By Julius Raj Stephen, SVP Operations
The Cost of Denied Claims
The impact of denied claims is evolving from cost concern to full-fledged financial crisis.
According to a recent survey from Premier, approximately 15 percent of all claims submitted to private payers are initially denied, including many that are pre-approved through prior authorization. Over 50 percent of those denied claims are ultimately overturned, but only after multiple rounds of provider appeals.
The cost? On average, providers spend $43.84 per claim — $19.7 billion a year — to adjudicate with health plans. In 2019, those costs accounted for around $265 billion in “wasted” healthcare dollars in the U.S. — not just lost revenue but also expenses associated with administrative overhead.
Billions spent on denials and appeals management compound other areas of financial strain, putting provider organizations at risk — particularly in rural areas — as dollars are diverted away from patient care.
Understanding the Root Causes
Denials issued by commercial payers increased by 20.2 percent from 2022 to 2023 — and 55.7 percent for commercial MA plans over the same period.
The pandemic exacerbated an alarming upward trend that was already in progress. But, the primary reasons underpinning denials have remained the same since 2016.
According to a report from Change Healthcare, nearly 50 percent of denials are caused by front-end revenue cycle issues. In fact, three of the top four reasons for denials occur at the front end: Registration/Eligibility, Missing or Invalid Claim Data, and Authorization/Pre-Certification, with Service Not Covered also having a prominent impact.
The 2024 State of Claim survey from Experian Health reinforced these findings. Respondents — 210 healthcare employees responsible for claims management — indicated that “missing or inaccurate data, authorizations, and inaccurate or incomplete patient information” are the most prevalent reasons for denials.
The reasons behind claims denials are clear: Providers have a data problem. But, the root causes are more complex.
The “Why” Behind Increasing Denials
Several external challenges are out of providers’ control — the frequency with which payer rules change or the sophistication of the algorithms payers use in claims processing, for example.
But, internal challenges are equally acute — a combination of technology and knowledge gaps, particularly on the front end, that negatively impact clean claim rates.
Staff Shortages
In short: There are fewer people to do more work. The post-pandemic labor market has made it more difficult for providers to hire and retain qualified staff. Cost pressures have also led to layoffs and hiring freezes, resulting in fewer staff members handling crucial and increasingly complex RCM tasks — from the front end to the back office.
Lack of Training and Expertise
Front-end staff often lack proper training and experience for navigating the complexities of eligibility verification or understanding payer-specific nuances. Without sufficient knowledge, these staff members may overlook errors that lead to denials — particularly during the patient intake process. This is further complicated by lack of access to expert clinical resources who can support denial prevention and appeals processes.
Growing Denials Backlog
Staffing challenges exacerbate a growing backlog of denials, making it difficult to meet filing deadlines and examine the root causes of denials. This detracts from meaningful denial prevention strategies, particularly at the front-end and mid-cycle stages, which compound ongoing denial challenges.
Technology Non-Adoption
Many providers lack the infrastructure and expertise to implement and scale the technologies needed to support denial prevention, such as automated eligibility checks or real-time claim edits. Limited investment in advanced tools and resources leaves providers vulnerable to preventable errors and increases burden on staff.
Impact on Patient Care
The consequences of claim denials go beyond provider financials — they directly impact patient care and experiences.
Denied claims may lead to treatment delays, which can be detrimental to clinical outcomes, especially in urgent or critical situations.
And, when claims are denied, patients may find themselves unexpectedly burdened with out-of-pocket expenses for treatments they thought were covered. This financial strain can lead to patients postponing necessary care or, worse, forgoing it entirely. According to The Commonwealth Fund, “46 percent of Americans say they skip or delay necessary follow-up care because they are worried about the costs.” 49 percent say they wouldn’t be able to settle an unexpected $1,000 medical bill within 30 days.
Patient-provider relationships are also at risk. Repeated denials can erode trust between patients and their healthcare providers, and unexpected bills or care delays can strain patient-provider connections — reducing overall patient satisfaction and engagement in their own healthcare journeys.
The implications of these breakdowns are clinical and financial. If dissatisfied patients choose to seek care elsewhere, providers already struggling with denials and resource challenges may face further financial strain — jeopardizing their ability to keep their doors open and compounding access-to-care issues, particularly in remote or underserved areas.
4 Tips to Fix the Front End
Preventing denials is the key to averting revenue loss and improving patient experiences.
The good news: Most denials are preventable — if providers adopt proactive approaches to address front-end issues. But, because the challenges are often both technology- and team-based, the solutions must be as well.
Below, we highlight 4 best practices that providers can adopt to empower their teams and patients — reducing denials at the root cause and increasing their clean claims rate.
Guide Your Patients
Patients need to understand their insurance coverage — specifically, what’s covered and what isn’t.
Front-end staff should be equipped to provide foundational guidance — to ask and answer the right questions and use accessible language to simplify coverage information whenever possible. This includes ensuring staff are educated on basic coverage elements and potential nuances across health plans.
For more complex inquiries, staff can refer patients to their insurer’s help desk for detailed support while confirming eligibility and coverage specifics well before treatment. Encouraging patients to verify coverage for services and procedures in advance, through a “call before you go” approach, can prevent surprises for both patients and providers later on.
Conduct Root Cause Analyses
Identifying root causes helps providers address the origins of denials, not just the symptoms.
By uncovering the underlying issues that lead to denials — data collection errors, eligibility verification, coding inaccuracies, and more — providers can implement targeted operational improvements that prevent similar problems from recurring, enhancing efficiency and reducing the overall volume of denials.
(Dive into the details of root cause analysis in Part 2 of this blog series.)
Train (and Empower) Your Front-End Staff
Regular training for front-end staff is key.
Ensuring staff understand common reasons for denials and best practices for accurate data collection can significantly reduce errors. This training can also include updates on frequent changes to payer rules — but they should include known requirements for the top ten payers.
The top five payer companies alone make up over half of the health insurance market. By focusing on the nuances of what these payers require for claims approval, providers can ensure that claims meet those unique expectations from end to end.
Don’t Forget Training at the Mid-Cycle
While front-end errors are the leading driver of denials, accurate coding is the essential next step in denial prevention.
Coding errors, such as incorrect diagnosis codes or mismatched procedure codes, can cause denials, even if front-end processes are running smoothly.
Providing specialized training for coding staff to ensure they accurately capture diagnoses and procedures according to specific payer requirements, and keeping the chargemaster up to date, can go a long way toward improving clean claim rates.
Technology can also help.
Lean into Technology
Enabling staff is one part of the proactivity puzzle. The other is tech. Leveraging technology is now critical for denial prevention — and not just to keep up with payers.
Automated eligibility verification tools and payer-specific rule engines can help catch errors before they become problems down the line. Claim scrubbers that enforce payer-specific requirements and tools leveraging AI can also identify mistakes before claims are submitted, and predictive analytics can be used to flag high-risk claims for extra attention.
The ROI of Proactive Approaches
As denials continue on that upward trend, reacting isn’t enough.
Addressing the root causes of denials head-on through staff empowerment and the right tools is necessary for ensuring long-term success — with measurable results that contribute to better financial outcomes and improved patient experiences.
Unfortunately, even when front-end systems are optimized to anticipate rather than react, providers can still be tripped up at the finish. A 100 percent clean claims rate is always the goal — but, it’s rarely the reality.
In Part 2 of this blog series, we explore strategies for achieving that goal — best practices for streamlining denials and appeal management to ensure providers receive accurate reimbursements and recoup every dollar owed. Click here to read it now.