Behind the Curtain: How Hospitals Handle Denied Claims

Few things are as frustrating as receiving a denial from your insurance company after you’ve already received care. It’s confusing, stressful, and leaves you wondering what went wrong. But here’s something you might not realize — hospitals face the same challenges. Every day, they deal with denied claims that disrupt their operations and delay payments.

Behind the scenes, hospitals have dedicated teams working tirelessly to review, appeal, and resolve these denials. These experts — part of the Revenue Cycle Operations team — play a crucial role in ensuring claims are paid correctly, whether it’s addressing a coding error, or challenging an unfair decision by an insurance company.

Understanding how hospital handle denied claims can empower you as a patient to take charge of your own denials, ask the right questions, and collaborate with billing departments to ensure fair outcomes. Let’s take a peek behind the curtain and see how hospitals fight back — and how you can use their strategies for your own appeals.

What Is a Denied Claim?

A denied claim is a request for payment submitted by a healthcare provider or patient to an insurance company that the insurance company refuses to pay. Denials can happen for a variety of reasons, including errors in the claim itself, issues with insurance coverage, or failure to meet the insurance company’s specific requirements.

How a Denied Claim Differs From a Rejected Claim

It’s important to note that a denied claim is different from a rejected claim:

1. Denied Claim: The insurance company has processed the claim and decided not to pay it.
2. Rejected Claim: The claim was never processed, often due to errors or incomplete information, and needs to be corrected and resubmitted.

If you receive notice of a denied claim, don’t panic – it’s often possible to appeal the decision and have it reconsidered. Hospitals and providers deal with denials regularly, and understanding the process can help you resolve your own claims more effectively.

The Role of the Revenue Cycle Team

The Revenue Cycle Team plays a critical role in handling denied claims within a hospital or healthcare system. Their primary responsibility is to ensure that the hospital receives accurate and timely payment for services provided, which includes identifying, addressing, and resolving claim denials. Here’s a closer look at their role:

1. Identifying the Reason for the Denial
   • What They Do: Review the insurance company’s denial notice and Explanation of Benefits (EOB) to determine why the claim was denied.
   • Key Actions: Analyze denial codes and accompanying documentation, investigate whether the denial is due to hospital errors (e.g., coding, billing) or payer requirements (e.g., lack of prior authorization).
   • Why It Matters: Understanding the reason for the denial is the first step towards resolving it.
2. Reviewing and Correcting Errors
   • What They Do: Examine the claim for mistakes or missing information and make necessary corrections.
   • Key Actions: Fix coding or billing errors, attach missing documentation, such as medical records or prior authorization forms, ensure accurate patient and insurance information.
   • Why It Matters: Many denials can be resolved simply by correcting errors and resubmitting the claim.
3. Preparing and Submitting Appeals
   • What They Do: If the denial is unjustified, the team gathers evidence and prepares an appeal to challenge the insurer’s decision.
   • Key Actions: Collect relevant medical documentation to support the claim, draft appeal letters outlining why the denial should be overturned, work closely with physicians and clinical teams to provide additional explanations, if needed.
   • Why It Matters: Effective appeals can result in the insurance company reversing the denial and approving the claim.
4. Communicating with Insurance Companies
   • What They Do: Engage directly with insurance companies to resolve issues and advocate for payment.
   • Key Actions: Call payers to clarify denial reasons and discuss next steps, negotiate for claim reprocessing or payment adjustments, follow up consistently to track the status of appeals and resubmissions.
   • Why It Matters: Persistent communication can speed up resolutions and prevent claims from falling through the cracks.
5. Preventing Future Denials
   • What They Do: Analyze trends in denials to identify recurring issues and implement process improvements.
   • Key Actions: Provide feedback to coding and billing teams to reduce errors, train stay on payer-specific requirements and updates, use denial management software to track and monitor patterns.
   • Why It Matters: By addressing root causes, the team can reduce the number of future denials, saving time and resources.
6. Supporting Patients in the Process
   • What They Do: Advocate for patients by keeping them informed and assisting with claim resolution.
   • Key Actions: Notify patients about the status of their denied claims, help patients provide additional information if required, offer guidance on filing their own appeals when necessary.
   • Why It Matters: Patients often feel lost during the denial process, and support from the revenue cycle team can make a significant difference.

