Denials management is the process healthcare providers use to prevent, track, appeal and resolve insurance claim denials so they can reduce avoidable revenue loss and improve cash flow.
For hospitals and health systems, it has become a strategic revenue cycle priority because payer scrutiny, prior authorization requirements and automated claim reviews are increasing the volume and cost of denied claims.
Key takeaways for healthcare leaders:
- Denial rates are rising: HFMA reported initial claim denial rates climbed to nearly 12% in 2024, while AHA cited a 20.2% increase in commercial care denials and a 55.7% increase in Medicare Advantage care denials between 2022 and 2023.
- Significant financial impact: HFMA reported the total administrative cost of denials has reached nearly $20 billion, with average rework costs of $47.77 for Medicare Advantage denials and $63.76 for commercial denials.
- Provider-payer friction: Health insurers and providers have opposing incentives. Payers have stepped up denials through stricter policies and automation, while providers are responding with stronger denial management programs, but the dynamic remains strained.
- Technology is a double-edged sword: Payers are increasingly using AI-powered claim algorithms to automate denials and delay payment. Providers are beginning to adopt AI and advanced analytics to counter rising denials (e.g., AI-driven denial prediction, automated appeals), but adoption has been cautious so far.
How has denials management changed in the last five years?
Over the past five years, claim denials have evolved from routine billing nuisances to a top strategic concern for healthcare providers. In the late 2010s, hospital denial rates were generally around the high single digits.
Since then, denial rates have climbed sharply. By 2022, they averaged 11%–12% for many commercial payers, and by 2023–2024, initial denial rates reached ~15% across a broad sample of U.S. hospitals. This spike in denials accelerated during the pandemic years, as insurers expanded prior authorization requirements and tightened payment reviews.
Providers have responded by dedicating more resources to denials management. Historically, denials might have been handled as isolated back-office issues. Now, they are recognized as a major revenue leakage requiring proactive management from patient access (front-end registration) through billing and appeals (back-end).
In 2020, industry groups such as HFMA’s Claim Integrity Task Force pushed to standardize denial metrics and raise visibility of the issue. By the mid-2020s, many health systems have formal denial prevention teams, specialized coding/audit units and C-suite attention on denials as a key performance indicator.
How does denials management work today?
Denials management today involves a mix of people, processes and technology to handle payer denials from end to end:
- Provider approach: Hospitals and physician groups use front-end prevention, back-end recovery and performance analytics to reduce denials. The strongest programs connect insurance verification, prior authorization, clinical documentation, coding, billing, appeals and payer strategy instead of treating denials as isolated rework. An end-to-end revenue cycle partner can help close hand-off gaps, identify root causes across the full claim lifecycle and prioritize fixes that reduce preventable denials before they reach the appeal queue.
- Payer role: Health insurers (both commercial payers and Medicare Advantage plans) have intensified claim scrutiny. Modern payer systems automatically apply complex rules to each claim — checking documentation, medical necessity, coding and contract terms — and can issue instant electronic denials for any discrepancy. Payers often position these practices as “payment integrity” efforts to avoid improper payments. However, from the provider viewpoint this can feel like “payment avoidance” — an insurer strategy to retain revenue by delaying or denying reimbursement. Providers must navigate each payer’s unique policies and portals to overturn denials, often requiring multiple appeal cycles and review by clinical staff.
Today’s denials management is therefore an arms race of sorts: providers strive to submit “clean” claims (error-free and authorization-approved), and payers continually refine their algorithms to detect any issue that justifies a denial or underpayment. This push-pull sets the stage for the trends unfolding now.
Takeaway: Denials management is no longer a back-office recovery function. It is a cross-functional revenue cycle discipline that helps health systems protect cash, reduce rework and strengthen payer accountability.
What trends are shaping denials management?
Several major trends are shaping today’s denials management:
- Rising denial volumes + cost: Denial rates continue to climb industry-wide, putting more revenue at risk. Surveys show 38%–41% of providers now have a denial rate over 10%, and initial denial rates on claims tick up each year (including 11.8% in 2024, up from ~10.2% a couple of years prior). The financial toll is growing: one HFMA analysis found U.S. providers spent $19.7 billion in 2023 on denial-related administrative costs. The American Hospital Association found that over 70% of denials are ultimately overturned upon appeal, implying roughly $18 billion wasted annually on fighting claims that should have been paid initially. This underscores how inefficient the current system is for both payers and providers.
- Automation + AI “arms race”: Technology is playing an increasing role on both sides. Insurers leverage AI and advanced analytics to automate denials at unprecedented speed, sometimes rejecting claims within seconds of submission. Payers’ algorithms scrutinize even minor discrepancies to justify initial denials, effectively pushing out payment timelines for providers. In response, providers are beginning to adopt AI for denials management, albeit cautiously. Early use cases include AI-driven coding audits, automated appeal letter drafting and predictive analytics to catch likely denials before submission. Payer behavior requires providers to move towards prediction based on actual payer behavior versus relying on published payer policy — because policy and behavior don’t always align. This trend will accelerate as more “first movers” validate AI’s ROI in reducing denials.
