Automating denials management for lab reimbursement

April 21, 2021

The rate of claims denials at health systems and laboratories has been increasing, which means that managing denials is becoming an important part of an organization’s revenue cycle workflow.

The Change Healthcare 2020 Revenue Cycle Denials Index showed that the rate of denials for the healthcare industry increased steadily between 2017 and 2020, topping out at 11% of claims being denied in the third quarter of 2020. The analysis was based on more than 102 million claim remittances, reflecting more than $407 billion in total charges, processed by Change Healthcare between July 2019-June 2020 for 1,500 hospitals nationwide.1

Meanwhile, XIFIN, a vendor of revenue cycle management software, performed an analysis on its laboratory customers’ claims data to uncover trends in denials. It found that the percentage of claims denied varied by type of lab (such as clinical, molecular, hospital or pathology) and payer (such as Blue Cross Blue Shield or Medicare). For example, molecular labs faced the highest denial rates for in-network claims, ranging from slightly more than 20% for commercial payers to nearly 45% for Medicaid. For clinical labs, denial rates ranged from less than 5% for Medicare to 22.5% for workers’ compensation.2

Overall, XIFIN said denial rates averaged 15% for in-network claims and 30% for out-of-network claims.

Reasons for denials

XIFIN also analyzed the reasons for denials, finding that the most common reasons for denials are for tests deemed experimental, performed without prior authorization, medically unnecessary or not covered by an insurance plan.2

XIFIN’s analysts also have seen an increase in denials associated with what are known as Medically Unlikely Edits, which are coding rules developed by the Centers for Medicare & Medicaid Services (CMS) to determine the maximum number of units of service allowed for a given date and patient. “We’ve recently begun to see payers denying all units associated with a procedure code that exceeds the MUE limit, instead of only the subsequent units that exceed the limit,” said Clarisa Blattner, Senior Director, MDx Support Services at XIFIN.

Blattner said XIFIN also has seen an increase in denials for missing information (CO 16) and missing documentation (CO 252).

“Although, the claim itself may have a diagnosis code/ICD-10-CM code that supports medical necessity, some payers are performing post-payment audits, requesting medical records to confirm the ordering/treating physician has documented the patient’s diagnosis, clinical justification for requesting the test, how the test will impact clinical decision making, and the treatment plan,” Blattner said.

COVID-19 issues

Jim O’Neill, Business Development Manager for Laboratory Services at Advanced Data Systems Corporation, said denials have been particularly problematic for COVID-19 testing. However, this has been less of an issue in 2021 than it was in 2020. He most often sees claims denied because of missing or inaccurate information about insurance eligibility or diagnosis codes.

Suren Avunjian, Chief Executive Officer of LigoLab, said denials for COVID-19-related CPT codes often occur because of the fast pace of regulatory changes and updates about the use of add-on code U0005 for COVID-19 tests.

Effective January 1, 2021, CMS decreased its base payment rate for a high-throughput COVID-19 test from $100 to $75.

At the same time, it created add-on code U0005, which allows labs to bill Medicare an additional $25 for a molecular COVID-19 test run on high-throughput technology if two conditions are met:

A turnaround time of two calendar days from the time the specimen is collected.

The majority, which CMS defines as 51%, of high-throughput COVID-19 tests in the previous month also met the TAT requirement of two calendar days or less.3

Preventing denials

Whatever the reasons for denials, there are steps labs can take to both prevent them from happening in the first place or resolve them successfully when they do occur.

To prevent denials, which is the most cost-effective of the two options, labs should fix errors, before they submit claims to payers. “Clean claims are less likely to be rejected and more likely to be paid,” Avunjian explained. “Any reworking of claims, even if successful, drives up costs, reduces employee productivity, and negatively impacts the customer experience.”

Automating the steps in the revenue cycle process helps produce clean claims and fewer denials.

On the front end of the process, it is important to ensure that accurate information is gathered from patients. Avunjian suggests that labs consider using automated tools to verify patients’ address and insurance information, including eligibility verification.

Diana Richard, Director of the Anatomic Pathology Program at XIFIN, recommends that labs incorporate a direct interface with a service that specializes in prior authorization. “There are several very qualified vendors that offer this service, allowing laboratories to confirm prior authorization on the front end of the billing process; integrated, these services can establish an automated process for acquiring prior authorization numbers from the vendor electronically without requiring additional staff to manage.”

Avunjian also recommends that labs consider automation designed to predict possible denial of claims based on an analysis of a payer’s history. Specifically, labs should look for “billing patterns in rejections related to payer regulations and requirements,” he said.

O’Neill added that tight integration between a laboratory information system (LIS) and revenue cycle software also is important. “If the LIS is sending over the appropriate information, a quality RCM company or quality laboratory billing software product should be able to catch – using a rules-based system – any type of error coming through.”

O’Neill also said, “If there are any issues with regards to missing or invalid information, the billing company or RCM company should pick that up all almost immediately.” At that point, any missing or inaccurate information should be reported back to the lab and referring physician within 24 to 48 hours to be corrected.

Avunjian said, “LIS and RCM integration gives labs a head start on the billing cycle. Integrated RCM adds transparency and automation to the process that begins at order origination and before testing.”

Even with automation, labs still need to educate referring physicians about using the correct diagnosis codes and documenting the clinical indications for various tests in patients’ medical records.

O’Neill noted that it is better to have a conversation with referring physicians upfront about the type of information needed for a clean claim. “And the problem is most laboratories are not doing that these days, and they’re causing themselves a lot of issues with regards to accounts receivable building up.”

Appealing denials

But even if front-end staff follows the steps before sending a claim to a payer, some denials still occur.

Then it is time to rework the claims. As is the case on the front end of the revenue cycle, automation in the process of reworking denials also increases efficiency. “The less manpower that’s involved in correcting your claim and refiling a claim, the more profitable it is for the laboratory to get smaller claims paid,” O’Neill said.

XIFIN’s Blattner agrees. “Having an automated workflow and the ability to attach custom letters (driven by denial type, CPT code, and/or payer, and level 1, 2, and 3) to pathology reports, requisitions, clinical history and other key documents also increases your efficiency and likelihood of success.”

Level one appeals typically require a cover letter, pathology report, and requisition, Blattner said.

For level two and three appeals, payers often have registered nurses or other qualified individuals reviewing them. “But they’re likely not specialized in pathology coding and will follow AMA (American Medical Association) coding guidelines very closely. It’s critical to use terminology consistent with the guidelines to explain your purposes for justifying the services performed. This way, the individual reviewing your claims can assess it with the consistency of the information they’re referencing,” Blattner said.


  1. What’s driving your denials? Change Healthcare. Accessed April 5, 2021.
  2.  Richard D. The remaining 20%: the critical role denials play in lost revenue (Part 1). XIFIN. March 2021. Accessed April 5, 2021.
  3.  COVID-19 Frequently asked questions (FAQs)on Medicare fee-for-service (FFS) billing. Updated March 21, 2021. Centers for Medicare & Medicaid Services. Accessed April 6, 2021.