Medical bill denials are one of the biggest challenges healthcare providers face. Every denied claim means delayed payment, extra work for billing staff, and potential lost revenue. For medical practices, denials disrupt cash flow and require significant time and resources to resolve. Understanding what happens when claims are denied and how to handle them effectively is essential for keeping a practice financially healthy.
When an insurance company denies a claim, it means they reviewed the bill submitted by your practice and decided not to pay for the services provided. The claim went through their review process, but something caused them to refuse payment. Unlike rejections where claims bounce back immediately due to technical errors, denials are actual payment decisions made after the insurance company examined the claim details.
Denials cost healthcare providers money in multiple ways. First, the obvious loss is the unpaid claim itself. Second, staff must spend time researching the denial, gathering documentation, and filing appeals. Third, denials delay revenue that practices need to pay their own bills and staff salaries. Finally, some denials never get resolved, resulting in complete loss of that revenue.
This guide explains everything healthcare providers need to know about denied medical bills. It covers why denials happen, what to do when claims are denied, how to appeal effectively, how to prevent future denials, and what outsourced billing companies can do to help. Whether you handle billing in-house or work with a billing company, understanding the denial process helps you recover more revenue and improve your practice’s financial health.
Understanding Medical Claim Denials from the Provider Perspective
When your practice submits a claim to an insurance company, you expect payment within a few weeks. But sometimes instead of payment, you receive a denial. The remittance advice that arrives shows zero payment and includes codes explaining why the claim was refused.
A denial means the insurance company reviewed your claim and made a decision not to pay. This is different from a rejection, which happens when claims have technical errors and get kicked back without review. Rejections are usually easy to fix, you correct the error and resubmit. Denials are payment decisions that require more work to overturn.
Types of Denials Healthcare Providers Face
Hard Denials These are permanent denials where the insurance company will not pay under any circumstances. The revenue is lost unless you can bill the patient. Examples include services not covered by the patient’s plan, or claims filed after the timely filing deadline.
Soft Denials These are temporary denials that can be fixed and resubmitted or appealed. Examples include missing information, incorrect codes, or requests for additional documentation. Soft denials can be recovered with the right action.
Administrative Denials These happen due to paperwork problems like wrong patient ID numbers, missing authorization numbers, or incorrect provider information. They are usually easy to fix but frustrating because they were preventable.
Clinical Denials These occur when the insurance company questions whether the service was medically necessary or appropriate. They require clinical documentation and often involve appeals with medical records.
How Denials Arrive at Your Practice
Denials come through the same channels as payments. If you receive electronic remittance advice (ERA), denials show up there with zero payment and denial reason codes. If you still receive paper remittance advice, denials appear on printed statements.
Your billing staff should review all remittance advice daily. Some practices have so many claims processing that denials get overlooked in the pile of payments. Setting up a system to flag all denied claims ensures nothing gets missed.
Many practice management systems can automatically identify denied claims from ERA files and create work queues for staff to address them. This automation helps make sure every denial gets attention.
Common Denial Reason Codes
| Denial Code | What It Means | Example Situation |
| CO-16 | Claim lacks information for adjudication | Missing diagnosis code or service date |
| CO-18 | Duplicate claim or service | Same claim submitted twice |
| CO-27 | Expenses incurred after coverage terminated | Patient’s insurance ended before service date |
| CO-29 | Time limit for filing has expired | Claim submitted too late |
| CO-50 | Non-covered services | Service not included in patient’s plan |
| CO-97 | Benefit for this service already paid | Similar service billed twice |
| PR-1 | Deductible amount | Patient has not met deductible |
| PR-2 | Coinsurance amount | Patient’s share of cost |
| PR-3 | Copayment amount | Fixed patient payment |
| CO-197 | Precertification/authorization absent | Required approval not obtained |
“CO” codes indicate Contractual Obligation, you cannot bill the patient for these amounts. “PR” codes indicate Patient Responsibility, the patient can be billed.
Understanding these codes helps you quickly identify what went wrong and what action to take.
Why Medical Claims Get Denied
Knowing why denials happen helps you prevent them. Most denials fall into a few common categories.
Eligibility and Coverage Issues
One of the most common denial reasons is that the patient was not eligible for coverage when services were provided. This happens when:
- The patient’s insurance policy ended before the service date
- The patient gave you old insurance information after switching plans
- The patient never actually had the insurance they claimed to have
- Coverage had not started yet on the service date
Another coverage issue is when the service itself is not covered under the patient’s specific plan. The patient has active insurance, but their plan does not include the service you provided. Some plans exclude certain procedures, therapies, or medications.
Prevention : Verify insurance eligibility before every appointment, not just for new patients. Use real-time eligibility verification tools that check coverage electronically. Make copies of insurance cards at every visit to catch when patients get new cards with new policy numbers.
