A New Perspective to Define ROI in Denials Management

With labor shortages and rising costs, effective denial management has become a critical factor for the financial stability of healthcare organizations. However, traditional approaches to measuring success are no longer leading to the best financial outcomes for increasing revenue and decreasing operating costs. An increase in the volume and complexity of claim denials, fueled by stringent payer requirements, GenAI (Generative Artificial Intelligence) adoption, and the rising costs to rework denied claims, requires healthcare organizations to redefine the return on investment (ROI) in denials management.

Current Denials Management Landscape

In recent years, healthcare providers have faced an increase in claim denials due to more strict payer requirements, including an influx of prior authorization requirements and ever-changing payer policies. A recent survey found 38% of providers reported that claims are denied 10% of the time or more and 11% said claims are denied more than 15% of the time. The historic benchmark of 10% denial volume is being challenged, with a larger number of providers seeing rejection rates of more than 10% and even as high as 15%.

One contributor to the rising denial rate is prior authorizations. According to the American Medical Association, the average physician processes approximately 43 prior authorizations weekly, with more than 25% denied outright. This creates significant rework on the back end and added financial pressure, as the average cost to rework or appeal a denial is $181 per claim.

Simultaneously, labor costs—a major driver of operational expenses—remain high. By the third quarter of 2024, labor costs were still 7% higher than in 2021. This challenge is compounded by workforce shortages projected to result in a deficit of 100,000 healthcare workers by 2028.

Cautions Against a "Good Enough" Mentality

While industry benchmarks that measure denial management success can help identify areas for improvement, reliance on outdated metrics creates the risk of substantial revenue loss. As industry-wide performance declines, these benchmarks increasingly reflect a lower standard of acceptance for uncollected balances.

The aggregated total of “small” uncollected balances - often seen as inconsequential - can represent 2-5% of a healthcare organization's revenue. Many organizations focus their attention on high-dollar claims to positively impact the overall revenue stream but do not then pursue smaller balances, resulting in missed opportunities to collect additional revenue.

Strategies to Reduce Denials

As healthcare leaders reevaluate their approach to denials management, numerous strategies can be implemented to effectively streamline the recovery while simultaneously ensuring it is feasible to pursue a broader spectrum of denied claims. Key strategic elements include:

1. Advanced Analytics: Leverage advanced analytics and artificial intelligence (AI) to better identify and prioritize high-impact and high-volume denials while optimizing routine processes, thereby significantly improving recovery rates.
2. Global Service Solutions: Outsourcing certain components of denials management can alleviate operational burdens and lower costs, allowing internal teams to focus on strategic recovery initiatives. Employing a successful global strategy will result in increasing revenue while decreasing operating costs.
3. Strategic Benchmarking: Building upon traditional performance metrics enables healthcare organizations to assess their effectiveness through a more comprehensive lens, which includes the impact of having access to a variety of tools, resources, and innovative strategies to determine the most effective approach to pursuing denial claims.

To gain deeper insight into these strategies and explore how you can transform your approach to denials management, download our comprehensive white paper, "Redefining ROI in Denials Management." This resource offers valuable recommendations and actionable steps to better position your organization for success to combat escalating denial rates, rising operational costs, and workforce shortages to improve financial stability and growth.

Watch for the next installment in this three-part series on redefining ROI in denials management, as we explore the role of technology and workforce optimization in improving denials management processes and outcomes to grow revenue and reduce operating costs.