Providers 'wasted' $10.6B in 2022 overturning claims denials, survey finds

By Dave Muoio / March 22, 2024

More than 100 provider organizations want the Centers for Medicare & Medicaid Services (CMS) to take a tougher stance on Medicare Advantage (MA) plans’ practices following an industry survey estimating billions per year are spent fighting claims denials.

Providers spent nearly $20 billion in 2022 pursuing delays and denials across all payer types, yet those efforts are substantially more costly on average when dealing with private plans, Premier, a group purchasing organization, wrote in a recent blog post on the new data.

Just over half of the total comes from denied claims that are eventually paid out, meaning that about $10.6 billion is “wasted arguing over claims that should have been paid at the time of submission,” Premier wrote.

Premier reached its totals after polling 516 acute care hospitals about their 2022 claims and finding nearly 15% of all claims submitted to private payers for reimbursement are initially denied, according to Premier. An average of 3.2% of all claims denied included those that were preapproved via the prior authorization process.

Specifically, 15.7% of MA claims and 13.9% of commercial claims were initially denied, as were 15.1% of Managed Medicaid (which also includes non-private plans) claims. Medicaid claims were most frequently received an initial denial (16.7%), while Medicare claims were least frequent (8.4%), Premier found.

Extrapolating the 15% overall rate to the roughly 3 billion claims processed nationwide each year suggests that an estimated 450 million claims per year were subjected to denials, Premier wrote. Among these, 54.3% were later overturned, though “many others may have been ultimately paid but were not fully pursued for payment due to issues such as resource constraints,” the organization wrote.

The surveyed hospitals and health systems reported spending an average of $43.84 per claim. The costs heavily weighted toward private payers—the average administrative cost to pursue per claim was $0.79 for Medicare but rose to $47.77 per claim for MA and $63.76 per claim for commercial, per Premier.  

“Importantly, this figure does not include the costs associated with added clinical labor, which the American Medical Association estimates adds $13.29 to the adjudication cost per claim for a general inpatient stay and $51.20 to the cost of inpatient surgery,” the group wrote.

Applying the average costs to the total claims estimates places providers’ collective administrative spending on pursing claims delays and denials at $19.7 billion for 2022. The total estimated provider spend for 2022 claims that were later paid out was $10.6 billion.  

Premier’s report also pointed to the “indirect costs” of delayed payments. Survey respondents said it took an average of three rounds of reviews with insurers to go from denial to eventual payment. With each round typically ranging from 45 to 60 days, Premier said that means providers “often” aren’t able to recoup costs for as many as six months after delivering care.

“This continued burden has a tremendous impact on hospitals' financial viability,” Premier wrote in the post. “Over the past year, the average days of cash on hand for hospitals and health systems declined by 44 days over the previous year, on average—a 17% drop year over year. Lacking cash on hand, health systems are unable to re-invest in patient care and may also suffer from downgrades in bond ratings, making cash more expensive and harder to obtain.”

Delayed approvals can have a direct impact on patient care, the group noted. Hospital discharges to post-acute care settings—which were particularly high among MA (20.1%), Managed Medicaid (15.8%) and commercial (11.1%) claims—can lengthen patient hospital stays and increase the risk of hospital-associated conditions.

“Moreover, payer denials have downstream effects on care availability, as patients requiring a hospital admission may not have access to a bed until other patients are approved for discharge to the [skilled nursing facility] setting of care,” Premier wrote.

Providers push CMS to hold MA plans accountable

 The findings of Premier’s survey were the cornerstone of a Thursday letter sent by the organization and 118 of its partnered providers to CMS Administrator Chiquita Brooks-LaSure. Among the cosigners were some of the country’s largest health systems, including CommonSpirit Health, Ascension, AdventHealth and Providence.

In it, the organizations commended CMS for its recent policy moves around MA plans’ transparency, prior authorization requirements and beneficiary access and called for the agency to “expeditiously” enforce those changes.

But “while these efforts will go a long way in strengthening the MA program,” the agency also needs to consider the overturned claims denials and average costs outlined in the survey and consider several policy levers that would help beneficiaries and providers alike, they wrote.

Chief among the suggestions were stricter monitoring of MA plans’ direct patient care expenditure reporting and an ask that CMS begin collecting its own data on MA plans’ pay delays and denials, which they said will help the agency spot and enforce potential violations of program expectations.

The providers also urged CMS to hold plans to account when their delayed payments impact patient experience—and, subsequently, quality metrics that can have financial repercussions for healthcare organizations. To do so, CMS should reconsider a previous policy in its Star Ratings program methodology where these measures were weighed more heavily on MA plan scores, “empowering beneficiaries to hold their health plans financially accountable” for unnecessary delays, they wrote.