5 Proactive Strategies to Stop Denials Before they Start in Your Revenue Cycle

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5 Proactive Strategies to Stop Denials Before they Start in Your Revenue Cycle

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The healthcare industry is constantly evolving, and a crucial area where this is particularly evident is in revenue cycle management (RCM). For top healthcare leaders and revenue cycle teams, staying on top of the latest RCM trends isn't just about being "trendy"—it’s about maintaining financial stability, accelerating revenue, reducing denials, and delivering quality patient care. The goal isn't just to survive amidst a changing industry, but to thrive.

One of the biggest headaches for healthcare providers continues to be dealing with denied claims. According to an AKASA survey, half of providers reported an increase in their denial rates last year. This isn't just an administrative annoyance; it significantly impacts a healthcare practice's bottom line.

The High Cost of Denials and the Power of Prevention

Denials carry a hefty financial toll. Research shows that it costs roughly $118 per claim to appeal a denial. Imagine a practice that submits 50 claims a day, with an average reimbursement rate of $200 per claim. This practice should ideally bring in $100,000 in daily revenue. However, if just 10% of those claims are denied, and the practice can only successfully appeal one, they face a loss of $800 per day, which can escalate to over $200,000 per year. If you opt not to appeal, and instead investigate and resubmit, the practice still incurs an average loss of $25 per claim.

As Vanessa Moldovan, an expert with over 20 years in physician revenue cycle management, emphasizes:

"Denials can sink a profit margin, and given the cost of appeals, which is roughly $118 per claim, not all denials can be reworked. A practice submitting 50 claims a day at an average reimbursement rate of $200 per claim should bring in $100,000 in daily revenue. But if 10% of those claims are denied, and the practice can only appeal one, they lose $800 per day, upwards of $200,000 a year."

This stark reality highlights why preventing denials is a strategy that should be seriously considered over attempting to recover revenue after a claim has been denied. While no single solution covers every possible prevention method, focusing on proactive strategies provides strong guidance and a pathway to financial health.

Understanding the Physician Revenue Cycle: A Foundation for Prevention

The physician revenue cycle encompasses the entire financial journey of a patient's care, from initial registration and appointment scheduling through to the final settlement of outstanding balances. Its importance lies in streamlining processes for better efficiency and to reduce denials, ultimately ensuring that revenue flows smoothly into the practice. This includes everything from front-end tasks like patient registration and eligibility verification to back-end tasks such as billing, collections, denials, and appeals.

Distinguishing Rejections vs. Denials: Why Both Matter for Prevention

Before diving into specific prevention strategies, it's crucial to understand the difference between claim rejections and denials, as both impact your revenue cycle. As Moldovan explains, rejections are received from the payer via the clearinghouse before the claim is officially on file with the payer. Conversely, a denial is received after the claim has been officially accepted and is on file with the payer. While their descriptions differ, the good news is that both rejections and denials are resolved and prevented in the same way. Therefore, focusing on proactive prevention strategies addresses both challenges simultaneously.

Core Pillars of Denial Prevention

Effective denial prevention rests on a few fundamental principles:

  1. Communication: One of the most powerful tools in preventing denials is open and consistent communication within your team. Moldovan stresses this point: "Truly, the best way to come up with methods to prevent denials is to communicate with all the appropriate decision makers and those most knowledgeable of the process." This means fostering an environment where billing specialists, coders, administrative staff, and even clinical teams can easily share information, clarify processes, and identify potential issues before they lead to denials. When everyone is on the same page and understands their role in the revenue cycle, errors are minimized.

  2. Continuous Process Monitoring: Having well-defined processes for medical record completion, charge entry, and claim submission is essential. However, merely having them in place isn't enough; these processes must be continuously monitored. Regular monitoring allows you to identify bottlenecks, training gaps, or recurring errors that could lead to denials. It ensures that best practices are consistently followed and that any deviations are promptly addressed. This vigilance helps bring in the revenue and reduce financial leakage.

