Billing Rejections vs. Claim Denials

1. Overview

In medical billing, a claim that is not paid is often categorized loosely as "denied," but there is a critical technical difference between a Rejection and a Denial. Understanding this distinction is vital for the revenue cycle because the workflows to resolve them are completely different.

• Rejection: The claim never entered the payer’s adjudication system.
• Denial: The claim entered the system, was processed, and was deemed unpayable.

2. At a Glance: The Key Differences

3. Deep Dive: Claim Rejections

What is it?
A rejection is a claim that fails to meet specific data formatting standards (EDI standards) required by the Health Insurance Portability and Accountability Act (HIPAA). It is essentially "returned to sender" because of a clerical error. The insurance company has no record of this claim on file yet.

Common Reasons for Rejection:

• Transposed numbers in the Patient ID.
• Missing or invalid diagnosis code (ICD-10).
• Mismatch between patient name and date of birth.
• Invalid NPI or Tax ID number.

How to Handle a Rejection:

1. Review the Clearinghouse Report: Look at the error message provided by the clearinghouse. It is usually specific (e.g., "Entity's Postal Code is missing").
2. Correct the Data: Open the claim in your Practice Management (PM) system and fix the clerical error.
3. Resubmit Immediately: You do not need to write an appeal. Simply resubmit the claim electronically.
4. Verify Acceptance: Check back within 24 hours to ensure the claim passed the clearinghouse and was accepted by the payer.

4. Deep Dive: Claim Denials

What is it?
A denial means the insurance company received the claim, looked at the medical services provided, and decided they will not pay for it. This generates an Explanation of Benefits (EOB) or Electronic Remittance Advice (ERA).

Types of Denials:

• Soft Denial: The claim is denied pending additional information (e.g., medical records or an invoice).
• Hard Denial: The payer has determined they are not liable for payment (e.g., service not covered).

Common Reasons for Denial:

• Prior Authorization: Service required pre-approval which was not obtained.
• Medical Necessity: The diagnosis code does not support the procedure code.
• Timely Filing: The claim was submitted after the insurance company's deadline.
• Duplicate Claim: The system believes this service was already paid.

How to Handle a Denial:

1. Analyze the CARC Codes: Look at the Claim Adjustment Reason Codes (CARC) on the ERA/EOB to understand exactly why it was denied.
2. Route to Specialist: Determine if this is a coding issue (send to coder) or a front-office issue (eligibility).
3. Correct or Appeal:
   • If it was a mistake: Correct the claim and submit a Corrected Claim (Frequency Code 7).
   • If the payer is wrong: Prepare an Appeal Letter. Attach supporting medical records and proof of medical necessity.
4. Follow Up: Denials often have a specific window for appeal (e.g., 90 days). Track the appeal status weekly.

5. Prevention Checklist

To minimize both rejections and denials, ensure the following steps are taken at patient intake:

• Verify Eligibility: Check insurance coverage before every visit.
• Copy Cards: Scan the front and back of the current insurance card.
• Scrub Claims: Ensure your billing software has an active "claim scrubber" to catch typos before submission.
• Check Auth: Verify if the specific procedure requires Prior Authorization.