The Shift from Denial Management to Denial Prevention in Healthcare

Denial management is a critical function in any high performing revenue cycle. However, as healthcare providers grapple with an uptick in claim denials—a trend partly fueled by payers' adoption of artificial intelligence (AI) tools  —the financial burden of managing these denials has escalated to unsustainable levels.

A recent report by Becker's highlighted the percentage of initial denials overturned varies by payer category, with Commercial payers at 60.5%, Medicare Advantage at 52.7%, Medicare at 50%, and Managed Medicaid at 49.7%. The cost of successfully appealing these claims exceeded $20 billion last year. This financial strain is compounded by delayed cash flows, further jeopardizing the financial stability of these organizations.

In response to the mounting challenges of denial management and its financial repercussions, BDO advocates for a proactive shift in strategy and resources from denial management to denial prevention. While achieving a completely denial-free revenue cycle may be an idealistic goal, addressing preventable denials at their root cause can significantly diminish collection costs and expedite cash flow.

BDO’s approach for establishing a denial prevention function is comprehensive and multifaceted, focusing on the following key areas:

1. Root cause analysis: Conducting a focused assessment of the root causes of denials by payer and denial categories.

2. Collaborative process development: Partnering with practice and service line leaders to devise processes that tackle root causes directly and foster collaboration on resolving denials and payment disputes.

3. Automation opportunities: Identifying opportunities for automation to prevent denials, which involves evaluating the functionality of RCM systems, clearinghouse tools, and the potential of emerging AI products.

4. Denial review process with payers: Establishing a denial review process with major payers to examine denial volumes, the cost of denial management, and payment variances.

5. Metrics and continuous improvement: Documenting baseline denial metrics and their financial impacts, setting improvement targets, and continuously monitoring performance. This also involves adjusting the people, processes, and technology   involved to consistently reduce denial volumes.

The shift from managing denials after they occur to preventing them before they happen represents a critical evolution in revenue cycle management. By addressing the issue at its source, healthcare organizations can not only reduce the cost of collections but also improve their overall financial health through accelerated cash flow.

BDO Knows Healthcare

Interested in exploring a tailored denial prevention program for your organization?