Healthcare Glossary→Claim Denial
Revenue Cycle

Claim Denial

A claim denial occurs when a health payer refuses to pay for a submitted claim, citing reasons from coding errors to lack of medical necessity — with the industry benchmark first-pass denial rate of 5–7% representing a significant revenue risk for most practices.

Hard vs Soft Denials

Not all denials are equal. Understanding the distinction between hard and soft denials is fundamental to effective denial management:

  • Hard Denials: Cannot be resubmitted as originally submitted. The service was not covered, not medically necessary per payer criteria, or was excluded from the benefit plan. Hard denials result in write-offs if not successfully appealed.
  • Soft Denials: Can be corrected and resubmitted. These include missing information, incorrect modifier, wrong patient ID, timely filing within the resubmission window, and other fixable administrative errors.

Common Denial Codes

  • CO-4: The service is inconsistent with the modifier — typically E&M with procedure on same day without modifier 25
  • CO-50: Non-covered service — not medically necessary per payer LCD/NCD
  • CO-97: Payment adjusted because the benefit for this service is included in the payment/allowance for another service already adjudicated (bundling)
  • CO-109: Claim/service not covered by this payer/contractor — patient eligibility or network issue
  • PR-204: This service/equipment/drug is not covered under the patient's current benefit plan
  • CO-22: This care may be covered by another payer per coordination of benefits

Denial Management Workflow

Effective denial management requires a defined workflow: denial identification (review of remittance advice/EOB), root cause analysis (is this a coding issue, eligibility issue, documentation gap, or payer policy issue?), prioritisation by value and appeal likelihood, corrective action and resubmission or appeal, and root-cause prevention feedback to clinical and front-end staff. The industry standard is to work denials within 30 days of receipt to preserve appeal rights and timely filing deadlines.

Impact on AR and Revenue

Denials directly inflate Days in AR and reduce net collection rates. A practice with $5M in annual billings and a 10% denial rate (above the 5–7% benchmark) has $500,000 at risk annually from denials. If 60% are eventually collected after appeals and 40% result in write-offs, that is $200,000 in annual revenue leakage. Denial analytics tracking by denial code, payer, provider, and service type are essential to quantifying and reducing this leakage.