How ICD-10 Increased Denials – Overcoming a Legacy of Coding Errors

Posted August 10, 2020 by Bradford Crowther

One of the biggest challenges healthcare systems face is the amount of revenue lost to denials – both in terms of the effort spent trying to collect and lost revenue for services rendered. A Change Healthcare study found that nine percent or $262 billion in claims are initially denied. For a health system, this means as much as 3.3% of net revenue – or an average of $4.9 million per hospital – has the potential of not being collected due to denials. [1]

However, this has not always been the case in the healthcare industry. In 2015, the change from ICD-9 to ICD-10 coding created unanticipated revenue cycle implications. Not only did ICD-10 add approximately 50,000 codes, it also created the unintended consequence of an overnight increase in denials that continues to persist today.

Prior to ICD-10, approximately 3-4% of all claims were initially denied; now that number has tripled to around 9%. A survey conducted by Panacea Healthcare Solutions a year after the ICD-10 codes went into effect showed that 71% of providers experienced an increase in denied claims amounting to a 58% increase in dollars denied.

Hospitals simply did not have the IT resources or coding expertise to deal with the increased complexity of ICD-10 coding. As a direct result, nearly 72% of hospitals reported that half of their coding would be outsourced in 2016, according to Black Book research, up from 53% of hospitals before ICD-10 in 2015. [2]

The disparity between claims and revenue collected forced hospitals and health systems to make difficult decisions about which denials will be appealed and which will not. Many large health systems have designated higher dollar thresholds to not appeal than would have been the case prior to October 2015. Those thresholds have been reported to be as high as $5,000.

Not appealing denials represents a great deal of revenue leakage. Additionally, the number one denial reason following ICD-10 was Medical Necessity. The next four were some version of coding-related errors.

In 2020, the top five denial reasons are all coding related, including Medical Necessity. The number of code sets and published coverage guidelines by payers have made it increasingly difficult to code a procedure correctly the first time. The narrower focus of what a payer will and will not cover challenges providers to accurately match a covered code very specifically. The increased number of edits deployed by payers to detect coding discrepancies also contributes to the higher denial rates. What can healthcare providers do to address claims complexity and still collect revenue?

The key to clean claims is using technology to identify and correct coding errors before they are submitted. Unfortunately, maintaining and implementing this type of system and updating it with the latest payer rules and DRGs can be an expensive undertaking, especially for many organizations that are already cash strapped and short on IT resources.

EnableComp has been in the business of working complex claims for 20 years. Our clients started to ask us to appeal denials for Workers’ Comp and Motor Vehicle Accident claims several years ago.  During this time, we have been successful in recovering millions of dollars based on our robust appeals process.

Our proprietary software, Enforcer, uses a cognitive data model with historical and situational analytics to predict which appeals are most likely to result in a successful outcome. This structure helps our internal team prioritize underpaid claims, leading to the maximum amount of returns in the shortest time possible for clients. It also helps us identify those claims that will require a higher skill level to successfully work them. Half of all denials are caused by problems at registration. Most denials are never appealed.  These two fundamental issues are where EnableComp can help. We offer trained revenue cycle staff and automated technology to identify issues that help prevent denials. Through our predictive modeling technology we can also ensure timely follow up by focusing resources and resolve claims faster for our clients.


Resources:

  1. Healthcare Finance News, “Change Healthcare analysis shows $262 billion in medical claims initially denied, meaning billions in administrative costs,” June 27, 2017.
  2. Black Book Hospital Survey, “Outsourced HIM and Computer-Assisted Coding Seen as Panacea for Regaining Lost Productivities and Post ICD-10 Payments,” October 4, 2016.