The healthcare industry is constantly evolving, with significant changes particularly apparent in revenue cycle management (RCM). As we approach 2025, healthcare leaders are diligently working to adapt their strategies, not just to keep up, but to maintain financial stability, accelerate revenue, reduce denials, and deliver high-quality patient care. Staying informed about these RCM advancements is crucial for competitiveness.
One of the most significant and persistent challenges in RCM is managing claim denials. These aren't just minor hiccups; they can have a devastating financial impact on healthcare practices.
The Hidden Cost of Denials: More Than Just Lost Claims
Denials are a pervasive and costly problem in healthcare, often representing a significant financial drain rather than merely lost claims. Understanding the true cost of denials goes beyond the face value of the unpaid service and delves into the time, resources, and lost opportunities involved in their resolution.
Quantifying the Impact: $200,000 Annually from a 10% Denial Rate
To truly grasp the financial devastation caused by denials, consider this stark reality: "Practice submitting 50 claims a day at an average reimbursement rate of $200 per claim should bring in $10,000 in daily revenue. But if 10% of those claims are denied, and the practice can only appeal one, they lose $800 per day. That's upwards of $200,000 annually". This figure powerfully illustrates how quickly a seemingly manageable denial rate can erode a practice's financial health.
The Cost of Recovery: Appeals vs. Resubmissions
The financial impact doesn't stop at the initial denial. Attempting to recover denied revenue incurs additional costs. The podcast highlights that the cost of appeals is "roughly $118 per claim". Even if a practice decides not to appeal and instead investigates and resubmits, it still incurs an average loss of "$25 per denied claim". These recovery costs underscore the inefficiency of a reactive approach to denial management.
"New Denials Can Sink a Profit Margin": Why Prevention is Paramount
Given these significant recovery costs and the potential for substantial annual losses, a critical takeaway is that "New denials can sink a profit margin". This emphasizes why preventing denials from occurring in the first place should be the primary focus for healthcare organizations, rather than dedicating extensive resources to recovering revenue after a claim has been denied. While resolving denials is necessary, prioritizing prevention safeguards financial stability much more effectively.
Navigating the Denial Minefield: Common Types and Manual Burdens
The world of healthcare denials is a complex one, filled with various categories, each presenting its own set of challenges and requiring significant manual effort for resolution. Understanding these common denial types is the first step toward effective management and prevention.
Duplicate Denials
Duplicate denials are frequently encountered and can be particularly frustrating due to their common causes and often tedious resolutions. There are two main Claim Adjustment Reason Codes (CARC) related to duplicates: CARC 18, described as an "exact duplicate claim or service," meaning the payer believes they have received the same claim more than once, and CARC B13, which means "previously paid," indicating the payer already has a record of payment for the exact same service.
Common Causes of Duplicate Denials:
Payer Error: Sometimes, the payer incorrectly denies a claim as a duplicate, failing to recognize corrections, changes, or different modifiers. For instance, physical therapy and occupational therapy might use the same CPT codes, differentiated only by a modifier, which the payer might overlook. This type of error is generally unavoidable from the provider's side.
Resubmission Errors:
Clearinghouse Error: An entire batch of claims might be unintentionally resubmitted by the clearinghouse.
Internal Resubmission: An individual claim or an entire batch might be resubmitted internally without proper checks, leading to duplicates.
Resubmission Without Changes: Submitting a claim again without any modifications can also trigger a duplicate denial.
Corrected Claim Submitted Without Indicators: Submitting a corrected claim electronically without including resubmission code 7 and the original claim number (ICN), or on paper without placing code 7 in box 22 and the original ICN in the original reference number box, can cause the payer to view it as a duplicate. Medicare, notably, often rejects claims with resubmission code 7.
Charge Entry Error: A genuine duplicate service might be entered and submitted twice, or an error on a similar service (like an incorrect provider or service location) could make two distinct services appear identical. For example, two office visits on the same date might be submitted under the same provider when they should have been separate, or a therapy charge might be mistakenly entered as a duplicate office visit.
