Appealing denied claims seems to work, GAO report says

A government review of the rates at which insurers decline to write policies and reject claims for payment found that when physicians and patients appealed denied claims, those appeals were "frequently" successful, with 39% to 59% resulting in a reversal.

The Government Accountability Office report, released March 16, also found that many health insurance claims denials stem from miscodings, incomplete information or other paperwork errors, pointing to the need for further automation of claims processing.

The report examined what the GAO called "application denials" -- declining to write a policy for someone -- as well as "coverage denials" -- deciding not to pay a claim. The Patient Protection and Affordable Care Act called on the GAO to examine both. The Dept. of Health and Human Services, which has started tracking application denials, plans to track and publish rates of coverage denials as part of the health insurance exchanges that will be part of the health reform law, according to the report.

Until HHS tracks application and coverage denials in a comprehensive way, there is limited information available about both. The GAO noted that the American Medical Association helped the authors interpret and understand the limitations of denial data available.

Rejected applications, denied claims

The GAO examined application denial data in the individual insurance market, collected by the HHS during the first quarter of 2010 and from six states that already track denials.

Researchers found that the rate at which insurers declined to offer an applicant coverage averaged 19%, but rates varied widely. The report's authors noted that there was a long list of reasons for that variability, and no one appears to be tracking the reasons cited for application denials.

It was difficult to gauge how rejected applications end up faring: Nobody seems to track whether rejected applicants ultimately find coverage through another company or whether an applicant is offered coverage at an affordable rate.

The rate at which insurers denied claims for payment also varied.

In California, for example, insurers rejected about 24% of claims in 2009, while Ohio reported an 11% denial rate the same year. The varying rates are in part due to how states define "denial." The GAO report noted that while one state would count an instance where a claim was found to be a patient's responsibility because a deductible had not been met as a denial, another state would not.

The AMA, which began releasing an annual report card on insurers' claims handling in 2008, found an average denial rate of 4% in claims data for major insurers from two months in 2010, according to the GAO report. The low rate may have been due to the source and timing of the AMA's sample -- the Association looked at only electronic claims, which would have a lower denial rate than paper claims. In addition, the data came from February and March, after most enrollees typically exhaust their deductibles and claims denials tend to drop.

Waiting for more reliable data

If the federal government can find a way to uniformly report denial rates, the information would be useful to patients who want to avoid out-of-pocket costs and doctors negotiating a health plan contract, said Susanne Madden, CEO of Nyack, N.Y.-based Verden Group. The company tracks insurance companies' policy changes, preauthorization requirements and other "hassle factors" for physicians.

"I think what physicians are beginning to wake up to now is considering what rates payers pay, but also what's the cost of doing business?" Madden said. "If [a company] pays good rates but has a 40% denial rate, the business proposition is eroded quickly."

She said some of the GAO's findings suggesting that physician offices' paperwork errors were to blame for many denied claims raise questions about insurers, too.

Despite the high reported success rate in appealing claims denials, Madden said, physicians should file appeals judiciously. It's not smart, she said, to spend $800 worth of physician and staff time on getting a $200 claim paid.

Appealing a single claim can cost more time and energy than it's worth. But she advised physicians and staff to look for patterns of denials and consider challenging denied claims in "batches" when denials appear to be related.

And, she said, physicians should consider getting the patient involved in appeals. "Insurance companies will often listen to customers more than vendors."

If denial data are made public, they should be reported uniformly and carefully so customers understand the limitations of the figures, said Robert Zirkelbach, spokesman for trade group America's Health Insurance Plans. He said his group will help HHS make that happen.

"I know that we've provided a lot of information commenting on these and shared a lot of information to make the process work better," he said.