Preventing Claim Denials: 6 Top Reasons Claims Are Denied and How to Avoid Them

Claim denials can be a frustrating and costly experience for both healthcare providers and patients—in 2022, the costs of claim denials rose 67%. To prevent claim denials and ensure a smooth, efficient revenue cycle management process, it’s important to understand the common reasons behind them.

In this article, we will explore six key reasons why claims are often denied and provide actionable strategies to mitigate these issues.

1. Inaccurate or Insufficient Documentation

One of the primary reasons for claim denials is inaccurate or insufficient documentation. Incomplete patient information, missing signatures and illegible paperwork can lead to claim rejection so it’s crucial to verify the information during pre-service operations. Digital registration and patient scheduling solutions offer a better way to gather information and required paperwork ahead of time while ensuring a positive patient experience. To prevent this, providers should implement thorough documentation processes, ensure all necessary information is included and use electronic systems to enhance accuracy.

2. Prior Authorization

Prior authorization—obtaining approval from insurance companies before treatment—is a key driver of denied healthcare claims. Prior authorization denials on inpatient accounts were a key driver behind denials. In August 2022, they rose to 2.5% of gross revenue, up from 1.5% of gross revenue in January 2021. This represented an increase of 67%, according to a Crowe RCA benchmarking analysis. One of the main reasons prior authorization leads to denied claims is the disconnection or miscommunication between the healthcare providers and insurance companies. This often makes it difficult to obtain the necessary authorization before delivering care. The prior authorization process can be complex, time-consuming and fraught with potential errors. It often involves submitting detailed documentation, and then waiting for approval, which can delay care. Providers can improve prior authorization management by leveraging technology that streamlines processes, collaborating with payers to better understand the requirements and educating patients about the process.

3.Coding Errors

Coding errors, such as mismatched diagnosis and procedure codes or incorrect modifiers, are another common cause of claim denials. Providers should invest in robust coding education and training programs for their staff to ensure accurate code assignments. Regular audits and compliance checks can also help identify and rectify coding errors promptly.

4. Lack of Medical Necessity

Claims may be denied if the services rendered are deemed not medically necessary. To prevent this, providers should carefully evaluate and document the medical necessity of each procedure or service. It is crucial to maintain comprehensive patient records, including detailed notes on the rationale behind treatment decisions, to support the medical necessity of billed services.

5. Timely Filing Limit Exceeded

Insurance companies impose specific time limits within which claims must be submitted. Failure to meet these deadlines can result in claim denials. Providers should establish robust processes to track and submit claims within the specified timeframe. Utilizing electronic billing systems and implementing reminder systems can help ensure timely claim submission.

6. Insurance Coverage Issues

Claim denials can also occur due to insurance coverage issues, such as expired policies or services not covered under a patient's plan. To mitigate these challenges, providers should verify insurance coverage and eligibility prior to an appointment. Additionally, back-end insurance discovery solutions can uncover hidden revenue where coverage is overlooked, not updated or otherwise missed. Clear communication with patients regarding their coverage limitations can help manage expectations and prevent claim denials.

Understanding the root causes of claim denials and implementing proactive strategies, such as conducting performance audits, establishing a team to handle denied claims and collaborating with payers, are essential for providers to optimize their revenue cycles and ensure timely reimbursement.

By addressing issues such as inaccurate documentation, coding errors, lack of medical necessity, timely filing limits and insurance coverage problems, providers can significantly reduce claim denials and improve overall financial performance. Adopting best practices, investing in training and technology, and maintaining open communication with patients and payers are key steps towards preventing claim denials and achieving financial success.

Learn how FinThrive can help your healthcare organization prevent errors, improve patient information and streamline the claims process.