Claim Denial vs. Rejection: What’s the Difference?

Claim Denial

Claim denial happens after the claim has undergone processing and adjudication. Once the claim is accepted by the payer, it is thoroughly reviewed to match the patient’s benefits and the payer’s medical policies. If any discrepancies are found during this review, the claim may be denied. Denials can occur due to various reasons, including lack of coverage for the specific service provided, inaccurate coding or documentation, or exceeding policy limits.

Claim denial can have significant financial consequences for healthcare providers. A denied claim means that you will not receive payment for the services rendered, which can impact your revenue and cash flow. Moreover, denied claims often require additional resources and time to resolve the issues and resubmit the claim for reconsideration.

Claim Rejection

Claim rejection, on the other hand, occurs when a claim is rejected either at the clearinghouse level or by the payer. Clearinghouse rejection happens when your clearinghouse identifies errors or discrepancies in the claim data that need to be addressed before the claim can proceed for adjudication. These errors can range from simple formatting issues, such as an incorrect date of birth, to the presence of special characters in the wrong fields.

Clearinghouses often have scrubbers in place to ensure the claims they process are accurate and meet the payer’s requirements. By utilizing a clearinghouse, you can benefit from their scrubbing capabilities, which help catch errors and potential issues before the claim reaches the payer. This can significantly reduce the likelihood of claim rejection.

Payer rejection occurs when the claim has successfully passed through the clearinghouse and reaches the payer for adjudication. At this stage, the payer reviews the claim in detail, ensuring that it meets all the necessary criteria for processing. If the claim lacks required information or violates the payer’s guidelines, it may be rejected.

There are some key differences between claim denials and rejections:

• Evaluation Status: A denial means the claim was fully evaluated and payment was denied based on the policy. A rejection means the claim could not be processed as-is due to problems that make evaluation impossible.
• Completeness: Denied claims are complete and finalized claims. Rejected claims are considered incomplete claims.
• Follow-Up: Denials require appeal processes to contest the insurer’s decision. Rejections require resubmission of corrected claims with missing or clarifying information.
• Revenue Impact: Denials lead to uncompensated care costs when appeals are exhausted. Rejections mean delays in payment until the claim can be re-submitted properly.

Below, some of the key differences:

Denial vs Rejection Key Differences

• Denial Rejection
• Claim was fully evaluated
• Claim could not be evaluated
• Claim was complete
• Claim was incomplete
• Requires appeal process
• Requires resubmission
• Leads to uncompensated care costs
• Leads to payment delays

Reasons for Claim Denials

There are a wide variety of reasons an insurance company may deny a claim after reviewing it.

Some of the most common denial reasons include:

• Not medically necessary: The care was deemed not medically necessary for diagnosis or treatment.
• Limited benefits exhausted: Benefits for a particular service were capped and the cap has been reached.
• Policy excludes coverage: The policy has specific exclusions or limitations that apply.
• Prior authorization not obtained: Medical procedures that require prior approval were not submitted or approved in advance.
• Non-covered services: Specific billing codes or services are excluded or not covered under the particular health plan.
• Out of network provider: The provider performing the services is not part of the insurer’s contracted network.
• Termination of coverage: The patient was not enrolled in the health plan on the date when services were rendered.

There are strict requirements governing claim denials that insurance companies must follow. Denials must be communicated to the provider along with clear, detailed explanations justifying the reasons for denying payment.

Reasons for Claim Rejections

There are also a number of reasons an insurer may not be able to process a claim and have to reject it instead.

Some common reasons for claim rejections include:

• Information missing or invalid: Required information is missing, such as the patient name, date of birth, insurer member ID, etc. or information provided is invalid.
• Errors or incorrect codes: Information on the claim contains inadvertent errors, typos, or incorrect billing codes.
• Unreadable claim: The submitted claim is illegible or too unclear to process properly.
• Duplicate claim: The exact claim was already submitted and processed.
• Coordination of benefits issues: The order of insurers responsible for payment is unclear.
• Untimely claim: The claim was submitted after the filing deadline has passed.
• Invalid format: The claim was not submitted in the proper format required by that payer.

