Initial denial rates decline as healthcare providers adjust to insured patient mix

CHICAGO (Sept. 15, 2016) – The implementation of the Affordable Care Act resulted in a decrease in the number of uninsured patients through the expansion of Medicaid and the creation of health insurance exchanges. This expanded group of payers has meant healthcare providers have had to adjust to new and more complex rules for payment reimbursement, but new data shows the providers are adapting as initial denial rates are on the decline.

This data came from Crowe Revenue Cycle Analytics (Crowe RCA), a benchmarking solution from Crowe Horwath LLP, one of the largest public accounting, consulting and technology firms in the U.S. Crowe RCA compiles and organizes a daily feed of transactional-level data from the patient accounting systems (PAS) of more than 630 hospitals. The quarterly Crowe RCA Benchmarking Analysis, “Denials are declining overall, but watch for some road blocks,” details the analysis of data examined through June 30, 2016.

Initial denials are accounts that have returned with either a full denial (such as a zero pay) or a partial denial (such as a line item denial). Most organizations group the denial reasons into specific categories, but initial denial rates vary by hospital, depending upon process and technology systems. However, certain payer trends provide visibility into denial risk, and most organizations track denial performance aggressively.

“On average, hospitals collect 12 percent less net revenue on denied accounts than nondenied accounts, so preventing denials reduces the risk of net revenue leakage. Healthcare executives who understand how their organization performs against industry norms gain visibility into improvement opportunities,” said Brian Sanderson, managing principal of Crowe healthcare services.

As of the end of June, initial denials for commercial managed care providers had declined 0.8 percent from the year prior, declined 3.6 percent for Medicaid managed care and declined 1.1 percent for Medicaid traditional care. The only insurance category that showed a one-year increase was Medicare managed care at an increase of 1.2 percent.

To offset the inconsistency among healthcare organizations in using final denial write-off codes, Crowe uses a “realization gap” methodology. This calculation compares payer-adjusted net-to-gross ratios between initially denied and nondenied (baseline) accounts. The payment difference between these two account populations is defined as the “realization gap.” After analyzing 154 facilities, Crowe professionals found that this methodology reveals approximately five times the cash leakage indicated by final denial write-off transaction codes.

Approximately 15 summary denial reason codes are tracked at a national level. According to the Crowe national benchmarking database, the following denial reasons cause the most cash leakage: no authorization/pre-certification (9.59 percent realization gap); medical necessity (8.46 percent realization gap); coverage/eligibility (7.63 percent realization gap); timely filing (6.51 percent realization gap); and request for information (4.91 percent realization gap).

“When a hospital breaks down its denials by type, it can pinpoint which functional area needs to be improved, whether it’s patient check-in or the billing department,” added Sanderson.

For more information or to download a copy of the Crowe RCA Benchmarking Analysis, please visit www.crowehorwath.com/benchmarking-release.

About the Crowe RCA Benchmarking Analysis
The Crowe RCA Benchmarking Analysis includes 639 distinct hospitals classified as acute, critical-access, rehabilitation, psychiatric or cardiovascular care facilities. The database contains information from hospitals in 42 states, with 20 or more facilities represented in Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Minnesota, Ohio, South Dakota, Texas and Wisconsin.

About Crowe Horwath
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting, consulting, and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in more than 120 countries around the world. 

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