Missing or Incorrect Patient Information
Claims deny when patient demographic information does not match what the insurance company has on file. Common problems include:
- Patient name spelled differently than insurance records
- Wrong date of birth entered
- Incorrect insurance ID number
- Wrong gender marker
- Old address on file
Even small differences cause denials. If the insurance card says “Robert Smith” but you enter “Bob Smith,” the claim might deny for a name mismatch.
Prevention : Collect information directly from insurance cards, not from what patients tell you. Ask patients to verify information on forms is still correct at every visit. Train front desk staff to enter names exactly as they appear on insurance cards.
Coding Errors
Wrong diagnosis or procedure codes are major causes of denials. Coding problems include:
- Using outdated codes that are no longer valid
- Choosing codes that are too general when specific codes exist
- Mismatched diagnosis and procedure codes that do not show medical necessity
- Missing required modifiers
- Unbundled codes that should be billed together
- Wrong number of units or quantities
Medical coding is complicated. Thousands of codes exist and they change every year. Even experienced coders make mistakes.
Prevention : Employ certified medical coders or provide thorough coding training. Conduct regular coding audits to catch patterns of errors. Update code sets annually when new codes take effect each October. Use claim scrubbing software that checks for coding errors before submission.
Missing Pre-Authorization
Many insurance plans require pre-authorization or prior approval before certain services can be provided. Common services requiring authorization include:
- MRI and CT scans
- Surgeries and procedures
- Specialist visits (for some HMO plans)
- Durable medical equipment
- Physical therapy beyond certain number of visits
- Sleep studies
- Expensive medications
If you provide these services without getting approval first, insurance almost always denies the claim. These denials are very difficult to appeal because you were supposed to get authorization before providing the service, not after.
Prevention : Check authorization requirements when scheduling appointments for procedures. Submit authorization requests as soon as services are scheduled, not the day before. Track pending authorizations and follow up if approval does not arrive. Train schedulers to know which services require authorization.
Timely Filing Violations
Insurance companies have deadlines for claim submission. If you submit a claim after the deadline, they deny it for late filing. Deadlines vary:
- Medicare: Claims must be filed within one year
- Medicaid: Varies by state, often 90 days to one year
- Private insurance: Usually 90 to 180 days
Once the timely filing deadline passes, you usually cannot recover the money. You cannot bill the patient either because you agreed to file claims timely when you contracted with the insurance company.
Prevention : Submit claims within a few days of the patient visit, not weeks or months later. Track all claims to make sure they submit successfully. Follow up on any claims that do not receive acknowledgment within two weeks. Never let claims sit waiting for documentation – submit with what you have and send additional documentation separately if needed.
Lack of Medical Necessity
Insurance companies deny claims when they decide the service was not medically necessary. They review the diagnosis codes and determine the procedure was not appropriate for the patient’s condition.
For example, ordering an MRI for simple back pain without trying conservative treatment first might be denied as not medically necessary. Prescribing expensive medications without trying cheaper alternatives first might be denied.
These denials require appeals with documentation explaining why the service was necessary for this specific patient.
Prevention : Document medical necessity clearly in patient records. Explain why the service was needed and why alternatives were not appropriate. Choose diagnosis codes that specifically support the procedures performed. For services likely to face medical necessity denials, include detailed notes about the clinical reasoning.
Duplicate Claims
Sometimes the same claim gets submitted twice by accident. Insurance sees the second claim as a duplicate and denies it. This happens when:
- Staff resubmit a claim that is still processing
- The claim gets batched twice due to computer error
- The practice did not realize the original claim paid
Prevention : Use practice management software that prevents duplicate claim submission. Track claim status before resubmitting. Wait for confirmation that a claim was denied or lost before submitting it again.
Immediate Steps When You Receive a Denial
When a denial arrives at your practice, quick action increases the chance of recovery. The longer a denial sits, the harder it becomes to resolve.
Review the Denial Within 24-48 Hours
Do not let denials pile up. Every denied claim should be reviewed within one to two business days of receipt. Quick review allows staff to take action while information is fresh and before appeal deadlines approach.
Assign specific staff members to denial review. In small practices, this might be the billing manager. In larger practices, you might have denial specialists who handle nothing but denied claims.
Understand the Denial Reason
Read the denial code and explanation carefully. Make sure you understand exactly why the claim was denied. If the reason is unclear, call the insurance company and ask for clarification.
Different denial reasons require different actions. An eligibility denial needs different handling than a coding error denial. Understanding the specific reason tells you what to do next.
Check the Appeal Deadline
Every denial has a deadline for filing an appeal. This deadline varies by insurance company, typically ranging from 30 to 180 days. Mark the deadline in your system immediately so you do not miss it.
Missing the appeal deadline means you lose the right to challenge the denial. The decision becomes final and you cannot recover the money.
