Hospitals Wait 16 More Days for Late Payments from Claim Denials

May 07, 2018 - Delayed payments stemming from claim denials are significantly impacting hospital revenue cycles, taking an average 16.4 more days to pay compared to claims that have not been denied, a new analysis from Crowe Horwath revealed.

The analysis of patient financial transactions in more than 850 hospitals showed that the cost and cash flow implications of claims denials that are eventually paid to providers 16 days later than usual equates to at least one percent of a provider organization’s cost structure.

In comparison, final claim denials, or claims for which the payer never reimburses the provider, represent a 1.9 percent decrease to an average hospital’s annual net revenue.

While delayed payments are affecting a hospital’s bottom line, they may also be driving up administrative costs. Over three-quarters (76 percent) of claim denials are eventually paid by payers, the analysis added.

“Healthcare providers generally have entire departments dedicated to resolving denials, and their success begs the question of why hospitals need to incur such expensive and compromised cash flow for services that will ultimately be paid anyway,” stated Brian Sanderson, Managing Principal of Crowe Healthcare Services.

The answer could lie in the nature of the denial. Claim denials generally stem from two general reasons. First, payers deny claims for administrative reasons, such as membership not on file, coordination of benefits, or medical bills not sent in a timely manner.

The other type of common claim denial reason is clinical in nature. Payers deny claims for clinical reasons, including services not being medically necessary, prior authorization required, or unfulfilled request for medical records.

“Significant investments by healthcare providers related to revenue cycle accuracy have gradually improved denial rates that are administrative in nature,” the report stated. “However, many providers feel as though they do not sufficiently control clinical denials, as each commercial payer appears to have its own processes for medical necessity requirements, precertification of services, and requests for medical records.”

Claim denials with an information request are particularly challenging hospital revenue cycles, the analysis added. While 80.2 percent of claim denials with either a medical record request or additional patient information request are ultimately paid, these reimbursements take over two months, on average, to reach the provider organization.

And claim denials with a clinical reason are proving to be troublesome across payers. “Clinical denials, and the challenges of securing timely payments, occur across all payer types (commercial and government), but a frustration for many patient accounting departments is the discrepancy between commercial payers and traditional Medicare,” the report stated.

Commercial payers take 28.3 more days, on average, to pay all types of claim denials compared to traditional Medicare. But clinical claim denials are particularly an issue, with commercial payers taking an average 42.6 more days to pay for denials with an information request compared to Medicare.

The public payer also beat commercial health plans by paying medical necessity and noncovered services claim denials 10.4 days and 57.2 days sooner, respectively.

Adding to the excessive time to reimbursement among commercial payers are the significant differences in requirements across major payers. For example, the payment time for a clinical claim denial with a request for information ranged from 76.43 days to 121.66 days across five major payers.

Similarly, payment times differed across commercial payers for administrative claim denials. The time to payment for an administrative claim denial for a coverage or eligibility issue ranged from 42.2 days to 137.48 days across the five commercial payers.

With significant payment time variances, hospitals have trouble addressing the differing payer requirements for resolving claim denials. This leads to increased administrative costs, researchers explained.

The difference in payment times across payers indicates a need for greater payer and provider collaboration, Sanderson added.

“With the increasing emphasis on controlling healthcare costs, it appears as though a focused collaboration between providers and payers may decrease the administrative expenses related to securing payment for appropriate clinical services,” he concluded.