The True Cost of Claim Denials

by | May 8, 2024 | Industry Insights

Claim denials aren’t just minor setbacks in cash flow; they are major administrative burdens that deplete resources and lower the efficiency of healthcare operations, especially for independent physician groups. For example, in 2023, the rate of claims initially denied for single-specialty groups was about 8%. A 2024 poll by MGMA found that 60% of medical group leaders observed an increase in claim denial rates from the previous year, emphasizing the ongoing challenges and real costs associated with managing these denials.

To fully appreciate the impact of claim denials, let’s look at a detailed example of these challenges and the extensive effort needed to address them.

Scenario: A Typical Claim Denial

Imagine an independent physician group files a claim for a complex surgery, but a commercial insurer denies it due to a lack of prior authorization. Here’s a breakdown of the administrative costs involved:

  • Initial Claim Submission: A billing specialist spends about 45 minutes ensuring the claim complies with all coding and billing standards. This labor costs roughly $22.50, based on an average wage.
  • Denial Notification: The team receives the denial and spends 30 minutes reviewing the reasons, which incurs an additional $15.
  • Gathering Documentation: To challenge the denial, the group needs detailed medical records, doctor’s notes, and possibly more letters of medical necessity. This process can take several hours and involve multiple staff members, costing about $100.
  • Appeal Preparation and Submission: The team re-examines the entire claim for accuracy, revises medical documentation if necessary, and drafts a formal appeal letter. This effort takes another hour of a specialized biller’s time ($30) and an hour from a clinician to ensure medical necessity ($50).
  • Follow-up: The billing team regularly checks the claim’s status, adding up to about $45 over several months.
  • Resolution: Regardless of the outcome, finalizing the claim involves another review and adjustments in the billing system, costing another $15.

Cost Analysis

Dealing with just one denied claim can lead to direct administrative costs of over $275, not accounting for the indirect costs incurred from delayed revenue, resource diversion, and impacts on cash flow and credit lines. If the claim remains unresolved or only partially paid, the financial losses grow even more significant.

Broader Implications

Research indicates that many denials are preventable, with initial errors in registration and eligibility verification as common culprits. Effective management of these early stages can significantly reduce the frequency and financial impact of denials. Analytical tools are crucial for spotting trends in claim submissions and denials, allowing for targeted improvements in processes.

Partner with Thrivory 

In light of the challenges highlighted, independent physician groups can benefit significantly from a partnership with Thrivory. Thrivory’s innovative financial model offers a robust solution to the pressing issue of cash flow interruptions caused by claim denials. Unlike traditional financing methods that might increase debt or require additional collateral, Thrivory provides quick access to risk-free capital while preserving the autonomy of practices. 

This access to capital not only supports immediate financial needs but also supports long-term growth and operational efficiency by enabling practices to invest in advanced patient care programs and technologies. 

Conclusion

The administrative expenses linked to claim denials are extensive and significant. For independent physician groups operating on slim margins, these costs can be particularly devastating. Implementing effective strategies, including better training, technology enhancements, and proactive management of potential denial triggers, is vital to minimize these expenses and protect the financial stability of these crucial healthcare providers. Assess your claims today and see how Thrivory can help!