Gather Relevant Documentation
Pull together everything related to the denied claim:
- Copy of the original claim submitted
- Remittance advice showing the denial
- Patient’s insurance card and eligibility verification from the date of service
- Medical records for the date of service
- Any pre-authorization approvals
- Previous correspondence about this claim
Having all documentation in one place makes it easier to determine the best course of action and prepare an appeal if needed.
Determine Whether to Appeal or Accept
Not every denial is worth appealing. Consider these factors:
Dollar Amount : Denials under $25-50 might cost more in staff time to appeal than they are worth. Focus efforts on larger denials.
Reason for Denial : Some denials like timely filing or non-covered services are nearly impossible to overturn. Focus on denials you can actually win.
Available Resources : If your billing staff is overwhelmed, prioritize the highest-value denials rather than trying to work everything.
Success Likelihood : Based on the denial reason and documentation available, estimate your chance of winning the appeal. Focus on strong cases.
| Denial Reason | Appeal or Accept? | Rationale |
| Missing information | Appeal – Easy fix | Provide missing info and resubmit |
| Incorrect code | Appeal – Easy fix | Correct code and resubmit |
| No pre-authorization | Usually accept | Very hard to get retroactive authorization |
| Timely filing | Usually accept | Deadline is firm unless extenuating circumstances |
| Not covered service | Accept and bill patient | Service is excluded from plan |
| Medical necessity | Appeal if good documentation | Can win with strong clinical notes |
| Eligibility issue | Accept if patient truly not covered | Cannot force insurance to cover ineligible person |
Categorize and Track Denials
Create a denial tracking system that records:
- Date denial received
- Patient name and account number
- Insurance company
- Claim amount
- Denial reason
- Action taken
- Appeal deadline
- Staff member assigned
- Final outcome
This tracking helps you monitor denial resolution progress and identify patterns. If you notice the same insurance company denying claims repeatedly for the same reason, you can address the root cause.
The Appeals Process for Healthcare Providers
When you decide to appeal a denial, follow a systematic process to maximize your chances of success.
First-Level Appeal
The first appeal is usually a written request asking the insurance company to reconsider their decision. Components of a strong first-level appeal include:
Appeal Letter A professional letter stating that you are appealing the denial. The letter should include:
- Patient name, date of birth, and insurance ID number
- Claim number and date of service
- Brief explanation of services provided
- Specific reason you believe the denial was incorrect
- Request for reconsideration and payment
Supporting Documentation Attach documents that support your case:
- Copy of the original claim
- Copy of the denial notice
- Medical records showing the service was provided and necessary
- Authorization approval if relevant
- Insurance policy language showing the service should be covered
- Clinical guidelines or research supporting the treatment
Specific Arguments Address the exact reason for denial with specific responses. If denied for lack of medical necessity, explain the clinical reasoning. If denied for incorrect coding, explain why your codes were correct or provide corrected codes.
Appeals should be concise but complete. Insurance reviewers handle many appeals daily. A clear, well-organized appeal with relevant documentation is more likely to succeed than a lengthy, rambling letter.
Corrected Claim Submission
For denials due to simple errors like wrong codes or missing information, you might not need a formal appeal. Instead, submit a corrected claim.
Mark the claim as a corrected claim, not an original claim. Include a note explaining what was corrected. Attach the denial notice showing the original claim was denied.
Corrected claims often process faster than formal appeals because they go through normal claim processing rather than appeals departments.
Peer-to-Peer Review
For medical necessity denials, many insurance companies offer peer-to-peer reviews. This is a phone call between a physician from your practice and a physician working for the insurance company.
During the call, your physician explains the clinical situation and why the service was necessary. The insurance physician asks questions and considers whether to approve payment.
Peer-to-peer reviews work well when the denial is based on misunderstanding the patient’s condition rather than clear policy exclusions. They are most effective when the treating physician participates rather than sending someone unfamiliar with the case.
Second-Level and External Appeals
If your first appeal is denied, most insurance companies allow a second-level appeal. This goes to a different reviewer or appeals committee.
Second-level appeals should include everything from the first appeal plus:
- The first appeal denial letter
- Additional documentation not included before
- Stronger arguments addressing concerns raised in the first denial
- Expert opinions or research if relevant
After exhausting internal appeals with the insurance company, some states allow external appeals to independent review organizations. These are particularly relevant for medical necessity denials where you believe the insurance company is wrong about the standard of care.
External appeals are time-consuming but sometimes result in reversals when internal appeals failed.
Appeal Success Rates
Not all appeals succeed. Industry-wide, healthcare providers win approximately 50-60% of appeals. Success rates vary significantly based on:
- Reason for denial (coding errors have high success rates, timely filing has very low rates)
- Quality of documentation
- Strength of arguments presented
- Specific insurance company policies
- Expertise of staff handling appeals
Even a 50% success rate means appeals are worth pursuing for significant dollar amounts. Recovering half of your denied claims is better than recovering none.
