How enhanced medical documentation can combat rising payer denials

Hospital executives across the country are increasingly frustrated with rising denial rates from payers. At a recent HFMA conference, revenue cycle leaders voiced concerns about what they perceive to be bad-faith payer denial practices. Although such frustrations have some validity, hospital leaders will accomplish little if they focus solely on payer behavior. Instead, they should recognize a critical opportunity that is within their control: improving clinical documentation to meet even the most stringent payer requirements.

Payer determinations resulting in denials may often seem arbitrary. But the reality is that payers do use criteria sets to make determinations for admission status and post-acute rehabilitation. The problem is that these criteria sets are not readily available to providers, and payers can be somewhat opaque about what they contain.

Payers also can be fairly criticized for lacking transparency in their medical necessity decisions, in particular. Those decisions can be subject to the medical director’s judgement within the context of the payer’s determination criteria.

But that doesn’t mean hospital leaders are powerless to gain insight into payers’ criteria. The fact that a payer’s criteria don’t change frequently or dramatically gives hospital leaders a fighting chance of meeting those criteria.

The best strategy for hospitals is to focus on closing the gap between how clinicians document their services and how payers expect that services should be documented, regardless of the type of service for which the hospital is seeking payment.

Understanding the nature of the documentation gap

The disconnect between how clinicians approach documenting their services and payer expectations as to how it should be done is the primary cause of significant lost revenue for many healthcare organizations.

When physicians document care based on their clinical judgment alone, without regard for payer requirements, denials are almost inevitable. This problem will invariably persist for hospitals that do not align physicians’ documentation practices with payer expectations.

The gap also includes inherent differences between the clinical language physicians use and the coding terminology required to accurately represent the DRG determination and the calculation of severity of illness (SOI) and risk of mortality.

But it is most apparent in the area of medical necessity. Payers and clinicians have very different ideas of what represents medical necessity in the patient chart. Payers require a specific level of written detail when it comes to demonstrating sufficient SOI and associated intensity of treatment. This detail must be documented thoroughly if they are to accept that a patient meets medical necessity criteria for inpatient level of care.

Clinicians, on the other hand, often write their notes in a way that reflects their training and experience and that speaks to other trained providers who can understand the clinical status and treatment plan documented. They all too often leave out the level of detail payers require.

This omission gives payers reason to withhold reimbursement for accounts that don’t meet their definition of medical necessity. And they have little incentive to insist on a higher level of detail because they benefit from the omission.

Thus, the system is skewed in the payer’s favor. But the challenge is not insurmountable for hospital administrators and physicians whose primary focus is to deliver excellent patient care and be fairly reimbursed for their efforts.

How to address the problem

Hospitals can best respond to this challenge, and improve their denial rate, by making sure their physicians’ determinations of medical necessity are well supported with sound documentation.

Then, with this focus on sound documentation, hospitals can gain deeper insight into the rationale payers use for justifying denials, thereby providing information that can be applied toward reducing them.

If, for example, a denial is contested with a peer-to-peer discussion, a physician adviser can provide insights into the criteria used for the denial. Instead of treating this discussion as an isolated event, the hospital should leverage those insights for training physicians and optimizing documentation templates.

Remember, there is a difference between lacking medical necessity and lacking necessary documentation for medical necessity. It’s in the latter area where hospitals have the greatest opportunity for improvement.

Hospitals can best seize this opportunity by pursuing the following three strategies.

1 Undertake targeted educational initiatives focused on improving physician documentation practices. Traditional documentation education often fails because it’s too general or infrequent. As finance leaders collect data from past denials, it is important that they incorporate the lessons learned into effective education that’s specialty-specific, concise and focused on high-impact denial areas.

Disseminating that information to physician staff requires broad-based, educational efforts that are regular, pertinent to physician documentation practices and focused on the benefits of adapting to payer criteria. Finance leaders can gain buy-in from physicians by showing them how they have a stake in adapting their documentation practices to payer criteria. Given that physicians tend to share finance leaders’ frustration with denials, the idea of fewer peer-to-peer discussions, discharge delays and discussions with patient family members could persuade most of them to embrace this effort.

