In revenue cycle management, denied claim write-offs have a significant but often overlooked impact. These write-offs can lead to substantial losses for healthcare providers, affecting the financial stability of their practice in numerous ways.
Every write-off equates to some amount of unrecognized revenue. The more claims that go unresolved, the larger the losses for a provider — even beyond the amount submitted for reimbursement.
The financial impact of denied claims
Denied healthcare claims result in lost revenue. Put simply, providers don’t receive payment for services they’ve already rendered. This not only affects immediate cash flow but can also lead to a cascade of financial issues, including delayed reimbursements and increased administrative costs.
These denied claims play a crucial role in the financial instability experienced by healthcare providers. When a substantial portion of expected revenue is denied, it can result in:
- Cash flow challenges: Denied claims make it difficult for healthcare providers to meet their financial obligations. This includes paying staff, purchasing medical equipment, or maintaining facilities.
- Increased administrative costs: Handling denied claims requires additional administrative efforts. Staff must invest time and resources to rework and resubmit claims. In turn, this incurs extra overhead expenses.
- Delayed reimbursements: Resolving denied claims can be a lengthy process, resulting in delayed reimbursements. This can exacerbate financial strain, especially for smaller healthcare practices with limited reserves.
- Resource allocation: Healthcare providers may need to allocate resources and personnel to address the growing number of denied claims, diverting attention from patient care and other critical operations.
The impact of denied claims has a cumulative effect over time. Eventually, providers will face a cash flow crunch. As the financial strain intensifies, it will become more challenging to meet operational demands, invest in technology, or expand services.
The write-off dilemma
Healthcare providers face a financial challenge stemming from write-offs: unrecognized revenue due to denied claims. But other implications can creep into the picture beyond lost revenue, such as a misleading perception of financial performance.
A write-off is an acknowledgment a claim is unlikely to be paid and will be removed from accounts receivable. In accounting terms, this reduces the outstanding accounts receivable balance, making it appear as if the practice has collected a higher percentage of its billed charges. But these write-offs don’t reflect the financial reality. To combat this misperception, providers should prioritize transparent accounting, incremental revenue cycle management, and strategic denial management practices.
Working with an accounts receivable specialist, RCM expert, or practice efficiency expert can shine a spotlight on misleading financials. If your books are current but your cash flow is suffering due to mounting bad debt write-offs, it’s a clear call to action.
Overcoming denied claims
Healthcare organizations can take proactive steps to overcome claims challenges and optimize their revenue cycle management, including:
- Claims submission processes: Focus on streamlining and enhancing your claims submission procedures. This includes training staff, implementing automation to reduce manual errors, and double-checking claim information before submission.
- Coding and documentation accuracy: Use clinical documentation integrity (CDI) programs to ensure codes accurately reflect the services provided. Providers should offer ongoing education for medical coders to keep them updated on the latest coding guidelines and regulations. You should also conduct regular audits to detect and address areas of improvement.
- Claims management and revenue cycle optimization: Consider technological solutions to optimize your claims management and revenue cycle process. For example, claim-scrubbing software can recognize and rectify errors in claims before submission. RCM systems provide end-to-end visibility into the revenue cycle to help providers track claims, identify denials, and streamline workflows.
- Communication between providers and payers: Establish clear channels for communication with payers, including designated contacts for claims inquiries and appeals. Promptly follow up with payers on denied claims to request explanations, resolve issues, and determine the root causes of denials.
Avoid write-offs to improve revenue
Minimizing claim write-offs is a twofold process. It starts with proper screening, preauthorization, and charge capture. It ends with claims auditing, resubmission, and accounts receivable management. By prioritizing good revenue cycle management practices, healthcare providers can reduce the financial impact of a potential write-off at every stage — even before the claim is denied.
Learn more about how to avoid the impact of claim write-offs at trubridge.com.