Unlike denials, rejections do not require detailed explanations, but providers will need to follow-up to obtain and submit the correct information to get the claims paid.

Follow-Up for Denials

For denied claims, providers must carefully review the reasons for denial and file appeals contesting the denial where appropriate.

Key steps include:

• Evaluating denial reasons: The provider reviews the explanation of benefits and determination letters to fully understand the insurer’s exact reasons for denying payment.
• Checking for errors: The provider double checks that the denied claims do not have incorrect billing codes, unauthorized providers, or other errors causing wrongful denial.
• Submitting appeals: For wrongful denials, providers appeal and provide clarifying documentation and rationale for why the claims should be paid.
• Offering patient discounts: Providers may end up discounting fees for patients if appeals are exhausted and payment remains denied.

Follow-Up for Rejections

The follow-up process for rejections involves identifying the issues that prevented claim processing and taking steps to address them.

Key steps include:

• Identifying gaps: The provider reviews the rejected claims and insurer notification to pinpoint missing or problematic information.
• Correcting errors: For claims rejected due to errors and inaccurate codes, the correct information has to be determined and rectified.
• Gathering information: Any missing documents, forms, clinical records, or supplementary claims data must be properly gathered.
• Resubmitting claims: Once identified issues have been addressed, the claim can be resubmitted to the insurer for re-processing.

Following up appropriately on both denials and rejections at the outset prevents future payment issues and ensures accurate reimbursement for services.

Here are some strategies to consider:

1. Ensure Accurate Documentation: Proper and accurate documentation is essential for successful claims processing. Thoroughly document patient encounters, procedures performed, and any relevant medical information. Clear and detailed documentation helps prevent errors and increases the chances of claim acceptance.
2. Stay Up-to-Date with Coding and Billing Guidelines: Medical coding and billing guidelines are subject to constant updates. It is crucial to stay informed about the latest coding changes and billing regulations to ensure compliance. Regular training and education for coding and billing staff can help minimize coding errors and reduce the risk of claim rejection or denial.
3. Implement Claims Scrubbing Software: Utilize claims scrubbing software or services to proactively identify errors or discrepancies in claims before submission. Claims scrubbers perform comprehensive checks on claim data, including coding accuracy, formatting errors, missing information, and other potential issues. By catching these errors early, you can rectify them before submission and increase the chances of claim acceptance.
4. Conduct Regular Claims Audits: Periodically conduct internal claims audits to identify patterns of rejection or denial. Analyzing the reasons behind these rejections or denials can help you identify areas for improvement. It enables you to address any recurring issues and implement necessary changes to optimize claims processing.
5. Establish Clear Communication Channels: Maintain open lines of communication with payers to clarify any ambiguities in their guidelines or requirements. Promptly address any claim rejections or denials by reaching out to the payer for clarification or additional information. Timely communication can help resolve issues more efficiently and increase the chances of successful claim resolution.
   

Helpful proactive denial and rejection prevention tips include:

1. Verifying eligibility and coverage for each patient before rendering services to confirm benefits.
2. Obtaining proper authorizations and pre-certifications for procedures when required.
3. Ensuring proper coding and billing protocols are followed.
4. Having processes to validate completeness and accuracy of claim information.
5. Confirming services are performed by in-network providers.
6. Submitting claims promptly within prescribed filing deadlines.
7. Keeping detailed records related to claims in the event clarification is needed.
8. Setting up denial management tracking and analysis procedures.
9. Conducting thorough audits and quality assurance checks on claims.
10. Appealing denials aggressively and correcting errors that caused invalid rejections.
11. Following up rejected claims immediately upon notice and resubmitting quickly.
12. Providing patient billing discounts in cases where insurer payment issues are not resolvable.
13. Having designated denial management staff and targeted training programs.