The Evolving Landscape of Claims Denials: Analyzing the Recent Trends and Their Implications for Healthcare Revenue Cycle Management

Claims denial rates have gone up in the past few years. By the end of 2023, initial claim denials reached 15 percent, rising from 9 percent in 2016. In 2024, denial rates were 11.8 percent, showing the problem still exists. These higher denial numbers are mainly because of stricter prior authorization rules, more checks on medical necessity, and more use of technology by payers to review claims carefully.

Medicare Advantage plans and commercial insurance providers are major reasons for the rise in denials. From 2023 to 2024, Medicare Advantage denials went up by almost 5 percent. Commercial insurance plans saw a 1.5 percent rise. These companies use AI-driven automated systems to quickly process and sometimes reject claims. While this speeds things up, it has also caused many wrong denials. For example, over 300,000 claims were denied in two months because of AI mistakes.

Most claims are denied for three main reasons:

• Prior Authorizations: More strict rules especially for expensive procedures, diagnostic tests, and elective services. Doctors may have to get about 45 prior authorizations each week, which adds to their work and causes delays in patient care.
• Medical Necessity Reviews: Payers use AI and detailed medical data to check if the service was really needed. Claims without enough documentation often get denied.
• Out-of-Network Service Scrutiny: Laws like the No Surprises Act make payers check claims for services done outside regular networks, especially in emergency and specialist care, causing more denials.

Fixing each denied claim can cost healthcare groups between $25 and $181. Unfixed denials cause lost or delayed payments, which hurts hospital budgets. This can lead to credit downgrades for hospitals as their financial situations weaken.

Operational and Financial Challenges Related to Claims Denials

More denials cause problems on both the work and money sides of healthcare. Administrators and IT managers see that as denials grow, staff spend more time redoing work, filing appeals, and contacting payers. The cost for prior authorization alone is usually $6 to $11 per claim, which uses up many resources.

Denials also slow down how fast money comes into healthcare groups. This reduces cash available for patient care, building upkeep, and technology upgrades. Hospitals feel this more because they handle more claims and must coordinate with many departments and payers. Hospital systems also have complex contracts and need strong revenue systems to manage more payer checks.

Regulations make things harder. The Centers for Medicare & Medicaid Services (CMS) have new rules affecting Medicare Advantage and coverage reviews, like the “two-midnight presumption.” Following these rules requires exact documentation and billing steps. Failing to do so can cause costly denials.

Cybersecurity is another worry. A cyberattack on United Healthcare Group’s Change Healthcare showed how system interruptions can delay claims and raise the risk of denied or lost claims. This shows the need for safe and reliable revenue management systems.

Strategies to Mitigate Claims Denials

Because denials have grown, healthcare groups use different ways to lower mistakes and speed revenue collection:

• Improving Data Accuracy and Coding
  Getting the right codes is very important. Providers must make sure that clinical records support the codes they send. Training coders often and checking their work lowers errors. Also, linking Electronic Health Records (EHRs) and billing systems better helps lower mistakes.
• Streamlining Prior Authorization Processes
  Automating prior authorization is very important. Manual requests, which average 45 per doctor weekly, waste time. Using electronic tools speeds approvals and cuts denials from missing pre-approvals.
• Staff Training and Cross-Functional Collaboration
  Handling denials needs teams from billing and clinical areas to work together. Good communication makes sure documentation meets payer rules. Working as a team helps find denial patterns and fix them early.
• Leveraging Data Analytics for Predictive Insights
  Using data tools lets organizations find what causes denials. Predictive systems can guess which claims might be denied and fix problems before sending claims. This improves acceptance on the first try.
• Expanding Network Contracts and Patient Education
  Making better contracts with payers and teaching patients about their insurance and costs lowers denials from out-of-network services and payment issues. Clear information improves patient experience and helps get payments on time.

AI and Automation in Claims Denials Management and RCM Workflow

AI and automation are now important to reduce the problems caused by many claim denials. Healthcare groups are starting to use AI tools that automate routine work, check claims, and make revenue processes faster.

Role of AI in Automation

AI technologies like machine learning (ML), natural language processing (NLP), and generative AI help several parts of the revenue cycle:

• Automated Coding and Billing: AI reads clinical documents and assigns correct billing codes automatically. This cuts human errors by up to 45%. It makes sure claims follow complex rules and speeds up billing.
• Claims Management and Denial Prediction: Machine learning looks at past claims and payer data to guess if a claim may be denied before sending it. This lets providers fix problems early. This can reduce denials by about 20%.
• Real-Time Insurance Verification: AI tools quickly check if a patient’s insurance is active by searching many databases. This stops delays caused by wrong or old insurance information.
• Prior Authorization Automation: AI automates the requests and approvals for prior authorization. This lowers work for doctors and speeds up money coming in.
• Patient Engagement via Virtual Assistants: AI chatbots help patients by answering billing questions, booking appointments, and managing payment plans anytime. This makes things clearer and improves patient experience.
• Payment and Collections Optimization: AI looks at patient finances and suggests payment options that work for patients and improve collections. AI also finds fraud in billing to protect revenue.

Automation cuts down manual data entry, redoing claims, and slow follow-ups. Claims and payments are processed faster, letting staff focus on important revenue work. Also, monitoring systems find payment or denial problems fast, so they can be fixed right away.

These AI tools could save the U.S. healthcare system around $200 billion to $360 billion each year. Still, many health systems do not use AI fully because of challenges with system connection, data setup, training staff, and following rules.

Healthcare leaders should work closely with tech providers, support teamwork, and invest in data tools and systems. These actions will help groups use AI tools well to control denials and improve revenue.

Recommendations for Medical Practice Administrators, Owners, and IT Managers

For those managing revenue in U.S. healthcare, handling claim denials is very important. Here are some practical steps based on recent information:

• Check current denial rates and find their causes. Use data tools to see why claims are denied and fix those processes.
• Invest in AI systems that automate coding, prior authorization, claims handling, and patient communication.
• Train staff often on medical records and technology to follow payer rules well.
• Improve teamwork between clinical, administrative, and IT groups to make workflows smoother and solve denial problems fast.
• Keep watching regulatory updates, especially CMS rules and payer policies, to stay in compliance and avoid sudden claim rejections.
• Make clear communication plans for patients about their insurance, costs, and billing to reduce confusion and denials.
• Prepare for cybersecurity risks by protecting revenue systems to keep financial work safe and continuous.

Using these steps can help healthcare organizations get better reimbursements, lower admin costs, and support patient care.

Concluding Observations

Healthcare claim processing is getting more complex and checked more carefully. However, by managing denials well, using technology, and working as teams, medical practices and hospitals in the U.S. can keep their revenue cycles stable and meet changing financial needs.