Denied Claims Are Draining Healthcare Revenue

Denied claims are now a daily issue, not just occasional. They challenge every health system, big or small, no matter the payer or claim type. Revenue lost from denials and underpayments is so common that small operational gaps can quickly lead to significant financial losses for healthcare providers.

The challenge lies in an unpredictable environment, policy updates are issued with little warning, mid-cycle contract changes occur, and even poorly trained AI can wrongly flag complete claims. For providers, managing denials often feels like herding cats, with vague and shifting rules meant to keep them off balance.

Contracts often make problems worse. Too many agreements favor the payer, with hidden clauses that let insurers change terms at will. Hospitals might not even know who approved a change or why a denial happened, yet policy updates get approved automatically. Without careful review from multiple stakeholders, these clauses slowly weaken provider bargaining power. To fix this, hospitals need to include the right people in contract talks and demand protections, like a 90-day notice before changes happen, to prepare and protect revenue.

As margins decline and closures increase, the industry’s choice is clear: treat denials as routine costs of doing business, or take the opportunity to change the rules. Hospitals ready to invest in expertise, adopt innovative technology, and partner with the right organizations will not only regain more revenue but also strengthen their financial stability to keep serving their communities.

The Trap of Complexity—and Why It’s Getting Worse

This crisis isn’t limited to a single claim type. While complex claims are more likely to be impacted, the same issues are cropping up for commercial and managed care claims. Private payers alone adjudicate around three billion claims annually and reject 15% of them— or 450 million— on the first pass. More than half of those denials are eventually reversed, with health systems spending a collective $19.7 billion annually battling denied claims.

And no one is immune. Denials and underpayments can occur at any stage of the revenue cycle for any healthcare organization. They can result from almost anything, including registration errors, eligibility mistakes, missed pre-authorizations, evolving documentation requirements that were unknown until it was too late, retrospective audits, and duplicate or delayed claims.

Even more concerning is that providers can follow all procedures correctly and still face denials — a staggering 14.4 million pre-approved claims are rejected each year. Additionally, staff shortages and burnout make it even more challenging to keep up, especially as payers process claims more quickly and systems struggle to keep pace. Organizations that do not, or are unable to, challenge every questionable denial or underpayment risk forfeit earned revenue for patient care services already rendered.

The Hidden Erosion of Revenue: How Small Losses Add Up to Millions

These figures reveal a deeper story of preventable financial loss — and the impact that the right expertise can have. In one New York health system, a large claim over 180 days old was almost written off before a specialized partner conducted a zero-balance review that identified an opportunity for recovery. In just 60 days, the provider recovered $540,000 — 12% more than initially anticipated.

In another case, a national payer denied a claim worth more than $200,000 due to a lack of prior authorization. After a closer external review revealed the denial stemmed from an administrative error rather than a clinical issue, the payer reversed course and paid in full.

While these recoveries demonstrate what’s possible, most denial stories don’t end on such a positive note. Many health organizations lack the necessary technology, trained staff, and specialized expertise to reliably identify and resolve these issues, allowing minor errors to go unnoticed and accumulate into costly losses over time.

Denials generally fall into two categories: soft and hard. Soft denials are often caused by missing documentation or incomplete data; they are temporary but still create extra work and uncertainty. Complex denials — stemming from authorization issues or questions of medical necessity are more likely to result in permanent losses. Complicating matters further are carve-outs and zero-balance risks, which can lead to missed payments but do not always result in formal denials.

Together, these issues form a perfect storm: underpayments spread across thousands of claims, resulting in millions of dollars in lost revenue each year. This is death by a thousand cuts—the relentless, daily erosion of financial stability.

From Denials to Dollars: A Strategic Approach

Surviving and thriving in today’s healthcare environment requires more than just hard work. As the saying goes, “a closed mouth doesn’t get fed.” Resilient health systems are proactive about getting paid and don’t accept no for an answer. They challenge denials, file timely appeals, and insist on complete and fair payment for every service provided. Even these efforts, however, have their limits.

To truly protect revenue, hospitals must adopt a more aggressive, data-driven strategy: using AI to identify denial patterns, training teams to understand the “why” behind payer behavior, and leveraging insights to negotiate from a position of strength. Success relies not on incremental fixes but on combining strategic partnerships, deep expertise, and scalable technology. Together, these elements enable providers to shift from reacting to denials to preventing them, embedding revenue protection into everyday operations.

Every health system can restore control and avoid denials and underpayments by using a few key strategies.

Conduct zero-balance audits regularly to uncover hidden underpayments and recover millions in revenue that might otherwise go unnoticed. Never dismiss small underpayments; they accumulate quickly.
Train your team to spot patterns and group denials, using AI-powered tools to drive process improvements. When employees clearly understand payer regulations, they shift from passively following rules to actively controlling outcomes, thereby stopping revenue leakage.
Carefully review contract language, especially clauses that let payers change terms without sufficient notice.
Partner with experts who offer both AI-driven technology and payer-matching expertise, keeping your team competitive and ready to succeed.

Most importantly, foster a culture where silence is never the default, where teams are empowered to challenge, appeal, and escalate questionable losses until every recoverable dollar is secured.

Turning Claims Chaos Into Revenue Recovery

Health systems that combine knowledge, vigilance, the right expertise, and technology can turn chaos into leverage to secure the payments they are owed. Only 10% of claims can determine a hospital’s success or failure. That’s why no claim should ever be dismissed or overlooked, regardless of the claim type or payer. Disorganization in the claims and denial process gives payers an unfair advantage. With so much on the line, you can’t simply hope to get paid for yourself. You need a strategy, persistence, and partnerships to ensure every claim receives the attention it deserves.