A denied claim is revenue your lab has already earned and not yet collected. Every denial adds rework, delays cash, and some are never recovered at all. The good news is that most laboratory denials are preventable, because they trace back to a small number of errors made before the claim is ever submitted.
This guide walks through nine strategies that address those errors at each stage of the revenue cycle, from the moment a specimen arrives to the moment a denial is appealed.
Why laboratory claims get denied
Laboratories face denial risks that most physician practices do not. Labs rarely see the patient, so they depend on the ordering provider for demographics, insurance details, and diagnosis codes. Lab tests are also subject to strict coverage policies and bundling rules. The table below lists the claim adjustment reason codes (CARCs) labs see most often, and what prevents each one.
1. Verify eligibility and benefits before the specimen is processed
Coverage can lapse between the time a test is ordered and the time it is run. Check eligibility in real time against the date of service, not the order date, and confirm the plan covers the specific test. For Medicare patients, identify tests that may not meet coverage criteria so an Advance Beneficiary Notice (ABN) can be obtained when appropriate.
2. Capture complete demographic and insurance data at order entry
Missing or mismatched information is the most common reason for front-end rejections. Build your requisition and LIS intake so these fields cannot be skipped:
- Patient name and date of birth exactly as they appear on the insurance card
- Member ID, group number, and payer address
- Ordering provider name and NPI
- Date of service and specimen collection date
- Diagnosis codes supplied by the ordering provider
3. Match ICD-10 codes to coverage policies
Medical necessity denials happen when the diagnosis on the claim does not support the test under the payer’s policy. For Medicare, that policy is the applicable Local Coverage Determination (LCD) or National Coverage Determination (NCD). Commercial payers publish their own medical policies. Check diagnosis codes against these policies before submission, and go back to the ordering provider when documentation does not support the test.
Keep a short list of your highest-volume tests and the diagnosis codes each payer covers for them. Most labs find a small group of tests drives the majority of medical necessity denials.
4. Apply modifiers correctly
Modifiers tell the payer why a service that looks like a duplicate or a bundled service should be paid. Used incorrectly, they trigger denials or audit risk. The modifiers labs use most include:
- 91 for repeat clinical diagnostic tests performed on the same day to obtain new results
- 59 (or X{EPSU}) for distinct procedural services that would otherwise be bundled
- QW for CLIA-waived tests
- 90 when a reference laboratory performs the test
- TC and 26 when technical and professional components are billed separately in pathology
5. Check NCCI edits and MUEs before submission
National Correct Coding Initiative (NCCI) procedure-to-procedure edits identify code pairs that should not be billed together, and Medically Unlikely Edits (MUEs) cap the units of a service per day. Run every claim against current NCCI and MUE tables. When two codes are legitimately separate, document why before adding a modifier.
6. Secure prior authorization for high-cost tests
Molecular, genetic, and some toxicology tests frequently require prior authorization from commercial and Medicaid managed care plans. Identify these tests at order entry, submit authorization requests with complete clinical documentation, and record the authorization number on the claim. Track expiration dates so repeat testing is not performed on an expired approval.
7. Scrub every claim before it goes out
Automated claim scrubbing catches formatting errors, invalid codes, missing modifiers, and payer-specific rule violations before the payer does. Pair automated edits with a human review queue for high-dollar or high-risk claims. The goal is a high first-pass acceptance rate, because a claim that is paid on the first submission costs far less to process than one that is reworked.
8. Track denials by root cause
Working denials one at a time fixes the claim but not the problem. Categorize every denial by reason code, payer, test, and ordering provider. Review the data monthly to find patterns, then fix the upstream process that creates them, whether that is a requisition field, a coding rule, or a provider education gap.
Grouping denials by root cause shows which upstream process to fix first.
9. Work denials fast and appeal with documentation
Every payer sets deadlines for corrected claims and appeals. Work new denials within days, not weeks. For recoverable denials, submit an appeal that addresses the specific reason code with supporting documentation: the test order, clinical notes supporting medical necessity, authorization records, and the relevant coverage policy language.
Key takeaways
- Most laboratory denials are preventable at intake, coding, or submission.
- Verify eligibility on the date of service and confirm the test is covered.
- Match diagnosis codes to LCDs, NCDs, and commercial medical policies.
- Run NCCI and MUE edits and apply modifiers only when documentation supports them.
- Track denials by root cause and fix the process that creates them.
Frequently asked questions
What is a good denial rate for a laboratory?
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Many revenue cycle teams aim to keep initial denial rates in the low single digits. The right target depends on your test menu and payer mix, so track your own rate monthly and measure improvement against your baseline.
What is the difference between a rejection and a denial?
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A rejection happens before the payer accepts the claim, usually because of formatting or missing data, and can be corrected and resubmitted. A denial happens after the payer processes the claim and decides not to pay, and usually requires a corrected claim or an appeal.
How long do labs have to appeal a denied claim?
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Deadlines vary by payer and plan. Medicare allows 120 days from the initial determination to request a redetermination. Commercial payers set their own limits, so check each contract.
LabMed Billing Editorial Team
Our certified coders and revenue cycle specialists write about the billing problems laboratories face every day, from coding and payer rules to denials and AR.