- Focus on prevention + root causes: There is a shift toward preventing denials upstream rather than just reacting later. Providers increasingly analyze denial data to find root causes (e.g., recurring coding errors or authorization gaps) and implement fixes in registration or clinical documentation processes. For example, many organizations are bolstering documentation improvement programs to ensure medical necessity is clearly supported, since payers often cite lacking documentation in denials. The top root causes of denials remain administrative issues (e.g., missing info, coding mistakes) and authorization/medical necessity issues — which are potentially reducible through better processes. This emphasis on denial “prevention over appeals” is a notable trend to cut losses before they occur.
- Regulatory and industry response: Regulators and industry groups are paying more attention to denials. The American Hospital Association (AHA) and others have lobbied regulators to limit excessive denials, especially in Medicare Advantage plans. In early 2024, CMS finalized new rules to streamline prior authorization and demand quicker turnaround times from payers, aiming to curb burdensome delays. Meanwhile, industry convenings bring payers and providers together to define a “clean claim” standard and reduce administrative waste. This trend of collaboration and oversight suggests that some systemic fixes could emerge in coming years alongside purely technical solutions.
What challenges make denials management difficult?
Despite progress, denials management faces persistent challenges and contentious debates:
Challenge
Payer behavior vs. provider responsibility
Why it matters
Providers often argue that payers use denials to delay or avoid payment, while payers say denials help ensure proper care and reduce waste. The core question is whether rising denials are driven more by provider billing issues or payer overreach. Resolving the tension requires greater transparency, clearer expectations and more trust between payers and providers.
Challenge
Opaque payer criteria
Why it matters
When payer criteria are unclear, opaque or unpublished, providers must appeal decisions based on shifting standards. This creates avoidable rework, delays reimbursement and makes it harder to prevent similar denials before they happen. Denials are also increasingly occurring because of payer — not provider — interpretation of clinical criteria to determine if a course of care was medically appropriate.
Challenge
Automation’s limits and risks
Why it matters
Technology can improve speed and pattern recognition, but overly rigid automation can deny appropriate care when clinical context is missing. Providers also remain cautious about using AI in denials management because tools must accurately interpret complex payer rules without disrupting existing processes.
Challenge
Resource constraints
Why it matters
Appealing denials is labor-intensive and costly, which means many hospitals cannot pursue every recoverable claim. Leaders must decide how to balance investment in prevention, analytics and appeal capacity so teams can focus on the highest-value work.
Challenge
Policy and fairness
Why it matters
Medicare Advantage and commercial payer denial practices are facing greater scrutiny as denial activity affects payment timeliness, administrative burden and patient access to covered care. Leaders should monitor regulatory changes and prepare for more oversight, reporting expectations and payer accountability.
“The nature of denials has fundamentally shifted from clerical to clinical, and from human to machine. The fastest-growing category isn't a wrong modifier or a missing NPI; it's clinical denials for medical necessity and level of care, which now require documentation-heavy, payer-specific appeals rather than a simple front-end edit. Payers are increasingly deploying AI and automation to adjudicate at machine speed, driving an "auto-deny, justify later" dynamic compressed decision timelines, higher denial velocity and material growth in inpatient short-stay and DRG denials while most provider organizations still respond with manual teams.”
Denials management sits at the intersection of technology, policy and industry incentives, raising questions about how best to align payers and providers and reduce the need for costly manual interventions.
What do industry experts say about denials management?
Leading industry experts and analysts highlight denials management as an urgent issue:
- American Hospital Association (AHA): The AHA has sounded alarms over rising denials, emphasizing the financial and patient care implications. “What we’ve seen in the last few years — particularly since the pandemic — is a really drastic increase in the rate of denials,” notes Aaron Wesolowski, AHA’s VP of policy research. He points to insurer tactics like broad prior authorization and automated denials as causing harmful care delays and cash flow pressure on hospitals. AHA-backed surveys found commercial claim denials jumped ~20% in one year, and Medicare Advantage denials spiked 56% in the same period. The AHA and hospital executives are urging reforms so that “[insurers] operate on faster timelines and provide more transparency” in denials.
- Healthcare Financial Management Association (HFMA): HFMA’s research and member surveys highlight that denials management remains one of the toughest tasks in revenue cycle management and is ripe for improvement. HFMA’s reports note that RCM leaders have been slow to adopt AI for denials (preferring to tackle easier wins first), but that interest is growing rapidly as denial rates climb. HFMA also emphasizes collaborative approaches: convening providers, payers and tech firms to standardize processes like defining a clean claim and reducing redundant costs. Experts quoted by HFMA stress that comprehensive denial strategies — combining tech, better contract management and proactive analysis — are needed to stay ahead.
There is consensus that denial management is now a critical focus and that both systemic change and internal improvements are necessary to stem the rising tide of denials.
What should health system leaders do about denials management?
For healthcare executives and revenue-cycle leaders, effective denials management has become central to financial strategy. Key implications and actions include:
- Make denials management a strategic priority: No longer just a back-office issue, denial performance should be tracked and discussed at the executive level. Regular KPI reviews (denial rate, overturn rate, etc.) help ensure accountability and resource alignment. Leading systems treat denial rates as critical financial metrics, given the direct impact on revenue and margins.
