The True Cost of Billing Errors in Medical Practices: Stats and Insights

Cost of billing errors June 27, 2024

Have you ever considered the financial impact of even the smallest mistakes in medical billing? In the United States, 15% of the 3 billion insurance claims processed annually are denied, amounting to a significant 450 million claims rejected each year. 

Billing errors frequently lead to denied claims, causing not only revenue losses but also a significant impact on a practice’s efficiency and staff morale, as staff are burdened with the constant need to rectify mistakes. 

Accurate medical billing is not just a matter of paperwork—it’s a crucial component that can make or break a medical practice. Let’s uncover the actual cost of these billing blunders, backed by some eye-opening stats and insights.

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How Billing Mistakes Drain Clinic’s Finances

Modern practices are so fast-paced that billing blunders could easily slip through the cracks. However, underestimating their impact may lead to significant financial problems. 

To understand the financial effects and manage medical billing errors, let’s examine these discrepancies’ direct and indirect costs.

Direct Costs

When claims contain inaccuracies or do not meet requirements, insurance companies or government payers often deny them. Each denied claim represents revenue the practice cannot collect, directly impacting the bottom line.

  • Denied claims: Claim denials result from billing mistakes such as incorrect patient information, coding errors, or missing documentation. 
  • Rejected claims: Most rejected claims stem from non-compliance with payer policies or regulatory requirements. Correcting and resubmitting rejected claims requires additional resources but can be effectively addressed by reliable billing outsourcing services.
  • Undercharging: When a healthcare clinic unintentionally charges less than the appropriate amount for medical services due to errors, it can decrease the practice’s overall revenue.

Indirect Costs 

A Fierce Healthcare report states that providers spent $10.6 billion overturning claim denials in 2022. These providers incurred indirect costs, including:

  • Administrative Costs: Addressing medical billing mistakes requires more administrative work, which consumes valuable staff time and resources. It involves identifying the source of the error, making corrections, and resubmitting claims. 
  • Delayed Payments: When claims are denied or rejected, the time it takes to correct and resubmit them can delay reimbursement. These delayed payments can create cash flow challenges for the practice, impacting its ability to cover expenses.
  • Financial Uncertainty: Consistent billing errors create fiscal uncertainty for the practice, making it difficult to predict or even plan future revenue streams. 

When Billing Blunders Disrupt Practice Operations

In an Experian Health survey, 73% of healthcare organizations reported seeing denied claims 5%–15% of the time. When asked to rank the top reasons for claim denials, about 42% of healthcare executives attributed it to code inaccuracies, while 37% pointed out incorrect modifiers. 

These figures highlight the severe consequences of claim and billing discrepancies in medical practices. To better understand how errors amplify disruptions, consider these operational issues:  

Time Spent on Resubmitting Claims

Submission mistakes require significant time to correct and resubmit claims. Hospitals and health systems spend nearly $44 per claim when petitioning payers. Specifically, the average administrative cost per claim was $63.76 for commercial payers, $47.77 per claim for MA, and $0.79 for Medicare.

Group purchasing organization Premier estimates that a staggering 3 billion insurance claims are processed each year in the U.S. If 15% of these are denied, that means a significant 450 million claims are denied annually. This high volume of denials underscores the urgent need for efficient claim submission and management processes.

Effect on Staff Productivity

Constantly dealing with billing issues affects staff productivity and morale. Staff members are frequently tasked with identifying, correcting, and resubmitting erroneous claims, which reduces their efficiency and increases stress levels.

Potential for Audits and Penalties

Billing errors increase the risk of audits and penalties from insurance companies and regulatory bodies. In addition to insurance claim rejections, frequent errors can trigger audits, which are time-consuming and costly. If an audit reveals systematic issues or intentional misbilling, the practice may face substantial fines and penalties, further impacting financial and operational efficiency.

Legal and Regulatory Implications

Beyond financial penalties, claim mistakes can have severe legal and regulatory consequences. Non-compliance with billing regulations can result in legal actions, including lawsuits and criminal charges in fraud cases.

How Billing Errors Affect Patients

Patient impact of errors

New research conducted by Morning Consult emphasizes the severity of billing issues in the healthcare system. About 62% of over 1,500 patients reported experiencing delays in their treatment due to billing and insurance issues. This trend has led many of these patients to become sicker. 

Billing discrepancies impact patient satisfaction and care continuity, specifically: 

Affecting Patient Trust

Billing inaccuracies cause significant delays in the processing of insurance claims. Patients often bear the brunt of these delays, facing unexpected out-of-pocket expenses or waiting for approvals. This adds financial stress and erodes trust in the healthcare system.

Interrupting Care and Follow-Ups

When claims are delayed or denied due to inaccuracies, patients may have to postpone treatments, tests, or follow-up appointments until the issues are resolved. This interruption can be particularly harmful for those with chronic conditions, exacerbating their illnesses.

Additionally, frequent billing issues discourage patients from following their treatment plans and scheduling necessary follow-ups, leading to poorer health outcomes. Resolving billing disputes can also divert providers’ attention from patient care. 


Best practices to avoid errors

Addressing billing errors is crucial for medical practices’ financial health and operational efficiency and ensuring patient satisfaction and care continuity. The impact of these errors is widespread, as highlighted by some alarming statistics and trends:

  • In the United States, 15% of the 3 billion insurance claims processed annually are denied, equating to 450 million rejected claims yearly.
  • In 2022, 73% of healthcare organizations reported that 5%–15% of their claims were denied, mainly due to code inaccuracies and incorrect modifiers.
  • Providers spent $10.6 billion overturning claim denials in 2022.
  • 62% of patients experienced treatment delays due to billing and insurance issues.
  • The administrative cost to pursue a claim is:
    • $0.79 for Medicare
    • $47.77 for Medicare Advantage (MA)
    • $63.76 for commercial payers

By prioritizing accuracy in billing processes, healthcare administrators, billing specialists, and providers can mitigate these financial risks, ensure smoother operations, and provide better patient care. 

Tap Into Our Expertise 

Is your medical practice billing process as accurate and efficient as possible? With 5 Star Billing Services, you can leverage the expertise of our certified coding and billing specialists who stay current with the latest billing regulations.

Here’s what we offer:

  • Pre- and Post-Submission Audits: Before and after we submit claims, we comb through them with a fine-tooth comb. This helps us catch any errors before they cause you headaches.
  • Regular Reporting: Get the full picture of your billing activities with our detailed reports. From year-to-date summaries to practice stats and payment breakdowns, we provide everything you need to know about your billing, including any errors or trends.
  • Feedback Loop: We’re not just here to do the work – we’re here to help you improve. That’s why we provide feedback to your clinic staff, helping them understand and fix any recurring issues that may arise.

Let 5 Star Billing Services handle the intricacies of billing and coding so that you can dedicate more time to your patients. 

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