Resolution for Duplicate Denials:
For payer errors, the primary resolution is to contact the payer and request them to reprocess the claim, as no correction is needed from the provider's end.
For resubmission errors, confirm if both batches/claims denied as duplicates. If a clearinghouse error, they will often work with payers to resolve. For internal errors or individual resubmissions, contacting the payer to identify and delete one of the batches/claims and reprocess the other is necessary.
For corrected claims, ensure the claim is resubmitted with resubmission code 7 and the original ICN.
For charge entry errors, correct the charges in the system and resubmit as a corrected claim.
For CARC B13 ("previously paid"), if it's a true duplicate submission and the other claim has been paid, no action is needed. If paid to a different provider, obtain the NPI from the payer (HIPAA allows this as both parties seek payment) to research the other provider and determine if payer guidelines allow duplicate services.
Prevention of Duplicate Denials:
Payer Error: Cannot be prevented by the provider.
Resubmission Errors: Confirm batches before submission or resubmission, and confirm individual claim submission status before re-sending. Most billing systems show when a claim was last submitted.
Corrected Claim Indicators: Always confirm that correct claim indicators (resubmission code 7 and original ICN) are entered before submitting a corrected claim.
Charge Entry Audit: Consider a quick audit process when entering charges, especially if manual, to catch accidental duplicate entries or errors in provider/location.
Trend Monitoring: Proactively track duplicate denials to identify recurring issues, as many are not "true" duplicates and are worth researching before adjustment.
Eligibility Denials
Eligibility denials are arguably the most frustrating and common type, often causing friction between front-end and back-end RCM teams. They are frequently cited as the number one cause of denials.
Common CARCs for Eligibility Denials:
26: Expenses incurred prior to coverage.
27: Expenses incurred after coverage terminated.
31: Patient cannot be identified as our insured.
32: Your records indicate the patient is not an eligible dependent.
33: Insured has no dependent coverage.
34: Insured has no coverage for newborns.
200: Expenses incurred during lapse in coverage.
Common Causes of Eligibility Denials:
Incorrect Insurance Information: On the patient account or on the claim itself. It’s crucial to understand how your billing system hierarchy works (account vs. claim level) as changes on the account may not automatically update existing claims.
Eligibility Not Confirmed: Or confirmed, but appropriate changes were not made in the system.
Resolution for Eligibility Denials:
Verify Eligibility: Always start by verifying eligibility, typically via an online payer portal. Confirm:
Correct insurance registered on the patient account.
Correct insurance attached to the claim.
Claim submitted to the correct payer (e.g., correct address, payer ID, plan type for different United Healthcare plans).
All demographics and ID information (patient name, DOB, subscriber name, DOB, ID number, group number) are correct and match the portal.
Dates of eligibility cover the service date.
Specific Denials (CARC 32-34 for Dependents/Newborns): Do not take these at face value. They are often registration errors.
For newborns (CARC 34), it's common to receive this denial if services are submitted within 30 days of birth before enrollment. Recheck eligibility; if the newborn is now enrolled, call the payer to reprocess.
Lapse in Coverage (CARC 200/257): This often occurs due to missed premiums, common with labor union plans or Health Insurance Exchange Plans. Call the payer to determine premium status and grace periods (e.g., 60-90 days for Exchange Plans). If premiums are made current, the effective date is often backdated, allowing claims to be reprocessed.
Resubmission vs. Reprocessing: Be cautious to avoid duplicate denials when correcting eligibility issues. If only an ID is incorrect, update and resubmit. It's generally safer to indicate it as a corrected claim.
Prevention of Eligibility Denials:
Verify Eligibility Proactively: Confirm eligibility before the patient is seen, ensuring the service date is used for verification.
Make Appropriate Corrections: It is vital to have staff assigned to make necessary corrections (payer/payer type, ID/group number, subscriber, effective/termination dates, primary/secondary placement) based on eligibility information.
