Medicare Advantage Denials Jump 56%, Commercial Denials 20%

Hospitals and health systems have seen a significant spike in claim denials as Medicare Advantage and commercial payers deny more of their reimbursement.

A new analysis of data from over 1,300 hospitals and health systems by Syntellis Performance Solutions and the American Hospital Association (AHA) found a nearly 56 percent increase in Medicare Advantage denials from January 2022 to July 2023.

During that period, commercial denials also increased for hospitals nationwide. Those denials rose by about 20 percent.

As a percentage of net patient service revenue, Medicare Advantage and commercial denials for the median hospital grew by approximately 63 percent and 20 percent, respectively.

The reductions in denial-related revenue come at a time of weakening cash reserves. Health systems had a median of 124 days cash on hand as of June 2023, according to the report, meaning median days cash on hand was down 28 percent since January 2022.

Overall unrestricted cash and investments also decreased by 6.5 percent for the median health system from January 2022 to July 2023.

Meanwhile, health systems saw operating expenses increase drastically across most categories over a 19-month period, including a nearly 90 percent increase in maintenance costs, a 35 percent increase in utility costs, and a 33 percent increase in professional fees costs. Total labor expenses also increased by 24 percent during the period.

Some expenses rose because of projects deferred during the COVID-19 pandemic, which resumed during the period. Workforce challenges also put pressure on hospital and health system expenses.

Additionally, the report found wide fluctuations in accounts receivable (A/R) from month to month as hospitals and health systems experienced more denials and delays in reimbursement.

Measured by every $1 million in net patient service revenue, A/R ranged from a low of $18,896 in May 2023 to a high of $33,598 just three months earlier. The A/R from Medicare Advantage payers for every $1 million in net patient service revenue fluctuated from a low of $15,289 in December 2022 to a high of $27,443 in June 2023.

The dollar amounts in A/R for every $1 million in net patient service revenue varied as much as $14,287 for commercial payers and $8,872 for Medicare Advantage payers from month to month, the report showed.

“Diminishing cash reserves mean these critical healthcare organizations are less equipped to navigate sudden market shifts and disruptions — which is especially concerning more than three years after the onset of a once-in-a-generation pandemic that underscored the need to prepare for any uncertainty,” the report stated.

Cash reserve reductions mean hospitals and health systems also impact a hospital’s ability to respond to sudden emergencies, like natural disasters, mass casualty events, and even another pandemic, the report added.

Payers may be denying more claims from hospitals and health systems as their organizations face greater Congressional scrutiny and lawsuits over claims management practices, such as using artificial intelligence to deny claims. Critics have alleged that these algorithms deny claims en masse without proper medical review, the report stated.