How to Manage Healthcare Denials: A Step-by-Step Solution Guide

May 28, 2024
8 min read
Sageer Pasha, Abhaya Prabhu
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When a health insurance provider refuses to pay for a medical service or procedure, it's called a claim denial. This can lead to financial problems for medical practices, including higher costs, longer payment times, and less money coming in. Such occurrences precipitate a series of adverse consequences for independent practices, encompassing heightened operational expenditures, prolonged payment cycles, and the potential erosion of revenue streams.

Understanding the Distinction: Claim Denials vs. Claim Rejection
Understanding the Two Main Types of Claim Denials: 

The landscape of medical billing and reimbursement is quite complex. Claim denials pose a significant challenge for healthcare providers. These denials can lead to revenue loss, disrupt cash flow, and even impact patient care. To navigate this terrain effectively, it's crucial to understand the different types of claim denials and their underlying causes.

1. Hard Denials: The Irreversible Setback

Hard denials represent a significant setback for healthcare providers as they are irreversible. These denials result in written-off or lost revenue, creating financial strain on medical practitioners. However, the exceptions are errors in documentation or coding, where the hard denials can be appealed. 

Two major subcategories under hard denials: 

a. Preventable Denials: Addressing Internal Challenges

Preventable denials are hard denials that arise from actions within the medical practice itself. They are often the result of late claim submissions, inaccurate coding, or other administrative errors. Healthcare providers can mitigate preventable denials and streamline revenue cycle management by implementing robust processes and diligent oversight.

b. Clinical Denials: Navigating Medical Necessity

Clinical denials present challenges related to medical necessity or the level of care provided. These hard denials typically require thorough documentation and justification to support the services rendered. Healthcare providers must ensure compliance with payer guidelines and clinical documentation standards to minimize the risk of clinical denials.

2. Soft Denials: Opportunities for Recovery

Unlike hard denials, soft denials are temporary and reversible with the right follow-up actions. These denials often occur due to missing or incorrect information, coding errors, or charge discrepancies. With prompt attention and proper resolution, soft denials can be rectified without formal appeals, offering healthcare providers the potential for recovery.

A major subcategory of soft denials is: 

a. Administrative Denials: Appealing for Resolution

Administrative denials are soft denials that provide an opportunity for appeal. In these cases, the insurer provides a clear cause of denial, often related to administrative issues that can be corrected. Healthcare providers can successfully overturn administrative denials and recover lost revenue by addressing these concerns through proper channels.

The Top Reasons for Denial Dilemmas: 

Understanding the common reasons for denials and their underlying causes is essential for timely reimbursement and financial stability. Let's explore some of the most prevalent causes of claim denials and strategies to mitigate them, with insights drawn from reputable sources in the healthcare industry.

Industry Fact: A recent survey of Becker's Healthcare webinar attendees revealed that 47% reported experiencing Medical Necessity Denials, followed by 28% encountering Lack of Authorization issues. Additionally, 11% reported facing DRG Downgrades, while 7% cited challenges related to the Coordination of Benefits. The remaining 7% reported other types of denials.

Let’s take a look at the denial dilemmas: 

Medical Necessity Navigations: Payors evaluate the medical necessity of healthcare services based on predefined criteria, including the diagnosis, severity of the condition, etc. If the claim fails to meet these criteria, it can result in claim denials. Accurate documentation of medical necessity is essential to support reimbursement claims. 

Prior Authorization Predicaments: Prior authorization is a critical checkpoint in the reimbursement process. Healthcare providers must obtain approval from insurance companies before delivering certain services or medications to patients. Without prior authorization, there's a risk of claim denial, leaving patients liable for the total cost of treatment. 

Revealing the Impact of Billing and Coding Errors on Financial Health: Billing and coding errors wield significant influence over the financial integrity of medical practices, capable of wreaking havoc on revenue streams and tarnishing reputations. These blunders lead to claim denials and revenue loss and raise red flags during internal audits, casting doubt on operational integrity.

Missing or Incorrect Information Mishaps: Errors in claim submissions, such as incomplete patient demographics or incorrect coding, can lead to claim denials or processing delays. Attention to detail and accuracy in claim documentation are vital to prevent these errors and ensure smooth reimbursement. 

Uncovered Procedure Pitfalls: Coverage for procedures and services varies across insurance plans. Providers must verify coverage with the patient's insurer before performing a procedure to avoid claim denials. Patients may be responsible for the full cost of treatment if it's not covered under their plan.

Provider Out-of-Network Obstacles: Receiving care from providers outside of an insurance plan's network can lead to reduced reimbursements or claim denials. Providers should verify patient insurance coverage and inform patients of network restrictions to mitigate the impact of out-of-network status on reimbursement. 

Duplicate Claims Dilemmas: Submitting duplicate claims for the same service, patient, and provider can waste resources and lead to claim denials. Implementing controls and reviewing claims before submission can help prevent these errors and streamline the reimbursement process.

