Healthcare Claim Denials: How to Avoid Common Medical Coding Errors

By AGS Health

May 11, 2022

On June 10, 2021, one of the biggest U.S. health insurers announced a new policy that would deny as many as 1 in 10 emergency room claims. The policy was an attempt to curb healthcare costs and was met with resistance from hospitals, healthcare institutions, and medical societies, causing the insurer to delay it.

The policy was not the first of its kind. In 2018, a series of ER policies impacted the reimbursement of low- and high-acuity cases. In recent years, there have been increases in the number of denied Evaluation and Management (E/M) coding-related claims and frustrations among providers who are overburdened with documentation requirements. And while stringent policies have played their part in it, they are not the sole reason for the increase in denied claims.

Claim Denial Causes

Claim denials due to coding errors represent a major portion of lost revenue for hospitals and healthcare systems. According to The Change Healthcare 2020 Revenue Cycle Denials Index, the average denials rate is up 23% since 2016, topping 11.1% of claims denied upon initial submission through Q3 2020.

Each year, claims denied because of coding errors result in the loss of about $20 billion in the U.S. Lost or delayed reimbursements are just part of the claim denial problem. The cost to rework a denied claim is the other. Healthcare providers spend an average of $118 for each reworked claim, which does not include profitability and productivity losses due to duplication of administrative efforts.


Fig. 1: State-wise breakdown of average denial rate for in-network claims by issuers, 2019

While 63% of all denials in medical coding are recoverable, the costs associated with claim re-processsing, payment and reconciliation often become an overwhelming financial and resource burden. As a result, nearly 65% of all denied claims are never reworked. This has become a cause for growing concern due to the rise in denied claims since 2016. According to the Change Healthcare 2020 Denials Index, the percentage of denied claims stood at 9% in 2016. By the 3rd quarter of 2020, that number was almost 11%.

The value-based healthcare ecosystem is a constantly evolving one, and the margin for error is excruciatingly small. The 2021 E/M coding guideline changes added to the tension around claim denials.

What’s Causing Denials?

There are three primary reasons for healthcare claim denials:

  1. Disparity between diagnosis and procedure
    While some denials are easy to recover (registration errors or missing data), others require a full-scope investigation to unearth the root cause, which could be anything from missing charges to incorrect sequence of procedures. And when it comes to E/M coding-related denials, one of the most common reasons is disparity between diagnosis and procedure. This error occurs when the procedure of care fails to justify the diagnosis codes (representing the description of the disease) in the claim. It is critical to flag these errors during the coding process.
  2. Undercoding
    With the implementation of ICD-10 and subsequent emphasis on the diagnostic specificity in the coding process, it has become critical for hospitals to code accurately and consistently while providing supporting documentation of the services provided. At times, claims fail to specify the diagnosis and service procedure details. Similarly, other reasons for denials include claim duplication and failure to file claims within the specified timeframe.
  3. Overcoding
    This error occurs when payers deem procedures unnecessary and when incorrect billing codes are assigned for services or procedures. Overcoding can be a form of medical fraud.

In outpatient settings where providers navigate a variety of medical scenarios, inadequate coding, and lower proficiency leads to undercoding as well as overcoding E/M levels.

Denials are a constant and growing concern in claims management. Implementing a denial management program can seem like a herculean task. However, there are steps you can take to align your coding procedures to minimize denials and maximize revenue.

From Denials to Revenue

As many as 86% of denied claims can be avoided if proper measures are taken, according to the Change Healthcare 2020 Denials index. At AGS, we believe most claim denials can be prevented by identifying the root cause of the denials, which are most commonly:

  • Errors at end-user touchpoint: Department data entry or charge entry processes that result in payer-required codes being overlooked.
  • Issues in the technical set-up: A disparity in coding systems causing claims to reflect invalid CPT® (common procedure terminology) codes.
  • Unfulfilled patient requirements: Patients fail to submit payers’ required information prior to treatment.

Fortunately, there are ways to minimize denied claims, including:

At AGS, years of healthcare experience and innovation have allowed us to create an RCM portfolio that helps healthcare administrators strike the perfect balance between performance and profitability.

Our comprehensive Artificial Intelligence (AI) and Natural Language Processing (NLP) enabled Computer-Assisted Coding (CAC) and computer-assisted professional coding (CAPC) services help coders maintain and coordinate a seamless outpatient workflow. The built-in, automated E/M calculator provides coders with a graphical interface - ensuring all relevant CPT® codes are captured. Leveraging NLP capabilities, information is extracted from unstructured sources. The platform then identifies and automatically selects the right E/M codes based on the 2022 guidelines.

The analytics engine is then used to present healthcare administrators with a powerful data visualization tool. Operational insights, such as coder productivity and benchmarking, allow healthcare organizations to achieve prominent financial growth.

A Hybrid Approach: Improve Accuracy and Maximize Reimbursements

While hospital executives across the U.S. are reaping the benefits of technology-enabled coding, it’s important to note medical coders still play a critical role in the coding process. Medical coders should be used to validate the accuracy of automated processes – ensuring providers maximize their reimbursements. Additionally, by leveraging automation, it frees up time so medical coders can focus on the more complex claims.

AGS recommends this blended, or hybrid approach, to medical coding. To explore this approach in more detail, download our recent white paper.

In Conclusion

The E/M coding practice has evolved significantly in the last 20 years. And during the next 20, it will evolve further still. The value of new-gen technologies like AI/ML/NLP cannot be overstated, especially when considering the growing expectations for productivity, accuracy, and revenue. Using skilled medical coders to validate the accuracy of the data will help to maximize reimbursements.

For now, the recent changes to the E/M coding guidelines, the growing need to reduce the administrative burden on physicians, and the proliferation of digital tools are shaping the way ahead for the healthcare industry. With AGS as your partner, you too can embrace technology advancements and prepare your organization for a strong future.

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AGS Health


AGS Health is more than a revenue cycle management company–we’re a strategic partner for growth. By blending technologies, services, and expert support, AGS Health partners with leading healthcare organizations across the US to deliver tailored solutions that solve the unique needs and challenges of each provider’s revenue cycle operations. The company leverages the latest advancements in automation, process excellence, security, and problem-solving through the use of technology and analytics–all made possible with college-educated, trained RCM experts. AGS Health employs more than 10,000 team members globally and partners with more than 100 clients across a variety of care settings, specialties, and billing systems.

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