Key Prevention Strategies for Common Denials

Let's break down proactive strategies for some of the most common types of denials healthcare providers face:

1. Timely Filing (Claim Adjustment Reason Code - CARC 29)

Description: This denial indicates that "The time limit for filing has expired". Causes: Each payer has specific timely filing guidelines for initial claim submissions, corrected claims, appeals, and second-level appeals. These limits can be based on the date of service or the date of receipt. Sometimes, a provider's contract with a payer might even override the payer's standard billing guidelines, leading to confusion. Errors in submitting corrected claims (e.g., missing correct claim indicators) or appeals that are processed as initial claims can also trigger this denial. Resolution Suggestions:

  • Confirm the Timely Filing Limit: Before accepting the denial, always confirm the precise timely filing limit with the payer, as errors by the payer can occur.

  • Patient Involvement: If the patient's actions or information contributed to the denial, consider involving them. Payers are often more likely to overturn denials when their members intervene, as they prioritize member satisfaction.

  • Proof of Timely Filing: If you believe the claim was submitted on time, provide proof, such as an electronic acceptance report (showing the date the claim was accepted, not just submitted). The claim number itself might contain a date indicating payer receipt. For mailed documents, a return receipt from the USPS with a timestamp can serve as proof. Electronic date and timestamps from payer portals for appeals or reconsiderations are also valuable.

  • Payer-Specific Rules: Be aware that some payers have very specific rules for following up on timely filing denials, sometimes detailing them on their websites. Prevention Strategies:

  • Centralized Resource: Create and maintain a readily accessible resource that lists the timely filing limits for every payer and every filing type (initial, appeals, retroauthorizations), noting whether the limit is based on date of service or receipt.

  • Prioritize Shorter Limits: Establish processes to prioritize follow-up for payers with shorter timely filing limits (e.g., 30, 45, or 90 days). This allows your A/R follow-up teams to catch potential denials before they happen.

  • Adequate Staffing: Ensure your practice has sufficient human resources to manage unpaid claims and denials promptly. Even with great processes for timely charge entry and claim submission, a lack of staff can undermine these efforts.

  • Monitor for Stall Tactics: Be vigilant about trends where a payer consistently and incorrectly denies claims (e.g., timely filing denials when you have proof of acceptance). While assuming unethical behavior isn't ideal, reporting these trends to the payer's provider network consultant can uncover internal issues on their end.

2. Multiple Physician/Assistant Limitations (CARC 54)

Description: "Multiple physicians/assistants are not covered in this case". Cause: The payer has a limitation on the number of physicians or assistants allowed for a specific procedure. Resolution Suggestions:

  • Identify Payment Indicators: Use coding software or the CMS physician fee lookup tool to determine the payment indicator for assistant surgeons or co-surgeons (e.g., '0' for payment restriction unless medical necessity is established, '1' for potential payment with documentation, '2' for payment allowed, '9' if the concept doesn't apply). These indicators are crucial for determining the next steps and are widely available on Medicare portals.

  • Action Based on Indicator:

    • If a modifier is appropriate (indicators 1 or 2), add it and rebill.

    • If the service is absolutely not allowed, adjust the charges.

    • If medical necessity can be established, submit supporting documentation.

  • Appeal: If the denial is incorrect or the payer doesn't follow Medicare guidelines, appeal the decision and contact the payer to understand their specific policies. Prevention Strategies:

  • Utilize Coding Software: Proactively use coding software to identify these payer restrictions (especially for Medicare or payers following Medicare policies) before billing.

  • Avoid Unethical Billing: Be cautious about billing services that are known to be non-covered. If a payer strictly follows Medicare guidelines and you know a service is restricted, it's generally recommended not to bill it to that payer. Purposely billing non-covered services can lead to audits.

3. Multiple Procedure Payment Reductions (CARC 59)

Description: "Processed based on multiple or concurrent procedure rules" (e.g., multiple surgery or diagnostic imaging). Cause: This adjustment code (not a denial, but an adjustment with an associated amount) occurs because multiple procedures billed were subjected to the payer's Multiple Procedure Payment Reduction (MPPR) edit. Payers have different hierarchies for reductions (e.g., first procedure at 100%, second at 50%, third at 0%), often based on the Relative Value Units (RVUs) from highest to lowest. However, some might base it on the order submitted on the claim. Modifier 59 usage can also affect this hierarchy. Resolution Suggestions:

  • Review RVU Reduction: Verify that the reductions were applied correctly based on RVUs. If not, reorder the procedures and resubmit as a corrected claim or reconsideration to potentially bring in more revenue.

