Claims Appeals Cost Hospitals Up to $8.6B Annually

New research claims the typical health system risks $4.9 million each year due to claims denials.

A healthcare software company says its data shows that of an estimated $3 trillion in claims submitted by hospitals in 2016, an estimated 9% of charges were initially denied. And even though the same data show that up to 63% of denied claims are recoverable on average, representing $262 billion in revenue, it may cost hospitals and health systems nearly $9 billion more in administrative costs to recover that money.

According to the data, hospitals had to rework as much of 3.3% of net patient revenue in 2016.

That additional work to overturn denied claims can be expensive in itself, says Change Healthcare, which compiled its first-ever Healthy Hospital Revenue Cycle Index in 2017 based on 2016 data. According to data from inpatient and outpatient claims processed by the company, appeals cost providers roughly $118 per claim. Extrapolated nationwide, that amounts to as much as $8.6 billion in administrative costs necessary to recover initially denied claims.

To compile the Index, Change Healthcare analysts used claims processed by the company in 2016, and calculated the average charged amount and first denied amount for the 724 hospitals included in the sample. Although the numbers in the Index may not be representative of the more than 5,500 hospitals in the nation, as much as $4.9 million per hospital could be at risk due to denials, the company said.

By region, the Pacific, South Central, and Midwest posted the highest denial rates, at 10.89%, 10.5% and 10.32%, respectively. Northern Plains and Mountain states represented the smallest denial rates, at 6.64% and 6.99%, respectively.

Causes for the denials ran the gamut, but most of the errors were concentrated in front-end processes such as registration/eligibility, at 23.9%. On the back-end, missing or invalid claims data represented 14.6% of initial denials. Authorization and pre-certification problems resulted in 12.4% of denials, while medical documentation issues caused 10.8% of denials.