Medicare Coverage Policies Can Result in Millions of Denied Claims

The share of denied claims in Medicare is largely attributable to laboratories, according to a study published in Health Affairs.

Researchers worked with Aetna and Medicare data to assess the number and cost of denied claims. The researchers used five years of claims from Medicare and from Aetna’s Medicare Advantage plan, which came from both the inpatient and outpatient settings.

With a total of more than 5.6 million denials over five years, the researchers estimated that there were 0.81 denials per beneficiary. In comparison to the overall pool of services, denied claims were fairly rare. Less than two percent of Aetna’s claims were denied (1.4 percent).

“Although denied spending was less than 1 percent of annual spending, this rate grew over time, and aggregate denied spending totaled hundreds of millions of dollars during 2014–19,” the researchers stated.

“Our findings provide initial evidence on the restrictiveness of government and private insurer medical necessity policies in Medicare, which led to payment denial for modest but nontrivial portions of medical services and spending.”

Altogether, these denials cost approximately $60 in denied spending per beneficiary, for a total of $416 million in denied claims. Denied spending made up 0.68 percent of the payer’s overall healthcare spending.

The researchers divided denied claims between claims that were denied based on overall Medicare rules and claims that were denied based on Aetna-specific Medicare Advantage policies. Every year from 2014 through 2019, Medicare coverage rules contributed more sizably to the number and cost of denied claims than the Medicare Advantage plan’s rules did.

The researchers warned that one limitation of this study was that outcomes in Aetna’s Medicare Advantage plan might not be broadly applicable to a wider swath of insurers. However, they added that Aetna’s Medicare Advantage policies around denying a claim were fairly generic.

The number of services and share of spending tied to denied claims fluctuated across all five years of the study, both under Medicare’s rules and Aetna’s rules. Medicare contributed 85 percent of the denied services, while Aetna’s Medicare Advantage plan contributed 15 percent of denied services. And Medicare accounted for 64 percent of denied spending, compared to Aetna’s 36 percent.

While the number of denied claims and share of spending on denied claims fluctuated, the researchers found that there was an overall upward trend. Denial rates rose 15 percent during the five-year timeframe and denied spending climbed 60 percent.

While denied spending rose overall, Medicare rules contributed less to denied spending over time.

Not only did the researchers assess trends in the share of denials and amount of denied spending, but also they identified some of the most common reasons for the denials. Claims that were submitted as experimental and investigative services were most likely to be denied. 

Under Aetna’s Medicare Advantage coverage rules, over six in ten denied services fell under one of these classifications. One in five denied claims were classified as services that did not have proven efficacy. These classifications also had the highest share of denied spending.

A little more than three-quarters of the overall Medicare denied claims involved laboratory services. Three in ten Medicare Advantage denied claims were for laboratory services. Out-of-network healthcare spending has proven to be particularly high for lab tests, with surprise billing being a fairly common occurrence for this sector.

Chemistry studies and chemotherapy were the service types with the highest denial rate for Medicare and Aetna’s Medicare Advantage plan, respectively.

When dissected by site of care, hospital outpatient departments had the highest rate of claim denials, followed by laboratories, and emergency departments.

Medicare is not even the area of the healthcare industry with the highest denial rate. In 2019, payers on the Affordable Care Act marketplace denied 17 percent of in-network claims.

Payers have come under fire for trying to implement coverage policies that may be more restrictive and could manufacture more financial barriers to care.