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Denial Management in Healthcare: What Is It and How Does It Work?

by Maggie Bloom - 02 Sep 2022, Friday 155 Views Like (0)
Denial Management in Healthcare: What Is It and How Does It Work?

There is immense pressure for healthcare organizations to reduce costs while maintaining optimal quality of care. To maintain profitability and efficiency, hospitals and other healthcare facilities must address the inherent inefficiencies of their operations while ensuring patients receive the utmost care possible at all times.


Here is where denial management comes into play. As an effective cost-cutting measure, denial management, also known as claim management or third-party reimbursement management, is a strategy designed to streamline the claims approval process for healthcare providers while simultaneously monitoring spending on third-party payers.


What Is Denial Management?

When patients visit medical providers and file for reimbursement for covered services, one of two things can happen: their claims are approved or denied. The process of determining whether or not a claim is approved is known as the claims approval process. While this process is crucial to the overall operation of any healthcare organization, it is both time-consuming and inefficient. If an insurance or government agency is tasked with reviewing a provider’s submitted claims, they have a set time frame in which they must either approve or deny those claims. If they fail to decide on that time frame, the shares are considered “pending” and are put on hold. It can result in delayed payments for providers and patients alike.


How Does Denial Management Work?

Due to its inherent inefficiencies, the claims approval process can result in several types of denials. The most common types of rejections in the healthcare industry include billing errors, inappropriate billing, and coverage issues. A claim is denied due to billing errors means the patient has been incorrectly billed. If the provider has used the wrong code to describe the service provided or has used an incorrect procedure code, this will result in a billing error. Due to inappropriate billing, an insurance company or other third-party payer will deny a claim because it does not fall under the coverage terms established in their contract with the provider. 


Another common type of denial is coverage issues. It occurs when a third-party payer determines that a patient does not qualify for reimbursement due to lack of coverage. It can happen if the patient does not have a valid insurance policy or has exceeded their annual out-of-pocket maximum.


Why is Denial Management Beneficial?

As previously mentioned, denials are a regular part of the claims approval process. Denial management can help to reduce the number of denials that third-party payers issue. With a denial management system in place, providers have access to real-time data that tracks the status of each claim. This valuable data can help providers prevent costly denials resulting from billing errors or coverage issues by allowing providers to identify and correct mistakes as they happen quickly. Because providers can accurately and thoroughly bill for services provided, they can increase their revenue. At the same time, patients benefit from a more streamlined claims approval process as they are less likely to experience denials due to billing errors or coverage issues.


Denial management companies help hospitals recover their revenues from third-party payers. These companies also offer denial management and resolution services to hospitals by deploying specialists who navigate cumbersome payer appeal channels to deliver the payments. 


Types of Healthcare Denials

If a claim is denied, the provider needs to understand why the claim was denied so they can take appropriate action. Denial can be categorized as either an administrative denial or a payment denial. An administrative denial occurs when a provider submits an incorrect claim or the patient has failed to provide the required documentation. A payment denial occurs when the claim does not fall under the contract terms established between the provider and a third-party payer. It can result from several factors, including billing errors, inappropriate billing, or coverage issues.


The healthcare industry is constantly evolving, and providers must do their best to adapt to changing industry standards while maintaining an optimal profit. With denial management, providers can streamline the claims process and reduce the number of denials issued by third-party payers. It results in increased revenue for providers and happier patients, who are less likely to experience rejections due to billing errors or coverage issues.