Why Denial Rework Costs Small Practices More Than They Think

In a lot of independent practices, the most important financial document is not in the practice management system. It is a spreadsheet on somebody’s desktop, named something like Denials_Working_v4, holding every claim that came back wrong and has not been fixed yet. Ask the office manager what is in it and they can walk you through it line by line. Ask what it is worth and they probably cannot say. If they leave, most of it leaves with them.

That spreadsheet is the tell. The billing itself works fine. Claims go out, money comes in, the clearinghouse does its job. What is broken is everything that happens after a claim comes back, and almost nobody measures it.

The Number Everyone Watches Is the Wrong One

Practices track denial rate because it is easy to pull, easy to benchmark, and easy to put on a slide. The trouble is that the denial rate describes what the payer did. It says nothing about what it costs to respond, and the response is where the money goes.

The 2026 MGMA Regulatory Burden Report surveyed executives at more than 230 group practices. About half had 20 or fewer physicians and roughly 60 percent were independent, which makes it one of the few recent datasets that actually describes small practices rather than health systems.

Asked to rank their regulatory burdens, those executives put audits and appeals first. Prior authorization in Medicare Advantage came second. That ordering is worth sitting with, because prior authorization has topped these surveys for years. Appeals are reworked by another name, which means the heaviest administrative load these practices report is the work of fixing claims that already went out the door.

The rest of the report points the same direction. Nearly 95 percent said the regulatory burden had grown over the past three years. Forty percent reported three or more full-time administrative staff per physician. At that ratio, you are not staffing a billing department. You are staffing a rework department that also does some billing.

Where the Hours Actually Go

Follow one denied claim through a four-physician practice. Someone notices it in the remittance. Someone reads a reason code that may or may not explain anything. Someone pulls the chart to see what the coder saw, calls the payer, waits on hold, rebuilds the claim, resubmits, and sets a reminder to check back in three weeks.

None of that is billing. 

In fact, it is the second attempt at billing, and the cost per attempt is documented well enough: industry figures cited across MGMA benchmarking put the administrative cost of reworking a single denied claim between $25 and $181 depending on complexity, against roughly $6.50 for a claim that goes out clean and stays clean. 

The Trend Is Moving the Wrong Way

Denials are getting more common while clean claims get harder to produce. A 2025 State of Claims survey of 250 revenue cycle professionals found 41 percent of providers running denial rates of 10 percent or higher, up from 30 percent in 2022. More than half said claim errors were increasing. Sixty-eight percent said submitting a clean claim had gotten harder in the past year.

The automation gap is widening in the payers’ favor at the same time. The 2025 CAQH Index, published in February 2026 and built on data from more than 600 organizations covering 63 percent of insured lives, found more than half of health plans now using AI in administrative healthcare workflows. Among provider organizations, it is 25 percent. 

So on one side of every claim there is automated review at scale, and on the other side there is a person, a portal, and that spreadsheet. The tooling to close that gap is not exotic anymore, and the new AI systems are now aimed squarely at the pre-submission end of the workflow. 

CAQH also put roughly $20 billion in annual savings still sitting in manual transactions that could be electronic. A good chunk of it is claim status inquiry, which is a polite name for calling to ask why you have not been paid.

January Changed the Rules

Operational provisions of the CMS Interoperability and Prior Authorization Final Rule took effect January 1, 2026. Coverage focused mostly on the new deadlines, which require impacted payers to decide expedited prior authorization requests within 72 hours and standard requests within seven calendar days.

The provision that matters more to anyone working denials got less attention. Starting in 2026, impacted payers must give a specific reason for a denied prior authorization decision, whatever channel it arrives through, whether portal, fax, email, mail, or phone.

Specificity is the whole game here. 

A clear reason is the difference between a biller fixing a claim in six minutes and a biller spending forty reconstructing what the payer might have meant. Practices that capture and categorize those reasons will compound the benefit over time. Practices that let them accumulate in a fax tray will not.

A Practical Order of Operations

While this doesn’t require a new system, it requires measuring something different.

• Stop leading with a denial rate. Track first-pass yield, the share of claims paid correctly on first submission, and look at it weekly.
• Count rework hours for two weeks. Have anyone who touches a returned claim log the minutes. The total usually runs two to three times what leadership guesses.
• Rank denial reasons by frequency, then rank them again by hours consumed. Those lists rarely match, and the second one is the one worth acting on.
• Move the top two reasons upstream. Most denials trace back to eligibility, benefits, or authorization details that were sitting there at scheduling and never got verified.
• Get the spreadsheet into the system. A denial queue on somebody’s desktop is invisible to everyone who could help fix what is causing it.
• Automate last, not first. Scrubbing claims before submission, verifying eligibility in real time, and flagging coding gaps during documentation is what current AI solutions are built to do. But automating a process nobody has measured mostly produces a faster mess.

Final Thoughts: What This Changes

Most practices treat revenue cycle management as a collective function to chase the denial, recover the money, and celebrate the win. That framing, however, rewards the wrong behavior. A team that overturns 200 denials a year looks heroic. On the contrary, a team that prevents 200 of them looks like it did nothing.

Which is why the practices pulling ahead have made a smaller and much less satisfying shift. Instead of asking how many claims came back, they started asking how many hours it takes to send one twice.