Hospitals are facing unprecedented financial pressures, with staffing shortages and shrinking margins. Revenue cycle teams are stretched thin, and hospital leaders and health care professionals must continue to find ways to reduce costs and improve financial health.

One often overlooked opportunity to improve financial stability is denials management, which includes prevention strategies. Although hospital leaders and revenue cycle managers recognize denials as a significant issue, their lack of visibility to the root causes and the complexity of addressing denials make this process challenging.

Uncovering the true cost of denials

Denials management is often viewed as a back-office function, yet it plays a critical role in financial performance. Revenue cycle leaders face daily struggles tracking denials across multiple channels—email, mail, and online portals—creating inefficiencies that slow resolution and increase administrative burden. The lack of integration and clear accountability across departments leads to missed resubmissions, delays, and confusion over who should handle appeals, whether it’s CDI, coding, physicians, or revenue cycle teams. This fragmented approach not only drives revenue loss but also strains valuable resources.

These challenges directly impact cash flow, margins, and the overall financial health of hospitals. Industry averages show that nearly 20 percent of all claims are denied, and up to 60 percent of denied claims are never resubmitted. Additionally, reworking or appealing denials costs $25 per claim on average, with some hospitals seeing costs as high as $181 per claim. Over the past five years, denials have increased by 23 percent, and 86 percent of these denials are potentially avoidable. According to a Change Healthcare Healthy Hospital Revenue Cycle Index report, the process of appealing claims alone costs U.S. hospitals nearly $9 billion annually in administrative expenses.

Beyond finances: The patient and operational impact of denied claims

Denials don’t just strain revenue; they disrupt daily operations and patient care. Revenue cycle teams are already at their workload capacity, and operational shortages ask them to do more with fewer staff. Physicians are also forced to step away from patient care or other work to address documentation issues, further contributing to burnout.

The problem isn’t just the sheer volume of denials, but the lack of insight as to why they occur. Coding, CDI, and other revenue cycle teams all interact with denials data at different points in the process, each operating with their own methods and approaches. This disjointed approach leads to write-offs and delays in billing and payment, further harming financial performance.

Even more concerning is the direct impact on patients. According to a 2023 Kaiser Family Foundation survey, nearly one in five Americans with private health insurance experienced a denial, with many facing significant barriers to receiving necessary care. Prolonged billing delays and claim denials can often lead to worsened conditions, more expensive care, and can discourage patients from seeking care from the same health system—or worse, from seeking care at all.

Consider the case of a patient with a chronic heart condition who undergoes a critical diagnostic test recommended by their physician, only to later discover their claim was denied due to a documentation or technical coding issue. Weeks later, the patient receives an unexpected bill for thousands of dollars, causing financial strain and anxiety. This scenario is unfortunately common and furthers the current distrust in health care systems.

Breaking down denials data silos: A smarter approach

Solving the complex, fragmented issue of denials requires a modern, AI-driven prevention strategy: One that unites teams across the revenue cycle journey and prioritizes prevention over correction. A proactive approach doesn’t just resolve denied claims; it aims to prevent them from occurring in the first place.

With today’s advanced technology, health care providers can transform denials management by leveraging AI to help predict reimbursement outcomes, deliver real-time insights into the likelihood of reimbursement, and provide compliant and actionable recommendations for intervention in a seamless, coordinated workflow.

AI-powered technology can be added into existing workflows, enhancing communication, data sharing, and collaboration. These solutions also provide:

Real-time data: By analyzing trends in real time, AI can flag potential issues before they become delays or denials and suggest corrective actions.

Reduced rework and appeals: Increased integration streamlines workflows, minimizing time spent on rework and appeals, and allowing teams to focus on more strategic tasks. AI tools can also auto-generate appeal letters based on past successful cases, reducing administrative burden.

Faster, on-time payments: Proactive denial management speeds up the payment process, easing financial strain on health care organizations and improving cash flow.

The time to shift from reactive to proactive denials management is now.

Denials management is no longer just a financial issue. It’s a strategic priority for improving operational efficiency, reducing staff burnout, and providing better patient care. As health care evolves into a more digital, connected ecosystem, hospitals must embrace an AI-driven proactive denials strategy to ensure a more resilient financial and patient-centered future.

Diana Ortiz is a health care executive.