Why getting claims right the first time is cheaper than reworking them

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The numbers are staggering. Industry averages report that nearly 20 percent of all claims are denied, rejected or underpaid. And considering the cost to rework claims - not to mention even higher appeal costs - as many as 60 percent of returned claims are never resubmitted.

With figures like these, it’s no wonder medical practices continue to face intense financial pressure. As negotiated reimbursements stagnate and operating expenses like rent and salaries continue to increase, the struggle to maintain steady revenue becomes even more crucial. For many practices, conducting reviews of their revenue cycle workflow would show gaps in their claims process. The good news is, these gaps can be bridged with the help of emerging technology.

With a saturated market of coding, billing and compliance solutions, how do you begin to find the right technology for your practice? When trying to improve revenue integrity, it is important to understand exactly what vendors offer. For example, consider the term first-pass claims rate, which is still used by some healthcare IT vendors to represent the number of claims initially accepted by payers.

But what is not always calculated is how many of those initially accepted claims will eventually be denied or underpaid. A better question to ask is: What percentage of claims are getting paid the first time they are submitted?

The fact is, practices that do not employ the latest clinical coding and editing tools within their revenue cycle are leaving money on the table. This is revenue that is rightfully theirs but is being pursued at high, incremental costs. It’s time to rethink traditional denials management practices, move beyond first pass claims rate and embrace the future of denial prevention.

Why clinical editing software is necessary

Busy medical practices are often understaffed, and chasing claims revenue is time-consuming, tedious and costly. Each payer has its own rules, and those rules can vary based on the date of service for the claim. Finding a solution that maintains payer rules and allows for custom rule creation is a necessity when evaluating clinical coding and editing software.

Many practice management systems, EHRs and clearinghouses offer some level of claim editing. But practices can no longer rely on simple front-end editing that only checks for issues such as missing or incorrectly formatted fields. Even systems that check Medicare local/national coverage determinations or national correct coding initiative (NCCI) edits may be lacking in true clinical coding edits. Consider finding a solution that can edit for these top denial categories:

• Mismatched CPT or ICD codes

• Incorrect coding

• Lack of medical necessity

• Upcoding and unbundling

• Missing or wrong modifiers

As you research clinical coding and editing solutions, consider how often the content is updated. In the past, many traditional claim scrubbers were updated quarterly, but that no longer reflects the speed at which coding and billing rules change. Many of these revenue-impacting policy updates occur weekly across different payers. Remember, a quality clinical coding and editing solution should be sophisticated enough to return edits that require attention without overwhelming billers and coders with unnecessary information.

Improving revenue cycle integrity

Like most healthcare technology, finding the right clinical coding and editing software requires an understanding of the full revenue cycle. Start by reviewing your current processes and technologies from the front end (office and intake staff) through the back end (denials management). Improving revenue cycle integrity requires comprehensive tools used consistently throughout the revenue workflow.

The first opportunity for clinical editing occurs at charge entry. In many cases, clinical coding and editing solutions can be integrated directly into an EHR’s workflow to verify information at the encounter level. As the charges are entered, solutions can verify medical necessity requirements, modifier usage, CPT/ICD validity and many more potential issues.

While it’s easiest to catch coding and billing errors early in the process, employing a clinical claim-editing solution can prove invaluable. The ability to edit an entire claim for clinical accuracy as well as payer-specific requirements right before submission can drastically reduce claim denials. Not all claim scrubbers feature this level of clinical editing, so be sure your software is actually decreasing the number of denied claims as well as identifying reduced payments that can affect your bottom line.

It’s your money. Go after it.

Still not convinced that investing in emerging clinical coding and editing software can save your practice money? Let’s see what relying on traditional denials management methods might really be costing you.

Each rejected, denied or underpaid claim represents earned revenue your practice is missing out on. The average cost to rework a claim has been pegged at more than $25 based on industry reports from MGMA, PNC Financial Services, CMS, The Advisory Board Company and HFMA. Furthermore, appeal costs can skyrocket to over $100. It’s estimated that as many as two-thirds of all denied claims are recoverable. But practices often weigh the reimbursement amount of a claim against the cost to rework or appeal that claim. For smaller claims, many decide it just isn’t worth the effort, which is why getting claims right the first time should be the ultimate goal.

So how much are practices losing by simply correcting and resubmitting denied claims using traditional denial management methods? There are some simple calculations practices can use to determine the financial impact of their denials:

• Determine how many claims are submitted monthly and the average claim amount.

• Estimate the practice’s claim rejection/denial rate (not first pass claims rate). If you’re unsure, the industry average is 15 percent.

• Multiply the number of claims by the average claim amount, then divide by the denial/rejection rate. The resulting figure represents your potential lost revenue.

• Using the industry standard two-thirds denial recovery rate, divide the previous number by 67 percent. This represents your recoverable revenue.

While this scenario shows the amount of recoverable revenue from denied claims, it doesn’t take into account the money spent reworking those claims. Let’s look at an example using figures from an actual mid-sized specialty practice. This practice submits 1,900 claims a month, and the average claim is $150. They have a better-than-average denial/rejection rate of 10 percent. Even with that lowered rate, this practice is losing roughly $28,500 a month to unresolved denied claims.

If two-thirds of those denied claims are recoverable, they stand to recoup $19,095 in reimbursements after the claims are corrected and resubmitted. Factor in the cost associated with reworking denied claims using the industry average of $25 per claim, and this practice is spending $4,750 in administrative charges alone to recover their own revenue.

This brings their actual recovered revenue down to $14,155 per month or almost $170,000 annually. The cost of a comprehensive clinical coding and editing solution is still cheaper than what the practice spends per month when reworking denied claims.

Smarter technology, better financial results

Is there an easier way to actually retain hard-earned revenue? Yes. Clinical coding and editing software solutions have evolved well beyond simple front-end edits. Practices that use this technology can significantly reduce their claim denial rates by ensuring the most accurate claim is filed the first time around.

As you review your revenue cycle workflow, consider options that edit clinical data earlier in the workflow to ensure a smoother claim submission process for all staff involved. Remember, when it comes to claims, prevention always outweighs denials.

Timothy Mills is chief growth officer at Alpha II, LLC, where he provides solutions for coding, compliance, claims editing and revenue analysis for healthcare professionals, clearinghouses and government entities. Tim has extensive experience in clinical, financial and administrative outsourced technology services as well as turn-key solutions for the provider, hospital, health system and health insurance marketplaces. Tim has been a healthcare and IT executive for more than 30 years.