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How can you use denial rate to improve revenue cycle management?

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Denial rate is one of the most important metrics to track and optimize for revenue cycle management (RCM) in healthcare. It measures the percentage of claims that are rejected or denied by payers, which can negatively affect your cash flow, profitability, and patient satisfaction. In this article, you will learn how to calculate, analyze, and reduce your denial rate, and how to use it as a tool to improve your RCM performance.

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1 How to calculate denial rate

To calculate your denial rate, you need to divide the number of denied claims by the total number of claims submitted in a given period. For example, if you submitted 100 claims and 10 were denied, your denial rate is 10%. You can also calculate your denial rate by dollar amount, by dividing the total amount of denied claims by the total amount of claims submitted. For example, if you submitted $100,000 worth of claims and $10,000 were denied, your denial rate is 10%. You can use either method, but make sure to be consistent and compare apples to apples.

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Kristin England

Senior Vice President, Revenue Cycle |Revenue Cycle Operations
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Calculating to the claim level, may overstate your denial rate because not all lines on a claim deny. Calculating by denied dollars/ claim dollars submitted is a better reflection. The key is to use this metric to find root cause and use the findings as opportunity to streamline process or educate teams (both RCM and clinical). The goal being to use the data as a tool to submit a clean claim in the first pass. This will eliminate delayed revenue and multiple touches by staff. Some key metrics a clean claim will effect: DAR AR over 120 Production Bad Debt Clean Claim Rate Denial Rate Denials are a key area for any RCM team to use to gain insights and take action.

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Anthony Werner

Analytics and Insights for Payer Relations
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The greatest focus for denials usually focuses on reducing denials. However, denials can provide valuable understanding how different part of the organization are performing. Denials management usually focuses on claim level denials. It is far more valuable to understand and utilize denials at a line-item level. Claims level denials can also understate the true level of denials. For example – a claim with 5 line-items is submitted to the payer. The returned remittance is adjudicated where 3 of the line items are approved as paid, however, two line-items are denied. The great majority of systems consider a claim with any payment as paid. The claim level denial rate would be 0%, while this represents a 20% line-item denial rate.

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2 How to analyze denial rate

Once you have calculated your denial rate, you need to analyze it to identify the root causes and patterns of your denials. You can use various criteria to segment and categorize your denials, such as payer, service type, reason code, provider, date, and frequency. For example, you can find out which payers are more likely to deny your claims, which services are more prone to errors or rejections, which reason codes are most common or costly, which providers need more training or feedback, and how your denial rate changes over time or seasonally. By analyzing your denial rate, you can pinpoint the areas of improvement and prioritize your actions.

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Anthony Werner

Analytics and Insights for Payer Relations
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The two denied line items from the previous example may be denied for different reasons. The two different root causes may represent failed processes in two differing parts of the organization. Most analysis focus at the adjustment or reason code level. To identify root causes for the denials a combination of reason and remark codes provides the greatest insights. If the reason code is generic – CO A1 Claim/Service denied, there is little ability to understand the cause. M51 – Missing/incomplete/invalid procedure code would indicate a potential coding issue with the procedure code, where an N30 – Patient ineligible for this service, would reference benefits verification.

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3 How to reduce denial rate

To reduce your denial rate, you need to implement strategies and best practices to prevent, manage, and appeal your denials. This can include verifying patient eligibility and benefits before providing services, collecting accurate and complete patient information and documentation, following payer-specific guidelines for coding and billing, reviewing and validating claims before submission, and using software tools and automation to reduce errors. Additionally, you should track and monitor denials and their status, assign responsibilities for resolving denials, develop standard operating procedures for appealing denials, communicate with payers and patients to resolve issues, and measure your denial resolution rate and recovery rate.

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4 How to use denial rate to improve RCM

Reducing your denial rate is not only beneficial for your bottom line, but also for your overall RCM performance. By using your denial rate as a key performance indicator (KPI), you can improve cash flow and revenue by collecting more payments faster, reduce administrative costs, and increase productivity. Your patient satisfaction and loyalty can be increased by reducing billing disputes and providing better customer service. Additionally, you can gain insights into your service quality and value proposition by understanding your payers' and patients' expectations and preferences. By benchmarking and comparing your performance with industry standards and best practices through external data and reports, you can use denial rate as a tool to improve your RCM performance and achieve better financial and operational outcomes for your organization and patients.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you use denial rate to improve revenue cycle management?

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1 How to calculate denial rate

2 How to analyze denial rate

3 How to reduce denial rate

4 How to use denial rate to improve RCM

5 Here’s what else to consider

Healthcare

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How can you use denial rate to improve revenue cycle management?

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1 How to calculate denial rate

2 How to analyze denial rate

3 How to reduce denial rate

4 How to use denial rate to improve RCM

5 Here’s what else to consider

Healthcare

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