Stop the Insanity!

November 15, 2001

Advice for improving denial management and increasing collections


"I once heard that the definition of insanity is doing the same thing again and again, but expecting a different result," says Gerti Reagan, a claims management consultant with Garner Consulting in Pasadena, Calif.

Some practices can embody that definition, and worse, when it comes to managing denied claims. One group was appealing claims denials - and also writing them off, according to Rhonda Koehn, managing consultant with Practice Management Consultants of Breckenridge, Colo. "The write-offs were higher than the payments, which means there's a problem," Koehn says. Still other practices get denied and simply file the claim away.

It's time to stop the crazy cycle of denials - which is detrimental to your staff and to your bottom line. Instead, search out your claims problems and set protocols for better operations.

Start with staff

Put the right number of sound minds to the task of claims management. "Staffing is one of the most common problems we encounter," says Koehn. "Some practices don't have enough staff. Others don't have dedicated staff, and billers are always being pulled to the front desk."

Koehn has worked for several years with Denver's Midtown Obstetrics & Gynecology, where staffing has been a truly make-or-break proposition. "We had a new practice manager and a new computer system," says Elizabeth McCrann, MD, one of Midtown's four physicians. "We didn't realize the manager couldn't use the system correctly, and in three months, the practice was almost bankrupt because claims weren't going out."

Once staffing is solidly in place, use electronic claims editing software to keep information flowing. You can electronically double-check claims and be alerted to missing information, such as a state, group number, or date of birth. Electronic claims submissions let you verify that a company received your claim, which can result in quicker payment.

"Our electronic system works well - if you know how to use it," says McCrann, explaining that Koehn's expertise was one reason the practice decided to outsource claims follow-up. "Having someone who knows how to make it work has improved our numbers enormously."

If you do not use electronic claims editing, invest in staff time so someone can review each claim for completeness before submission. "The more you check things before they go out, the better. That's the number one step in controlling denials," says Judy Richardson, a senior consultant with Hill & Associates in Wilmington, N.C.

Seeing claims through

It's important to know what you are owed and what you are likely to get paid for - and have documentation to back up your claims. Unpaid claims mean stagnant cash flow, and big accounts receivable balances can give you a false sense of your practice's revenue stream.

It's often the relatively small mistakes that cause the biggest problems. Specialty claims can be denied if an authorization is not on file, or because what was billed was not precisely what was authorized. Primary-care claims are often denied if the service rendered is covered under a capitation agreement. Or primary-care physicians might see erroneous denials of carve-out services.

Many denials never enter a payer's adjudication system. Koehn notes that electronic systems can identify where the denial occurred, allowing a practice to resubmit a corrected claim before the denial correspondence even arrives.

"It's important to understand that claims go into the [payer's] computer system exactly as they appear on the HCFA [now CMS] 1500 form," adds Richardson. "The system reads across the form, reading demographic information first. The program will deny at whatever point it finds an error. If a claim is denied for an invalid contract number, you have to resubmit it - that means the claim never even got into the system."

More complicated issues - such as a treatment deemed not medically necessary or a claim requiring additional information - can be appealed. Instead of resubmitting these claims, which could result in denial as a duplicate claim, experts advise addressing the problem identified by the payer in a letter accompanying the claim. For example, if the debate is whether a service was medically necessary, attach an article from a medical journal supporting your opinion, or letters from peers in your specialty.


Timely filing can mean the difference between money in the bank and writing off a claim. Original claims and appeals have state-mandated filing requirements. In her practice's case, McCrann says, "By the time we realized claims hadn't gone out, we'd missed timely filing, and insurance companies denied all the claims."

You may have prompt-payment legislation on your side. These state-by-state laws force payers to pay within a certain time frame - check the Web to find out if there are prompt-payment laws in your state. If not, consider negotiating prompt-payment rules into your future managed-care contracts. Define what a clean claim is and state that the payer must pay all clean claims within, say, 45 days - or pay penalties.

Categorize, prioritize

Practices need more than just bodies to key claims information into a computer. Stanching the flow of denials requires using judgment regarding individual circumstances and consistent follow-through.

"Split up denials by carrier categories: major carriers, the Blues, Medicare/Medicaid," suggests Richardson. Manag-ing denials this way allows one person handling a particular carrier to learn what that carrier's denials mean, and it creates accountability within the practice. If a patient asks why a certain claim has not been paid, the physician will know where to turn for an accurate answer. Likewise, if coding problems consistently generate denials, claims staff should advise physicians how to remedy the situation.

Prioritizing will send easy-to-handle matters out the door swiftly. Some denials require research, but even these tend to fall into recurring categories. "Quickly categorize denials: those that require research, those that are quickly handled, those that require a call to the patient or carrier verifying eligibility," Richardson recommends. "You want to work the ones that could eventually mean money first."

Reagan suggests creating form letters for recurring denials - for example, explaining that a claim is not a duplicate but includes an additional service, like an injection, that wasn't charged on the original claim. Then an appeal will simply require filling in a few details and adding documentation. "Printing off a quick letter is far less time-consuming than accumulating hundreds of individual items, compiling them, and sending them to the payer," says Reagan. And, she adds, by handling claims individually, you are more likely to be paid quickly.

Be sure to spend the most energy on bringing in revenue. "Weigh the cost benefit," Reagan advises "A $5 claim probably is not worth pursuing, but $5,000 is probably worth it. You have to decide where you're going to draw the line. That often comes at around $75 or $100, particularly if it is a recurring problem."

Certainly, it is better to sort claims by their value and start working through the biggest claims first. Some practices sort by patient name - but by doing so, they may never get to the really big claim at the bottom of the pile.

Lessons learned

Although they can be time-consuming and frustrating, claims denials can be a learning tool. "If you are trying to figure out which diagnosis codes pay and which deny, you can find out by watching your denials," says Richardson. "In a specialty practice, every time you use a certain code combination, it might cause a denial such as 'not medically necessary.'" Staff should let physicians know not to use those risky code combinations - and what to do instead.

If you don't use an electronic tracking system, a log can help you track denials to identify which staff are generating too many errors, says Elizabeth Woodcock, director of knowledge management for Physicians Practice Inc. If you learn that 50 percent of your denials come from the front desk - a number Woodcock says is typical - you can focus there to prevent future problems. "The key is being proactive, not reactive," Woodcock explains. "You must fix the root problem."

And remember, claims processors on the payer side are human, too. Try an old-fashioned conversation to solve a problem. "If you see a pattern, go to the claims director and say, 'How can we solve this problem systematically rather than on an ad hoc basis?'" Reagan suggests. "People often don't take the obvious step of picking up the phone and talking to someone who can commit to a [resolution] process."

Susanna Donato can be reached at editor@physicianspractice.com.

This article originally appeared in the November/December 2001 issue of Physicians Practice.