Overcoming Payer Denials in the Midwest: How Three Large Midwest Health Systems Reclaimed $66 Million Annually

The Challenge: Three large health systems in the Midwest were trapped in a counterproductive cycle. Efforts to minimize payer denials by adopting payer criteria, selectively appealing cases, and prioritizing A/R days led to an unsustainable financial situation. Nearly half of all long-stay patients were reimbursed as outpatient stays due to attempts to remove friction in the authorization and denials process. This approach significantly reduced reimbursement rates without offering a clear resolution, creating a critical need for change.

Strategic Approach: Recognizing the unsustainable trajectory, each health system embarked on a journey to reclaim the patient status decision-making process, despite the risk of increased denials. A key move was to form a steering committee encompassing finance, compliance, IT/Analytics, revenue cycle, and clinical leadership. This committee was charged with agreeing on a new approach and understanding its implications.

The three large Midwest Health systems decided to resist payer influence by establishing strategies that accepted payer friction as a necessary dynamic to enhance reimbursement. This shift was underpinned by:

• Collaboration among corporate leadership across finance, clinical, and compliance sectors.
• Partnering with local leaders to foster change and adopt system-wide consistency.
• Establishing benchmarks, targets, and KPIs to gauge the initiative’s impact.

Results: The bold stance against payer influence led to remarkable outcomes:

• An aggregate improvement to expected revenue of $66M, per year.
• OBS rates on long-stay cases were dramatically reduced from 25-40% to 5-15% across the three health systems.
• Enhanced discussions with payers led to improved contractual terms, yielding higher payments and reduced process friction.

Highlighting one of these large Health Systems in the Midwest exemplified the success of this proactive strategy by increasing initial inpatient statusing to 88% for patients staying over 2 midnights, and, even with aggressive denial tactics from payers, maintained a 62% inpatient payment rate before appeals. With a robust appeals process, it achieved a 72% inpatient payment rate, significantly boosting their financial health by $26M across Medicare Advantage and traditional Medicare.

Conclusion: The Three Large Midwest health systems’ journey underscores the importance of embracing payer friction to safeguard and enhance financial performance. By aligning leadership priorities across corporate and local levels and resisting the inclination to comply passively with payer guidelines, these systems improved their financial outcomes and initiated meaningful conversations with payers, setting a precedent for sustainability and accountability in the face of evolving challenges.