Managing Patient Responsibility After Denials
When insurance denies a claim, someone must pay for the services. Sometimes that responsibility falls to the patient, sometimes it stays with the practice, and sometimes it is shared.
When You Can Bill the Patient
You can bill patients for denied services in these situations:
Non-Covered Services If the service is not covered by the patient’s insurance plan at all, the patient is responsible. However, you should have informed the patient before providing the service that insurance would not cover it.
Patient Responsibility Amounts Deductibles, co-insurance, and co-payments are always the patient’s responsibility even though they appear as “denied” portions on remittance advice.
After Advance Beneficiary Notice For Medicare patients, if you had the patient sign an Advance Beneficiary Notice (ABN) warning that Medicare might not cover the service, you can bill them when Medicare denies it.
Eligibility Denials Where Patient Misrepresented Coverage If the patient told you they had insurance but actually did not, or gave you wrong insurance information, you can bill them for the full amount.
When You Cannot Bill the Patient
Contractual obligations prevent you from billing patients in these situations:
Timely Filing Denials When you miss filing deadlines, you cannot bill the patient. You agreed to file claims on time when you contracted with the insurance company. Your failure to do so is not the patient’s problem.
Credentialing Issues If claims deny because you are not credentialed with the insurance company, you cannot bill the patient. You should have verified your participation status before seeing the patient.
Contractual Write-Offs For contracted insurance companies, you agreed to accept their allowed amounts. You cannot bill patients for amounts above the allowed amount even if claims deny.
Authorization Denials (Disputed) If you failed to get required authorization and the patient reasonably believed their insurance would cover the service, you might not be able to bill them. This varies by state law and circumstances.
Communicating with Patients About Denials
When you need to bill a patient due to an insurance denial, communication is key. Here is how to handle it professionally:
Contact Quickly Reach out to the patient soon after the denial, not months later. Explain what happened and why they are receiving a bill.
Explain Clearly Use simple language to explain the denial reason. Many patients do not understand insurance terms. Translate “claim denied for lack of medical necessity” into “your insurance decided this service was not needed based on their review.”
Show Documentation Offer to show patients their EOB so they can see the denial directly from the insurance company. This helps them understand you are not making it up.
Offer Options Present payment options including payment plans. Many patients can pay over time even if they cannot pay a large bill all at once.
Help with Appeals If the patient wants to appeal to their insurance company, provide copies of records and other documentation they need. Some denials are better appealed by patients than providers.
Setting Up Patient Payment Plans
For large balances resulting from denials, payment plans help patients afford to pay and help you collect money you would otherwise lose.
Payment plan guidelines:
- Get payment arrangements in writing
- Charge reasonable monthly amounts the patient can actually afford
- Consider interest-free plans for balances under certain amounts
- Set up automatic monthly payments if possible
- Follow up quickly when payments are missed
- Keep patients on payment plans current, not sending them to collections
Patients making regular monthly payments are much better than patients who stop responding and never pay anything.
Preventing Future Denials
The best way to handle denials is to prevent them from happening. Denial prevention requires attention at every stage of the billing cycle.
Front-End Prevention Strategies
Most denials are preventable with better front-end processes before patients receive services.
Insurance Verification Verify every patient’s insurance before every appointment. Check that coverage is active, the patient is eligible, and services are covered. Do not rely on old verification from previous visits.
Eligibility Tools Use real-time eligibility verification systems that connect electronically to insurance companies. These give instant answers about coverage without phone calls.
Pre-Authorization Check whether scheduled services require authorization. Submit authorization requests early, not the day before the appointment. Track authorization approvals and have them on file before services are provided.
Collect Accurate Information Make copies of insurance cards at every visit. Enter information exactly as it appears on the card. Update any changes immediately in your system.
Financial Counseling For expensive services or patients with high deductibles, discuss costs upfront. Let patients know what they will owe. Get payment arrangements in place before services.
Improving Documentation
Better provider documentation reduces medical necessity denials and supports appropriate coding.
Specific Diagnoses Encourage healthcare providers to document specific diagnoses, not vague symptoms. “Acute bronchitis” is better than “cough.” “Type 2 diabetes with hyperglycemia” is better than “diabetes.”
Medical Necessity Notes should explain why services were necessary. Why did you order this test? Why did you choose this treatment? Why was the visit this level of complexity?
Complete Information Make sure notes include all required elements for the service level billed. Missing documentation elements lead to downcoding or denials.
Timely Documentation Providers should complete notes the same day as the visit while details are fresh. Old notes completed weeks later lack detail and accuracy.
Coding Quality Improvements
Accurate coding prevents administrative and clinical denials.
Certified Coders Employ certified professional coders (CPCs) or provide coding certification training for coding staff. Certified coders make fewer errors than untrained staff.