Denied claims directly impact a hospital’s revenue, but they also affect patient’s financial and emotional well-being. The Revenue Cycle Team serves as the hospital’s frontline defense, ensuring that claims are handled efficiently and fairly while minimizing the burden on patients. Their expertise not only helps recover lost revenue but also builds trust with patients and ensures that hospitals can continue to provide quality care.

By understanding the role of this team, patients can feel confident that their hospital is actively working to resolve claim issues and advocate for their rights.

Common Reasons Hospitals See Denied Claims

Hospitals frequently encounter denied claims, and while the reasons can vary, they often fall into a few common categories. Here are the most frequent causes hospitals see:

1. Coding Errors
   • What Happens: Incorrect or incomplete medical codes are used to describe a diagnosis, treatment, or procedure.
   • Examples: Using outdated or mismatched billing codes (e.g./ ICD-10, CPT), overlapping or conflicting codes.
   • Why It Matters: Even minor coding mistakes can trigger an automatic denial.
2. Missing or Incorrect Patient Information
   • What Happens: The claim is submitted with errors or omissions in key details about the patient or their insurance.
   • Examples: Incorrect spelling of the patient’s name, invalid policy numbers, incorrect date of birth or address.
   • Why It Matters: Insurance companies require complete and accurate information to process claims.
3. Lack of Prior Authorization
   • What Happens: Certain procedures or treatments require pre-approval from the insurance company before they’re performed, but the authorization is missing.
   • Examples: Elective surgeries, advanced imaging (e.g., MRIs, CT scans), specialist referrals.
   • Why It Matters: Without prior authorization, the insurance company may deny payment — even if the procedure was necessary.
4. Services Not Covered by Insurance
   • What Happens: The treatment or procedure falls outside the patient’s policy coverage.
   • Examples: Experimental or investigational treatments, out-of-network providers or facilities, cosmetic procedures.
   • Why It Matters: Hospitals often bill for services without knowing the full details of a patient’s insurance policy.
5. Not Medically Necessary
   • What Happens: The insurance company claims the treatment provided wasn’t essential based on their guidelines.
   • Examples: Repeat tests deemed unnecessary by the insurer, treatments not aligned with the insurer’s clinical policies.
   • Why It Matters: Disputing medical necessity requires thorough documentation from the provider.
6. Submission Errors
   • What Happens: The claim was submitted incorrectly, causing it to be denied.
   • Examples: Claim submitted past the payer’s deadline, duplicate claims submitted for the same service, filing errors (e.g., wrong insurer or billing format).
   • Why It Matters: Submission errors can often be avoided with internal checks before claims are sent out.
7. Coordination of Benefits (COB) Issues
   • What Happens: Multiple insurance plans are involved, but the claim doesn’t correctly account for which plan pays first.
   • Examples: Confusion between primary and secondary insurance providers, incorrect COB information submitted.
   • Why It Matters: COB errors can result in payment delays, payment retractions, or outright denials.
8. Eligibility Issues
   • What Happens: The patient’s insurance policy isn’t active or doesn’t cover the date of service.
   • Examples: Patient’s coverage expired before the procedure, services provided during a waiting period for new coverage.
   • Why It Matters: Verifying insurance eligibility before treatment can reduce these denials.