Decision Maker Consideration: Organizations should prioritize resources on the front-end for eligibility verification, as many eligibility denials cannot be reversed, leading to lost revenue.
Non-Covered & Bundling Denials
These two categories often intertwine as they both relate to services not being reimbursed as expected due to payer policies or coding rules.
Non-Covered Charges (CARC 96): This means the service is not covered based on the payer's policy or the patient's benefits. It typically requires a remark code for more specific detail.
Common Remark Codes for CARC 96:
N425: Statutorily excluded service.
N56: Procedure code billed is not correct or valid for the services billed or the date of service billed.
N115: Decision was based on a Local Coverage Determination (LCD).
Causes of Non-Covered Denials:
Payer's clinical policy guidelines were not followed.
An exclusion exists in the patient's benefit plan.
The codes themselves are not valid or effective for the service date, or they may have been deleted.
Resolution for Non-Covered Denials:
Statutorily Excluded (N425): Not appealable. Confirm if the patient can be billed or if it's an adjustment. (Note: For Medicare, a CO 96 (contractual obligation) cannot be billed to the patient; a PR 96 (patient responsibility) can. For commercial payers, check contract guidelines).
Invalid/Incorrect Procedure Code (N56): Research payer guidelines or check if the CPT/HCPCS code was effective during the service date.
Based on LCD (N115): Look up the specific LCD on the CMS website and confirm if documentation supports the medically necessary diagnoses. Never change diagnoses to get paid; only use documented and supported diagnoses.
Payer's Clinical Policy Guidelines: Most non-covered denials are due to these guidelines. Access the payer's website to review guidelines, which can be extensive. Appeals should be based on adherence to these policies.
Prevention of Non-Covered Denials:
Some are not preventable.
For regularly performed services, share clinical policies with providers and coders. This might involve ensuring specific prior steps or treatments are documented before a service.
Verify patient benefits for specific services before the service date, or communicate to the patient that they will be responsible if the service is not covered.
Bundling Denials (CARC 97, 231, 236): These indicate that the benefit for a service is included in the payment allowance for another service that has already been adjudicated. This means services billed together are considered inclusive per coding guidelines or NCCI edits.
Causes of Bundling Denials:
Inclusive Services: Services billed together where one is inherently included within the value calculation or description of another CPT code.
Never Allowed Together: Services billed together that coding guidelines explicitly state are never allowed to be billed concurrently for the same service date.
Global Period: Services performed within the global period (e.g., 10 or 90 days) of a previously performed procedure (often called a "surgical package").
Resolution for Bundling Denials:
A certified coder must review documentation to determine if:
Modifier 25 (E&M) or 59 (procedure) can be appended to report that services were performed separately.
Modifier 24 (E&M) or 79 (procedure) can be appended if the service was performed within a global period but was unrelated to the original procedure.
The charges must be adjusted or removed if they are appropriately bundled and there's no supporting documentation to indicate otherwise.
Be aware of the distinction, and potential friction, between coding guidelines and payer guidelines.
Prevention of Bundling Denials:
Utilize Coding Software: Use software (or NCCI edits document from CMS) to accurately determine if multiple procedures require modifiers or are totally exclusive.
Create Edits: Implement billing system or clearinghouse edits to flag office visits billed with procedures for accuracy review before submission.
Alerts for Global Periods: Create processes to alert coders (e.g., pop-up notes on patient accounts or encounter forms) when a patient has had a procedure with global days.
Missing Information (CARC 16)
CARC 16 is a generalized denial reason: "Claim service-lax information or has submission billing errors". While payers are encouraged to use more specific codes (like 252 for missing attachments), CARC 16 often requires a remark code for detail. Remark codes are vital for understanding and resolving these denials.
Common Remark Codes for CARC 16:
N4: Missing, incomplete, or invalid prior insurance carrier EOB.
N489: Missing referral form (often referring to authorization information).
M47: Missing, incomplete, or invalid payer claim control number (claim number).