Coordination of Benefits Conundrums: Coordination of benefits (COB) complexities arise when patients are covered by multiple health insurance plans. Failure to update COB information can lead to claim denials as insurers dispute responsibility for payment. Providers must maintain accurate records and communicate effectively with patients to ensure seamless coordination of benefits.

Bundling Bumps: Payers may bundle certain services together and reimburse them at a reduced rate. Providers should be aware of payer policies regarding bundling to ensure accurate reimbursement for services rendered. 

Services Already Included Stumbling Blocks: Some services may be considered integral components of other procedures and not separately reimbursed by insurers. Providers should avoid submitting claims for services already included in other payments to prevent claim denials.

Racing Against Time and Timely Filing Limit: Missing timely filing deadlines can result in claim denials and lost reimbursement opportunities. Providers must adhere to insurers' filing requirements to avoid claim denials and optimize revenue cycle management.

Understanding the complexity of healthcare claim denials is paramount for providers seeking to optimize revenue cycle management and ensure timely reimbursement. By identifying common denial reasons and implementing proactive strategies to mitigate their occurrence, providers can navigate the reimbursement landscape more effectively and safeguard financial stability.

The Art of Denials Management in Healthcare:

Denial management is a strategic process that aims to identify and resolve the problems leading to claim denials. This involves investigating, analyzing, resolving, and preventing denied insurance claims for medical services provided by a physician or other qualified healthcare professional.

Addressing the Top 3 Reasons for Denial 

1) Understanding the Medical Necessity Denials: 

Medical necessity or clinical denials pose significant obstacles for healthcare providers and facilities, often among the top reasons for claim rejections. Termed as hard denials, they necessitate an appeals process for reconsideration. Let's explore these denials' intricacies and their reasons and primary causes.

Denial Reasons

  • Inpatient Criteria Not Met: Denials occur when admissions do not align with established inpatient criteria, deviating from the parameters of medical necessity.
  • Inappropriate Use of the Emergency Room: Instances where patients seek treatment in the emergency room for conditions that could have been managed in less acute settings lead to denials, reflecting a departure from appropriate care pathways.
  • Length of Stay: Challenges arise when the duration of hospitalization exceeds medically justified periods, prompting denial due to perceived excessive resource utilization.
  • Inappropriate Level of Care: Denials manifest when the level of care provided does not match the patient's clinical needs or the severity of their condition, indicating a divergence from established standards of care.

Primary Causes: The underlying causes contributing to medical necessity denials encompass:

  • Lack of Documentation: Denials often stem from insufficient or incomplete documentation supporting the necessity and appropriateness of services rendered, including the duration of hospitalization.
  • Service Provided: Instances where the services administered do not align with the patient's clinical condition or the nature of the admission lead to denials, highlighting deviations from established medical necessity criteria.
  • Level of Care: Discrepancies between the level of care delivered and the patient's clinical requirements or illness severity prompt denials, signaling deviations from prescribed standards of care.
  • Reason for Admission: Denials result from inadequate articulation of the rationale behind patient admission, including justifications for the necessity of inpatient care and the urgency of treatment.

Addressing medical necessity denials requires a multifaceted approach encompassing meticulous documentation, adherence to clinical guidelines, and clear communication of the rationale for admission and care provided. By understanding the convolutions of these denials and addressing their underlying causes, healthcare providers can navigate the appeals process more effectively, ultimately ensuring optimal patient care outcomes and revenue integrity.

2) A Guide to Prior Authorization Denials in Healthcare

In healthcare in the United States, Prior Authorization (PA) is a crucial mechanism for regulating the utilization of medical services in accordance with patients' insurance coverage. Simply put, before healthcare providers can proceed with specific treatments or services, they must obtain approval from the patient's insurance company. This step is pivotal because, with it, providers can avoid facing either partial or complete denial of reimbursements for the procedures performed. While the intention behind PA is to ensure the optimal and cost-effective use of healthcare resources, its implementation can also lead to administrative burdens and delays in patient care. In recent times, the surge in prior authorization denials has emerged as a pressing concern across the healthcare industry. This trend impacts healthcare providers' and patients' access to timely and necessary medical treatments.

Key Causes for the Increased Pre-Auth Denials

  • Complex Mandates: Shifting requirements for prior authorizations can confound healthcare providers, leading to compliance challenges and increased denials.
  • Administrative Burdens: Cumbersome paperwork and time-intensive interactions add layers of complexity, fostering errors, delays, and heightened denial rates.
  • Lack of Standardization: The absence of clear guidelines and transparent communication exacerbates unjustified denials, straining provider-payer relations.
  • Communication Gaps: Limited collaboration between providers and payers complicates the process, hindering the effective resolution of denial issues.