Options for physician education could include:

• Half-hour sessions every quarter tailored to specific specialties and common denial patterns
• Case-based learning using real denial examples from the organization
• Microlearning opportunities delivered through existing communication channels
• Documentation tip sheets presented to physicians regarding specific, frequently denied DRGs or procedures

2 Provide physicians with meaningful feedback loops. Physicians rarely see the financial impact of their documentation decisions, so creating personalized feedback can bridge this awareness gap. As finance leaders gauge the effectiveness of physician documentation by monitoring their organizations’ denial rates and payer rationales, they should provide feedback to the physicians regularly. Such feedback should be part of a process of continuous refinement in response to payer pressures and shifts in denial strategy.

Effective feedback approaches include:

• Monthly personalized reports showing individual denial rates compared with those of peers
• Documentation rounds, where CDI specialists review difficult cases directly with physicians
• Recognition programs celebrating physicians who demonstrate documentation excellence
• Focused coaching for physicians who have consistently high denial rates

3 Track payer requirements using payer intelligence systems. Hospitals often react to denials rather than anticipating them. To counter this tendency, hospital leaders should develop a system to track and communicate changing payer requirements. Such a system is crucial for enabling management of their organization’s denial burden. Learning from every denial, monitoring trends and collecting data on payers’ denial rationales, which can and will change over time, is imperative.

Finance leaders also should consider establishing a dedicated team to monitor payer bulletins and policy updates. This team should perform regular analyses of denial trends to identify emerging documentation requirements, create direct communication channels with major payers’ medical directors and provide quarterly updates to documentation templates based on the routine analyses.

Financial benefits from documentation excellence

To illustrate the potential impact of improved documentation, consider the following hypothetical example, based on figures that are typical for the hospital industry.

Let’s say a mid-sized hospital has experienced an 11% denial rate with its largest Medicare Advantage payer. This figure may initially appear manageable, but let’s say gross charges to the payer totaled $45 million, with net patient revenue of $18 million after contractual adjustments. That means the 11% denial rate represents nearly $2 million in annual disputed revenue.

Further, let’s say historical data shows that only 35% of denials are overturned with successful appeals, meaning $1.3 million in otherwise legitimate revenue is being written off annually as bad debt.

Moreover, the time staff dedicate to managing denials and appeals is another important consideration affecting operational costs. Imagine that revenue cycle staff dedicate 80% of their time to managing denials and appeals, which under our scenario would amount to $120,000 in labor costs annually. Added to that, let’s say physicians spend six hours per week on peer-to-peer discussions and documentation requests, amounting to another $200,000 in annual costs based on average physician compensation. Meanwhile, add to that concurrent and retrospective chart reviews by the case management team, occupying 20% of the team’s time, and it becomes clear that the financial impact is significant.

Further, industry research indicates 86% of denials are potentially avoidable, suggesting that even a conservative effort that avoids just 30% of denials in the case of our hypothetical institution could yield substantial returns. This modest goal would potentially recover almost $600,000 in annual revenue while reducing operational costs by about $96,000, for a combined annual benefit of nearly $700,000.

A denials management imperative

Hospitals have arrived at a crossroads where traditional responses to payer behaviors are simply ineffective and unsustainable in the face of tightening margins. The appeals process for challenging denials remains necessary for hospitals to recover revenue, but forward-thinking hospitals should consider how to improve their denials strategy by committing to documentation excellence to address root causes rather than symptoms.

A focus on documentation excellence is one of the few strategies available to hospital leaders that address multiple priorities beyond effective denials management, including quality metrics, safe patient care transitions and reduced administrative burden. Well managed, such a strategy can lead to improved job satisfaction among physicians and nonphysician employees alike.

Enhancing documentation practices also involves low associated cost and outsized benefits beyond those purely financial. Organizations that embrace this strategy can build capabilities that will secure them in an industry that continues to evolve with increasingly sophisticated and demanding quality measurement and outcome-based reimbursement models.

The question then becomes not whether to pursue this strategy, but how best to implement it.