How to Calculate the Denial Rate
The denial rate is a critical Key Performance Indicator (KPI) in medical billing and Revenue Cycle Management (RCM). It measures the percentage of claims that are rejected by payers out of the total number of claims submitted within a specific period. Understanding this metric is essential for maintaining the financial health of a healthcare practice.
The Denial Rate Formula
To calculate the denial rate, you need two primary figures from your practice management system: the total number of claims submitted and the total number of claims that returned with a denied status.
Example Calculation:
If a medical practice submits 1,200 claims in a month and 60 of them are denied by the insurance payers:
- Step 1: Divide 60 (denied) by 1,200 (total) = 0.05
- Step 2: Multiply by 100 to get the percentage = 5%
Industry Benchmarks: What is a Good Denial Rate?
While benchmarks can vary by specialty, the general consensus in the healthcare industry is:
- Best Practice (Healthy): Less than 5%
- Warning Zone: 5% to 10%
- Critical (Action Required): Greater than 10%
If your denial rate exceeds 10%, it indicates significant inefficiencies in your billing process, coding accuracy, or eligibility verification procedures.
Volume vs. Dollar Denial Rate
Most practices track the metric by volume (count of claims), as shown in the primary formula. However, it is also beneficial to track the Dollar Denial Rate to understand the financial impact.
Dollar Denial Rate = (Total Value of Denied Claims / Total Value of Submitted Claims) × 100
Calculating both helps you understand if you are losing high-value claims even if your volume denial rate remains low.
Strategies to Lower Your Denial Rate
Reducing denials requires a proactive approach to revenue cycle management:
- Improve Eligibility Verification: Ensure patient insurance coverage is active and benefits are verified before services are rendered.
- Automate Coding: Use scrubbing software to detect coding errors before submission.
- Timely Filing: Adhere strictly to payer filing deadlines.
- Analyze Trends: Regularly review denial reason codes (CARCs) to identify patterns, such as specific payers or procedures that trigger denials.