Health insurance in the United States is a necessary complexity that is required to ensure medical emergencies are paid for. Insurance, however, doesn’t always come through to pay for everything related to an insured patient’s care. Hospital denials occur when an insurance company refuses to pay for an insuree’s care partially or at all. Hospital denials can leave hospitals like yours in the position of collecting hundreds to thousands of dollars from families that may not have the means to cover necessary care costs.
How Insurance is Intended to Work
First, let’s go over some essential vocabulary terms:
- Premiums – This is a monthly fee paid to have health insurance. Premiums affect how much an insuree’s deductible and out-of-pocket maximum are. The higher the premium, the lower the deductible and out-of-pocket maximum.
- Deductible – How much an insuree must pay out of pocket before the insurance covers a percentage of health care costs.
- Co-pay – A fee charged for preventative care, such as routine check-ups.
- Co-insurance – Percentage of care that the insuree pays for healthcare.
- Annual out-of-pocket maximum – How much medical care the insuree must pay for before health insurance covers 100% of their medical costs. It is federally mandated that all insurance providers have an out-of-pocket maximum.
- In-network – A healthcare provider that is part of a negotiated contract to provide the insurance company’s best possible cost of service.
- Out of network – A healthcare provider that is not part of a negotiated contract to provide the insurance company’s best possible cost of service.
An insurance company’s primary goal is to use analytical data to assess risk and collect enough premiums to provide care for those they insure. For instance, insurance will cover the entire cost when an insured patient has preventative services conducted, such as an annual exam, except for the co-pay. This helps mitigate the risk of more expensive care that a patient may require later on, which would drain from the insurance pool of cash. This cash pool is also supported by the insured with deductibles and co-insurance. There is, however, care that insurance companies will not pay for or are limited by what the company is willing to pay for. Insurance companies determine the amount paid based on if the facility is in-network and if the service needed is deemed medically necessary.
Hospitals will submit an 837, or EDI, which communicates healthcare claim details to insurance providers. These digital files include information about patient treatment, services, cost of treatment, and any other adjustments a hospital sees fit. You will find the actual claim amount at the end of the file.
Insurance companies will review the file and assess what the company will pay for based on the policy between the insuree and contract with the care facility if in-network. This process often results in the insuree paying less for care as long as proper pre-certifications are met. There are instances where the payee will refuse to pay for treatments, and the insuree will need to pay out-of-pocket.
Common Reasons for Hospital Denials
The Care Facility is Out-of-Network
Suppose the care facility hasn’t negotiated a contract for pricing on medical services. In that case, an insurance company is less than inclined to reach into the cash pool to pay for higher rates. Insurees must use due diligence as to whether the facility they are visiting is in-network. This, however, is not always possible in emergencies.
Learn more about what emergency care is considered in-network here.
Care That is Considered “Alternative”
Alternative care includes but is not limited to essential oils and massage, or other treatments that are not net science or pharma-based. A more mainstream example would be the use of medical marijuana, although federal laws may change this in upcoming years.
Past rhinoplasty, augmentations, and other plastic surgery procedures claim denials affect people who have had severe injuries. While a burn victim, for instance, may not need a cosmetic skin graft to survive, these procedures are often difficult to have insurance cover.
Unapproved Medical Procedures
Insurance companies need to clear specific tests and procedures before the procedure. If the proper prior authorization has been completed, but the claim has not been authorized, the insurance company may decline payment.
If treatment is experimental or uses new technologies, it’s very likely the claim will be denied. This is due to a lack of research into the procedure on the long-term effects and effectiveness. Again, it’s important to stay up to date on the current state of experimental treatments – you never know when a certain treatment may become commonplace.
How Has COVID-19 Changed Claim Denials?
COVID-19 is a continuing public health emergency that has brought incredible change to the average denial rates hospitals face. In a recent Healthcare Finance study, 33% of hospital executives are reporting a 10% increase in denial rates with denial trends on the rise as the pandemic continues. Pre-pandemic, the average denial rate was between 2%-4%. This increase creates a financial strain that places hospitals, as Healthcare Finance puts it, in the “danger zone.” The question becomes: how to address denials while enabling healthcare providers the ability to provide patient care?
Denial Management: Correcting Systemic Issues
Health systems do have ways to improve their denial rate. This means establishing revenue integrity measures that often begin with a strong revenue cycle team. One of the primary goals of this team is to bring the average denials rates out of the “danger zone.”
Staff training is a crucial first step to preventing denials. Your healthcare staff needs to know what services are and aren’t covered by common insurance plans before rendering service. Having a robust system of checks before claim submission is a good first step in preventing denials.
Obtain Prior Authorization
Ensure that procedures move through the proper authorization channels. Remember, it’s not enough to have authorization for the procedure, but also the claim before rendering services.
Submit Accurate Claims
Accurate medical coding is crucial for properly reporting services associated with a claim. Using automated practices will allow you to submit accurate claims the first time, saving you valuable time and money on the back end.
Having an updated understanding of hospital denials in 2022 is an important step in gaining a holistic view of revenue integrity within healthcare. Once you begin implementing improved denial processes, you’ll help your hospital perform at a higher level.