Claim Denial Management

Partial denials cause the average medical practice to lose as much as 11% of its revenue (Capko, 2009).  Payers are known for denying claim payments for legitimate reasons (provider-generated errors) and arbitrary reasons, motivated by the inherent benefits of controlling the float for the maximal time (Stahl). Systematic denial management must address both kinds of errors. 

Denial management is difficult because of the (intentional) complexity of denial causes, payer variety, and claim volume.  Systematic denial management requires measurement, early claim validation, comprehensive monitoring, and customized tracking of the appeals process.

According to a survey by the Medical Group Management Association (MGMA), 69% of organizations reported a significant increase in denials, averaging 17%, in 2021 alone. These findings are further supported by additional alarming statistics  (Zipple, 2023):


  • In 2021, claim denials surpassed 48 million (Kaiser 2023).
  • On average, nearly 20% of all claims are denied, and shockingly, up to 60% of these denied claims are never resubmitted (Poland and Harihara, 2022)
  • Certain payers exhibit denial rates as high as 80% (Revenue Cycle Intelligence, 2022)


However, there is some hope as, on average, approximately 40% of denials can be overturned through appropriate appeals processes (Kaiser 2023).

According to a HIMSS Analytics study, here are some key findings on how hospital executives manage claim denials: 

  • 44% of hospital executives rely on vendor solutions to manage denials.
  • 31% of executives still handle denials manually, without any specific tool or software.
  • 18% of hospitals have developed their own in-house tools for denial management.
  • 7% of executives are unsure about the method they use for denial management.
  • Among respondents without a vendor-provided solution, 60% plan to purchase one within the next 7-12 months. (Regulsky, 2023)


Denial Risk Classification

The denial risk is not uniform across all claims. Certain classes of claims run significantly higher denial risks, depending on six factors:

  1. Claim complexity 
    1. Modifiers, e.g., incorrect modifier used 
    2. Multiple line items
  2. Temporary constraints
    1. Claim not filed on time  
    2. Patient constraints, e.g., claim submission during global periods (see below)
    3. Payer constraint (e.g., claim submission timing proximity to the start of the fiscal year)
    4. Procedure constraint (e.g., experimental services)
  3. Payer idiosyncrasies
    1. Bundled services, e.g., services incorrectly bundled or Unbundling and upcoding 
    2. Disputed medical necessity, e.g., Not a medical necessity  
    3. Non-covered services  
    4. Other
  4. Patient data
    1. Patient deductible  
    2. Plan benefits exhausted  
  5. Provider data, e.g., Out-of-network (OON) provider  
  6. Process Compliance
    1. Incorrect insurance ID number  
    2. Duplicate claim submitted  
    3. Prior authorization not attached  
    4. Typo errors in patient information


Note that for complex claims, most payers pay the full amount for one line item but then pay only a percentage of the remaining items. This payment approach creates two opportunities for underpayment:

  1. The order of paid items
  2. The payment percentage of the remaining items


Next, temporary constraints often cause payment errors because of the misapplication of constraints. For instance, claims submitted during the global period for services unrelated to the global period are often denied. A global period is a period of time before and after a surgical procedure during which related services are bundled into the initial procedure’s payment. It helps streamline billing by including pre-operative visits, post-operative follow-up care, and related services within a single payment (Master, 2020). Similar mistakes may occur at the start of the fiscal year due to misapplying rules for deductibles or outdated fee schedules.

Additionally, payers often vary in their interpretations of Correct Coding Initiative (CCI) bundling rules or coverage of certain services. Developing sensitivity to such idiosyncrasies is a key to full and timely payments.

CMS contractors conduct medical reviews on certain claims and prior authorizations to ensure that Medicare payments are made only for services that comply with all Medicare regulations. Suppose a review leads to a denial or non-affirmation decision. In that case, the contractor responsible for the review provides the provider or supplier with a comprehensive explanation detailing the reasons for the denial or non-affirmation. 

For example, the code AM300 is used when the provided documentation lacks evidence to substantiate the provision of Basic Life Support services during an emergency response. Please refer to 42 CFR § 410.40 (c), 42 CFR § 414.605, Internet Only Manual (IOM), Publication 100-02, Medicare Benefit Policy Manual, Chapter 10, Section 20, and Section 30.1.1 for further clarification and guidelines on this matter. (Reason Statements and Document (EMDR) Codes | CMS).