Coding Audits Conduct regular internal audits of coding accuracy. Review samples of coded claims and compare codes to documentation. Identify patterns of errors and provide targeted training.
Continuing Education Require coders to complete continuing education annually. Coding rules change constantly and coders must stay current.
Code Updates Update your code sets every October 1st when annual changes take effect. Using outdated codes guarantees denials.
Claim Scrubbing Use automated claim scrubbing software that checks for coding errors before submission. Fix errors before claims go to insurance companies.
Billing Process Improvements
| Prevention Strategy | What It Prevents | How to Implement |
| Real-time eligibility verification | Eligibility denials | Use automated verification tools daily |
| Pre-service authorization tracking | Authorization denials | Create authorization checklist for schedulers |
| Claim scrubbing | Coding and data errors | Implement scrubbing software |
| Timely claim submission | Timely filing denials | Submit claims within 3 days of service |
| Staff training | All types of denials | Monthly training on common errors |
| Regular audits | Coding and documentation issues | Audit 5-10 charts monthly |
| Clear policies | Patient responsibility confusion | Written policies given to patients |
Tracking and Analyzing Denial Patterns
Your denial data tells you where problems exist. Track denials by:
- Denial reason
- Insurance company
- Provider
- Service type
- Dollar amount
Look for patterns. If one insurance company denies 20% of your claims while others deny 5%, investigate why. If one provider’s claims deny frequently for lack of documentation, that provider needs documentation training. If authorization denials cluster around certain services, your authorization process needs improvement.
Use denial data to drive improvement initiatives. Focus on the denial reasons that cost you the most money or happen most frequently.
How Outsourced Medical Billing Companies Handle Denials
Many healthcare providers outsource their medical billing to professional billing companies. Understanding how these companies handle denials helps you decide whether outsourcing is right for your practice and what to expect if you choose this option.
The Outsourced Billing Company Perspective on Denials
For medical billing companies, denials represent both a challenge and an opportunity. Billing companies succeed when they collect maximum revenue for their clients. High denial rates hurt both the healthcare provider and the billing company’s performance metrics.
Professional billing companies typically achieve lower denial rates than in-house billing departments because denial prevention and management is their core expertise. They handle billing for multiple practices and see thousands of claims monthly, giving them extensive experience with what works and what does not.
How Billing Companies Prevent Denials
Outsourced billing companies use sophisticated processes to prevent denials before they happen.
Front-End Services Many billing companies offer front-end services including insurance verification. They check eligibility for all scheduled patients before appointments. They identify coverage issues early and alert the practice to problems.
Some billing companies provide staff who work onsite at the practice or remotely to handle patient check-in, verification, and registration. This ensures information is collected correctly from the start.
Authorization Management Billing companies often manage the entire pre-authorization process. They know which services require authorization for different insurance companies. They submit requests, track approvals, and follow up on pending authorizations.
Having authorization specialists who do this all day results in fewer missed authorizations than practices where front desk staff try to handle authorizations between other duties.
Expert Coding Professional billing companies employ certified medical coders with extensive experience. Many have coders who specialize in specific medical specialties and understand the unique coding requirements.
These coders are less likely to make coding errors that lead to denials. They stay current on coding changes and payer-specific requirements.
Claim Scrubbing Billing companies use advanced claim scrubbing software that checks claims against thousands of edits before submission. Claims only submit after passing all edits cleanly.
This technology is more sophisticated than what most individual practices can afford. It catches errors that simpler scrubbing tools miss.
Payer-Specific Knowledge Billing companies learn the specific requirements of different insurance companies. They know that Blue Cross wants authorizations submitted differently
than United Healthcare. They know that Medicare has different documentation requirements than Medicaid.
This detailed knowledge helps them submit clean claims that match each payer’s expectations, reducing denials.
How Billing Companies Handle Denied Claims
When denials do occur, billing companies have systematic processes for resolving them quickly.
Daily Denial Review Professional billing companies review denials daily as remittance advice arrives. Denied claims immediately go into denial work queues for specialist attention.
Nothing sits unworked. Every denial gets reviewed and assigned for action within 24-48 hours.
Denial Specialists Many billing companies have staff who do nothing but work denied claims. These specialists become experts at appeals, knowing what arguments work with different payers and what documentation is needed.
This specialization results in higher appeal success rates than generalist billing staff who handle denials occasionally along with other duties.
Appeal Preparation Billing company denial specialists prepare thorough appeals with:
- Well-written appeal letters addressing specific denial reasons
- Organized supporting documentation
- Knowledge of insurance company appeal procedures
- Tracking of appeal deadlines to ensure timely filing
They handle the entire appeal process from preparation through submission to tracking the outcome.
Provider Communication Good billing companies communicate with healthcare providers about denials that require clinical input. For medical necessity denials, they request additional documentation or explanations from providers.