Unveiling the Impacts

  • Patient Plight: Denied or delayed access to treatments jeopardizes patient care, exacerbating health conditions and eroding trust in the healthcare system.
  • Provider Predicament: Excessive administrative tasks drain resources and time, escalating costs and undermining provider-patient relationships.
  • Outcome Compromises: Delayed recoveries and adverse health consequences due to PA hurdles impede positive health outcomes, affecting patient well-being.

Suppose a claim or prior authorization request is denied by a health plan. In that case, the decision might be reversed when additional information is provided to the health plan or following a successful appeal.

3) A Closer Look on DRG Downgrade Denials

DRG downgrade denials refer to instances where a Diagnosis Related Group (DRG) classification assigned to a patient's hospitalization is downgraded by the payer during the claims adjudication process. The DRG classification system categorizes patients into groups based on similar clinical conditions and resource utilization. These groups are used to determine hospital reimbursement rates based on the complexity and intensity of care required for each patient. 

A downgrade occurs when the payer deems the assigned DRG inappropriate or inaccurate based on the documentation provided. This downgrade reduces reimbursement for the hospital's services, as the assigned DRG may not accurately reflect the severity of the patient's condition or the resources expended during their hospitalization.

Claim denials represent a formidable challenge for healthcare providers, stemming from a myriad of factors. Coding errors, inadequate documentation, query processes, and DRG downgrading by Recovery Audit Contractors (RAC) and third-party auditors contribute to this pervasive trend. Inpatient coding errors are the primary culprit among all the causes, as reported by most healthcare systems and hospitals.

The American Hospital Association's data sheds light on the prevalence of coding errors, revealing a decline from 79% of denials in the first quarter of 2016 to 56% by the end of the third quarter. This downward trend suggests improving coder proficiency with DRGs and ICD-10 coding standards. Anticipated updates from the AHA are expected to validate this progress further, potentially reducing denial rates attributable to coding errors.

Additionally, clinical documentation and query processes are pivotal in claims adjudication. While less prevalent, denials also occur due to inadequate documentation and suboptimal query responses. Achieving accurate DRG assignments hinges on the physician's provision of comprehensive and precise documentation. Hospitals can bolster this process by maintaining robust physician query protocols, ensuring coders can access complete health records for precise DRG coding.

The prevalent conditions susceptible to DRG audits and clinical validations, thus posing a risk of denials, include:

  • Sepsis
  • Acute Respiratory Failure
  • Metabolic Encephalopathy
  • Acute Congestive Heart Failure
  • Severe Malnutrition
  • Acute Kidney Failure
  • Ulcer Specificity—Type/Location/Stage
  • Acute Blood Loss Anemia
  • Pneumonia
  • Inappropriate/Invalid Principal Diagnosis
  • Inappropriate/Invalid Procedure (PCS)

Claim denials pose a significant challenge in the healthcare industry, impacting both providers and payers. To effectively curb this issue, a multi-faceted approach is crucial, encompassing provider education, enhanced documentation, and streamlined communication.

Empowering Providers to Minimize Denials

A well-informed healthcare provider plays a pivotal role in reducing claim denials. By prioritizing continuous education initiatives on claim denials and the importance of accurate patient and provider information, the latest coding guidelines and regulations will help providers stay up to date. Strengthening documentation protocols ensures accurate capture of patient details, leading to precise DRG (Diagnosis-Related Group) assignment and minimizing downgrade denials.

Collaboration between clinical and coding teams is equally important, allowing for early identification and resolution of potential coding or documentation errors, further reducing the risk of denials. By proactively addressing these challenges, providers safeguard revenue integrity and optimize patient care delivery.

CoverSelf's Approach to Denial Management

CoverSelf, a leading payment integrity company, adopts an education and strategizing approach. Recognizing that many denials stem from preventable errors, CoverSelf equips payers with comprehensive measures and resources to educate providers on proper claim submission and coding practices.

This includes providing clear guidelines, mandatory fields to be filled in the claim form, the latest medical coding updates, etc. CoverSelf helps minimize initial denials due to administrative or coding errors by empowering payers with denial management knowledge. Payers, in turn, educate providers on measures to avoid avoidable denials. Even when denials occur, providers are better equipped to understand the reasons and avoid similar errors in future submissions. 

Benefits for All Stakeholders

CoverSelf's approach to denials management benefits the entire US healthcare ecosystem. By minimizing claim denials and streamlining the appeals process, administrative costs are reduced for both payers and providers. Payers experience reduced administrative costs associated with processing denials and appeals and faster reimbursements. Providers benefit from increased revenue, less time spent on appeals, and improved communication with payers. Ultimately, patients gain more rapid access to necessary healthcare services due to streamlined claims processing. Remember, optimized claim management is not just about financial sustainability; it's a cornerstone for a healthcare system that prioritizes quality care and financial well-being for all stakeholders.


  1. American Medical Association
  2. American Hospital Association
  3. Centers for Medicare & Medicaid Services
  5. Healthcare Financial Management Association
  6. U.S. Department of Labor
  7. American Academy of Professional Coders