How delays create denials and bad debt—and what you can do about it.
by Aaron McAdams, Chief Financial Officer, Calm Waters AI
As a hospital CFO, I calculated our net revenues by subtracting three sets of numbers—contractual allowances, denials, and bad debt—from gross revenues. That’s Accounting 101.
I paid particular attention to denials and bad debt. The two are related more closely than many healthcare professionals realize. They both have an adverse impact beyond your organization’s bottom line.
Most importantly, that impact can be significantly diminished with proper attention to the seemingly mundane function of medical coding.
How Delays Add Up to Denials
It’s hardly a secret that payor denials are at record high levels—and increasing—at a time when costs are also rising and reimbursements are tightening. But I want to focus here on what I call “self-denials”—claims that go unpaid simply because they were not billed in a timely manner (or not billed at all). These self-inflicted wounds can hamstring a provider organization’s revenue cycle and even threaten its solvency.
My goal as a CFO was to bill all claims within three days of the date of service. Frequently, we submitted bills on the same day charges were incurred. But I have been in hospitals where stacks of unbilled claims sat on desks for weeks.
What happened?
While it’s easy to point fingers at business office staff (and it’s true that complex claims involving multiple payors sometimes get set aside while staff focus on low-hanging fruit), the real culprits often are coding and documentation issues, combined with cumbersome and slow communication processes.
Here’s an example. The provider sees a patient with Diabetes mellitus and notes this in the documentation for the encounter. But the medical coder sees this information is inadequate and responds to the provider with questions. “Was it Diabetes mellitus type I or Diabetes mellitus type II? Is the condition controlled or uncontrolled?” The answers make a difference because, without them, coders cannot be confident in the accuracy of codes assigned to the encounter, nor in the completeness of the documentation—and without these the coder cannot confidently submit the encounter for billing.
So the provider, whose hands are already full with documentation for each new day of patient visits, must now make more time to review charts sent back by the coders. Frequently, the size of the paperwork burden means a delay in responding to coders’ questions.
Sometimes this process requires multiple back-and-forth iterations. Meanwhile, the claim goes unbilled. By the time it is submitted, the payor’s “timely filing” deadline may have passed, meaning the claim is automatically denied.
While the payor may be off the hook for claims not filed in a timely way, the patient may still be responsible (depending on the beneficiary’s policy and whether the requisite paperwork was completed). When patients receive bills for healthcare services that should have been covered under their insurance, it inevitably impacts satisfaction scores, Net Promoter scores, and referrals. And when such claims are turned over to a third party for collection, for pennies on the dollar, the provider group’s revenues take a hit along with its reputation.
Another point to consider: Even when claims are submitted within the payor’s window, any delay due to coding and documentation questions slows your revenue cycle. And anything that hinders your revenue flow hurts your bottom line.
Streamlining Your Workflow
Here’s one area where innovative technology can simultaneously relieve multiple pain points. AI-powered coding software, when integrated into your EMR so providers can use it before claims reach the billing office, can reduce the back-and-forth between coders and physicians.
When the technology can “read” documentation and suggest the appropriate codes and E/M levels, when the software can help providers identify when more documentation is needed, and when providers can access all this information from their desktops, organizations can streamline their workflows while optimizing the accuracy of their coding and the completeness of their documentation. “Getting it right the first time” not only saves time but reduces stress on providers and coders.
You can reduce the likelihood that patients and their families will experience frustrations stemming from billing delays that turn into payor denials.
And, of course, your revved-up revenue cycle and bigger bottom line will thank you
Aaron McAdams is Chief Accounting Officer for Calm Waters AI and a former hospital and healthcare organization CFO.