Do More Denials Mean More Revenue?

by | Mar 25, 2021 | Blog

By Joseph Zebrowitz, MD

Denials Are Bad…Maybe Not

One of the central tenets of utilization management is that “denials are bad.” Our hospitals have developed a myriad of Key Performance Indicators (KPIs) that reflect this: we track denial rate and total number of denials by Utilization Review (UR staff and doctor; we monitor write-offs and contractual adjustments; we measure overturn rates of our Physician Advisor peer-to-peer appeals; and we look at how many denials are overturned by payer, physician advisor, etc. These KPIs are often reviewed at UR committee meetings and are followed closely by Revenue Cycle leaders. If you’re a hospital C-level executive you’ve probably heard the following: “Great news! We’ve decreased our payer denials, and we win 80% of our peer-to-peer appeals!”

Unfortunately, despite all the “great news,” your hospital is still getting paid far less than it deserves by commercial and Medicare Advantage payers!

There are a few reasons for this, most of which involve your staff, who, by optimizing KPIs, actually cost the hospital money! Here is what is happening:

Decreased Denials Means Decreased Revenue

  1. The simplest way to decrease payer denials is to accept observation payments.When I look at hospital data showing an increase in observation rates, particularly on those stays greater than 2 midnights, I always ask “when did the hospital put its denial reduction plan in place?” The answer always correlates with the uptick in observation. I know of one hospital who purchased a “frictionless” software product to decrease denials – it was frictionless all right – the payer was able to skate along the frictionless surface to paying the hospital less money.

A Higher Overturn Rate May Not Be Good News

  1. Your overturn rate is high because your Physician Advisors are appealing only certain denials. Physician Advisors want to bring value and not waste time. One of the ways they try to achieve this is to only appeal cases that they feel confident they will win. It is not uncommon for me to hear of an 80% overturn rate, only to find that just 30% of cases get appealed. Would you rather have 80% of 20 cases overturned or 40% of 100? I can tell you that achieving the 40 percent is a lot of work, can be emotionally trying for Physician Advisors, and may make the standard appeal overturn rate metric look “bad,” but the payoff and return on effort is enormous.

Beware of Payer Tricks

  1. Your business office may be accepting observation payments to avoid denials and decrease days in accounts receivable. This happens all the time – cases that had been approved as inpatient, often due to your UR and Physician Advisor teams’ hard work, are later challenged by the payer and reclassified as lower revenue claims when they reach the business office. Accepting observation payment benefits 2 KPIs – it decreases the denial rate and accelerates the days to payment. But once again, it reduces overall revenue.

There are several other drivers of this phenomenon, but all share the same theme –optimizing traditional “intuitive” hospital UR KPIs that damage your bottom-line financial performance.

What Are My Options?

The solution? You have to agree on a few general principles, and then it’s a matter of execution and, frankly, stamina.

  1. Agree on a goal: getting paid for the services provided. Then, create a useful KPI. We use a metric called “Net Inpatient RealizationTM” that measures the net impact of each payer’s denial tactics and influence across internal functions of the clinical revenue cycle. Simply put, for every 100 patients from each payer, how many were billed and paid as expected based on the outcomes of the UR process. You can use this benchmark to work backwards and understand what the driving factors of underperformance are. Warning, this number can lead to elevated heart rate and sometimes result in shock.
  2. Decide upon your hospital’s definition of “inpatient admission status.”For Medicare and Medicare Advantage patients, the criteria is the definition provided by CMS in the 2-Midnight Rule. It is not whatever a commercial screening criteria says.
  3. Understand that this is a “team sport.”Once you have agreed on a goal, make every team member understand how they help the hospital achieve the KPI objective. Physician Advisors will become frustrated because denials are up, and appeal percentages are down. Make sure your Physician Advisors understand how their intervention in the process (appealing everything that the hospital has determined is inpatient) fits into the overall strategy and how their work is contributing to the overall program goal.

Remember the payer/provider relationship is a 2-way street. This means, follow your process, and do not be fearful of escalating to hold accountability. I frequently hear concerns of damaging the “relationship with the payer.” Trust me, payers care only about their economic relationship with your hospital. If payers cannot make money, they leave the market while we continue to care for our patients! Payers may say they care – but at the end of the day, the payer/provider interaction is interdependent and works best based on mutually agreed upon, clear, and fixed process and metrics, not animus.

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