Common Causes of Denials in Healthcare: Addressing Issues from Coding Errors to Payer Misunderstandings

Healthcare providers in the United States face many challenges in managing revenue cycles efficiently. One of the biggest problems is claim denials, which can slow down cash flow, increase work for staff, and affect financial health. Medical practice administrators, owners, and IT managers often spend a lot of time and resources dealing with denied claims. Knowing the main reasons for these denials and using practical solutions is important to reduce denials and improve revenue.

This article looks at common reasons for denials in healthcare claims, how denials affect providers, and how technology like artificial intelligence (AI) and workflow automation is starting to help with these issues.

Understanding Denials in Healthcare Claims

Denied claims happen when insurance companies reject a claim sent by a healthcare provider for payment. Denials can be either hard denials (claims that cannot be appealed or fixed, like services not covered) or soft denials (claims rejected for reasons that can often be corrected, like missing information or coding mistakes).

In 2024, about 13-20% of claims in the U.S. get denied the first time. This causes big revenue losses for hospitals and medical practices. For example, not fixing claim denials can lead to an average loss of $5 million a year for hospitals and up to 2% loss of patient revenue for smaller healthcare providers.

Denials also increase work for administrative and clinical staff. Many large health systems have more than sixty full-time employees working on denials. These teams spend over 30% of their time every day managing denial issues.

Primary Causes of Denials in Healthcare

1. Coding Errors

Coding mistakes are one of the most common reasons for claim denials. Coding means turning a diagnosis, procedure, or service into standard codes like ICD-10, CPT, and HCPCS. Errors here can cause claims to be denied or paid less.

Common coding errors include:

• Incorrect or outdated codes: Using codes that do not match the actual service or diagnosis, or not updating codes yearly.
• Unbundling: Separating parts of a procedure that should be billed together.
• Upcoding: Using a code for a more expensive or complex service than what was done.
• Missing modifiers: Leaving out needed procedure modifiers like the bilateral procedure modifier (modifier 50) can cause rejections.
• Ignoring National Correct Coding Initiative (NCCI) edits: NCCI edits stop billing combinations that are not allowed; breaking these rules causes denials unless valid modifiers are used.
• Wrong documentation for time-based codes: Some services, like infusion or hydration therapies, need exact start and stop times for payment.

The American Medical Association says detailed coder training and updated coding guides are needed to lower these errors. If coding errors are not fixed, payments get delayed and there is a risk of audits or compliance problems.

2. Missing, Incomplete, or Incorrect Patient and Claim Information

Mistakes in patient data like misspelled names, wrong birth dates, incorrect insurance IDs, or incomplete claim info cause many denials. These errors often happen during patient registration or data entry and lead to longer payment times and frustration for providers and patients.

Wrong patient or insurance details can send claims to the wrong payer or cause outright rejection. Coordination of Benefits (COB) mistakes, where claims are filed without clear main and secondary insurer info, cause denials like CO-22.

Regular checking of patient data and insurance coverage, especially with electronic eligibility software, helps prevent these denials.

3. Lack of Prior Authorization or Pre-Approval

Many insurance companies require approval before certain services are given. Denials from missing or invalid authorizations (coded as CO-15) are common. Services like advanced imaging, some surgeries, or specialty drugs often need this step.

Not getting or documenting prior authorization causes late or denied payments. Practices need teams or systems to make sure these approvals are done before care is provided.

4. Insufficient or Missing Medical Documentation

Claims may be denied if payers think the service lacks enough proof to show medical need (CO-50 denials). This happens when documentation is missing, incomplete, or does not match payer rules.

Clear and complete charting, treatment notes, and clinical proof are very important. Without good documents, even valid services may not get paid.

5. Timely Filing and Submission Issues

Insurance companies have strict deadlines for filing claims. Even a one-day delay past the allowed time can cause denials (CO-29). Deadlines differ by payer, so healthcare groups need good systems to send claims on time.

Late submission denials are hard denials. That means the claim cannot be appealed or sent again, which causes full revenue loss for that service.

6. Duplicate Claims

Claims sent more than once by mistake cause denials (CO-18). Sometimes staff resubmit claims not knowing the first is still being reviewed. Duplicate denials increase work and delay payments.

Using automated systems to find duplicates and clear procedures helps stop repeat claims.

7. Contractual and Allowed Amount Reductions

Denials or lower payments under code BO-10 happen from misunderstandings about contracts between providers and payers. Examples include coding errors, wrong service units on claims, or mistakes in contract terms.

Fixing these denials means reviewing payer contracts often, making sure billing matches agreements, appealing when possible, and training billing staff about contracts.

Financial and Operational Impact of Denials

Denials cost money and slow down operations. Healthcare providers spend about $43.84 to fix each denied claim. This adds up to $20 billion each year in labor costs across the country. Hospitals can lose $5 million a year because of denied claims that are not corrected.

Delayed payments create cash flow problems that hurt daily operations. Staff spend too much time fixing denials, taking them away from patient care and other income activities. Denials can also cause patients to lose trust when bills are confusing or services are denied.

Large health systems say they have over 60 full-time employees working on denials. Many groups say denials are the biggest challenge in managing the revenue cycle behind the scenes.

Working with Payers to Lower Denial Rates

Lowering denials depends a lot on better relations with payers. Good communication helps providers understand payer policies and prevent mistakes that cause denials.

Providers benefit from having assigned contacts at payers, holding regular meetings, and using shared systems that track claims and fix problems quickly. This helps claims follow payer rules, reduces denials, and speeds up payments.

Tracking payer data like denial reasons, payment times, and claim acceptance rates helps find areas to improve. Sharing these facts builds trust between providers and payers.

AI and Workflow Automation in Denials Management

New technology, especially AI and automation, is being used more in medical practices and hospitals to reduce denials.

AI-Powered Coding and Claims Validation

AI-based software checks claims before submission to find possible errors like wrong codes, missing modifiers, or incomplete patient info. Some tools check claims in real time and flag problems before they go to payers.

Automation handles repeated tasks like verifying pre-authorizations and insurance eligibility. This lowers human mistakes and improves claim accuracy. This way, many denials can be stopped early.

Automated Eligibility Verification and Prior Authorization Tracking

Electronic tools confirm patient insurance eligibility before services are done. AI systems watch authorization needs and alert staff about expirations or missing approvals. This lowers denials related to coverage.

Workflow Automation for Denials Management and Appeals

Automated denial management systems sort denials by cause, assign cases to team members, and track appeal deadlines. They keep document libraries and create reports to find common denial patterns for fixing.

Automation cuts down on manual work and staffing costs, making payment recovery faster.

Impact on Staffing and Productivity

By handling routine tasks, AI and automation let denial teams focus on hard cases needing human thinking. This improves productivity, speeds up fixes, and helps the revenue cycle overall.

However, not many groups use these tools fully yet. Research shows almost 70% of top health systems automate less than 25% of denial management. Still, more organizations are buying new technology to meet financial challenges and tighter budgets.

Healthcare providers in the United States face many problems that cause claim denials. Coding mistakes, missing or wrong information, poor documentation, no prior authorization, and contract issues are common causes. Knowing these problems helps medical leaders find ways to improve.

Claim denials cost a lot in lost money and extra work. Providers who invest in staff training, good payer relationships, and new technologies like AI for claims and denial management can reduce denials and get better revenue results.

With changing payer rules and more financial pressure, fixing denials remains very important for healthcare groups. It helps them keep their operations steady and provide good patient care.