Denial Management in Healthcare: All You Need to Know

Denial Management in Healthcare: All You Need to Know

Payment obstacles and write-offs resulting from insurance denials pose a serious and mounting financial concern for most healthcare providers and systems. Against collaborative efforts within the industry, the following facts paint a clear reason why denial management in healthcare should gain more traction during medical practices:

  • The healthcare industry experiences an average claim denial rate of 5%-10%.
  • 90% of these denials are preventable.
  • About 65% of denied claims don’t receive resubmission.
  • Unresolved denials can result in a 5% reduction in net patient revenue.

A strong denial management strategy can be the right cure for these pain points. In this blog, we’ll explore the importance, strategies, and industry best practices for optimizing denial management in healthcare.

Denial Management in Healthcare: All You Need to Know

What Is Denial Management in Healthcare?

Denial management in healthcare refers to the strategic process of examining, correcting, and preventing claim denials. The term ‘claim denial’ arises when a payer, such as Medicare or a commercial health insurance company, denies a provider’s request for reimbursement of medical services.

Claim denial management will involve various efforts, from analyzing billers and payers, performing root-cause analysis, to adopting preventative measures. Therefore, denial management is a continuous process requiring healthcare organizations to resolve front-end process issues for constant denial prevention.

Financial Impact of Denials

Denials are a direct roadblock to revenue generation. They cause delays in receiving payments, require extensive labor hours, and can even lead to uncompensated care. In numbers, the average expense of reworking a claim can be up to $25 per claim for ambulatory providers and up to $118 for hospitals.

Financial Impact of Denials

From a broader industry perspective, denials have been steadily increasing recently, with a 20% rise observed across the healthcare industry in the last five years. As U.S. hospitals are dealing with pressing financial concerns like increased supply costs and workforce crisis, claim denials are adding fuel to this fire.

Six Simple Steps Of The Denials Management Process

Prevention is better than cure. The best way to handle claims denial is to prevent it from occurring in the first place with effective denial management in healthcare process, which involves the following steps:

  • Analyze denials
  • Conduct root-cause analysis
  • Assessing preventability
  • Rework the denials
  • Initiate an appeal
  • Develop preventive denial management
Six Simple Steps Of The Denials Management Process

1. Analyze Denials:

To effectively address denials, every healthcare professional must understand all common types of denials and also the payers that can deny the processes. Collecting data on facilities, providers, payers, and procedures that lead to common denials allows you to identify your own mistakes and even potential ones made by payers.

It’s easy to jump to lousy solutions when you don’t have a firm grasp of the denials.

2. Conduct Root-cause Analysis

Coding errors, missing data, late submissions, out-of-network care, lack of prior authorization, lack of medical necessity, etc., are many reasons leading to claim denials. Take the time to thoroughly examine the claim documentation, billing procedures, and payer policies to drill down to the root cause of denials.

The more you understand the root cause, the more likely you can create countermeasures that prevent the denials from recurring.

3. Assessing Preventability

Based on the information collected, determine if the denial could have been prevented. If so, consider alternative approaches in the claims process to avoid denials.

Another way to categorize denials is by their causes or types, which helps develop targeted strategies to prevent denials of the same nature in the future. Not all denials are equal, and categorizing them can help teams detect the most urgent ones.

4. Rework the Denials

Once you have identified the causes for the denial and categorized them accordingly, you can rectify the mistakes or solve the underlying problems that led to the denial. The work often includes correcting coding errors, acquiring missing documentation, or explaining clinical details.

Remember to foster collaboration among departments (such as clinical, coding, and billing) to resolve the identified issues and resubmit the claim effectively.

5. Initiate an Appeal

If your rework and resubmission do not go well, you have another option: initiating an appeal. There are numerous insurance providers that offer multiple levels of appeal, each with distinct deadlines and requirements.

Winning appeals is possible. While 67% of denied claims can be recovered, 65% of claims are never resubmitted. Healthcare organizations are lacking the necessary resources and infrastructure to manage denials effectively. And payers are exploiting this deficiency.

6. Develop Preventive Denial Management

By gaining a thorough understanding of the mistakes made by clinicians and administrators that lead to denials, as well as payer-related issues, you can create a checklist highlighting the primary reasons for denials. Collaborate with your team to devise effective strategies aimed at avoiding these common denial reasons.

Key Strategies for Managing and Resolving Denials

Up until now, especially in the context of denial management in healthcare, we have touched upon the difficulty denials bring. However, strategies we can take to prevent them, including:

  • Track denials through a data-driven workflow
  • Handle denials with clear priorities
  • Set and share kpis
  • Provide denial prevention training
Key Strategies for Managing and Resolving Denials

1. Track Denials Through a Data-driven Workflow

About 50-60% of denials are left unaddressed in a timely manner, leading to a loss of 5-7% in revenue. The majority of healthcare systems lack a well-defined process for denial tracking.

Implementing real-time data and analytics can improve an organization’s capacity to submit claims and handle denials effectively. By establishing a data-driven denial management process, with a clearly defined list of claim adjustment reason codes (CARC) and clearly assigned responsibilities, your team will be armed with the essential data and framework to excel.

2. Handle Denials With Clear Priorities

When a claim is rejected, the reimbursement is delayed by 21-45 days. Cash flow is the lifeblood of any business, including healthcare organizations, to ensure the delivery of the best care to patients.

