Accounts Receivable Management Tips for Healthcare: It's Time to Standardize Your Metrics for Denial Management

Claim denial rates are still a major concern for accounts receivable management in 2022. For example, denial rates for marketplace payers have reached rates as high as 80% according to the Kaiser Family Foundation [1]. But this is only the beginning. COVID has put upward pressure on denial rates for a while now. All of this means that revenue cycle leaders should be taking a fresh look at their denial management practices, not only considering accounts receivable management services but also seeing this as an opportunity to investigate new and more effective approaches to denial management. 

One of the most important will be standardizing your denial metrics. The Healthcare Financial Management Association (HFMA) has released guidance on this process, which we are going to summarize for you here today [2].

The healthcare revenue cycle is incredibly complex, but this is exactly why standardization pays off. HFMA takes a patient-centric approach, which can help you achieve other goals even as you standardize your processes and build a more effective and efficient revenue cycle. 

Standardizing your account receivable management and denial management processes is an exercise in administrative simplification that will support transparency and consistency even as you improve yield performance. To help organizations like yours achieve these goals, HFMA created their Claim Integrity Task Force, a group that has been responsible for identifying the processes for measuring denial management outcomes and doing so in a way that goes beyond your traditional revenue cycle metrics and KPIs. The outcome of their work has been six metrics that you can implement at your organization.

This metric occurs at the claim level and is described as a “trending indicator of total population of initial denials”. The task force recommends that reporting and analyzing this initial denials metric would be best performed at this level. It provides value in the form of an overall trend rate of denial occurrence in both volume and dollars. This means your leaders are better able to identify potential system, process, or data issues they might not have identified previously. 

It’s important to note for this metric that “denial claims” includes just the first denial for a claim. If there are multiple denials, the selected denial is the first chronological denial. 

Formulas

• Initial denial rate as a percentage of claim volume: Total initial denial claims/Total claims submitted
• Initial denial rate as a percentage of claim dollars: Total initial denial claims gross charges/Total claims submitted gross charges.

This metric is a trending indicator of your denials that are specifically related to the primary health plan (or plans) of a patient. It provides value through detailed and specific denial rates for primary claims. These can highlight potential issues in your systems, data, or processes. 

Formula

• Total zero remits (number) posted over the last 4 weeks/Total number of remits (for primary payers only) in the last four weeks. 
• It’s important to note here that “number of remits” includes both payments and zero paid and that duplicates should be excluded when calculating primary payers. 

Denial Write-Offs as a Percentage of Net Patient Services Revenue

This is a trending indicator of final disposition of lost reimbursement in cases where all appeal options have been exhausted, or where you, as a provider, have chosen to write off the expected payment amount. It correlates to HFMA MAP KEY AR-6. 

This metric provides value by reflecting a provider’s ability to remain compliant with payer requirements and illuminating a payer’s ability to accurately pay a claim. 

Formula

• Net dollars written off as denials/Average monthly net patient service revenue (Patient financial system income statement)
• When using this metric, keep in mind that when using “net dollars written off as denials”, you should be using the total dollars written off as a denial in that reporting month, net recoveries. 

Time From Initial Denial to Appeal

This metric measures the timeliness of the denial appeal process. It allows your leaders to gain insight into the efficiency of your internal denial management processes for trending and comparison. 

Formula

• To calculate, simply count the number of days from the day the initial denial was remitted and compare it to the appeal submission date. 

Time From Initial Denial to Claim Resolution

This metric measures the timeliness of your claim resolution processes. It can be valuable when evaluating your internal accounts receivable management processes to understand efficiency for trending, comparison, and health plan compliance in relation to the appeal turnaround times you’ve contracted for. 

Formula

• This metric is calculated by counting the days from the date of the initial denial remittance until claim resolution. 
• When determining claim resolution, include claims that are zero balance or without payment. 

Percentage of Initial Denials Overturned

This metric is a trending and performance indicator of the success of your denial appeal efforts. 

It provides value through the understanding of the efficiency and effectiveness of your denial appeal efforts. Additionally, it can help highlight potential issues that you might have with specific plans or types of denials. For example, inpatient overturned or converted to observation. When calculating this metric, keep in mind that the numerator and denominators should be calculated within the same period or your outputs will be off. 

Formulas

• Gross Charges: Initial denials overturned and paid (gross charges for overturned and paid claims)/Total initial denial dollars paid and adjusted (gross charges)
• Claim Volume: Initial denials overturned and paid (claim volume)/Total initial denials paid and adjusted (claim volume)
• Converted to Observation: Total inpatient denials overturned and paid converted to observation/Total inpatient denials overturned, paid and adjusted

We suggest reviewing the entire HFMA document for information on how the KPIs were developed and for example denial categories. And if you’re interested in discussions about accounts receivable management services and how a partner can help you implement KPIs like these, contact us today.