Fix Your Denial Problems

April 1, 2004

How to fight denials and make appeals work

How did Pediatric Urology PSC in Louisville, Ky., all but eliminate rejected claims in just one year? With fewer changes than you'd think. The practice's denial rate was 15 percent a year ago, yet with a few simple alterations to its front-desk procedures, the rate hovers near zero today.

Few practices can claim such success when it comes to avoiding and responding to rejected claims. A 5 percent to 8 percent denial rate is the norm in most practices. That standard can jump to 20 percent in academic settings where patients are less likely to be insured and systems are more decentralized.

How widespread is the denial problem? Medicare alone denies over $10 billion worth of services every year -- 11 percent of the claims it gets (see page 38 for Medicare's denial rates by specialty). Add the thousands of private payers -- all perfectly happy to refuse payment for any given service for any number of reasons, good or not, and the scope of the crisis becomes clearer.

"Denials are among the biggest issues facing medical groups today," says Dan Marino, director of Health Directions, a Chicago-based practice management consulting company.

Clearly, denials negatively affect a practice's bottom line. Practices often write off denied claims straightaway, assuming that the revenue is lost. Appealing a denial takes time, effort, staff, and hope --  all resources that are in short supply in medical offices these days.

A denial also changes the way doctors and staff feel about their work. Is there anything more frustrating than providing a service to a patient expecting fair payment in return, only to be told by some bureaucrat that your claim is being denied because the payer doesn't think the service was medically necessary?

Want to fight back? You can.

As Pediatric Urology discovered, taking specific steps to control denial management can mean the difference between frustration and satisfaction. "One little change can have a pretty large effect," says Marino.

Learn why they're denied

Here's how Pediatric Urology was able to cut its denial rate so drastically:

Its first step was to find out exactly why denials were so high. With a new computer system and new staff at the practice there were plenty of excuses, but practice manager Venus Biskis wanted a concrete, indisputable analysis of the denial codes the practice was getting. She handed out a denial tracking worksheet (see our own sample in the Tools section of this site) and asked staff to note each denial and the reasons for it --  untimely filing, patient not authorized, lack of medical necessity, and so on. "If we knew what kinds of denials we were getting, then we could solve the problem," says Biskis.

Elizabeth Woodcock, director of knowledge management at Physicians Practice and an expert in billing and collections improvement, agrees that understanding the source of errors is the first step in stopping them.

"Hone in on those [denial] codes," she urges. Most carriers "code" their denials and place a key to the codes on the bottom or the back of the explanations of benefits (EOBs). Practices have to compare the code to the key to understand why claims are denied. "If you can't find a way to automate this using your billing system, it is worth your time to track them manually for a few days at least once a quarter," says Woodcock. "Get out of the practice of writing everything off to a contractual adjustment."

According to Marino, the top five reasons for denials typically are:

  • coding rejection
  • duplicate claim
  • member not eligible with payer
  • noncovered, unauthorized service
  • additional information required.

However, the only way to know for sure is to track what happens in your practice.

What did Biskis discover? The vast majority of her practice's denials were caused by errors at the front desk. A missing middle initial, an old patient address, even minor errors at check-in meant denials and sagging collections.


Biskis solved the problem by showing the front-desk staff the number of denials the practice was getting, explained how they affected the practice, and discussed what they could do to resolve the problem. "We took the tack of education: 'Here are the number of claims we've had returned, here are the reasons they were returned. Now, what can we do as a group to solve the problem?'" she explains. "We made the front desk part of the billing staff."

Marino encourages this diplomatic approach. "It's not just about handing over the results and banging people over the head." He suggests pulling together a multidisciplinary claims rejection management team that works cooperatively to find solutions to problems identified by a denial report. "Most employees really like feedback," he adds. "People like to know where mistakes are occurring."

That was true at Pediatric Urology: "A lot of times the front desk doesn't understand the ramifications. Once they understood, they took more time to make sure it was accurate," says Biskis.
The beauty of this solution is that it can stop denials from happening in the first place.

Front-end solutions

Woodcock estimates that it costs practices about $25 to handle a denied claim, including the original cost of billing. To appeal a denial, staff must write an appeal letter, process all the paperwork, track the appeal, and wait for payment. Avoiding those costs by improving processes before claims go out means fewer days in accounts receivable, better cash flow, and lower overall costs.

Also, practices swamped with denials frequently react by hiring more billing staff to work them -- an expensive option. It's better to train and even set up an incentive program for staff handling claims before they go out the door. "It costs you less to invest in the front end than to over-invest in the billing office because of the wage differential," Woodcock notes. "The tighter your front-end process is, the better you will be overall."