For denials requiring peer-to-peer review, they coordinate calls between the provider and insurance company physicians.
Technology and Automation Billing companies use technology to manage denials efficiently:
Denial Management Software Specialized software tracks all denied claims, categorizes denial reasons, manages appeal deadlines, and monitors resolution progress.
Analytics and Reporting Sophisticated reporting shows denial trends, success rates, and financial impact. This data drives continuous improvement.
Workflow Automation Some denial resolution tasks can be automated, such as sending standard appeal letters for common denial reasons or automatically resubmitting corrected claims.
Billing Company Performance Metrics for Denials
Reputable billing companies track and report specific denial metrics to their clients:
Denial Rate Percentage of submitted claims that get denied. Good billing companies maintain denial rates below 5-8%, while average in-house billing departments often have denial rates of 10-15% or higher.
Denial Recovery Rate Percentage of denied dollars that are successfully recovered through appeals and corrected claims. Top billing companies recover 60-70% of denied amounts.
Time to Resolution How long it takes from denial receipt to final resolution (payment or final denial). Faster resolution improves cash flow.
Appeal Success Rate Percentage of appeals that result in overturned denials and payment. This shows how effective the company is at winning appeals.
Denial Reasons Breakdown of why claims are being denied. This identifies areas needing improvement.
These metrics help healthcare providers evaluate billing company performance and compare it to their previous in-house results.
Cost Considerations for Denial Management
Outsourced billing companies typically charge a percentage of collections, commonly 4-8% depending on the specialty and practice size. This percentage covers all billing services including denial management.
From the provider’s perspective, consider the full cost of denial management:
In-House Costs
- Salaries for billing staff who work denials
- Benefits and payroll taxes
- Training costs
- Software and technology
- Overhead (office space, computers, etc.)
- Lost revenue from unresolved denials
Outsourced Costs
- Percentage of collections to billing company
- Some practices pay lower percentages because companies work more efficiently
Many practices find that even after paying the billing company percentage, they net more money because denial rates drop and recovery rates increase.
Communication Between Billing Companies and Providers
Effective denial management requires good communication between the billing company and the healthcare provider.
Regular Reporting Billing companies should provide regular reports showing:
- Current denial rate and trends
- Top denial reasons
- High-dollar denials being worked
- Denials requiring provider action
- Appeal outcomes
Monthly reports are standard, with weekly or daily updates for practices wanting more frequent information.
Provider Requests When denials require clinical information, billing companies contact providers promptly. They explain what is needed and why, making it easy for busy providers to respond.
Access to Systems Many billing companies give providers access to their practice management systems so providers can view claim status, denial information, and account details anytime.
Responsive Support Good billing companies respond quickly to provider questions about denials or accounts. Providers should have a dedicated account manager or support contact.
What to Expect When Transitioning to Outsourced Billing
If you currently handle billing in-house and switch to an outsourced company, expect a transition period for denial management:
Old Denial Cleanup The billing company will assess your existing denials – often called “AR cleanup.” They will work old denials, but very old denials (over 120 days) may be difficult or impossible to recover.
Process Changes You will need to adapt to the billing company’s processes for collecting patient information, obtaining authorizations, and communicating about denials.
Improved Results Over Time Denial rates typically drop over the first 3-6 months as the billing company implements their prevention strategies. Recovery rates improve as denial specialists work through backlogs.
Learning Curve Both your staff and the billing company staff need time to learn how to work together effectively. Communication improves with time.
Financial Impact of Denials on Healthcare Practices
Denials have significant financial consequences for medical practices. Understanding the full impact helps justify investing in prevention and management.
Direct Revenue Loss
The most obvious impact is uncollected revenue. If 10% of your claims deny and you recover only 50% through appeals, you lose 5% of your potential revenue.
For a practice with $1 million in annual charges:
- 10% denial rate = $100,000 in denials
- 50% recovery rate = $50,000 recovered
- Net loss = $50,000 in revenue
That $50,000 goes straight to the bottom line if you can reduce denials or improve recovery rates.
Staff Time and Productivity Costs
Working denials requires significant staff time. Each denied claim might need:
- 15-30 minutes for review and research
- 30-60 minutes to prepare an appeal
- Multiple follow-up calls with insurance companies
- Coordination with providers for documentation
If billing staff spend 40% of their time working denials instead of submitting new claims and posting payments, you need more staff than you would if denials were lower.
This time could be spent on revenue-generating activities instead of fixing problems.
Cash Flow Disruption
Denials delay payment even when eventually resolved. A claim that should pay in 14 days might take 60-90 days if it denies and requires appeal.
This delay affects cash flow. You have bills to pay and payroll to meet, but revenue is stuck in denied claims. Poor cash flow forces practices to use credit lines or delay their own payments.
