Hospitals today are heavily focused on controlling cost, but there is another very important component to the hospital profit equation–revenue. There are many things a hospital can do to influence revenue, and one of the most important is denials management.
Denials are something that every hospital must deal with, however not all hospitals do so effectively. In fact, denial rates can range from less than 1% to more than 5%. Clearly, better managing denials is a huge opportunity that no institution can afford to overlook. For example, hospitals in the worst performing quartile can potentially improve their top line by as much as $4,000 per bed per year. This may not seem like much, but remember that these are denials, so every dollar of revenue recovered drops 100% to the bottom line. For a 200-bed hospital, reducing denials from 5% to 1% can result in an annual profit increase of $800,000.
Attacking the denials problem requires a concerted, multi-functional effort across all steps in the revenue cycle, but clearly, the payback is worth the effort.
The growing professional literature concerning the benefits of revenue cycle management led a 1000-bed Level I trauma hospital to begin evaluating its revenue cycle processes. Hospital leadership wanted to focus on enhancing revenue rather than deleting expenses. As the review process proceeded, it became apparent this large teaching hospital did not have a formal process to track denials from third-party payors, resulting in potentially significant write-offs. The solution involved a multi-disciplinary approach, with several teams formed to review all aspects of revenue cycle flows. A steering committee was formed to monitor and track various results from multiple teams.
A dedicated team was formed to evaluate and flowchart the denied claim process. As the flow was developed, it became apparent that the number of issues related to missing information or gaps in process increased as the information traveled through many possible departments. Even minor flaws in hand-offs were found to cause problems that could increase write offs. And since most claim processing is time sensitive, the ability to react quickly was found to be critical to recovering claims. The team members represented all departments that were involved with a denial. This proved to be important in documenting all the potential leaks in the process. Due to the size and volume of accounts that are processed each day, the committee recommended developing a comprehensive database to track denials in real time, with a dedicated denials coordinator. The coordinator identifies and addresses systemic issues with payors. In addition, the coordinator helps departments work medical necessity denials, which require information from the operating departments. Queues through the accounts receivable system were developed to help key individuals responsible for denial process information to receive and monitor the information in a timelier manner and to help with the turnaround process.
Other teams in this revenue cycle initiative reviewed and addressed such issues as charge master compliance, the pre-authorization process, service line approaches, contract management, and real-time code scrubbing. As can be seen, the approach involved treating the revenue cycle as a complex, end-to-end process, with many interrelated elements that could affect the final outcome.
The improved revenue management process and dedicated coordinator position has been in place since 2003. Communication has increased significantly between all responsible parties, and the denial rate has gone from 5% to below 1% of total patient visits. The potential revenue recovery has been estimated at $4 million annually.