Payers can also separate the Claim Processing and Denial Management departments to add complexity and improve the likelihood of underpayments and delays. In this scenario, the provider may be forced into a deadlock by having to deal with two separate departments for the same claim, where each of the two departments “waits” for the decision of the other.


Denial Risk Management Stages

In a high-volume clinic, the only practical way to manage denials is to use computer technology and follow a four-step procedure:


1. Prevent mistakes during claim submission   

This can be accomplished with a built-in claim validation procedure that includes payer-specific tests and EHR integration. Such tests (“pre-submission scrubbing”) compare every claim with Correct Coding Initiative (CCI) regulations, diligently review modifiers used to differentiate between procedures on the same claim, and compare the charged amount with the allowed amount, according to previous experience or the previous contract, to avoid undercharging.  

Integrating EHR and claims management systems allows for the seamless transfer of patient data and encounter information from the EHR to the claims system. This eliminates the need for manual data entry or transcription, reducing the chances of errors or omissions that may occur during the claims submission process.  EHR systems often include built-in templates and structured documentation features that guide providers to capture complete and accurate information. These templates help ensure that all necessary information for claims submission, such as procedure details, diagnoses, and supporting documentation, is appropriately recorded.


2. Identify underpayments  

Identifying underpayments in the claims process is crucial for healthcare organizations to ensure accurate reimbursement and maximize revenue. This involves comparing the payment with the allowed amount, identifying zero-paid items, and evaluating payment timeliness. The results of this stage should be displayed in a comprehensive under-payment report sorted by payer, provider, claim identification, and the amount of underpayment.  AI and advanced analytics can be used to enable such in-depth analysis of payment data.  


3. Use Intelligent Document Processing for Payer Responses

Intelligent Document Processing (IDP), an AI-based technology, improves upon traditional Optical Character Recognition (OCR) by minimizing manual review and errors. Using natural language processing, computer vision, and deep learning, IDP enhances document quality, classifies documents, and converts unstructured data into usable, structured information, thus automating and improving the efficiency of document processing. The image below shows how AI detects the data on the invoice. (“Automated Claims Processing: Using RPA and Machine Learning to Manage Insurance Claims,” 2021)


4. Measure denial rates   

You cannot manage what you don’t measure. The claim denial rate is an important metric in revenue cycle management and indicates the effectiveness of the claims submission and reimbursement process. Providers can identify patterns, address common reasons for denials, implement improvements, and optimize revenue streams by monitoring and analyzing claim denial rates  (Claim Denial Rate – RCM Metrics – MD Clarity).


5. Appeal denials  

The key to a successful appeal is helping the payer to make an easy decision. Appeal management includes appeal prioritization, preparation of arguments and documentation, tracking, and escalation. While tracking and escalation are standard process management techniques, preparation of arguments may follow in one or a combination of the following ways:


1. Refer to CCI: Note that CCI spells out bundling standards, but the number of standard interpretations grows with the number of payers. Therefore, CCI provides the justification basis for an appeal, and every appeal must be argued on its own merits, including medical notes. 

The appeals process for Medicare Part A and Part B involves several levels: (Original Medicare (Fee-for-service) Appeals | CMS).

    1. First Level of Appeal: A Medicare Administrative Contractor (MAC) carries out a redetermination at this stage.
    2. Second Level of Appeal: If the appeal is not resolved at the first level, it can be reconsidered by a Qualified Independent Contractor (QIC).
    3. Third Level of Appeal: If the appeal remains unresolved, it progresses to the Office of Medicare Hearings and Appeals (OMHA), where a decision is made.
    4. Fourth Level of Appeal: In the event of dissatisfaction with the OMHA decision, it is possible to request a review from the Medicare Appeals Council.
    5. Fifth Level of Appeal: If all previous levels have been exhausted and the decision is still unsatisfactory, the final recourse is seeking judicial review in the Federal District Court


2.Present examples of previously paid similar claims. This approach can be greatly accelerated by using AI techniques to discover similar claims already paid in the past. (“Automated Claims Processing: Using RPA and Machine Learning to Manage Insurance Claims,” 2021)


3.Manage the potential deadlock between the Claim Processing and the Appeals Management departments within the payer’s organization.


