By Anurag Mehta, CEO & Board Member
The financial landscape for healthcare providers continues to evolve — and not necessarily in their favor.
Kaufmann Hall’s November 2024 Flash Report provides an at-glance positive outlook: Financial performance across 1,300 hospitals and health systems remained relatively consistent throughout the year. The data suggests that, following the historic lows of 2022, some providers are experiencing modest stabilization.
But, the reality is stark: Expenses are rising faster than revenue, and margin pressures remain a top concern. Workforce shortages, supply chain disruptions, rising payer scrutiny, cybersecurity threats — all these and more are shaping RCM trends into escalating challenges providers are struggling to address.
Read on to explore the key obstacles providers can expect to face this year — and how proactive revenue cycle strategies, automation, and tech-enabled expertise can help them stay ahead of the trends in 2025 and beyond.
Costs Will Continue to Outpace Reimbursements
According to the AHA, “cumulative underpayments in the second half of the last decade totaled more than half a trillion dollars — a nearly 40 percent increase compared to the first half, even after adjusting for inflation.” Medicare reimbursement for physician services followed a similar trend, declining 29 percent since 2001, when adjusted for inflation.
As reimbursements shrink, costs are on track to see their sharpest increase in over a decade. According to recent PwC research, medical cost growth is projected to reach an 8 percent increase for the Group market in 2025 — the highest rate in 13 years.
The widening gap between reimbursement and costs leaves hospitals and health systems with fewer financial levers to pull. Many have already cut budgets, reduced non-essential staff, and renegotiated vendor contracts, but these short-term measures fail to address structural revenue cycle inefficiencies that contribute to financial strain.
What This Means for RCM
- Revenue optimization will be more critical than ever. With reimbursements failing to keep pace with costs, providers must ensure they are capturing every possible dollar. This means improving clinical documentation practices, strengthening coding accuracy, and improving charge capture to maximize revenue integrity.
- Denial prevention must be a top priority. On average, providers are spending $43.84 per claim — $19.7 billion a year — to adjudicate with health plans. With approximately 15 percent of all claims initially denied by private payers alone, hospitals should be conducting root cause analyses and front-end fixes to maximize clean claims rates.
- Smarter payer negotiations will be key. As Medicare Advantage plans and commercial payers tighten their reimbursement policies and increase clinical validation audits, providers must leverage data-driven insights to push back against underpayments and revenue loss.
- Staffing shortages will compound financial strain. Providers are still struggling to recruit and retain skilled RCM professionals, with many unable to afford competitive salaries or allocate resources for ongoing training. Without a sustainable workforce strategy, burden on existing staff will continue to grow, increasing denials and revenue leakage. Investing in staff upskilling and outsourcing both core and non-core RCM functions can help providers maintain efficiency despite staffing constraints.
- AI and automation will help offset rising administrative costs. In addition to RCM partnerships and training, providers need advanced technologies to streamline manual processes — from prior authorization workflows to payment reconciliation. Providers that integrate AI-powered tools and automations will be better positioned to reduce administrative overhead while improving accuracy as RCM complexity escalates.
Prior Authorizations Will Be a Thorn in Providers’ Bottom Line
Prior authorizations (PAs) are a moving target. Ongoing reforms, payer-driven automation, and provider pushback are shaping the current landscape — and driving future uncertainty.
Today, prior authorizations are, at best, a significant administrative burden and, at worst, a detriment to patient health outcomes. On average, providers are completing 43 prior authorizations per physician per week. According to a recent AMA survey, 95 percent of respondents reported that PAs somewhat or significantly increase physician burnout.
The impact extends beyond workflow inefficiencies. In the same AMA survey, 90 percent of respondents said that prior authorizations have a negative impact on clinical outcomes, and 87 percent reported they lead to higher overall healthcare utilization.
The financial strain is growing. PA-related denials are a leading cause of revenue cycle inefficiencies, with many overturned only after rounds of costly appeals. As payers lean further into AI to automate prior authorizations, providers will face more automated denials and fewer opportunities for real-time clinical review.
What This Means for RCM
- Automation on the provider side is essential. AI-powered tools can pre-screen PA requirements, reduce submission errors, and flag potential denials before they happen, helping providers stay ahead of payer demands.
- Data insights and streamlined appeals management will be key. As payers accelerate AI-driven denials, revenue cycle teams need tracking tools, automated appeals, and analytics-driven insights to push back on inappropriate denials.
- Regulatory shifts may ease — but not eliminate — the burden. New CMS regulations require faster response times and greater transparency for Medicare Advantage and Medicaid plans, but commercial insurers are not yet bound by these reforms. Hospitals must align internal workflows with evolving payer expectations to avoid disruptions.
Providers Will Have to Weed Through the AI Hype
AI and automation dominate discussions around RCM modernization, but real-world adoption remains uneven. A new Everest report, supported by Omega Healthcare, revealed an overwhelming majority (85 percent) of senior healthcare executives surveyed believe AI will improve RCM efficiencies over the next five years. Of those surveyed, more than half (51 percent) are either actively testing proof-of-concept (PoC) initiatives for gen AI in RCM (22 percent) or are in the consideration stage (29 percent), evaluating use cases and implementation challenges.