Therefore, it is a must to address denials within 48 hours of receipt. In that case, you can enhance staff and clinician efficiency in dealing with denials by providing accessible data, valuable incentives, and finding more effective ways to automatically integrate documentation updates into daily workflows.

3. Set and Share KPIs

Setting and tracking important KPIs help providers take the right action to achieve these ultimate goals: enhanced reimbursement, expedited payment, reduced denials and appeals, and an optimized revenue cycle. Three essential KPIs that should be measured include denial rate, final denial write-off, and clean claim percentage.

However, denial management in healthcare should not be a one-person endeavor. Share the goals and KPIs with all the departments from registration, patient financial services, nursing, to health information management, and information technology to ensure a more efficient process.

4. Provide Denial Prevention Training

Additional training on insurance fundamentals and denial prevention strategies can provide necessary foundation for all revenue cycle staff. When employees have a deeper understanding of how denials impact the overall cash flow, they are more inclined to take responsibility for preventing them.

These trainings can come in the form of staff-wide education on revenue cycles. Therefore, make sure your financial executives can also provide ongoing guidance to their team members.

Best Practices in Denial Management in Healthcare

Receiving claim denials is common as payers keep on changing their policies and guidelines. However, you can follow some of these best industry practices to minimize the number of denied claims:

  • Improve documentation
  • Identify trends
  • Be proactive
  • Collaborate with payers
  • Prioritize quality over quantity
  • Conduct performance audits
  • Leverage denial management software
Best Practices in Denial Management in Healthcare

1. Improve Documentation

Failing to keep track of denied claims will decrease the practice’s revenue, and increasing denial rates can bring critical administrative issues. There are always opportunities for improvement in your documentation practice, and efforts to enhance it should be long-term.

2. Identify Trends

Track, evaluate, and document denial trends by quantifying and categorizing them. Focus on using data and payers’ support to address newly arrived denials.

3. Be Proactive

Instead of waiting for denials, take proactive steps to implement positive changes in your processes and operations. Implementing a validated process to address denials, ideally within a week, to avoid scrambling when issues arise. You can start by building a workflow that can track claims entering and exiting the system.

4. Collaborate with Payers

Payers can also reap the advantages of resolving denial problems. Hence, strong payer-provider collaboration can help resolve denial issues more efficiently and rapidly.

5. Prioritize quality over quantity

To make every resource count, prioritize following up with the claims that are already addressed. This approach promotes the generation of higher-quality claims instead of a larger quantity of lower-quality claims that don’t benefit at all.

6. Conduct performance audits

Per AHIMA’s recommendations, conducting regular audits can noticeably enhance denial and appeal rates. Require works should include audits of remittance advice reviews, write-off adjustments, zero payment claims, registration, and insurance verification quality

7. Leverage denial management software

Denial management software aids healthcare providers in navigating and resolving claim denials from insurance companies and other payers. With the goal of enhancing revenue cycles and optimizing reimbursement, this software identifies, monitors, and even appeals these claim denials. These software solutions also provide real-time denial tracking, data analytics, customizable workflows, and seamless integration with current electronic health record systems.

Healthcare leaders can find reassurance in the fact that third-party solution partners have made significant strides in ensuring the smooth integration of their systems with your existing EMR, billing, and other systems.


1. Why is effective denial management crucial for healthcare providers?

Effective denial management in healthcare is the key to the financial stability of any healthcare practice. Additionally, it offers several advantages, such as improved initial clean claims rate, higher net revenue collection, and improved patient satisfaction and loyalty.

2. What are the most common reasons for claim denials in healthcare?

Patient eligibility is likely the most common reason for denied claims. This means that the service submitted for payment is not covered by the insurance plan under which it’s being billed.. Other causes contributing to claim denials include:

  • Missing or incorrect data
  • Duplicate or late submissions
  • Improper or outdated CPT or ICD-10 codes
  • Lack of documentation or prior authorization

3. How can AI improve the denial management process?

In denial management, emerging technologies like AI and machine learning can help accurately predict denials, ensure accurate data input, simplify manual processes, and recognize denial trends. Moreover, they are also integrated into billing workflows to prioritize the work queue for resubmitting claims. These benefits not only reduce costs but also enhance patient retention.

Boost Your Revenue Cycle with KMS Healthcare

The core of a proactive denial management initiative requires a sustainable, technology-driven workflow backed by a comprehensive data system and staff expertise. By partnering with reliable healthtech experts, organizations can rapidly access a proficient and experienced team that is committed to handling every cause of rejections and denials.

With over 14 years of expertise in the healthtech industry, KMS Healthcare is dedicated to offering reliable guidance and helping your healthcare organization get paid what it deserves. With our industry expertise, we ensure to follow all payer and industry-specific policies and minimize your claim denial rate.

Contact us now to start navigating the intricacies of denial management, or building your own denial management software.


(n.d.). Denial Management Calls for More Expertise, Survey Says. RevCycle Intelligence.

(n.d.). COST OF DENIALS SAW 67% INCREASE IN 2022. Health Leaders.

(n.d.). Success in Proactive Denials Management and Prevention. Healthcare Financial Management Association

(n.d.). Claims Denials: A Step-by-Step Approach to Resolution. Journal of AHIMA.

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