Denial Rate -- Metric Definition

This section outlines a definition for the claims metric denial rate.

Denial Rate is one of the most charged terms in claims. A significant portion of the dynamic between payers and providers revolves around claim denials. Having a clear understanding of what they are is critical to managing a payer/provider relationship.

Key Terms. There are a number of terms which make it easier to critical to the Denial Rate definition.

1. Total Allowed On Denied Lines. The numerator of our Denial Rate metric is the Total Allowed on Denied Lines -- which is typically the Denied Amount. Some claims systems set a distinct denied or not covered amount (in which case -- use that field).
2. Total Allowed Amount. The denominator of our Denial Rate metric is the Total Allowed Amount. A common Denial Rate mistake is to use Total Paid, which overstates the Denial Rate (see notes below).
3. Exclusions. Common Denial Rate exclusions include adjusted claims.

Frequency. The Denial Rate is not a daily operational metric. In general, a payer should monitor the Denial Rate each week. A comprehensive denial picture includes the weekly Denial Rate for the whole plan, the Denial Rates for each line of business, the top 25 providers, and the top 25 self-funded employers.

Operational Uses. The denial rate is not a metric used to manage daily production (as noted above in the frequency section). It is used on a periodic basis (weekly/monthly/quarterly) to manage:

1. Denial Rate for a Provider. The Denial Rate is a provider metric. A very common operational use of the denial rate is to report it for individual providers, particular large hospital systems -- which tend to be more aggressive about managing claims payment. It also often helps to report the top 5 or 10 denial reasons with the denial rate -- which helps to answer the question of what exactly is being denied for a particular provider.
2. Denial Rate for a Line of Business(LOB). Certain lines of business may be characterized by denial patterns that are important to track. For example, for HMO lines of business that require authorizations/referrals it can be helpful to track the denial rate and top 10 denial reasons to make sure that members and providers are correctly submitting and using authorizations/referrals. Other lines, such as Medicare Secondary, which require a EOB also benefit by tracking denials.
3. Denial Rate for an ASO/Self-Funded Employer. Tracking denials and denial reasons for self funded employers is helpful in managing their expectations around payout. It also enables them to manage member related issues (missing auths, eligibility,...). .

Issues, Notes and Challenges. As a metric the Denial Rate also has a number of notes and issues.

1. Why use Allowed Amount? It is not uncommon to see payers express the Denial Rate as Total Denied over Total Paid. This overstates the Denial Rate. The total allowed is used because it reflect the total amount a payer would have paid. In simplest terms, the denial rate is what a payer denies out of what a payer could have paid -- not out of what they actually paid.
2. Denied Lines versus Denied Dollars. In a nutshell, denied lines by themselves, don't mean anything. Denied dollars do. Expressing the denial rate as a percent of dollars ties it to something (dollars) directly relevant to payers and providers. Measuring denied lines can sometimes be helpful to catch adjudication/system/configuration issues, but it is usually not the best measure of the Denial Rate.
3. Denied Lines versus Denied Claims. The fundamental level of adjudication in for any claim is the claim line -- NOT the claim. Each line of the claim faces an adjudication decision. You will read in this definition and elsewhere about 'denied claims'. Indeed, some claims do have all of their respective lines denied -- and hence are denied claims. This is not always true. Counting Denied Lines is generally straightforward. Counting denied claims can be quite tricky. Always be careful when using the term 'denied claims' to bear in mind that ultimately denials happen at the individual line level.
4. Duplicate Lines. Duplicate claim lines inflate a denial rate. A provider, for example, could submit all of their outstanding patient accounts at the end of a particular month. This would likely result in an increase in duplicate claims and hence an increase in the denial rate. A key reason to report the top 5 or 10 Denial Reasons along side the Denial Rate is to eyeball the amount of duplicate claim denials.
5. Adjusted Lines. For many payers, claims adjustments are a world onto themselves. Generally speaking between 2 and 5 percent of claims are adjusted. Because of the exception related (and often strange) things that happen to adjustments it is better to exclude them from the Denial Rate definion.
6. Information Request Related Denials. Claims are often 'returned' to providers in order to request additional information ('develop the claim' in CMS terminology). For example, depending upon a particular payers interpretation of CMS terminology, claims submitted without and EOB, but requiring one, are not 'denied' but are 'returned'. For simplicity's sake, any payable claims a payer returns to a provider without a payment should be tagged as a denied claim.
7. Manual Denials versus System Denials. How the claim wasdenied can be important in assessing and reporting the denial. Specifically, claims are either 'auto' denied by the system or denied by a person during claim review. There are two possible issues in this regard. First, as a general rule, people want to 'pay' claims. On balance it is more common for a person to pay something that should be denied that to deny something that should be paid. This raises and audit flag and opportunity -- it is generally a good idea to periodically audit manually denied claims. At the same time, the 'auto' denied claims -- those denied automatically by the claims system -- because their denial is subject to whether they were configured correctly.

Attributions.

1. Sources. This metric was developed during the fifteen years of association with health plans.
2. Update History. This definition was last updated January 15th, 2007.