The healthcare industry continues to grapple with the persistent and costly issue of claims denials. With hospitals and health systems spending an estimated $19.7 billion annually to combat denied claims, the need for effective denial management strategies has never been more critical.
According to a 2024 Experian survey, 38% of healthcare providers report a denial rate exceeding 10%, with 11% seeing rates above 15%.
As Patrick McDermott, Vice President of Revenue Cycle at Lawrence General Hospital, noted, “Each hospital in the United States is likely spending millions on denials management,” highlighting the severe financial strain denials place on healthcare providers. To reduce denial rates, healthcare organizations are turning to a combination of technology, process improvements, and strategic partnerships to address this complex challenge.
At the heart of the denials management issue is the need for healthcare organizations to make it a top priority. Many institutions have yet to fully grasp the difference between first-pass denials and actual denial write-offs, leading to a lack of clarity in their key performance indicators (KPIs). McDermott emphasized that first-pass denials should become “a prominent KPI… as visible and important as metrics like days in accounts receivable.” This level of focus, he explained, helps organizations prioritize denials and make clear distinctions between preventable and unavoidable write-offs.
One approach gaining traction is the formation of dedicated denials committees. These cross-functional teams bring together stakeholders from various departments to analyze root causes of denials and develop targeted strategies for prevention and appeals. Debi Lasswell, Director of Revenue Integrity at Providence Medical Foundation, shared that her team formed “a denials work group where we aggregated data, looking at high-dollar and high-volume denials.” By examining root causes and remittance codes, Lasswell’s team identified areas for improvement and reduced the noise of unworkable denials. This focus on collaboration across clinical, financial, and operational teams fosters a holistic approach to denials management.
Technology is playing an increasingly important role in the fight against denials. Many healthcare organizations are leveraging their existing electronic health record (EHR) systems to reduce the volume of incoming denials that are not workable or recoverable. Lasswell noted that her team tackled a “backlog of aging denials” by using Epic to “automatically write off certain denials” based on remittance codes, eliminating distractions from their core denials workload. However, the Experian report found that nearly 50% of providers still manually review denials, suggesting that further automation is needed to reduce inefficiencies across the industry.
Artificial intelligence (AI) and robotic process automation (RPA) are emerging as powerful tools in the denials management arsenal. Danielle Lyzanchuk, Revenue Cycle Business Partner at MultiCare, shared her experience in implementing RPA to handle claim attachment denials, describing it as “a significant time-saver” that reduces the burden on her team.
Lyzanchuk further expressed her long-term vision for AI, stating, “I want us to get to the point where we have clean enough denial data to train AI models to spot patterns for us,” enabling proactive denial prevention rather than reactive response.
Looking ahead, healthcare leaders see potential in AI for identifying patterns in denials data that might be missed manually. As McDermott analogized, predictive analytics could allow healthcare organizations to adopt a “Moneyball” approach, “prioritizing scarce resources” for the most recoverable claims based on historical data. He emphasized that, similar to baseball, where strategies differ based on the opponent, the denial strategy “must be different depending on whether your adversary is Blue Cross or Aetna.”
However, the implementation of AI and other advanced technologies in healthcare revenue cycle management is not without challenges. Regulatory compliance and patient privacy concerns must be carefully addressed when deploying new solutions. Lasswell underscored the importance of this, explaining that “technology opens so many doors, both to good and bad actors, so you need to be incredibly careful… every process must be vetted for compliance and security.” This caution is particularly relevant in light of the recent cybersecurity incident involving Change Healthcare, which raised the stakes for cybersecurity and data protection planning.
While technology plays a crucial role, healthcare leaders emphasize that human expertise and critical thinking remain essential in denials management. The most effective strategies combine technological solutions with ongoing staff training and education. Lyzanchuk shared her success with creating a mentoring model and peer learning sessions where team members bring challenging cases to discuss and resolve together. “Creating empathy and understanding between front-line staff and revenue cycle teams builds a foundation for success,” she added, emphasizing that collaboration helps solve complex denial issues and fosters mutual respect.
Strengthening relationships between revenue cycle teams and clinical leadership is another key focus area. Engaging clinical leaders in discussions about medical necessity denials, for example, fosters better prevention and appeals strategies. Lyzanchuk shared that her organization has clear “service level agreements” with clinical teams, setting specific timelines and expectations for authorizations. This has significantly reduced authorization-related denials and avoidable write-offs.
Despite these efforts, many healthcare leaders believe that fundamental changes are needed in the payer-provider relationship to truly address the denials crisis. The current system, where providers are locked into multi-year contracts with payers, limits competition and reduces incentives for payers to improve their claims processing. McDermott pointed out the parallels with the consumer grocery experience: “Imagine if you could only shop at one grocery store for the next three years… that’s exactly the issue with payer contracts.” Locked into multi-year terms, providers have limited recourse to negotiate or penalize payers for unfair denial practices. Legislative advocacy may become increasingly necessary to address these systemic issues in the healthcare payment ecosystem, a point emphasized by both McDermott and Lasswell.
As the healthcare industry looks to the future, denials management is likely to remain a critical focus area for revenue cycle leaders. The ongoing “arms race” between providers and payers means that new denial types and challenges will continue to emerge, requiring constant vigilance and adaptation. Success in this environment will depend on building strong, cross-functional teams that can quickly respond to new denial trends, leveraging technology to improve efficiency and insight, and fostering partnerships with payers to address root causes of denials.
Ultimately, the goal is to move towards a more collaborative and transparent healthcare payment system where denials are the exception rather than the rule. While this vision may seem distant given current challenges, the ongoing efforts of healthcare organizations to improve their denials management processes and leverage new technologies offer hope for a more efficient future in healthcare finance