Despite their responsibility to patients and medical providers, insurance companies often use clinical claims denials to justify rejecting claims. A clinical denial is when an insurance company refuses to pay for medical diagnosis or treatment. This is one of the biggest challenges facing healthcare providers. And it’s a problem exacerbated by post-COVID inflation as well as the emergence of artificial intelligence driving large-scale claims denials.
Our company, ERISA Recovery, helps healthcare providers level the playing field. We combine our proprietary AI system with over a decade of experience in federal healthcare legislation known as the Employment Retirement Income Security Act. We help medical providers collect from insurance companies when other consultants can’t.
According to federal data, health insurance companies denied more than 48 million claims in 2021. But patients appealed less than 0.2 percent of them. [1]
This leaves the burden of appealing clinical denials to medical providers. And according to presentations at Becker’s Hospital Review’s 7th Annual Health IT + Digital Health + RCM Annual Meeting last year,
- 89 percent of health systems saw denials increase in the last three years.
- 11 percent of hospital claims are initially denied, up 2 percent in a two-year timeframe.
- 90 percent of denied claims are preventable; 66 percent are recoverable.
- Only 35 percent of healthcare providers appeal denials.
- 31 percent of providers use a manual process for managing denials at an estimated cost of $350 billion a year.
- The average denial rate per payer is between 6 and 13 percent but in some regions is much higher.
- 27 percent of errors associated with denials originate in the registration eligibility workflow. [2]
Estimates of clinical denial rates and trends vary between insurers and regions. According to HealthCare.gov, insurers with complete data said “nearly 17% of in-network claims were denied in 2021. Insurer denial rates varied widely around this average, ranging from 2% to 49%.” [3]
Research from Crowe Global demonstrates that claims denials numbers in 2022 increased 10.2% over the previous year. But this modest number is deceptive. The actual dollar value of these denials — most related to prior authorization — increased by 67%. [4]
More than half of all US medical systems report having at least $100 million in claims older than six months. [5]
The human cost of clinical claims denials
For patients, clinical denials mean the burden of out-of-pocket expenses, financial hardship or even bankruptcy. But an even bigger concern is clinical claims denials harm patients by delaying early diagnosis and care. This results in poorer clinical outcomes and higher patient mortality.
For hospitals, clinical denials can lead to
- Financial loss: Hospitals lose money when they can’t collect payment for services they’ve provided.
- Increased administrative costs: Appealing denied claims adds administrative expenses. The average cost of reworking a claim was $118 in 2017 [6] and has skyrocketed since. But the cost of appeals can be ten times that or much more.
- Reduced access to care: Losses from denied claims may force hospitals to reduce the services they offer or to close altogether.
- Poorer customer experience, which results in loss of reputation and business.
In 2021, hospitals on average collected 97% of their expected cash within six months. During the same period in 2022, that percentage dropped to 94%. “The three-percentage-point decrease in cash, coupled with a more than 9% increase in expenses, creates a minimum of a 12% negative impact on a health system’s finances,” observed one fintech consultant. [7] All healthcare systems have to address this loss of operating revenue.
Compounding this problem is the fact that insurance companies act as though they are the final authority on whether they pay a claim. Nothing could be further from the truth. Federal legislation known as the Employment Retirement Income Security Act of 1974 sets minimum standards for most voluntarily established health and retirement plans in private industry.
Our company, ERISA Recovery, is the national expert on using this legislation to overturn clinical denials. We harness proprietary, cutting-edge technology to process big data sets on claims denials. Our custom AI, curated by the industry’s best coding and billing analysts, establishes clear patterns of wrongful clinical claims denials. We leverage this to collect when other consultants can’t. Contact us for a free consultation today.
What are some of the most common reasons for clinical claims rejections?
Denials usually fall into two categories:
- Technicalities: The patient failed to get prior authorization, or there are claim filing mistakes like incorrect bill coding.
- Medical necessity: Insurance companies say there is insufficient proof the treatment is medically necessary or effective. If treatment is experimental and not yet accepted by authorities like the American Medical Association or the Food and Drug Administration, insurance companies deny claims. [8]
What are the most common reasons for clinical claims denials?
