Healthcare Glossary→Denial Rate
Revenue Cycle

Denial Rate

Denial rate measures the percentage of submitted claims that payers refuse to pay on first submission — a fundamental revenue cycle health indicator with an industry benchmark of 5–7% overall and significant variation by payer type.

Calculating Denial Rate

Denial Rate = (Total denied claims ÷ Total claims submitted) × 100%. This metric can be calculated by claim count or by dollar value. Dollar-weighted denial rates better reflect financial impact — a 5% count-based denial rate may represent 12% of billed charges if high-value claims (surgeries, inpatient stays) are denied at higher rates than routine office visits.

Denial Rate by Payer Type

  • Medicare FFS: 2–4% (lowest denial rate due to clear billing rules and LCD/NCD policies)
  • Medicare Advantage: 5–10% (higher than traditional Medicare, with wide plan-to-plan variation)
  • Commercial Insurance: 5–12% (varies widely by carrier and plan product)
  • Medicaid FFS: 10–20% (highest denial rates due to eligibility volatility and complex billing requirements)
  • Managed Medicaid/MCO: 12–20% (MCO-added requirements increase denials beyond base Medicaid rates)

Denial Categories

  • Eligibility denials: Patient not covered on date of service. Preventable with real-time eligibility verification at registration.
  • Prior authorisation denials: Required PA not obtained before service. Preventable with PA workflow management.
  • Medical necessity denials: Service not deemed medically necessary per payer LCD/NCD. Requires clinical documentation review and appeal.
  • Duplicate claim denials: Claim submitted more than once. Administrative error — preventable with claims scrubbing.
  • Timely filing denials: Claim submitted after payer deadline. Preventable with real-time claims tracking.
  • Coding errors: Incorrect CPT/ICD-10 code, missing modifier, unbundling violation.

Denial Trend Analysis

Denial trend analysis — tracking denial rate by payer, denial type, service line, and provider over time — is essential for separating systemic problems from random variation. A spike in eligibility denials following a payer contract renewal may indicate outdated eligibility verification procedures. A rise in medical necessity denials for a specific service line may indicate a payer's updated LCD that requires documentation changes. Trend visibility drives targeted, proportionate remediation.