How to Handle Denials in Medical Billing - Resolve Claims Faster

To handle denials effectively, healthcare providers should first identify why a claim was denied by reviewing the denial codes. Next, correct any errors like missing information, coding mistakes, or authorization issues. Resubmit corrected claims quickly to avoid timely filing limits. It’s also important to track common denial trends, provide regular training to front desk and billing staff, and use billing software to reduce manual errors. Proactively following up with payers and appealing wrongly denied claims can also boost collections. A clear denial management process helps practices recover lost revenue and keeps their cash flow steady.

Dr. Emily Carter ran a small but thriving dermatology clinic in Ohio. Her mornings were filled with back-to-back patient consultations. But by evening, she found herself frustrated—not by patient care, but by the mountain of denied insurance claims sitting on her desk. Despite having a competent front desk staff and an EHR system in place, her cash flow was slowing down, and the reason was simple: claim denials.

Dr. Carter’s story is not unique. According to the American Medical Association (AMA), the average claim denial rate for healthcare practices in the U.S. can range from 5% to 10% of claims submitted, with some specialties seeing even higher rates (AMA National Health Insurer Report Card). Left unaddressed, these denials can cost a practice thousands of dollars each month.

If you’re a healthcare provider or billing specialist struggling with denials, this guide will take you step-by-step through understanding, preventing, and effectively handling them.

What Are Claim Denials in Medical Billing?

In simple terms, a claim denial occurs when an insurance company refuses to pay for medical services rendered. These denials fall into two main categories:

• Soft Denials – Temporary denials that can be corrected and resubmitted (e.g., missing information).
• Hard Denials – Permanent denials that cannot be reversed (e.g., non-covered services).

Understanding the type of denial is crucial because up to 90% of claim denials are preventable and 67% are recoverable, according to a Healthcare Financial Management Association (HFMA) study (HFMA Source).

Top Reasons for Denials as Per Industry Data

To fix denials, you first need to know where the problem lies. Here are the most common reasons for denials and their prevalence:

Denial Reason	Percentage of Total Denials
Prior Authorization Issues	18% (MGMA 2023 Survey)
Eligibility Issues	17%
Incorrect Patient Information	14%
Medical Necessity	11%
Coding Errors	10%
Late Filing	7%
Non-Covered Services	6%
Duplicate Claims	4%

(Source: Medical Group Management Association, 2023)

1. Incomplete or Incorrect Patient Information

Something as simple as a misspelled name, an incorrect date of birth, or a wrong insurance ID can cause a claim to be denied. Insurance systems rely on exact matches to process claims, and even small discrepancies can trigger an error. These mistakes often occur during patient registration or when information is copied from outdated records. In many cases, incorrect demographic details mean the insurer cannot confirm the patient’s coverage, leading to an immediate denial.

2. Missing or Incorrect Medical Codes

Medical billing depends on accurate CPT, HCPCS, and ICD-10 codes to describe the service performed and the diagnosis that justifies it. If a wrong code is entered, if a necessary modifier is missing, or if the code is outdated, the payer’s system may reject the claim. These errors often occur when coding from incomplete documentation or when updates to coding guidelines are not applied. A mismatch between the diagnosis and procedure codes can also result in denials because it signals a lack of medical necessity to the insurer.

3. Lack of Prior Authorization

Certain services, such as surgeries, high-cost diagnostic tests, or specialty medications, require prior approval from the insurance company before they can be performed. Without this authorization, the insurer may automatically deny the claim, regardless of the patient’s medical need. Prior authorization is meant to confirm that the service is covered and appropriate, but failing to obtain it or submitting it incorrectly often leads to payment loss.

4. Services Not Covered by the Patient’s Plan

Every insurance plan has specific inclusions and exclusions. If a service falls outside the patient’s covered benefits, the insurer will deny the claim. This often happens with experimental treatments, certain elective procedures, or services received out of network. Even medically necessary services can be denied if they are not part of the plan’s benefits, leaving the patient responsible for the full cost.

5. Duplicate Claims

When the same claim is submitted more than once without proper justification, it is flagged as a duplicate and denied. This can happen due to miscommunication within the billing team, system errors, or when a claim is resubmitted because of a perceived non-response while the original is still processing. Duplicate claim denials are common in high-volume practices without effective claim tracking systems.

6. Incorrect Place of Service (POS) Codes

The Place of Service code tells the insurer where the patient was treated — such as a hospital, outpatient clinic, or via telehealth. If this code is incorrect or inconsistent with the procedure code, the insurer may deny the claim. For example, using an office POS code for a service performed in a hospital setting can create discrepancies that trigger a denial.