Back in January, a medical fintech research company polled 200 healthcare providers asking their most common reasons for claims denials. Here’s how hospitals ranked their top reasons for denials:
- Authorizations
- Provider eligibility
- Code inaccuracies
- Incorrect modifiers
- Failure to meet submission deadlines
- Patient information inaccuracy
- Missing or inaccurate claim data
- Not enough staff to keep up
- Formulary changes
- Changing policies
- Procedure changes
- Improperly bundled services
- Service not covered [9]
Why do insurance companies require prior authorization?
One way insurance companies justify clinical claims denials is by demanding prior authorization. Prior authorization is a process in which insurance companies require healthcare providers to obtain approval before a specific procedure. According to the insurance industry, prior authorization ensures that treatments are medically necessary and cost-effective. This, they argue, imposes financial discipline and keeps insurance affordable. However, it can also be a way for insurance companies to deny or delay claims.
“A recent survey by the American Hospital Association found that 95% of hospitals and health systems have reported an increase in time spent on prior authorizations, and 84% said that the costs associated with meeting payer requirements have increased. In all, 78% said their relationship with payers has deteriorated.” [10]
Insurance companies have aggressively increased prior-authorization denials in the last year. Healthcare systems have to invest significant resources in claims denial management to just keep up. Administrative costs now consume more than one third of America’s healthcare resources. [11]
What is out-of-network coverage?
Insurance companies will also deny claims due to patients seeing doctors who are outside a preferred network. One way insurance companies cut costs is by developing a network of medical providers they contract at a negotiated rate. Health insurance companies designate their contracted medical staff as “in-network providers.”
Most health insurance companies require their patients to seek treatment only from in-network providers. In fact, they deny patients’ claims for treatment from out-of-network providers except under special circumstances, such as emergency care or a medical treatment patients may not receive anywhere else. Both have to be thoroughly documented to avoid claims denials.
The exceptions that surround out-of-network coverage are a common reason for conflict between health insurance companies, hospitals and patients. Even if the out-of-network care was necessary due to extenuating circumstances, health insurance companies often quickly deny a claim based on this reason without considering the clinical necessity.
It’s important that healthcare providers and patients clarify to insurance companies why out-of-network care was necessary. Filing an appeal for a denied claim may also be necessary to ensure patients get the coverage they deserve and hospitals get paid.
According to the Healthcare Financial Management Association, four common reasons for clinical claims rejections are medical necessity, patient status, level of care and length of stay. [12]
When are clinical claims denials due to “lack of medical necessity”?
Insurance companies may also deny claims based on the issue of medical necessity. Payers use the concept of medical necessity to determine whether a treatment or procedure is necessary for a patient’s medical condition. Established clinical guidelines are one of the principles defining medical necessity. Criteria for these clinical guidelines are supposed to be evidence-based recommendations for the diagnosis and treatment of medical conditions. If a treatment or procedure is not supported by clinical guidelines or if there is not yet enough evidence to support the treatment’s effectiveness, insurance companies deny the claim. What this means is that the newest and most promising treatments don’t qualify for coverage.
Insurance companies review clinical trials to determine the effectiveness of new treatments or procedures. Insurance companies may deny a claim if a treatment or procedure is not yet approved by the Food and Drug Administration (FDA), the American Medical Association, or if they proclaim the treatment’s effectiveness isn’t borne out by evidence. This is a source of great conflict between insurance companies, patients and doctors. In recent well documented cases, insurance industry medical directors refused to pay for promising proton beam cancer [13] and ulcerative colitis [14] procedures that were the only treatments that worked for these patients, while Medicare and Medicaid deem them medically necessary.
Although no healthcare consumer should want clinically unsound treatment, some insurance companies have developed aggressive models for clinical denials. Algorithms and artificial intelligence increasingly drive these systems.
