The True Cost of Claim Rejections

Do you know what your clean claims rate is? This is one of the first questions I ask a new client when I am evaluating their revenue cycle management processes. It still amazes me how many times the answer to that question is “No.” This one piece of information can usually help me identify where the biggest problems are in the revenue cycle of a practice. And by taking steps to increase the clean claims rate, most other Key Performance Indicators (KPIs) such as Days in AR, Net Collections, and First Pass Resolution Rate will also improve, resulting in improvements to the practices bottom line.

Strive for a 95% or Higher Clean Claims Rate

According to the Medical Group Management Association (MGMA), a practice should strive for a 95% or higher clean claims rate. In reality, most practices struggle to come even close to that rate. It is estimated that the average clean claims rate is between 75% and 85%. To put this into perspective, if a provider submits 300 claims per month and 25% of those are rejected or denied, that is 75 claims per month that have to be touched more than once. Let’s take this one step further with another statistic from MGMA. The cost to work a claim that has been rejected or denied ranges from $10.00 to $25.00. If we use conservative numbers, that means that the cost of working those claims that do not get accepted and resolved on the first pass is approximately $750.00 per month. This is assuming that all 75 claims get reworked properly the first time and are accepted and paid. The reality is that rejected claims are often simply resubmitted multiple times, resulting in further expense and revenue loss. (To learn more, join my webinar on How to Exceed a 95% Clean Claims Rate.)

Many practices see a quarter of their claims rejected. The potential loss of revenue combined with the operational cost of reworking those claims is something all medical billing managers should pay attention to. 

In addition to the cost of working claims that are not accepted on the first pass, there is also the potential for claims to sit in a rejected status for too long and end up missing timely filing deadlines, resulting in a loss of the revenue associated with that claim. Many billers fail to understand that in order to meet timely filing requirements, a payer must receive a “clean claim” which they define as a claim having all the required elements necessary for processing. If a claim is rejected at any stage, whether by a clearinghouse or the payer, the claim does not exist as far as the payer is concerned and the timely filing clock continues to tick away. Proof of timely filing does not include attempts to submit claims that were rejected. If you haven’t received acknowledgement that the claim was accepted, you will have a hard time proving timely filing.

The Hidden Cost of Claim Rejections

By far the greatest cost of poor clean claims rates is the amount of revenue that is commonly written off without even attempting to work the claims. This usually occurs when a biller is unable to keep up with rejection and denial management and simply ignores them or writes them off rather than working them. This has a direct impact on the Net Collections Rate of the practice. The cost of writing off claims is often missed because the Accounts Receivables look clean and the Days in AR is within industry standards.

So what can you do to ensure that your clean claims rates are where they should be? I recommend starting first with your First Pass Acceptance Rate (FPAR), which is the number of claims accepted by the payer upon first submission. This is different than your First Pass Resolution Rate, which is the number of claims paid upon first submission. The reality is, by putting some work into making sure that your FPAR is as high as possible, you will often end up reducing your denials and increasing your FPRR as well.

Calculating Your First Pass Acceptance Rate

To calculate your First Pass Acceptance Rate take the number of claims accepted by the payer and divide it by the total number of claims submitted in a batch, or over a period of time. It’s a good idea to track this on a weekly basis when you are first starting to evaluate where you stand. Once you have started seeing improvement, you may be able to move to monthly monitoring.

A few key steps that will help you identify problems and begin putting solutions in place are:

1. Use an electronic claim submission software to review claim validation reports and clearinghouse reports every time you send claims.
2. Work rejections daily, or as often as you send claims.
3. Look for recurring rejections—for things like missing NPI numbers, missing or invalid subscriber information, and missing or invalid CPT codes, ICD codes or modifiers. Identify your top rejections by volume and dollar amount and address the cause of those rejections first.
4. Review the configuration of your software to make sure that any claim scrubbing tools that are available are set up correctly to catch many of the common rejections that can be prevented.

While much attention is focused on claims denial management after claims have been processed, moving your focus to creating denial management best practices to reduce the number of potential preventable rejections can improve your overall clean claims rate. This can have a double impact on the bottom line of your practice by reducing costs and increasing Net Collections.

Finally, we have a number of resources available for you to leverage in our clean claims resource roundup blog.  Check it out!

Free Webinar

If you are looking for ways to reduce unnecessary rejections and improve your overall revenue cycle management process, join me for a webinar on How to Exceed a 95% Clean Claims Rate. We will cover ways to identify practical solutions that you can use to achieve a clean claims rate far above industry averages and provide a few tools the help you stay on track once you’ve achieved your goals.

Are you a billing company? Register here