Patient Relationship Damage
Denials create patient billing problems. Patients receive bills they expected insurance to cover. They get frustrated with the practice, even though the insurance company made the denial decision.
Some patients blame the practice for billing errors or not getting proper authorization. This damages the patient-provider relationship and may cause patients to seek care elsewhere.
Administrative Burden
High denial rates create administrative chaos. Staff are constantly on the phone with insurance companies. Providers are interrupted to provide additional documentation. Managers spend time reviewing denial reports and planning improvements.
This administrative burden takes focus away from patient care and practice growth.
| Impact Area | How Denials Hurt | Cost to Practice |
| Direct Revenue Loss | Unrecovered denied claims | 3-7% of potential revenue |
| Staff Time | Hours spent working denials | $30,000-$100,000+ annually in staff costs |
| Cash Flow | Delayed payments | Credit line interest, late payment fees |
| Patient Satisfaction | Unexpected bills, confusion | Lost patients, bad reviews |
| Provider Time | Documentation requests | Time away from patients |
| Opportunity Cost | Resources spent on denials instead of growth | Unmeasurable but significant |
Technology Solutions for Denial Management
Modern technology helps healthcare providers and billing companies manage denials more effectively.
Practice Management Systems with Denial Tracking
Advanced practice management systems include denial management modules that:
Automatically Identify Denials Systems read ERA files and flag all denied claims, creating work queues for staff.
Categorize Denial Reasons Software groups denials by reason code, making it easy to see patterns.
Track Appeal Deadlines Systems calculate appeal deadlines based on payer rules and alert staff before deadlines approach.
Monitor Resolution Progress Managers can see which denials are being worked, by whom, and current status.
Generate Reports Comprehensive reporting shows denial trends, staff productivity, and financial impact.
Claim Scrubbing Software
Scrubbing tools check claims before submission against:
- Thousands of coding edits
- Payer-specific rules
- Common error patterns
- Medical necessity guidelines
Claims with errors get stopped for correction before going to insurance companies. This prevents denials before they happen.
Advanced scrubbing software updates regularly as payer rules change, ensuring checks remain current.
Revenue Cycle Management Platforms
Comprehensive RCM platforms integrate multiple functions:
- Eligibility verification
- Authorization tracking
- Coding assistance
- Claim scrubbing
- Submission and tracking
- Denial management
- Payment posting
- Reporting and analytics
These platforms provide end-to-end solutions rather than separate point systems.
Artificial Intelligence and Predictive Analytics
Newer technologies use AI to:
Predict Denials AI analyzes claims before submission and predicts which ones are likely to deny based on historical patterns. This allows preventive action.
Suggest Actions Systems recommend the best action for each denial type based on historical success rates.
Automate Appeals For certain straightforward denials, AI can generate appeal letters automatically.
Identify Root Causes Analytics identify underlying causes of denials, such as specific provider documentation gaps or payer pattern changes.
These technologies are expensive but worthwhile for large practices or billing companies handling high volumes.
Patient Communication Platforms
Technology helps communicate with patients about denials:
Patient Portals Online portals let patients view their bills, EOBs, and denial information. They can see what insurance paid and what they owe.
Automated Messaging Text messages and emails notify patients about denials and payment responsibilities.
Payment Options Online payment systems make it easy for patients to pay balances resulting from denials.
Educational Content Portals can include information explaining common denial reasons and what patients should do.
Legal and Compliance Considerations for Denied Claims
Handling denied claims involves legal and regulatory requirements that healthcare providers and billing companies must follow.
Balance Billing Restrictions
Balance billing means billing patients for amounts beyond what insurance pays. Rules vary:
Contracted Providers If you participate in an insurance network, you agreed to accept their allowed amounts. You cannot bill patients for the difference between your charges and the allowed amount, even if claims deny.
Non-Covered Services You can bill patients for services their insurance does not cover, but you should inform them before providing services.
Out-of-Network Care Rules about balance billing for out-of-network care vary by state. Some states prohibit surprise balance billing.
Surprise Billing Legislation
Federal No Surprises Act (effective 2022) and various state laws prohibit balance billing patients in certain situations:
- Emergency services at out-of-network facilities
- Non-emergency services at in-network facilities provided by out-of-network practitioners (without patient consent)
When these laws apply, you must accept insurance payment as payment in full even if the amount seems low. You cannot bill patients for the difference.
Understanding these rules prevents illegal balance billing that could result in fines and penalties.
Timely Filing and Patient Billing
When you miss timely filing deadlines, you generally cannot bill patients for services that should have been submitted to insurance. This is considered a provider error, not a patient problem.
Exceptions exist if:
- The patient gave you wrong insurance information intentionally
- The patient failed to inform you of insurance changes despite your requests Even in these cases, state laws might limit your ability to pursue payment.
