Hayes' Healthcare Blog

Rejection or denial? Term confusion in the revenue cycle.

Posted by Wendy Loveland on January 31, 2012 at 10:45 AM

Sou Chon Young HayesBy Sou Chon Young
Many in the industry, including those with many years’ experience, use the term 'rejection' and 'denial' interchangeably. However, a rejection is very different from a denial, and the steps necessary to overturn a rejection versus a denial are different. Do you know the difference?

According to Centers for Medicare & Medicaid Services (CMS), claims that do not meet the basic format or data requirements are rejected. These claims do not make it into the adjudication system, are not considered as received and therefore will not be processed. As a result, rejected claims need to be resubmitted. Note that for rejected claims, beneficiaries cannot be held liable because the items and services were never properly billed.

In contrast, denied claims are claims that have been received by the payor's adjudication system. Therefore, denied claims cannot be resubmitted since payment determination has been made. Instead, denied claims are appealed based on payor-requested modifications, additional documentation, etc.

Term clarity assists revenue cycle improvement

Educating your staff and management on the differences between a rejected versus a denied claim will not only help expedite the appeal process but will also help clarify where improvements need to be made. For example, if your organization has a high-level of rejected claims, you would want to focus on your claim edits or scrubber to improve your clean claims rate. This effort would primarily involve the business office, IT and perhaps your vendor. On the other hand, an initiative to reduce denied claims may involve several functional areas, as you search to correct the root cause(s).

As an example, I was at an engagement in which the client was creating a denial management program. Their focus was on configuring the patient accounting system to accept the HIPAA claim adjustment reason codes (CARCs) and parse the claims out to different work queues based on the CARCs. Their objective was to reduce the denied/rejected claims. However, the system setup used CARCs to drive claims to work queues, which were denials and not rejections.

In lumping the two terms together, organizations may be overlooking a great opportunity to improve the revenue cycle.

I find this to be a common occurrence. In lumping the two terms together, organizations may be overlooking a great opportunity to improve the revenue cycle. In this case, we found that claims were getting rejected and coming back on an acknowledgment report, but no one was working the reports.  The staff member thought rejections and denials were the same and knew the “system” was set up to drive denials/rejections to work queues, so they didn’t pay any attention to the report. The rejected claim would appear later on an A/R staff member’s-work queue due to no activity. 

It was only then that they realized the claims were never received by the payor. This delayed the whole claims adjudication process. If the payor typically pays within 45 days from the claim reception date, but the claim had been sitting in the provider organization’s work queue for 20 days, the provider will now need to wait 65 days from the date the claim was originally billed to receive payment. This is best case scenario. In some cases, claims are not “caught” or “worked” in time and they hit timely filing issues, and lose the revenue associated with the claim.

Once the client realized that they needed separate workflows and processes for rejected and denied claims, they were on their way to improving the bottom line. When management and staff are on the same page and understand the difference between rejections and denials, the appropriate resources can be applied effectively. Plan some education for your A/R staff to make sure people are all on the same page as to the definitions of industry lingo!

Download "Six Ways to Reveal Revenue Cycle Opportunities"

Topics: claims denials, healthcare billing, revenue cycle

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