Claim Rejection vs. Denial: How to Avoid Both in Medical Billing

Let’s be clear—rejection and denial aren’t just technicalities in medical billing. They’re two of the biggest reasons revenue leaks from healthcare practices. A single rejected or denied claim delays payments, strains cash flow, and often adds unnecessary back-and-forth between billing teams and payers.

What makes things worse?

These terms are often used interchangeably when they’re fundamentally different. Understanding the difference between rejection and denial in medical billing is the first step to stopping them in their tracks.

In this article, we’ll break down what each means, why they happen, and most importantly, how to avoid both. Whether you're a billing professional or a provider trying to understand the numbers, this guide is for you.

What Is a Claim Denial in Medical Billing

A claim denial occurs when a health insurance company reviews and refuses to pay for a service after the claim has been processed. In other words, the claim made it through the payer’s system, but it didn’t meet the criteria for reimbursement.

What is a denied claim?

It’s a claim that may have been submitted correctly, but got rejected due to policy coverage, medical necessity, coding mismatch, prior authorization issues, or even expired eligibility.

Example: You submit a claim for CPT code 97153 (ABA therapy), but forgot to include proof of prior authorization. The payer processes the claim and issues a denial.

What Is Claim Rejection in Medical Billing

Claim rejection in medical billing happens when the claim doesn’t even make it past the insurer’s front door. These rejected claims are flagged because of formatting errors, missing required fields, or invalid codes.

The payer’s system catches these errors before the claim can be processed—often using automated validation tools. So technically, a claim rejected status means it was never really reviewed.

Example: The submitted claim has a missing NPI number or a diagnosis code that doesn’t align with ICD-10 standards. The system rejects it outright.

Rejection vs Denial: The Key Differences

Here's where things get real. The difference between rejection and denial in medical billing is not just semantics—it directly affects how you fix the issue and get paid.

Criteria	Rejected Claim	Denied Claim
Stage of Issue	Before claim processing	After claim processing
Reason	Missing data, invalid format, coding errors	Policy issues, authorization, and medical necessity
Correctability	Can be corrected and resubmitted immediately	Requires appeal or further documentation
System Entry	Never entered the payer’s processing system	Entered and processed, but unpaid
Notification	Typically immediate	Often delayed and includes an Explanation of Benefits (EOB)

Why Billing Teams Must Treat Rejected and Denied Claims Differently

Here’s the thing: treating rejected and denied claims the same way wastes time and money.

Rejected Claims: These are technical errors—missing data, typos, or invalid codes. They never reach the payer’s system. Fix them fast, resubmit, and you’re good.

Denied Claims: These are policy or decision-based issues—lack of medical necessity, expired authorization, or non-covered services. They need documentation, appeal letters, and follow-up.

If you’re unsure how to manage appeals effectively, check out our detailed guide on how an ABA therapist should handle claim denials and appeals

Confusing the two delays in reimbursement risks missing appeal deadlines and hurts revenue. Smart billing teams separate them immediately to protect collections and maintain strong billing performance.

Why Do Medical Claims Get Denied

Medical claim denials are a common issue in healthcare revenue cycle management. Some of the most frequent reasons include lack of medical necessity, expired insurance eligibility, and missing or incorrect prior authorization. Claims are also denied due to coding mismatches, services not covered under the patient’s health plan, or submission of duplicate claims. Even small errors can lead to rejections.

Industry reports show that around 5% to 10% of all claims are denied, and unfortunately, nearly 65% of those are never followed up on or resubmitted. This results in significant revenue loss for healthcare providers. To reduce claim denials, it’s essential to verify patient eligibility, ensure accurate medical coding, and follow proper authorization procedures. Consistent claim review and denial management can help recover lost revenue and streamline the billing process.

For a detailed breakdown tailored to practices, see our step-by-step guide to avoiding insurance denials.

Why Do Claims Get Rejected in Medical Billing

Rejected claims are a major hurdle in the medical billing process. Unlike denials, rejected claims are never accepted into the payer’s processing system, which means they need to be corrected and resubmitted quickly. The most common reasons for claim rejection include invalid CPT or ICD-10 codes, incomplete patient or provider information, and missing or incorrect modifiers. Other issues like using the wrong payer ID, submitting claims in an incorrect format, or mismatched NPI numbers and dates can also trigger rejections.

These errors often result from data entry mistakes or software configuration issues. Since rejected claims don’t go through formal adjudication, they won’t be processed or paid unless corrected promptly. Accurate documentation, regular audits, and proper training in medical coding can help reduce rejections and improve cash flow. Staying on top of claim errors helps healthcare providers avoid revenue loss and speeds up reimbursement.

You can also explore how EMR improves behavioral health billing accuracy and reimbursement to minimize rejection risks through automation and data accuracy.

How to Avoid Claim Denials in Medical Billing

Avoiding denials isn’t about luck—it’s about proactive strategy. Here’s how to reduce denial rates significantly:

Verify Eligibility Every Time: Confirm the patient’s insurance coverage, plan details, and eligibility before rendering services. Use real-time verification tools.

Get Prior Authorizations: Don’t rely on verbal confirmation. Always secure and document prior authorization when required, especially for procedures like ABA therapy, mental health, and physical therapy.

Code Accurately: Use updated CPT, HCPCS, and ICD-10 codes. Ensure modifiers are appropriate, especially for services like telehealth or time-based billing.

Check for Duplicates: Don’t resubmit the same claim without investigating. Payers deny duplicates by default.

Train Your Team: Billing staff must stay current with payer policies and regulatory changes. A minor update in coding can have major impacts.

How to Avoid Rejected Claims and Submit a Corrected Claim in Medical Billing

To reduce rejected claims, it’s important to catch billing errors before submission. Start by using claim scrubbing tools that detect issues like invalid codes, missing fields, or incorrect data formats. These tools can eliminate up to 90% of errors. Always double-check that patient details, provider NPI, and insurance info are accurate and consistent. Also, follow the correct EDI format required by each payer to ensure your claim is accepted into their system. Keep all coding software and forms updated as payer rules change frequently.

If a claim is rejected or denied due to a fixable error, you must submit a corrected claim. Use the appropriate claim frequency code (7 or 8), reference the original claim number, and clearly update the required fields. Each payer has unique guidelines, so always refer to their portal or manual before resubmitting. Proper correction ensures faster payment and fewer backlogs.

FAQ

1. What is the difference between a rejected claim and a denied claim?

A rejected claim has errors and never enters processing. A denied claim was processed but not approved for payment due to policy issues like medical necessity or coverage limits.

2. How do you handle rejection in medical billing?

Quickly identify the error—like invalid codes or missing details—correct it, and resubmit the claim. Rejected claims are fixable and should be addressed quickly to avoid payment delays.

3. Do rejected claims and denied claims mean the same thing?

No, they’re different. Rejections are technical errors caught upfront. Denials are reviewed, but unpaid due to policy reasons. Understanding both helps reduce rework and speed up reimbursements.

Conclusion

Claim rejections and denials often get confused, but they’re not the same—and they shouldn’t be handled the same way. Rejected claims are usually simple errors like missing data or incorrect codes, and can be fixed and resubmitted quickly. Denied claims, however, are more complex and tied to policy issues, requiring documentation, appeals, or additional approvals.

To reduce both, it’s crucial to verify insurance eligibility, obtain prior authorizations, train your billing team, and use claim scrubbing tools to catch mistakes early. When you handle rejections and denials properly, you boost your clean claim rate, improve cash flow, and protect your revenue.

Taking a few extra steps upfront can save a lot of time—and money—later.