Fair Debt Collection Practices
When collecting from patients after denials, you must follow Fair Debt Collection Practices Act rules:
- Cannot harass or threaten patients
- Cannot call before 8am or after 9pm
- Cannot contact patients at work if they ask you not to
- Must provide written notice of debt within five days of first contact
- Must honor patient requests to cease contact
If you send accounts to collection agencies, the agencies must also follow these rules. You can be held liable for agency violations, so choose reputable agencies.
HIPAA Privacy in Denial Communications
When discussing denied claims with patients, insurance companies, or collection agencies, protect patient privacy:
- Verify identity before discussing protected health information
- Provide only minimum necessary information
- Use secure methods for transmitting documentation
- Have business associate agreements with collection agencies and billing companies HIPAA violations can result in significant fines.
Patient Education and Transparency
Educating patients about denials and being transparent about billing practices reduces confusion and improves payment.
Explaining Insurance to Patients
Many patients do not understand how their insurance works. They do not know what deductibles, co-insurance, or pre-authorization mean. This lack of knowledge causes problems when denials happen.
Provide patient education about:
Basic Insurance Terms Simple handouts or videos explaining deductibles, co-pays, co-insurance, and allowed amounts help patients understand their bills.
Verification Process Explain that you verify insurance but verification does not guarantee payment. Insurance companies can still deny claims after initially confirming coverage.
Pre-Authorization Help patients understand that some services need insurance approval before you provide them.
Covered vs Non-Covered Explain that not all services are covered by all plans, and patients are responsible for non-covered services.
Financial Counseling Before Services
For expensive services, meet with patients beforehand to discuss costs:
- Estimate what insurance will cover based on their benefits
- Explain what the patient will likely owe
- Discuss payment options if the amount is large
- Get agreement on payment before providing services
This transparency prevents surprise bills and improves payment collection.
Clear Communication When Denials Occur
When insurance denies a claim, communicate clearly with the patient:
What Happened Explain in simple terms why insurance denied the claim. Avoid insurance jargon.
What You’re Doing Tell patients if you plan to appeal and what the timeline is.
What They Owe Clearly state whether they owe money now or should wait for appeal results.
Payment Options Offer payment plans for balances they cannot pay immediately.
How They Can Help Explain if there is anything the patient can do, such as contacting their insurance company or providing additional information.
Transparency Tools
Provide tools that help patients understand their financial responsibility:
Cost Estimates Offer estimates of what services will cost and what insurance will likely cover.
Online Portals Let patients view their bills, insurance payments, and balances online anytime.
Clear Statements Design billing statements that clearly show total charges, insurance payments, adjustments, and patient balance in easy-to-understand format.
FAQ Documents Provide frequently asked questions about billing, insurance, and denials.
Taking Control of Denied Medical Bills
Medical bill denials are frustrating and costly, but they do not have to cripple your practice financially. Understanding why denials happen, how to appeal them effectively, and most importantly how to prevent them puts you in control of your revenue cycle.
For healthcare providers managing billing in-house, success requires systematic denial management processes. Review denials immediately, categorize them by reason, appeal those worth fighting, and track everything carefully. Invest in prevention through better verification, authorization management, coding quality, and staff training. The time and money spent on prevention pays back many times over in reduced denials and improved cash flow.
For practices working with outsourced billing companies, choose partners with proven expertise in denial management. Look for companies that report transparent denial metrics, use sophisticated technology, employ certified coders and denial specialists, and communicate proactively about denial trends and issues. A good billing company should achieve denial rates below 8% and recover at least 60% of denied amounts through appeals and corrections.
Whether you handle billing internally or externally, technology plays an important role in denial management. Claim scrubbing software prevents denials before they happen. Practice management systems with denial tracking ensure nothing falls through the cracks. Analytics tools identify patterns that need addressing. These technology investments pay for themselves through improved collections.
Remember that not all denials are worth fighting. Focus your energy on denials with good appeal prospects and significant dollar amounts. Accept denials that are clearly correct or too small to justify the effort required. This targeted approach maximizes your return on time invested in denial management.
Patient communication matters too. When denials result in patient balances, explain clearly what happened and why. Offer payment plans for amounts patients cannot pay immediately. Treat patients with respect even when collecting money. Good communication preserves patient relationships despite billing problems.
The ultimate goal is not just managing denials but preventing them from happening in the first place. Every denied claim prevented is money in the bank and time saved for more productive activities. Focus on front-end processes like verification and authorization, improve documentation quality, maintain coding excellence, and submit claims promptly. These prevention strategies deliver better results than even the best denial appeals process.
Medical billing denials will always happen to some degree, insurance companies make mistakes, codes change, and unexpected situations arise. However, practices that take denial management seriously and implement strong prevention and resolution processes keep denials to minimal levels and recover most of the money from denials that do occur. This discipline directly improves the practice’s financial health and allows providers to focus on what matters most – delivering excellent patient care.