Causes of Missing Information Denials:
N4 (Missing EOB): Primary payment adjudication information was not transmitted with the secondary claim, especially if primary payment posting is manual.
N489 (Missing Referral/Authorization): Authorization or referral information was not transmitted or recognized by the payer.
M47 (Missing Claim Control Number): A claim was submitted as a corrected claim (resubmission code 7) but without the original ICN.
Resolution for Missing Information Denials:
N4 (Missing EOB): Add the primary payment information (EOB details) either on the clearinghouse website or within the billing software, then resubmit the claim.
N489 (Missing Referral/Authorization): Resubmit with the required information. If confirmed it was submitted, contact the payer to locate and reprocess.
M47 (Missing Claim Control Number): Add the original claim number to the appropriate field and resubmit, or remove resubmission code 7 if it was not intended to be a corrected claim.
Prevention of Missing Information Denials:
N4 (Missing EOB): Create processes to ensure primary payment information is entered at the time of payment posting, either automatically (if software supports) or manually.
N489 (Missing Referral/Authorization): Implement processes to ensure authorization/referral information is submitted with the initial claim.
M47 (Missing Claim Control Number): Educate the team on required fields for corrected claims, and consider creating system/clearinghouse edits to identify submissions with resubmission code 7 but no ICN.
It is crucial to be on the lookout for trends with CARC 16, as its generalized nature means the specific remark codes are key to understanding and preventing recurrence. Input from front-line staff working these denials is vital for identifying these trends.
AI: Your Comprehensive Solution for Plugging Revenue Leaks
The sheer volume and complexity of healthcare data, combined with persistent staffing shortages and rising labor costs, make traditional, manual approaches to RCM increasingly unsustainable. This is where Artificial Intelligence (AI) and automation offer a transformative solution, helping healthcare organizations improve efficiency, optimize workflows, and minimize errors, especially in critical RCM areas like patient registration, eligibility verification, claims processing, denials management, and payment posting.
Magical, for example, leverages Agentic AI to automate entire processes, requiring zero human involvement. This type of AI goes beyond traditional Robotic Process Automation (RPA) tools, which can be rigid and easily break when encountering unforeseen situations. Agentic AI, in contrast, "can understand context, adapt to changing situations, and make judgments based on the available data".
Proactive Prevention: AI's Role in Pre-Claim Verification and Intelligent Data Submission
While the sources don't explicitly detail AI's role in all aspects of proactive prevention for every denial type, it's a logical application of AI's capabilities as described across the sources. For instance, AI can significantly bolster early-stage RCM processes, which are crucial for preventing eligibility and missing information denials.
Enhanced Eligibility Verification: AI-powered tools can perform real-time eligibility checks, ensuring that patient insurance information is accurate and active before services are rendered. This goes beyond basic checks by verifying coverage dates and identifying specific plan details that might lead to denials, minimizing the manual burden of front-end staff.
Intelligent Data Capture and Submission: AI can automate patient registration and data entry, ensuring all required demographic and insurance details are accurately captured and transmitted to the claim. This reduces human error, a common cause for duplicate and missing information denials. Magical, for example, can automate data movement between systems, handling formatting and cleanup automatically, and can even extract data from PDFs (like medical records or insurance forms) to populate online forms instantly.
Intelligent Denial Analysis: Identifying Trends and Root Causes Automatically
The ability to identify denial trends is paramount for effective prevention and resolution. While the sources emphasize the importance of identifying trends, AI's role in automating this process is a key benefit not directly from the podcast transcript, but evident in the capabilities of AI described elsewhere.
Pattern Recognition: Agentic AI can analyze vast amounts of claims data, denial codes, and remark codes much faster and more comprehensively than humans, to automatically identify recurring patterns and root causes of denials. This can reveal underlying systemic issues in patient registration, coding, or billing processes that might be contributing to specific denial types, such as the persistence of eligibility or missing information denials.