Insurance industry turns increasingly to algorithms and AI to deny claims
The health insurer Cigna recently created a new system that allowed one doctor to deny 60,000 claims in one month without ever reading case files. In two months last year, Cigna’s new system allowed them to reject payment due to clinical claim denials for over 300,000 covered employees. These doctors spent an average of less than two seconds on any claims rejection and didn’t read a single patient file. [15]
Most state law requires that health insurance company doctors first review claims before rejecting them for medical reasons. They’re also supposed to be trained in the area of specialty in which they pass judgment. This review process requires insurance company medical directors to examine patient records, review coverage policies and use professional expertise to avoid unfair denials. But Cigna’s new automated system of claims denials bypasses those steps. According to former Cigna employees, medical directors no longer examine patient records. Instead, an automated computer system uses Cigna’s custom algorithm to flag mismatches between diagnoses and what the company considers medically acceptable tests and treatment. Doctors then sign off on clinical claim denials in large batches.
“We literally click and submit,” one former Cigna doctor said. “It takes all of 10 seconds to do 50 at a time.” [16]
While the use of AI can help medical systems and patients ensure their claims are covered, with the potential for saving money on the administrative costs involved in prior authorization or appealing denials, the technology is a double-edged sword. Its proliferation in healthcare has accelerated with all the qualities of an arms race. Insurance companies are deploying it in aggressive clinical claims rejection trends.
Analysts point out that cases like Cigna’s automated denial system are based on “black box” algorithms lacking transparency. As research has demonstrated, without proper vetting, some AI systems develop problems of structural racism. Some social groups have unique healthcare challenges that even color-blind tech systems can make worse. CIGNA’s bulk-rejection AI ignores these important parameters. According to federal research, social determinants of health account for up to 50 percent of patient outcome, which is about equal to that of clinical treatment. [17] There is even a billing code for it.
Patient status and level of care as reasons for clinical claims rejections
Related to the issue of medical necessity are the concepts of patient status and level of care. These are also often the basis of clinical claims rejections.
If a patient fails to comply with a treatment plan or leaves the hospital against medical advice insurance companies may reject their claims.
Sometimes this results from a patient needing a procedure with a co-pay they can’t afford. So the patient leaves without prescribed treatment.
Another related cause of clinical denials is when insurance companies question the level of care as inappropriate for the treatment provided.
Hospitals are expected to sort or “triage” patients, which streamlines diagnosis and treatment. If patients are assigned inappropriate status based on their symptoms and conditions, or the documentation does not support the assigned status, insurance companies may deny payment. Once medical staff has assigned a patient with an initial status, clinicians must consistently review the patient’s status. Delays in diagnostic testing or treatment, which can occur when patients are in observation status for an extended time, may cause denials.
How do insurance companies dispute appropriate “level of care”?
Once staff has triaged a patient, it’s important to document care delivery and provide evidence for treatment decisions to avoid level-of-care denials. Using a system like InterQual or other evidence-based criteria can help guide the decision on level of care required and thus decrease clinical denial risks. Healthcare organizations should perform quality audits at least four times a year to ensure clinical documentation supports the level of care appropriate to the severity of the medical condition. [18]
Length of stay in clinical denials
Clinical staff should ask whether they’ve carried out referrals, diagnostics and procedures in the right time frames to manage clinical conditions. Once again, decision-supporting criteria are also helpful here to rationalize treatment and expected outcomes.
Why do insurance companies use clinical denials to delay payment?
Basically the system incentivizes them to do so. The Affordable Care Act improved many consumer rights, such as transparency in the denials and appeals process. But the ACA didn’t override important ERISA limitations. The most serious is that insurance companies face no legal penalties for the consequences of wrongfully denied or delayed claims. In other words, even when patients and hospitals eventually win an appeal, they can’t sue insurance companies for pain and suffering, lost wages, worsened health or even death resulting from a wrongful clinical denial. As a result, insurance companies typically owe medical providers a substantial proportion of their claims for over 90 days. That metric has grown to 37% in August 2022 from 32% in January 2021. [19] In other words, insurance companies owe on average almost 40 percent of hospitals’ revenue for three months or longer.
How can hospitals get payment for clinical claim denials?
Hospitals can take several steps to get payment for denied claims based on clinical grounds. The first recourse is an internal appeal process. The next step is an external appeal to a third party. And the last is by filing a federal lawsuit under ERISA legislation.