6. Automate and streamline 

Claim management workflow automation improves overall process efficiency and accelerates resolution times (Nguyen, 2023). Healthcare providers can realize multiple benefits:

  • Improved Patient Experience: Faster, more accurate processing enhances patient satisfaction.
  • Cost Saving: Automation reduces manpower and processing time, significantly reducing costs.
  • Minimizing Errors: Automation lowers the risk of data entry errors, ensuring greater accuracy.
  • Faster Claim Processing: Automated systems operate 24/7 for quicker claims processing and payouts.
  • Reduced Claim Denials: Correct and complete data entry through automation results in fewer denied claims. (Artivatic.Ai, 2023)


7. Consider outsourcing denial management services

Denial management requires significant time and resources to handle appeals, track denials, analyze data, and manage follow-up activities. Outsourcing denial management allows healthcare organizations to offload these tasks to specialized providers, freeing internal staff to focus on core activities, such as patient care, revenue generation, and process improvement initiatives. (Team, 2022)

  • Expertise and Specialization:  Specialized professionals develop expertise in denial management processes, industry regulations, and payer requirements, which is necessary to effectively handle denials, navigate complex appeals processes, and maximize revenue recovery.
  • Access to Advanced Technology and Tools: Advanced technology platforms, including data analytics tools and automation solutions specifically designed for efficient denial management, can streamline processes, automate repetitive tasks, track denial trends, generate comprehensive reports, and enable real-time visibility into denial statuses.
  • Focus on Core Competencies: By outsourcing denial management, healthcare organizations can focus on their core competencies, such as delivering quality patient care, improving clinical outcomes, and strategic growth initiatives.



In medical practices, partial denials lead to an average revenue loss of 11%, driven by the complexity and high volume of claims. Effective denial management requires measurement, early claim validation, comprehensive monitoring, and customized appeals tracking. Many hospital executives use vendor solutions to manage denials, with others planning to implement such tools soon. CMS contractors conduct medical reviews to ensure Medicare payments comply with regulations, providing detailed explanations for denials or non-affirmations. The integration of EHR and claims systems and advanced analytics for denial rate measurement are important aspects of this process. Furthermore, outsourcing denial management services can provide expertise, advanced technology, and efficiency, while the use of AI can improve claim validation, data analysis, and process efficiency.



  1. Capko, J. (2009, January 1). Physicians Practice Pearls: The Perils of Cross-Training. Physicians Practice. 
  2. Stahl, G. Denials Management: Six reasons why your claims are denied. 
  3. Regulsky, E. (2023, April 7). 10 Reasons Why Hospitals Automate their Denial Management. BillingParadise. 
  4. Master, W. (2020, September 13). What Is Global Period In Medical Billing? – MBA Medical. MBA Medical. 
  5. Claim Denial Rate – RCM Metrics – MD Clarity. (n.d.). 
  6. Team, C. (2022, December 19). Outsourced Insurance claims processing Services | Covenir. Covenir. 
  7. Automated claims processing: Using RPA and machine learning to manage insurance claims. (2021, April 13). AltexSoft. 
  8. Nguyen, K. (2023, February 15). Prevent claim denials with AI and automation. Healthcare Blog. 
  9. Artivatic.Ai. (2023, February 10). Generative AI for Health Claims. – Artivatic Insurtech & Healhtech platform – Medium. Medium. 
  10. Original Medicare (Fee-for-service) Appeals | CMS. 
  11. Zipple, L. (June 2023), Minimize Claim Denials with Effective Denials Management. 
  12. Reason Statements and Document (EMDR) Codes | CMS. 
  13. Kaiser Family Foundation, Claim Denials and Appeals in ACA Marketplace Plans, February 2023,
  14. Revenue Cyle Intelligence, Claim Denial Rates as High as 80% for Some Marketplace Payers, July 2022,
  15. Poland and Harihara, (April 2022) Claims Denials: A Step-by-Step Approach to Resolution, April 2022, American Health Information Management Association Journal,


A Future Book Publication Note:

This article is a chapter in the forthcoming 2nd Edition book “Medical Billing Networks and Processes,” authored by Dr. Yuval Lirov and planned for publication in 2024. We will post more chapters on this blog soon.


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