Denials vs. Inpatient Admission Percentage – Examining the Financial and Clinical Impact

Hospital leaders should understand that rising hospital denial rates may lead to fewer inpatient admissions, causing disruptions to revenue flow.

Hospitals face increasing pressure to avoid denials as payors intensify their scrutiny of inpatient status determinations. This often causes a shift toward assigning more cases to observation status, even when inpatient may be clinically appropriate.

Why does this happen? When hospitals experience frequent denials, physicians and utilization management teams naturally adjust their approach, particularly in cases that fall in the “gray area” between observation and inpatient status. Over time, this creates a reactive cycle where payors effectively train hospitals to prioritize minimizing denials over making accurate status determinations based on medical necessity.

Don’t allow payor tactics to dictate patient status determinations at your hospital!

While some denials are preventable hospitals must evaluate whether the focus on denial prevention is inadvertently discouraging appropriate inpatient admissions. Data-driven strategies, combined with physician education and real-time documentation improvement, can mitigate unnecessary denials when patients are placed in the appropriate status (inpatient, observation, etc.).

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What is the Link Between Increased Denials and Overall Net Collected Revenue?

Denied claims don’t just impact the bottom line—they also increase administrative burden and delay reimbursement. Hospitals must allocate already limited resources to keep pace with appeals and resubmissions as they battle payor denials. Resulting in:

• Increased labor costs
• Higher volumes of peer-to-peer reviews and written appeals
• Financial strain due to revenue loss from delayed and underpayments

But what if hospitals viewed denials differently? A higher volume of denials can indicate that a hospital is actively pushing back on payors and not leaving revenue on the table. A low denial rate may seem like a win, but it could signal missed opportunities for appropriate reimbursement. Hospitals that effectively challenge payors may see more denials upfront; however, they also stand to gain a significant increase in revenue.

Denials create financial strain due to revenue loss from delayed and under payments. The challenge lies in balancing compliance regulations with financial sustainability, ensuring that hospitals are not leaving revenue on the table while adhering to payor guidelines- which are not always compliant. Brundage Group’s success comes from understanding the rules and regulations, allowing us to challenge non-compliant or unnecessary friction in payor processes and policies.

Are Hospitals Inadvertently Prioritizing Cost Containment at the Expense of Long-Term Financial Health?

Cost containment is a priority for hospitals, but it can have unintended consequences when attempted in a silo. Efforts to reduce costs in inpatient admissions, length of stay, and utilization review can lead to short-term savings but risk significant long-term revenue loss. If fully complaint revenue goes uncaptured, the savings may be negligible in comparison. For example, the cost of escalating a case for Physician Advisor review is minimal compared to the financial benefits of converting a case from observation to inpatient.

Hospitals must consider the true cost of Physician Advisor support, denial support services, and cost containment strategies.

• Physician Advisor Support Costs: Engaging Physician Advisors helps ensure appropriate patient status determinations and prevent unnecessary denials. Some hospitals may struggle to justify the investment without understanding the return on investment (ROI) provided by external Physician Advisor support.
• Denial Support Costs: Hospitals without internal expertise may outsource denial management.  Although this can add to overall expense, the incremental revenue often offsets the increased expense and leads to an increase in net revenue.
• Risk of Narrow Focus on Denial Rates: When teams focus solely on denial rates, they lose sight of the broader revenue cycle, leading to unintended financial consequences. A narrow focus on denial rates can overlook the downstream financial impact on reimbursements, penalties, and overall revenue performance.

How Can Hospitals Balance Compliance and Revenue Optimization Without Compromising Quality Care?

Finding the balance between compliance and revenue optimization is critical for sustainable hospital operations.

1. Enhancing physician documentation at the point of care can prevent inappropriate denials and reduce administrative burdens.
2. Strategically leveraging Physician Advisors and Utilization Review teams helps support accurate patient status assignments and mitigate payor disputes.
3. Revenue cycle analytics identify denials and admissions patterns allowing hospitals to adjust their strategies in real-time.
4.  Investing in education, process improvement, and technology solutions helps reduce denial rates while maintaining compliance.
5. Establishing alignment across clinical, compliance, and finance departments to optimize patient care and financial outcomes.

Hospitals that take an assertive approach to revenue integrity and quality care are better positioned to navigate financial challenges. By addressing rising denial rates and inpatient status scrutiny, hospitals can minimize disruptions to patient care and operational efficiency.

Implementing comprehensive strategies prioritizing patient care while ensuring compliance allows hospitals to mitigate financial risk, optimize reimbursement, and maintain long-term stability.

Take Back Control of Your Revenue

Don’t let payor denials train your team into playing small.