails to obtain this authorization, the claim will be denied.
4. Clinical denials
Clinical denials happen when the insurance company determines that the services provided were not medically necessary or appropriate based on the patient’s condition.
For example, suppose a patient receives a specific imaging test that the insurer deems unnecessary based on the patient’s diagnosis or treatment plan. In that case, the claim for that test may be denied.
5. Technical denials
Technical denials are related to errors in the submission process, such as formatting issues or missing documentation. Example: Technical denials can occur due to errors in the claim submission process. If a claim is submitted with incorrect coding, such as using an outdated or incorrect CPT code for a procedure, the claim may be denied.
These denials can often be resolved by ensuring that all required information is included and correctly formatted before submission.
Top 10 Reasons for Claim Denials
Claim denials can significantly impact healthcare providers, leading to lost revenue and increased administrative burdens. Here are the top ten reasons for claim denials:
1. Incorrect patient information
Claims often get denied due to errors in patient demographics, such as misspelled names, incorrect dates of birth, or wrong insurance subscriber numbers. These inaccuracies can lead to mismatches in the insurance records, resulting in denials.
2. Lack of prior authorization
Many insurance plans require prior authorization for specific procedures or services. If a provider fails to obtain this authorization before performing the service, the claim is likely to be denied.
3. Coding errors
Incorrect coding is a common reason for claim denials. This can include using outdated codes, incorrect CPT or ICD-10 codes, or failing to provide the necessary modifiers. Accurate coding is essential for proper claim processing.
4. Services not covered
Claims may be denied if the services provided are not covered under the patient’s insurance plan. This can happen if the procedure is deemed experimental or not medically necessary according to the insurer’s guidelines.
5. Missing documentation
Claims that lack required documentation, such as referral letters, lab results, or detailed medical records, are often denied. Insurers need this information to verify the necessity and appropriateness of the services rendered.
6. Duplicate claims
Submitting duplicate claims for the same service can lead to denials. This often occurs when a provider inadvertently files the same claim multiple times, leading the insurer to reject one or more of the submissions.
7. Timely filing issues
Insurance companies have specific deadlines for claim submissions. If a claim is submitted after the deadline, it may be denied regardless of its validity. Providers must be diligent in submitting claims promptly.
8. Ineligible services
Claims can be denied if the patient is not eligible for the services at the time of treatment. This can occur if the patient’s insurance coverage has lapsed or if the service is not included in their plan.
9. Non-compliance with payer policies
Each insurance payer has its own set of rules and policies. Claims that do not comply with these specific requirements, such as billing practices or documentation standards, can be denied.
10. Technical errors
Technical issues during the claim submission process, such as formatting errors or system glitches, can lead to denials. Ensuring that claims are submitted through the correct channels and in the proper format is crucial.
How to prevent claim denials?
The ways to prevent claim denials and ensure a smooth healthcare claim denial management include the following:
1. Verify patient information and insurance eligibility
Confirming accurate patient demographics and insurance coverage before the service is rendered is essential. Front-desk staff should verify details such as the patient’s name, date of birth, insurance ID, and coverage status at every visit to avoid denials due to incorrect or outdated information. Real-time eligibility verification tools can automate this process, ensuring that coverage lapses or policy changes are caught early.
2. Obtain prior authorization and pre-certifications
Many denials arise from missing prior authorizations for procedures or services that require insurer approval. Establishing a strong prior authorization workflow—maintaining updated lists of services requiring approval, assigning dedicated staff, and following up with payers—significantly reduces denials related to medical necessity or coverage.
3. Ensure accurate and compliant medical coding
Coding errors are a leading cause of denials. Providers should train coding staff regularly on the latest CPT, ICD-10, and HCPCS codes, conduct coding audits, and use AI-driven coding tools to minimize mistakes. Accurate coding aligned with payer-specific guidelines helps prevent denials related to incorrect or incomplete codes.
3. Maintain appropriate documentation
Incomplete or insufficient clinical documentation often leads to denials of medical necessity. Providers should standardize documentation protocols using templates and checklists to ensure all relevant clinical details, treatment justifications, and diagnosis information are properly recorded and compliant with payer requirements.
4. Use claims scrubbing and auditing tools
Before submitting claims, utilize claims scrubbers or claim editing software to detect errors such as missing information, incorrect codes, or bundling issues. These tools simulate payer reviews and help catch problems early, reducing the likelihood of denials and speeding up reimbursement.
5. Submit claims timely and monitor deadlines
Timely filing is critical; claims submitted after payer deadlines are automatically denied. Implement tracking systems and automated reminders to ensure claims are filed within the allowed timeframes. Regularly monitor claims status and promptly address any rejections to avoid revenue loss.
6. Analyse denial patterns and implement corrective actions
Maintain a denial log to track reasons and payer-specific trends. Analyzing this data helps identify systemic issues and allows targeted process improvements. Training staff on common denial causes and updating workflows based on findings can prevent recurring errors.
7. Leverage technology and automation
Adopting revenue cycle management (RCM) software, robotic process automation (RPA), and AI tools enhances denial prevention by automating eligibility checks, claim submission, and data entry. These technologies reduce human error, speed up workflows, and provide predictive analytics to address potential denials before they occur.
8. Educate and train staff
Regular training for billing, coding, and clinical staff on payer policies, coding updates, and denial prevention best practices is vital. Well-informed teams are better equipped to avoid errors that lead to denials and to handle claims efficiently.
9. Foster strong communication with payers
Building good relationships and maintaining open communication channels with insurance payers helps quickly resolve issues and stay updated on policy changes. Proactive engagement can prevent misunderstandings that cause denials.
Conclusion
Effective healthcare claim denial management is a cornerstone of a successful revenue cycle, directly impacting a provider’s financial health and operational efficiency. By systematically identifying the reasons behind denials, implementing prevention strategies, and ensuring timely resolution through appeals and corrections, healthcare organizations can reduce revenue loss and improve cash flow.
Moreover, denial management fosters better collaboration among clinical, billing, and coding teams, enhances accuracy in documentation and coding, and builds stronger relationships with payers.