How Hospitals Appeal Denied Claims

When a hospital receives a denied claims, it doesn’t mean the process is over. Most denied claims can be challenged and overturned through a structured appeal process. Revenue Cylce Operations (RCO) teams play a critical role in this effort, using their expertise to ensure insurance companies pay what they owe. Here’s how hospitals typically handle appeals:

1. Reviewing the Denial Letter
   • The first step in the appeals process is to carefully review the denial letter or Explanation of Benefits (EOB) provided by the insurance company. These documents outline:
     • The reason for the denial (e.g., coding errors, lack of authorization, or coverage issues)
     • Specific denial codes that provide insight into what went wrong
   • Example: If the denial code indicates a missing prior authorization, the team will investigate whether the approval was obtained but not properly documented or if it needs to be requested retroactively.
2. Gathering Supporting Documentation
   • Once the denial reason is understood, the next step is to compile all necessary documentation to support the appeal. This often includes:
     • The patient’s medical records to prove the treatment was necessary.
     • Copies of prior authorizations or referrals.
     • Corrected claim forms with accurate coding and billing information.
   • Example: If the denial claims the service wasn’t medically necessary, the hospital may gather notes from the attending physician that explain why the treatment was required.
3. Writing the Appeal Letter
   • Hospitals prepare an appeal letter addressed to the insurance company. This letter includes:
     • A clear explanation of why the claim should be approved.
     • Evidence to support the appeal, such as corrected coding or medical documentation.
     • References to the patient’s insurance policy to highlight why the treatment is or should be covered.
   • Examples: For a denial based on “not medically necessary,” the appeal letter may reference clinical guidelines or the patient’s policy terms to justify the claim.
4. Submitting the Appeal
   • The appeal is then submitted to the insurance company through the required channels, which may include:
     • Online payer portals.
     • Fax or mail, depending on the insurer’s process.
     • Direct communication with an insurance representative for complex cases.
   • Key Note: Hospitals must adhere to strict timelines for submitting appeals, as insurance companies often have deadlines (e.g., 30-90 days from the denial date).
5. Following Up Persistently
   • Insurance companies don’t always respond promptly, so RCO teams follow up regularly to check the status of the appeal. This involves:
     • Calling payer representatives to ensure the appeal is being reviewed.
     • Requesting updates and timelines for resolution.
     • Escalating unresolved appeals to higher levels if necessary.
   • Example: If an insurance company delays responding, the RCO teams follow may escalate the appeal to a supervisor or request an independent review.
6. Track and Documenting the Process
   • Throughout the appeal, the RCO team documents every action taken, including:
     • Dates of submission, follow-ups, and correspondence with the insurance company.
     • Copies of all submitted documents and responses from the payer.
   • This detailed tracking ensures accountability and provides a clear record in case the appeal needs to be revisited.
7. Resolving the Appeal
   • Once the appeal is processed, the insurance company will either approve the claim or provide a final denial. If the claim is approved, the hospital receives payment, and the patient’s financial responsibility is updated accordingly. If the denial is upheld, hospitals may:
     • File a second-level appeal with additional evidence.
     • Assist the patient in escalating the appeal to an external review board.

What This Means for Patients

Hospitals often appeal denied claims on behalf of patients, saving them time and stress. However, patients can play a role by staying informed, providing necessary documentation, and frequently checking in on the status of their appeals. By working together, hospitals and patients increase the likelihood of successfully overturning denials and ensuring fair payment for care.

If you’ve received a denied claim, don’t give up — there’s often a path to resolution. Start by understanding the denial, partnering with your hospital’s appeals team, and staying persistent in your appeal. For more tips, tools, and resources to help you take control of your medical bills and insurance claims, explore our blog or contact us today. Together we can turn that ‘no’ into a ‘yes’.

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Insider Tips for Patients

1. Request and Understand the Denial Letter
   • Ask for a copy of the denial letter or Explanation of Benefits (EOB) to learn why your claim was denied. This document provides the denial reason, which is the first step in building a strong appeal.
2. Partner with Your Hospital’s Billing Team
   • Reach out to the hospital’s billing or appeals department to confirm they are appealing the denial and provide any additional information they might need, such as medical records or prior authorization.
3. Provide Supporting Documentation Quickly
   • If the appeal requires extra documentation, like medical records or a letter from your doctor, submit it promptly. Missing or delayed documents can hold up the process.
4. Kept Track of Deadlines and Follow Up
   • Ensure you know the appeal deadlines, which can range from 30 to 90 days, and follow up regularly to track progress. Persistence is key to ensuring your appeal gets the attention it deserves.