Mastering Denied Claims: A Step-by-Step Recovery Guide

Denied claims can be a major roadblock in the revenue cycle processes of any healthcare organization.  In a 2024 report, 38% of survey respondents said at least one in ten claims is denied.  It is not unusual for an organization to see claims denied more than 15% of the time! 

Why does this matter?  Well, for one reason –  this is what keeps most CFOs up at night:  collecting all the dollars owed by insurance and ensuring that denials are as low as possible. Keep in mind – a provider can treat patients but if the revenue isn’t turned into cash, the practice is losing money.

As a claims or revenue cycle specialist, we know that every denied claim represents potential lost revenue and certainly additional administrative burden.  Is it possible to overturn denials and recover cash for the practice?  Or better yet, can we understand denial reasons and reduce the number of denied claims by improving front end processes?  The answer is yes to both.  

Effective denial management keeps cash flow steady. In this guide, you’ll learn top strategies to resolve denials and optimize your revenue cycle.

Step 1: Identify the Root Cause of Denials

The first step in resolving claims denial is understanding why claims are being rejected or denied in the first place.  Common reasons for claim denials include:

• Incomplete or inaccurate patient information – Missing demographics, incorrect policy numbers, or outdated insurance details.
• Coding errors – Incorrect CPT, ICD-10, or modifier usage.
• Lack of prior authorization – Certain procedures require pre-approval from insurances.
• Timely filing issues – Every payer has different timely filing and even appeal deadlines, and missing these dates results in automatic denials.
• Medical necessity disputes – The insurer may deem a procedure unnecessary based on claims history, diagnosis or even documentation

Actionable Tip:

Run a denial trend analysis out of your practice management system to categorize and track recurring denial reasons.  This will help you implement corrective actions proactively.

Step 2: Implement a Systematic Appeals Process

Once you identify the cause, the next step in denied claims management is crafting an effective appeals strategy.

• Review the Explanation of Benefits (EOB) or Electronic Remittance Advice (ERA):
  Understand why the claim was denied and if it was due to administrative, coding, or medical necessity issues.
• Gather Necessary Documentation:
  Ensure you have all relevant patient records, authorization letters, and supporting documents needed for a strong appeal.
• Follow Payer-Specific Appeal Guidelines:
  Each insurance company has its own appeal process.  Adhere to their format, deadlines, and requirements.
• Write a Compelling Appeal Letter:
  Clearly outline why the claim should be reconsidered, referencing relevant medical codes and supporting documentation.
• Track and Follow Up:
  Don’t let denials and appeals sit unresolved.  Follow up regularly and maintain communication with the payer.

Actionable Tip:

Use a claims tracking system to monitor appeal statuses and reduce manual workload.  If your practice management system does not have this tracking available, even utilizing an Excel spreadsheet will be helpful.  

Step 3: Optimize Front-End Revenue Cycle Processes

Prevention is always better than correction.  Improving front-end revenue cycle processes can help reduce denial rates significantly.

• Ensure accurate patient registration and verify data entry accuracy.  
• Conduct regular staff training on billing and coding updates as well as payer policies.
• Confirm insurance coverage with real-time eligibility checks before rendering services to patients.
• Invest in claims scrubbing software to catch errors before submission.

Actionable Tip:

Collaborate with your billing and coding teams to conduct periodic audits and refine processes for increased efficiency.

Step 4: Leverage Technology for Efficient Denial Management

With the right technology, denial management becomes faster and more efficient. Consider implementing:

• Automated claim scrubbing tools with your practice management system and clearinghouse – Create up front edits by payor and back end edits prior to claims submissions.   
• AI-driven analytics – Identify denial trends and predict risk areas for proactive improvements.

Actionable Tip:

Partner with a specialized revenue cycle management service like Legacy Consulting Services to implement cutting-edge technology and optimize denial resolution.

Step 5: Monitor Performance and Adjust Strategies

Finally, improving denied claims management requires continuous monitoring and refinement.  Set up key performance indicators (KPIs) such as:

• Denial rate percentage – Aim to reduce denials to less 3% of total claims. 
• Denial liquidation percentage – Track the number of appealed and overturned denials (where denials were corrected or appealed and paid). 
• First-pass resolution rate – Track the percentage of claims paid upon first submission.
• Appeal success rate – Measure the effectiveness of your appeals process.

Regularly reviewing these metrics helps in identifying gaps and making necessary adjustments to revenue cycle processes.

Experts indicate the following:

• A study by the Healthcare Financial Management Association (HFMA) found that 90% of denied claims are preventable.
• The Medical Group Management Association (MGMA) reports that 65% of denied claims are never resubmitted, leading to significant revenue losses.
• The Center for Medicare & Medicaid Services (CMS) states that top reasons for claim denials include eligibility issues (20%), missing documentation (15%), and coding errors (10%). 

CFO Denial Liquidation Reporting 

1. Key Denial Metrics – 12 or 13 month trend

• Total Claims Submitted
• Total Denied Claims
• Denial Rate: %
• Total Value of Denied Claims: $
• Top Denial Reasons:
  • Coding errors – %
  • Authorization issues – %
  • Eligibility verification – %
  • Timely filing – %
  • Other – %

2. Financial Impact of Denials

• Estimated Revenue Loss Due to Denials: $
• Projected Recoverable Amount: $
• Aging Breakdown of Denied Claims:
  • 0-30 days: $
  • 31-60 days: $
  • 61-90 days: $
  • 91+ days: $ (at risk for write-off)

3. Denial Liquidation Strategies & Actions

A. Immediate Revenue Recovery Actions

1. High-Value Appeals Prioritization
   • Focus on claims greater than 60 days above $ with high appeal or collections potential
   • Allocate resources for immediate resubmission
2. Automation & AI for Denial Tracking
   • Review and Implement automated claim scrubbing & resubmission tools
   • Leverage AI analytics to identify patterns & optimize future claim submissions
3. Provider & Payer Collaboration
   • Engage directly with top payers to resolve bulk denials

B. Long-Term Denial Prevention & Reduction

1. Staff Training on Coding & Compliance
   • Reduce coding errors with quarterly audits & training programs
2. Enhanced Eligibility Verification Process
   • Strengthen pre-service financial clearance procedures
3. Claims Management Optimization
   • Increase automation for real-time eligibility & authorization checks

4. Financial Recovery Projection

• Projected Recovery in Next 30 Days: $
• Expected Liquidation Percentage: %
• Anticipated Write-Off Amount: $

Conclusion

Managing  denials effectively requires a proactive, strategic approach.  By identifying root causes, streamlining appeals, optimizing front-end processes, leveraging technology, and tracking performance, you can improve your claim approval rates and enhance overall revenue cycle efficiency.

Partner with Experts for Efficient Denial Management

A dedicated denied claims recovery service can help providers maximize collections. Legacy Consulting Services specializes in denied claims management, medical billing optimization, and provider credentialing to enhance revenue cycle efficiency. Contact us today to learn how we can help optimize your revenue cycle processes!