The first step requires filing an internal appeal with insurance company administrators. Hospitals can appeal a clinical denial by providing additional documentation and evidence to support the medical necessity of the treatment. This can include medical records, clinical guidelines and evidence-based research.
Hospitals can also work with consultants to negotiate payment from insurance companies.
Lawyers specializing in ERISA are one option. But they’re expensive, beginning at 33 percent of the amount recovered, plus expenses, and they often negotiate payment of a fraction of the outstanding balance, such as 30 cents on the dollar.
ERISA Recovery offers a more cost effective way to get payment. ERISA Recovery collects 100 percent of unpaid claims on 85 percent of the cases we help appeal. Working with our teams of medical and billing and coding specialists, we use machine-learning and artificial intelligence to establish patterns of insurance companies refusing to pay, including clinical denials. We leverage this evidence to get full payment from insurance companies. And our success rate is higher and our costs are lower than using an attorney.
With insurance companies becoming more aggressive in their use of AI to deny claims, let us help you level the playing field.
Notes
1. Karen Pollitz, Justin Lo, Rayna Wallace, and Salem Mengistu. Claims Denials and Appeals in ACA Marketplace Plans in 2021. Karen Pollitz, Justin Lo, Rayna Wallace, and Salem Mengistu. Kaiser Family Foundation. Feb 09, 2023. https://tinyurl.com/56zc8bpu.
2. Goethals, Colleen; and Becker’s Hospital Review staff. “Clinical denials: understanding current trends and strategies for reducing denials.” From Becker’s Hospital Review’s 7th Annual Health IT + Digital Health + RCM Annual Meeting, in a session sponsored by Xtend Healthcare. https://tinyurl.com/5yh59mdul.
3. Pollitz, et al. https://tinyurl.com/56zc8bpu.
4. Crowe Global. Hospital Double Whammy: Less cash in, more cash out, November 2022. https://tinyurl.com/da3ejbs2.
5. American Hospital Association. Survey: Commercial Health Insurance Practices that Delay Care, Increase Costs Infographic. https://tinyurl.com/2c86rjnj.
6. Gooch, Kelly. “Denial Rework Costs Providers Roughly $118 per claim: Four Takeaways. Becker’s Hospital Review. June 26th, 2017. https://tinyurl.com/4y9uyrjv.
7. Crowe Global. https://tinyurl.com/da3ejbs2.
8. Rosenbaum, S.J. Medical Necessity in Private Health Plans. U.S. Department of Health and Human Services. https://tinyurl.com/5d63bsnz.
9. Cass, Andrew. Becker’s Hospital Review. “Thirteen Top Reasons for Claims Denials.” January 23, 2023. https://tinyurl.com/yaaw46c2.
10. American Hospital Association. Survey: Commercial Health Insurance Practices Delay Care Increase Costs Infographic. https://tinyurl.com/ywvjwcfm.
11. Reiner, Glen and Bird, Sarah. “Four Clinical Reasons for Denials.” Healthcare Financial Management Association. November 2, 2018. https://tinyurl.com/2p8zk6ty.
12. Reiner et al.
13. Minemyer, Paige. “Judge denies UnitedHealthcare’s bid to get proton beam therapy suit tossed.” Fierce Healthcare. Mar 10, 2021. https://tinyurl.com/ynvmdm58.
14. Armstrong, David, Rucker, Patrick and Miller, Maya. “UnitedHealthcare Tried to Deny Coverage to a Chronically Ill Patient. He Fought Back, Exposing the Insurer’s Inner Workings.” ProPublica, Feb. 2, 2023. https://tinyurl.com/5xhkhb2j.
15. Rucker, Patrick, Miller, Maya and Armstrong, David. “How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them.” ProPublica. March 25, 2023. https://tinyurl.com/2xtrybjz
16. Rucker et al. https://tinyurl.com/2xtrybjz.
17. Whitman, Amelia, et al. Addressing the Social Determinants of Health: Examples of Successful Evidenced-based Strategies and Current Federal Efforts. Assistant Secretary for Planning and Evaluation, Department of Health and Human Services. April 1, 2022. https://tinyurl.com/4ycayc56.
18. Reiner et al.
19. Crowe Global. https://tinyurl.com/p964avze.