  • Modifier 59 Placement: Review for proper placement of modifier 59, as this influences the hierarchy.

  • Track MPPR Adjustments: Many billing systems are set to flag CO59 adjustments for review, especially for high-dollar surgeries, to ensure accuracy. Prevention Strategies:

  • Educate Coders: Train coders and charge entry staff to enter multiple procedures in RVU order (highest to lowest).

  • Leverage Software: Utilize billing or coding software that can automatically order procedures or recommend the correct order.

  • Modifier 59 Education: Provide thorough education on the appropriate use of modifier 59.

4. Medically Unlikely Edits (MUE - CARC 151) and Bilateral Procedures

Description (MUE): "Payment adjusted because the payer deems the information submitted does not support this many frequency of services. The number of days or units billed for the same provider on the same day exceeds MUE... maximum established by CMS". Causes (MUE): Services billed exceed the maximum units or frequency allowed under Medically Unlikely Edits (MUEs) set by CMS. Resolution Suggestions (MUE):

  • Consult MUE Information: Refer to MUE information in coding software or the Medicare physician lookup tool to determine the maximum number of units allowed for a specific CPT or Hickspix code.

  • Split Services: If two units were billed but only one is allowed, try splitting the services into two line items and resubmitting. If this still results in a denial (meaning only one unit is allowed regardless of splitting), adjust one line item.

  • Correct and Resubmit: If you billed two units and only one is allowed, reduce it to one unit and resubmit a corrected claim.

  • Contact Payer: If the denial was incorrect, contact the payer to reprocess the claim. Prevention Strategies (MUE):

  • Utilize Coding Software: Implement coding software that can determine MUEs before claim submission, allowing you to identify unit limits proactively.

Causes (Bilateral Procedures): Bilateral procedure billing guidelines for the payer have not been followed. Each payer has its own specific guidelines for how to bill right and left procedures (e.g., using modifier 50, two units, double charges, etc.). Resolution Suggestions (Bilateral):

  • Identify Payer Guidelines: Determine the specific payer's guidelines for bilateral procedures and correct the claim accordingly before resubmitting. Prevention Strategies (Bilateral):

  • Team Resource: Create a clear, easily accessible team resource that outlines the bilateral procedure billing guidelines for each payer. This ensures everyone is aware of and follows the payer's specific requirements, preventing denials.

5. Routine Services (Patient Responsibility - PR 204/PR 49)

Description:

  • PR 204: "This service equipment drug is not covered under the patient's current benefit plan".

  • PR 49: "These are non-covered services because this is a routine exam or screening procedure done in conjunction with a routine exam". Causes: These denials are Medicare-related or apply to payers following Medicare guidelines. Routine physical exams are generally not covered by Medicare, with specific exceptions like the Welcome to Medicare physical or the Initial Preventive Physical Exam (IPPE). The ICD-10 or procedure code billed will often trigger an edit at Medicare for these routine services. Resolution Suggestions:

  • Verify Coding: Confirm that the correct CPT and ICD-10 codes were billed for the services rendered. A simple charge entry or coding error can trigger this denial, which can then be corrected and resubmitted.

  • ABN Modifiers: If coding is correct, review for the appropriate use of ABN (Advance Beneficiary Notice) modifiers (GA, GZ, or GUI). Prevention Strategies:

  • Comprehensive ABN Education: Educate all team members about ABNs, Medicare routine services, and the proper usage of ABN modifiers. CMS.gov and Medicare portals offer valuable resources on this complex process.

  • CO vs. PR Distinction: Crucially, understand that you cannot bill Medicare patients when a denial has a CO (contractually obligated) prefix. Patients can only be billed when a PR (patient responsibility) prefix is present. This distinction is vital for treating Medicare beneficiaries fairly and ethically.