Billing staff may keep busy working denials, but ideally they could focus their efforts elsewhere. Woodcock reports that she recently met a billing staff member who, when questioned about the denials on her desk, said, "Oh, these are great. Without these, the doctor wouldn't think that I had anything to do."  Obviously, you want to avoid having denials become busy-work.

What else can you do to prevent denials from happening?

Verify insurance and benefits eligibility --  Insurance and eligibility verification is drudgery; it seems like a waste of time to hang on the phone for hours. But there's no appeal for denials based on eligibility, and without verification, physicians will spend time rendering services for free. These days, you also can take advantage of online eligibility Web sites (most payers have their own sites -- visit the sites of your main payers and have them bookmarked on your browser. Another option is credit-card-like devices you can swipe right in your office (for an example, visit www.medcard.com).

At the very least, try to check eligibility for new patients and those scheduled for expensive procedures. If you check 24 hours in advance, you can contact ineligible patients to inform them that the service isn't covered and they are responsible for their charges. With fair warning, patients are prepared to pay -- or choose an alternative site of care. Most importantly, however, it helps patients: they don't want to find out they owe $1,000 after the fact.

Know what's covered -- Help front-desk and check-out staff understand what patients are expected to pay for at the time of service, from copays to patient balances. Why bill for it at all? Instead, collect from patients before they leave. Payer "cheat-sheets" or even individualized "payment due" sheets for each patient will help.

Review charges -- Take the time to review claims before they go out. First, make sure all the charges are there. Then make sure they are entered correctly. An automated claim scrubber -- software that reads electronic claims and flags any obvious errors such as incompatible diagnosis and CPT codes or incomplete fields --  makes it easy. Many practice management systems now have claim-scrubbing modules, or your clearinghouse might offer the service.

Northeast Georgia Surgical Associates is using a claim scrubber and recommends it. "It has been good. If the [staff] at the front that enter the data ... forget to put even the ID number in correctly on Medicare, it will kick out. I can fix it right there," says Lisa Garrett, the insurance reimbursement specialist for the Gainesville practice.
Review coding at this point in the process, too. Watch for two or more services reported on the same day for the same patient without use of a modifier.

Also watch for "unspecified" CPT codes or "routine" diagnosis codes. These are nearly always denied. If no more specific code applies, send the claim in with full documentation already attached, Woodcock suggests, or attach a note requesting review by a specialist. Don't just sit by and wait for the denial.

Finally, scan your claims for services that you know payers won't pay for. "Look at your carrier's policies on reimbursement for your common services," Woodcock advises. Every Medicare carrier, for example, publishes "Local Medical Review Policies" that explain which services are covered with what diagnoses. CMS now offers a Web site for LMRPs and national coverage decisions at www.cms.hhs.gov/mcd/search.asp.


You certainly can bill for the service anyway and even appeal it, but if the payer has stated they don't cover it, your chances of getting paid are pretty slim. Instead, gather your evidence and address the issue with your payer representative, making the case for a change in policy. 

Generate feedback --  "At every single physician meeting have a list of the top three denials that come through your practice," Woodcock advises. "If the billing office is processing denials in a vacuum, you are not going to be able to maximize your reimbursement." Physicians may be able to better explain procedures to the billing staff so they can select the right codes.

Consider a standing meeting every quarter with the billing office and at least one physician. Talk about new procedures or equipment. Too often physicians decide to offer a new service that payers will not pay for. Without a formal feedback process, the billing office might not find out the practice is even offering the service for 90 days to 120 days, when the denials start rolling in.

Review and refile -- At Northeast Georgia Surgical Associates, reimbursement specialist Garrett doesn't wait for claims to turn into denials. The practice sends nearly all its claims electronically.
She looks for claims that have not been paid within 30 days and reviews the outstanding ones. If there was an obvious billing error, she corrects the mistake and rebills right away. If she sees the claim will need to be appealed, she sends the file and the medical record on to the coding specialist in the practice, Gayle Vickers, who sends out an appeal letter.

Garrett's review also presents an opportunity to quickly refile claims that payers somehow did not receive. "There's that la-la land, that insurance land that claims get dropped into and nobody knows where they are," notes Cheryl McDuffie, the group's administrator. If a claim has not been paid, Garrett accesses the payer's Web site --  or sometimes sits on hold on the phone for a long time --  to see if the payer has a record of receiving it. If not, she refiles right away.

Garrett says the practice gets very few denials for duplicate billing.

Appeal if you must

Of course, some claims will get denied no matter how good the processes are on the front end. Don't let that be the end of the story. Appealing a denial does work.