The potential for AI is clear: Automating high-volume, repetitive tasks such as eligibility checks, claims status verification, and payment posting can reduce administrative burden and improve cash flow.
But, adopting and fully optimizing that potential will continue to be a challenge for providers. A recent survey found that while some providers are leveraging AI-enabled technology services, such as gen AI and agentic AI, to streamline RCM, many still lack the internal resources and infrastructure necessary to incorporate it with broader operational success.
What This Means for RCM
- AI adoption must be strategic. While AI has the potential to alleviate RCM operational challenges, its success depends on how well it is integrated into existing workflows. Revenue cycle leaders should prioritize AI applications that provide tangible, immediate value, such as denial prediction models, intelligent claims scrubbing, and automated prior authorizations.
- AI works best when paired with operational expertise. Many providers struggle with limited IT resources and high implementation costs, making AI adoption complex. Partnering with tech-enabled RCM experts can bridge skill, expertise, and technology gaps, delivering cost reductions through AI-driven automation, workflow and resource optimization, and change management support.
- Payers are using AI to their advantage. Insurers are leveraging AI to automate prior authorizations, medical necessity reviews, and claim denials at scale. Without AI-powered countermeasures, providers risk higher denial rates and prolonged reimbursement delays.
- Not all AI solutions deliver on their promises. Vendors frequently market unproven tools with unclear ROI. AI should not exist as a standalone tool. Organizations must evaluate vendors carefully, ensuring AI solutions align with long-term revenue cycle goals rather than adopting technology for its own sake.
Cybersecurity Threats Will Continue to Escalate
Cyberattacks targeting healthcare organizations are more frequent, sophisticated, and financially devastating than ever before.
The sequence of infamous ransomware attacks over the past few years underscore a growing reality: Healthcare is a prime target for cybercriminals. According to the Federal Bureau of Investigation’s 2024 cybersecurity report, ransomware is now considered a persistent national security threat, and healthcare ranks among the most at-risk industries. In 2024 alone there were 181 confirmed ransomware attacks on healthcare providers. The average ransom demand was $5.7 million; the average ransom paid was $900,000.
What This Means for RCM
- Cybersecurity is no longer optional — it’s an ethical and financial imperative. Beyond the immediate impact of a breach, cyberattacks cripple revenue cycle operations. Recent attacks have halted provider payments for weeks, delaying reimbursements, increasing administrative costs, and forcing hospitals to find alternative cash flow solutions. Investing in cybersecurity now will prevent financial losses — and breaches of patient trust — down the line.
- Healthcare organizations must scrutinize vendor security practices. RCM leaders must demand higher security standards from third-party partners. Ensuring compliance with HITRUST and Zero Trust frameworks should be a top priority when selecting technology providers.
- Training and internal policies are just as critical as technology investments. Many breaches result from human error, phishing attacks, or weak internal controls. Regular staff training, simulated cyberattack drills, and strict access controls are essential to mitigating risk.
Patients Will Shoulder More of the Financial Burden
The financial responsibility for healthcare is shifting to patients. High-deductible health plans (HDHPs) are becoming table stakes, requiring individuals to pay more out of pocket before insurance coverage kicks in. Co-pays and co-insurance rates are also rising, further increasing patients’ financial strain.
This trend isn’t new — but it is accelerating. And, patients are feeling the financial squeeze. A 2024 KFF report found that:
- One in four adults postponed or skipped necessary care last year due to cost concerns.
- 21 percent of adults did not fill a prescription because of cost; many others turned to over-the-counter alternatives.
- More than half of insured adults worry about affording their monthly premiums and out-of-pocket costs.
As reimbursement rates stagnate, providers could be left with a growing pile of unpaid patient balances and uncompensated care, forcing them to write off more bad debt.
What This Means for RCM
- Cost transparency will become a competitive differentiator. Patients want to understand their bills upfront, but many providers still lack clear, patient-friendly pricing tools. Hospitals should prioritize self-service portals, cost estimators, and financial counseling options to help patients plan for expenses.
- Flexible payment options will be essential. With patients taking on more financial responsibility, hospitals should offer personalized payment plans, automated payment reminders, and digital financing options to reduce bad debt and improve collections.
- Proactive patient engagement will be key. The more touchpoints a provider has before a bill is due, the higher the likelihood of timely payment. This means early outreach, clear explanations of financial responsibility, and digital payment solutions will be crucial to maintaining cash flow.
Looking Ahead: How to Thrive in 2025 and Beyond
The trends of 2025 are the same RCM challenges providers have been facing for years. But, providers have the potential to be better equipped, now more than ever, to meet them. With the right strategies, technologies, and partnerships, hospitals and health systems can turn financial pressures into opportunities for growth and efficiency.
Innovation is no longer just a competitive advantage — it’s a necessity. AI-driven automation, smarter payer negotiations, and proactive patient engagement can help providers move beyond reactive cost-cutting and toward a more resilient, future-ready revenue cycle.
There’s opportunity in transformation. Providers that embrace change with intention will not only withstand today’s challenges but emerge stronger, more agile, and better prepared for what’s ahead. The future of RCM isn’t about survival — it’s about strengthening the foundation for long-term success.
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