Leveraging Technology for Proactive Denial Management: The AI Advantage

In today's rapidly evolving healthcare landscape, technology, particularly Artificial Intelligence (AI) and automation, is no longer just a luxury—it’s a necessity for managing revenue cycles effectively. About 80% of healthcare executives are increasing spending on IT and software due to the rise of AI technologies, including generative AI. These powerful tools help healthcare providers improve efficiency, optimize workflows, and minimize errors, especially in RCM areas like patient registration, eligibility verification, claims processing, denials management, and payment posting.

The "Leveraging Technology for Proactive Denial Management" section (as outlined in the transcript) is where AI truly shines. Here's how AI automation, particularly agentic AI, can revolutionize your denial prevention strategies:

  • Automating Eligibility and Benefits Checks: AI tools can instantly verify patient eligibility and benefits, flagging potential issues before a claim is even submitted. This prevents common denials stemming from incorrect patient information or non-covered services.

  • Predicting Denial Trends: AI can analyze vast amounts of historical data to identify patterns and predict which claims are most likely to be denied. This foresight allows your team to address high-risk claims proactively.

  • Flagging Coding Errors Pre-Submission: Advanced AI can review medical coding for accuracy and compliance with payer-specific rules and guidelines, catching errors before they lead to denials.

  • Ensuring Compliance: With constantly evolving healthcare regulations, AI can help your practice stay up-to-date on new coding guidelines and privacy regulations, minimizing compliance-related denials.

Tools like Magical are at the forefront of this transformation. Magical's Agentic AI goes beyond traditional Robotic Process Automation (RPA), which can be rigid and break easily. While RPA requires predefined rules and struggles with nuance, Agentic AI operates more like a human worker, understanding context, adapting to changing situations, and making judgments based on available data.

Magical's Agentic AI enables:

  • Autonomous Workflows: It can automate entire processes with zero human involvement, even while your team sleeps.

  • Effortless Complex Automation: It moves data between systems, navigates forms, and submits information without human input, handling complex processes with ease.

  • Human-like Decisions: AI agents use reasoning models, real-time data retrieval, and goal-based execution to make automations more reliable than traditional rule-based approaches.

  • Smart Data Transformation: Automatically moves and transforms data between applications, handling date conversions, text extraction, and formatting without manual cleanup.

  • Intelligent PDF Processing: Extracts data from any PDF (like medical records or insurance forms) and populates it into online forms instantly.

  • AI-Powered Resilience: Our AI agents adapt to changes in applications and handle edge cases automatically, ensuring your automations run reliably even if a button changes.

  • Rapid Setup: Magical makes it easy for anyone to set up RPA workflows in a matter of minutes, significantly faster than the months traditional RPA can take.

Magical helps healthcare companies put their RCM workflows on autopilot with AI employees, perfecting tasks like prior authorizations, claims management, and payment posting. It's even helped companies increase revenue by decreasing billing errors and speeding up patient charting by 25%. Furthermore, Magical is designed with security in mind, not storing keystrokes or patient data, which minimizes data breach risks.

Ready to see how Agentic AI can transform your revenue cycle and proactively prevent denials? Book a demo to learn more about how Magical can streamline your operations.

Conclusion: Building a Resilient Revenue Cycle Through Prevention

The healthcare industry is dynamic, and navigating its complexities requires a proactive and informed approach. Vigilant prevention is key to a healthy revenue cycle. By embracing emerging technologies like AI and automation, staying informed about regulatory changes, and focusing on data-driven decisions, providers can significantly enhance their financial well-being.

Beyond the financial aspects, remember the importance of the patient's financial experience. As patient financial responsibility increases, offering flexible payment options, clear billing statements, and online payment methods using digital tools like mobile apps and online portals can improve patient satisfaction while reducing administrative burdens.

By adopting these proactive strategies and investing in innovation, revenue cycle leaders can guide their organizations through challenging times, ultimately ensuring financial stability and improving the patient experience.

Don't let denials erode your practice's financial health. Take control of your revenue cycle today. Book a free demo to discover the magic of proactive automation with Magical.

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