According to Medicare, 65 percent of the claims carriers reviewed on appeal result in increased payments. Marino estimates that 65 percent to 80 percent of appealed claims are eventually paid.
But not all appeal letters are created equal. Here are some suggestions for how to effectively combat a denial once it happens.

Maintain standard appeal letters --  Don't waste time writing a new letter for each appeal. Write one form letter for each kind of denial; you can just add in the details each time. There are sample appeal letters in the Tools section of this site. Another source is www.AppealSolutions.com. Medicare even offers its own standard appeal form, available at www.cms.hhs.gov/forms/cms1964.pdf.

The letters are not difficult to write, and they work better if they reflect  the particulars of your practice and its common denial circumstances. If you write your own, be sure to be civil, Woodcock advises. Denials are frustrating but hostility won't
help you get paid. Also consider having physicians, rather than billing staff, sign the letters, which will add credibility.

Arm yourself with evidence -- Bookmark the section of your specialty society's Web site that outlines approved medical protocols. If your state has a prompt payment law, keep references to the legal language handy. Appeal with evidence instead of just complaining. For example, practices are seeing more denials for medical necessity --  when the payer decides the procedure or service was not needed. "We're seeing more and more of this in the marketplace as payers try to push more costs onto physicians and onto patients," Woodcock observes. "Frankly, it's working, because low-performing practices write these off to contractual allowances. Since they're written off immediately, physicians never know that they're being denied -- and they have a darn good chance of getting paid if only they appeal."

First, figure out what the payers' definition of medical necessity is. Create a single document listing your major payers and how they define medical necessity, Woodcock suggests. You can usually gather the information from payer Web sites.

Then, create a standard appeal letter for each payer that includes the payer's definition. In your letter, explain that you understand the payer's rules but still believe the service was justified. Attach medical literature, referring physician comments, policy statements from medical associations -- anything that supports your position.

File away medical literature useful for appealing medical necessity denials. "I was with a subspecialty group where the billing office convinced the physicians to carbon copy them on medical literature about services the practice had started to offer," Woodcock recalls. When the team got a denial, they could just pull the relevant information to make their case.


Similarly, give the billing team easy access to the more mundane information they need, such as:

  •  copies of explanation of benefits forms,
  • office notes, operative reports, and other necessary clinical information,
  • Web access from their desktop, and
  • proof of filing (for denials for timely filing).

Making these tools easy to access makes follow-up faster.
Finally, make sure at least one person knows all the ins and outs of each payer, even if your billing team does not divide up its work by payer. The more you know about how the payer sees things, the better your appeal can be, according to Woodcock.

Follow up -- A good appeal doesn't end when the appeal letter goes out. Make sure it has worked. For example, Vickers maintains a paper file of appeals she uses for follow-up. "When I send an appeal, I make a copy of my appeal letter and ... everything else I sent with that letter ... and I have an expandable file with sections one through 30 where I file it [in the section corresponding with the day the appeal was sent]. Thirty days from now I'll go through that and see if we received any payment or a denial or an EOB." If she hasn't heard from the payer, she knows to get on the phone to the payer representative.

Know when to stop -- Generally speaking, tenacity is worthwhile. Sometimes, though, it is best to let a denial stand. If the claim had an incorrect code, if the payer has a clear policy that it won't pay for the service in question, or if the amount of the claim is so small that the appeal will cost more than you can ever hope to bring in, it's best to write it off. 

Involve the patient

Historically, practices have struggled with denials in lonely, dimly lit billing offices. But the latest trend is bringing the denial process into broad daylight. Increasingly, practices are actively getting patients involved.

"Patient involvement is the biggest issue right now," says McDuffie of Northeast Georgia Surgical Associates. Her practice is even considering copying patients on every appeal. They are already asking patients to talk to their employers about their health insurance plan if needed services aren't covered. "We are educating the companies. ... They are the ones who are going to get changes made," she says.

Woodcock has worked with practices that organize three-way calls between payers, patients, and the billing staff to resolve denials, especially when payers claim to need more information from the patient. Why wait for the patient to get around to calling in? Initiate the call yourself. At the very least, send patients a form letter asking them to follow up. They might respond better to a letter from their physician than to a letter from their insurer.

Practices can even provide patients with information on how to appeal. "The majority of states have laws that allow patients to appeal a service that was denied. It's a win-win," Woodcock says, urging practices to act as their patients' advocate.

No matter how you structure the appeal process to make it easier, it is crucial to get the appeals out -- and to keep denials to a minimum from the get-go. Luckily, with increased organization, denials can take up less time and fewer staff resources.

Pamela Moore, PhD, senior editor, practice management, for Physicians Practice, can be reached at pmoore@physicianspractice.com.

This article originally appeared in the April 2004 issue of Physicians Practice.