Report: Claims Appeals Cost Providers Up to $8.6 Billion Annually

An estimated 9% of charges are initially denied

New research from the health care technology company Change Healthcare suggests that the typical health system risks $4.9 million each year because of claims denials. The Change Healthcare Healthy Hospital Revenue Cycle Index data were culled from a sample of more than 3.3 billion hospital transactions valued at $1.8 trillion.

Analysts used primary institutional inpatient and outpatient claims processed by Change Healthcare in 2016, as well as the average charged amount and the first denied amount for the 724 hospitals included in the claims sample. The total claimed charges and denied amounts for the nation’s 5,683 hospitals were then extrapolated from these sample data. An appeal success rate of 63% and an average reimbursement rate of 29% were used to calculate the amount denied. The $1,181-per-claim average appeal cost was based on Change Healthcare statistical averages for hospital customers.

The analysts found that, of an estimated $3 trillion in claims submitted by hospitals in 2016, an estimated 9% of charges ($262 billion) were initially denied. For the typical health system, as much as 3.3% of net patient revenue—an average of $4.9 million per hospital—was put at risk because of denials.

While 63% of denied claims are recoverable on average, appeals cost providers roughly $1,182 per claim, or as much as $8.6 billion in administrative costs nationally, according to the analysis.

By region, the Pacific, South Central, and Midwest posted the highest denial rates, at 10.89%, 10.5%, and 10.32%, respectively. Northern Plains and Mountain states represented the smallest denial rates at 6.64% and 6.99%, respectively.

Denial causes spanned the entire revenue cycle, although the largest percentage (23.9%) was associated with front-end processes (i.e., registration/eligibility).

Sources: Change Healthcare; June 26, 2017; and HealthLeaders Media; June 26, 2017.