The True Cost of a Denied Claim in Your PT Practice

Claim denials can be costly for rehab therapists. Not only does remedying them require additional time and resources, but they also delay cash flow. In fact, reimbursement delays can range from 42 to 137 days for commercial payers. And that’s assuming that every claim is reworked and resubmitted—which is rarely the case, as we’ll discuss later.

While it would be easy to overlook one or two denials, these problems can add up quickly—and can point to a much larger issue with your billing practices that may be costing your clinic a lot of money. Here’s what you need to know about the true cost of a denied claim—including some denied health insurance claims statistics. 

The average cost to rework a denied claim ranges from $25 to $117.

According to this blog post, the average cost to file an initial claim is $6.50. And the estimated average cost to rework a denied or rejected claim was about $25 in 2017—a number that is probably closer to $30.50 in 2022, accounting for inflation. In some settings, the estimated cost of a denied claim can rise as high as $117. Whatever the exact dollar figure, it’s time and money spent fixing errors that could be spent elsewhere.   

If you’re wondering what this means from a big-picture standpoint, consider this: if you have 100 claims denied per month—and you rework all of them at the lowest estimated cost ($25)—you’re spending an extra $30,000 a year just to get the money you’re already owed. Here’s the breakdown: 100 claims per month x 12 months x $25 to rework a denied claim. And don’t forget to factor in the $6.50 per claim you’re already spending for initial submission. What’s more, these numbers do not account for the financial downside of reduced cash flow; after all, you can’t use the money you don’t have.

Now, this is just one, general example. To put a finer (and more customized) point to this, you can use AAPC’s Denied Claims Calculator to determine just how much reworking claims might be costing your organization.

Only 35% of all denied claims are ever reworked.

According to a recent survey from Harmony Healthcare, the average claim denial rate nationwide is between 6% and 13%—and those numbers can be even higher in some settings. Of those denied claims, only 35% are ever fixed and resubmitted. Even if you’re performing above average when it comes to reworking claims, you could still be leaving a whole lot of money on the table. Josh Vierling—the author of this blog post—said it best: “One thing is clear: the current system benefits [p]ayers much more than it does [p]roviders.” 

That should be incentive enough to prevent denials in the first place.

As Lori Zindi observed in this blog post, the healthcare industry has had “a longstanding practice” of “appealing and fixing denials” as part of routine business practices. However, just because clinicians have spent so much time and energy on denials in the past doesn’t mean you have to do the same—according to Zindi, you could be collecting on 90% of all claims upon the first pass. The Change Healthcare 2020 Revenue Cycle Denials Index similarly states that 86% of denials are potentially avoidable—but also warns that 24% of those avoidable denials are unrecoverable.

Preventing denials in the first place is better for your business operations and your bottom line. And it’s not that difficult to accomplish—if you optimize your revenue cycle management (RCM) process with the right in-house billing software or with a third-party RCM service. 

Start by optimizing your billing processes.

One simple step for avoiding denials is to accurately verify patient benefits from the start. According to the Change Healthcare 2020 Revenue Cycle Denials Index, 26.6% of denials are due to registration and eligibility issues. By checking patient eligibility before their first appointment—and periodically thereafter—you can avoid surprise denials, and determine if prior authorization is required.   

Once you’ve verified benefits,  be sure you’re also avoiding these eight most common denial reasons (as presented by Diane McCutcheon in this post): 

1. Incorrect data (e.g., data-entry errors)
2. Incorrect or missing insurance information
3. Missing claim details (e.g., codes and modifiers)
4. Missing or invalid referral or authorization information
5. Incorrect or missing provider credentials
6. Late submissions (outside of the payer’s timely filing window)
7. Incorrect beneficiary information
8. Failure to submit payer-requested information

Therapists may also have to deal with modifier 59 denials, especially for CPT codes 97530 and 97140; our resident billing guru John Wallace walks you through how to appeal those denials in this blog post.    

Then, track denial codes.

The best way to prevent denials is to truly understand why you’re receiving them in the first place. So, as suggested in this blog post, for every denied claim, you should:

1. Identify the denial error code and note it in a denial management log.
2. Reach out to the payer to understand the reason for the denial.
3. Correct and rebill the claim in accordance with the payer’s instructions.
4. Document all details of the process—including all interactions you have with the payer.
5. If you resubmit the claim and still receive a denial, appeal within seven days of the payer’s final determination. (According to McCutcheon, claims submitted within seven days have a 67% chance of being paid; claims submitted outside of that window have only a 40% chance.)
6. Regularly review your denial management log to identify trends and remedy the root of the problem.

For more great strategies to prevent denied claims—including creating policies and procedures and training your staff—check out this blog post in full or this webinar. In the meantime, just remember that there are plenty of things you can do now to make claim denials a thing of the past.