Predictive Analytics: Beyond just identifying past trends, AI can use predictive analytics to forecast potential denials based on historical data, allowing RCM teams to intervene proactively before claims are submitted or denied. This is a significant shift from reactive "firefighting" to proactive financial health.
Automated Workflow for Resolution: Streamlining Follow-Up, Documentation, and Resubmission/Reprocessing
Once a denial occurs, the resolution process can be highly manual, time-consuming, and prone to errors. Agentic AI can significantly streamline these back-end operations. While the podcast transcript details the steps for resolution, AI's role in automating these steps is a key benefit highlighted by Magical's capabilities, going beyond mere summary of the transcript.
Automated Resubmission and Reprocessing: AI agents can automate the process of adding missing information, applying necessary modifiers (like those for bundling denials), or re-submitting claims with corrected details. They can handle the nuanced requirements of different payers and adapt to changes in online portals or forms, ensuring accurate resubmissions.
Intelligent Follow-Up: For denials requiring payer contact, AI can manage the queue, prioritize high-value denials, and even automate parts of the communication process, freeing up human staff for more complex interactions.
Self-Healing Workflows: Magical's AI agents are designed to be resilient, adapting to changes and handling "edge cases automatically," meaning automations keep running reliably even if a button changes in an application. This is crucial for maintaining efficient denial resolution workflows without constant human oversight.
Ready to see how Magical's Agentic AI can transform your RCM operations? Book a free demo today and discover how to automate complex workflows, reduce denials, and accelerate your revenue cycle.
Building a Resilient RCM: The AI Advantage
In the face of persistent staffing shortages, rising labor costs, and the ongoing challenge of denials, building a resilient RCM is not just about recovery; it's about leveraging advanced technology to secure long-term financial health. AI offers a distinct advantage in this pursuit.
Maximizing Reimbursement and Recovering Lost Revenue
AI directly contributes to maximizing reimbursement by ensuring claims are accurate and complete the first time around, thereby reducing denial rates significantly. By automating claims processing, payment posting, and denials management, AI can reduce manual effort, minimize errors, and accelerate the revenue cycle, ultimately improving cash flow and recovering revenue that might otherwise be lost. Healthcare organizations using advanced RCM systems have reported a 10-15% increase in revenue.
Improving Operational Efficiency and Reducing Manual Workload
The burden of manual tasks in RCM, from patient registration to denial resolution, is immense. AI-powered automation directly addresses this by handling complex, repetitive workflows. This "frees human workers to focus on strategic and creative endeavors," shifting their attention from mundane, soul-crushing tasks to higher-value activities. Agentic AI can work "while you sleep," boosting efficiency by over 50%. This "self-driving" automation means workflows "course-correct, identify shortcuts, and get smarter over time," significantly reducing the manual workload and operational costs.
Shifting from Reactive Firefighting to Proactive Financial Health
Traditional RCM often involves "reactive firefighting," constantly addressing problems after they've occurred. Agentic AI enables a fundamental shift to a proactive model. By observing workflows, automatically flagging automation opportunities, and learning from experience, AI can help organizations anticipate issues, implement preventative measures, and continuously improve processes. This adaptive intelligence ensures that RCM operations are resilient and continually optimized, leading to more stable and predictable financial outcomes.
The insights gleaned from AI-driven analytics also support more informed business decisions, allowing leaders to strategically allocate resources and refine RCM strategies. This proactive approach not only safeguards revenue but also enhances the overall patient financial experience by minimizing billing complexities and ensuring smooth interactions, ultimately improving patient satisfaction.
Don't let denials drain your practice's profits any longer. Empower your team with Agentic AI. Request a demo of Magical today and start your journey toward a more efficient, financially stable, and proactive revenue cycle.
In the intricate and constantly changing landscape of healthcare, effectively managing your revenue cycle isn't optional—it's a necessity. By embracing innovations like AI and automation, revenue cycle leaders can steer their organizations through challenging times, supporting financial well-being, enhancing the patient experience, and securing a competitive advantage.