How to Handle Denials in Medical Billing: The Process

Denials are a reality in medical billing. Even the most accurate claims can be rejected due to payer rules, technical issues, or policy limitations. The real challenge isn’t avoiding denials entirely — it’s managing them effectively to recover revenue and prevent repeat issues.

A well-structured denial management process ensures faster resolution, reduces administrative workload, and strengthens the revenue cycle.

Step 1: Identify and Classify the Denial

The first step is to pinpoint exactly why the claim was denied. The insurance company will list the denial reason in the Explanation of Benefits (EOB) or Electronic Remittance Advice (ERA) using specific denial codes.

Common denial classifications include:

• Technical Denials – caused by incorrect demographic data, missing information, or formatting errors.
• Clinical Denials – due to insufficient documentation, mismatch between diagnosis and procedure codes, or lack of medical necessity.
• Administrative Denials – caused by policy exclusions, services not covered, or missing prior authorization.

Example: If the ERA shows a denial code CO-16 ("Claim lacks information"), it means the required details are missing. Classifying this correctly as a technical denial will help you focus on fixing data entry or submission issues.

Step 2: Review the Original Claim and Supporting Documents

Once classified, revisit the original claim and compare it against the insurer’s denial explanation. Look for:

• Patient Demographics: Spelling errors, wrong date of birth, or mismatched insurance ID.
• Insurance Information: Outdated policy details, inactive coverage, or incorrect payer ID.
• Coding Accuracy: CPT, HCPCS, and ICD-10 codes must match the service provided and support medical necessity.
• Prior Authorization: Must be obtained, valid, and linked to the correct service date.
• Service Location: Place of Service (POS) codes must accurately reflect where care was provided.

Example: If the denial states “invalid CPT code,” it could mean the code was retired, entered incorrectly, or mismatched with the diagnosis code provided.

Step 3: Pinpoint and Correct the Error

Once you’ve identified the root cause, fix it with complete accuracy. This may involve:

• Correcting a typo in patient information.
• Replacing outdated codes with current ones.
• Adding modifiers where required for payment (e.g., modifier 59 for a distinct procedural service).
• Uploading missing chart notes, operative reports, or lab results.

Example: If a claim for an MRI is denied due to “lack of documentation,” include the physician’s order and imaging report when resubmitting.

Step 4: File an Appeal if the Denial is Unjustified

If the denial is based on disagreement about medical necessity, policy interpretation, or coverage, you may need to appeal.

An effective appeal includes:

• A clear appeal letter explaining why the service should be covered.
• Supporting clinical documentation such as progress notes, test results, and medical guidelines.
• References to payer policies or clinical standards supporting the service.

Example: If a patient’s sleep study is denied as “not medically necessary,” you could submit documentation showing symptoms, prior failed treatments, and sleep physician recommendations.

Step 5: Resubmit the Corrected Claim Promptly

Once corrections or appeals are prepared, resubmit the claim following the payer’s guidelines. Use electronic submission when possible for faster processing. Always double-check that all supporting documents are attached before resending.

Example: If the payer’s timely filing limit is 90 days, ensure your resubmission is well before that deadline to avoid automatic denial for lateness.

Step 6: Track Claim Status and Follow Up

After resubmission, monitor claim progress through the payer portal or clearinghouse. If there’s no update within the payer’s typical processing window, follow up directly with the insurance company to confirm receipt and review status.

Example: If an insurer typically processes claims in 14 days but you haven’t received an update in 21 days, contact their provider services to check if the claim is pending, paid, or requires additional documentation.

Step 7: Analyze Denial Trends and Implement Preventive Measures

Tracking denials over time helps identify recurring issues. For example:

• Multiple denials for “invalid CPT code” might point to outdated coding resources.
• Frequent “no prior authorization” denials may mean staff need better pre-service checks.

Once patterns are identified, take actions such as staff training, better eligibility verification processes, or upgrading billing software.

Conclusion

Let’s go back to Dr. Carter’s story. After she took time to check her billing process, set up a clear system to handle denials, and trained her team, things got much better. Her clinic dropped its denial rate from 12% to just 4% in six months. In just one year, they recovered more than $70,000 that would have been lost before.

Denials will always happen, but they don’t have to hurt your business. If you track denials, train your team regularly, use good billing tools, and talk to insurance companies often, you can stop losing money. Many clinics also choose to work with a trusted medical billing company that handles these problems for them, making sure they get paid faster and with less stress.