Hospitals' claims denial rates rose to new heights during COVID-19, executives report

Hospitals’ claims denial rates have inched upward over the past several years and reached new highs as providers contended with the COVID-19 public health emergency, according to a recent survey of hospital reimbursement executives.

One-third of the poll’s respondents said their hospital had an average denial rate exceeding the “denials danger zone” of 10%.

Sixteen percent of the polled executives said their average rates were between 8% and 10%. Twenty percent said their hospital fell between 5% and 7%, while the remaining 31% of reimbursement executives said their average was below 5%.

The survey was conducted by reimbursement and population health consultant Harmony Healthcare between late April and mid-May and included responses from more than 130 executive respondents.

The consultancy told Fierce Healthcare that most hospitals target a claims denial rate anywhere between 2% and 4% but that it’s become increasingly rare to see an organization hit its mark. Overall, Harmony said it has seen evidence of a 20%-plus increase in denials rates over the past five years.

“Make no mistake about it, the denials rate was climbing prior to the pandemic. The pandemic just added additional complexities to it,” Randy Verdino, CEO of Harmony Healthcare, told Fierce Healthcare. “The highest priority of any healthcare institution is saving people’s lives, and the public health emergency certainly brought that front and center. Now that the pandemic is somewhat under control … we think this is going to be the next pickup point.”

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The survey also had respondents name their top area of concern regarding their rejections. Coding and medical necessity for acute inpatient split the top spots with 32% and 30% of the responses, respectively.

More surprising for Brandon Martin, Harmony’s vice president of client solutions, was that many of the responding executives called out their own jurisdictions as the problem area in their hospital. Because many healthcare organizations require substantial internal inertia to tackle organizational issues, he speculated that many of these leaders are well aware of the shortcoming and have become frustrated enough to shoulder some of the blame.

“It’s like a cry for help,” he said.

Martin and Verdino noted that their group’s survey builds on denials trends and early pandemic impact outlined in previous large-scale data reviews, such as Change Healthcare’s 2020 Denials Index that was published in February.

The report, which reviewed 102 million transactions across more than 1,500 U.S. hospitals between July 2019 and June 2020, outlined a similar steady increase in national denials since 2016 and an initial bump from 9.5% in late 2019 to more than 11% by summer 2020.

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But rather than introducing new roadblocks, Verdino said the pandemic has amplified hospitals’ existing shortcomings—chief among which is a dearth of patient data compared to payer groups on the other side of these transactions.

“All the payers have data on patient populations,” he said. “They have been making heavy investments into understanding this for a long time. Providers are aware that it’s there but they’re just behind the times fighting an unfair fight in many senses, where they’re data-poor and they don’t have access to the information they need. Payers have it, so if [hospitals are] submitting claims that are incorrect, more than likely they have some way to catch that.”

Organizational issues are the other major barrier for providers hoping to tackle inflating rates, Verdino and Martin said. Among most of the hospitals and health systems that Harmony consults, responsibility for claims denials is often split across half a dozen departments. Each of these will have their own goals and metrics that naturally take on a higher priority than the denials rates.

'A classic change management opportunity'

For organizations looking to reclaim the time and money they’re spending to reprocess a claim, Verdino’s advice was straightforward: Take an initial step back and evaluate to understand the source of the appeals, find the right people to form an executive steering committee and set effective priorities for the departments as they adjust their practices.

“There’s nothing I said there that’s all that novel, right? It’s a classic change management opportunity for the hospital until better tools and software come along that can, perhaps, put them in a better place without all these organizational gymnastics and the like,” he said.

Still, there are other steps teams and individuals can take in the meantime to improve their chances, they said, such as building a business case for targeting claims denials and surfacing it as high up the executive ladder as possible.

“Get it on the agenda. Make it a burning platform,” Verdino said. “If it’s one of the top 10 priorities of a CEO, you will get the right attention, it will get done. Until it gets to that level, you’re probably struggling for attention.”

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The other is to commit early on to an organizational structure that will best address the issue of denied claims, they said.

For most hospitals and systems looking to keep responsibility spread across multiple departments, “you’d better have really good people with the right culture of accountability and good synchronization, and an ability for the organization to come together to solve a problem across many different functions,” Verdino said.

The alternative—and likely more successful—approach is to investigate whether the organization is able to centralize the effort by creating a new department and having staff fully dedicated to the issue.

“[Centralization] doesn’t necessarily fix it, but it does get it into one place so you can address it and attempt to tackle it,” Verdino said. “There’ll be some additional overhead cost with that … but centralizing it and getting it in one place … definitely has the highest probability of payback and ROI.”