- Invest in front-end processes: Strengthen areas like insurance verification, prior authorization and clinical documentation to prevent avoidable denials. Ensuring a high “clean claims” rate (claims paid on first submission) can dramatically reduce downstream rework. Many denials are preventable administrative issues — cleaning up data quality and training staff to get claims right the first time pays off in improved cash flow.
- Leverage technology thoughtfully: Analytics and automation tools can augment human teams by identifying denial patterns and handling repetitive tasks. For example, denial analytics dashboards can pinpoint root causes by payer or department, guiding process fixes. Robotic process automation (RPA) can auto-correct common errors, and AI-based systems can prioritize which denials to appeal for the highest yield. That said, executives should vet these tools carefully, ensure staff buy-in and integrate them with existing EHR/RCM platforms — technology should enhance, not disrupt, the revenue cycle.
- Build strong payer relationships + contracts: Engage payers in denial reduction efforts. This can include routine meetings to review problematic denial trends, contract language that sets clear payment timelines and escalation pathways for dispute resolution. Sophisticated providers incorporate denial provisions in contracts (e.g., penalties for high overturn rates) and utilize contract management systems to spot underpayments or non-compliance by payers. A collaborative stance with major payers — balanced by firm enforcement of contract rights — can improve outcomes.
- Stay informed and advocate: Given the evolving regulatory landscape, leaders should monitor policy changes (e.g., new CMS prior authorization rules) and possibly participate in advocacy for fair payment practices. Supporting industry initiatives for standardizing denial metrics and definitions can also help in the long run. Internally, educating clinical staff and department heads about denial risks (e.g., how a missing document leads to a denial) fosters a culture of shared ownership in preventing denials.
By treating denials management as a continuous, data-driven improvement area, executives can mitigate revenue leakage and protect their organizations’ financial health while also improving patient experience (through fewer billing surprises and care delays).
Denials management FAQ
What is the goal of denials management?
The goal of denials management is to reduce preventable claim denials, recover appropriate reimbursement and use denial data to improve revenue cycle performance over time.
What is the difference between denial prevention and denial recovery?
Denial prevention focuses on fixing issues before a claim is submitted, such as registration errors, prior authorization gaps or documentation issues. Denial recovery focuses on appealing and resolving claims after a payer has already denied them.
Why are claim denials increasing?
Claim denials are increasing because payers are applying stricter documentation, medical necessity, coding and prior authorization rules. Many payers also use automation to identify claim issues faster, which can increase denial volume and create more administrative work for providers.
What metrics should leaders track?
Leaders should monitor initial denial rate, preventable denial rate, appeal success rate, days in accounts receivable, denial write-offs, cost to collect and denial root causes by payer, service line and department.
"Denials didn't get worse by accident. They got smarter. They're patterned, automated and increasingly clinical. Our best defense is proactivity."
What is the outlook for denials management over the next 2–3 years?
In the coming 2–3 years, denials management is expected to remain both a challenge and a focus area, with several anticipated developments:
- Heightened technology adoption: Provider uptake of AI and automation in denial management will likely accelerate. As early adopters (e.g., large health systems) report successes like reduced backlog or faster appeals, more organizations will invest. We can expect AI-enabled processes — from predicting high-risk claims prior to billing to auto-generating appeal letters — to become mainstream in revenue cycle departments. This could bend the denial curve, but only if solutions prove reliable across varied payer rules.
- Regulatory relief and standardization: Federal rules that streamline prior authorization have already taken effect (e.g., requiring shorter decision timeframes for Medicare Advantage and Medicaid plans). Electronic prior authorization/API requirements arrive January 1, 2027 for impacted plans. These should reduce some burdens and surprise denials for approved care. Likewise, industry standardization (such as a uniform “clean claim” definition or universal denial reason codes) may gain traction, smoothing some friction in the system. These steps won’t eliminate denials, but they should chip away at avoidable delays due to paperwork or miscommunication.
- Continued payer-provider tension (with more oversight): Insurers are unlikely to loosen their utilization management practices in the short term. Denial rates may remain elevated as payers seek to control costs. However, public and political pressure could grow if denial practices are seen as too aggressive. In particular, Medicare Advantage plans face scrutiny; CMS is likely to enforce tighter oversight of MA denials if current trends persist. The net outlook is that the “denial arms race” will continue, but with some guardrails introduced to curb the worst excesses and improve transparency.
- Greater emphasis on data-driven contracts and quality: Providers will increasingly incorporate denial performance into contract negotiations. If a payer’s systems cause excessive unwarranted denials, health systems may push for contractual protections or even drop certain payer arrangements (as some have done with problematic MA contracts). At the same time, as value-based care grows, there will be pressure to align incentives: reducing denials that don’t add clinical value will be framed as a shared goal for payers and providers to reduce total costs.
Overall, denials management will continue to evolve into a more technologically sophisticated, proactive and collaborative discipline. Hospitals and health systems that leverage analytics, improve internal processes and engage constructively with payers and policymakers will be best positioned to mitigate the denials burden. While claim denials are unlikely to disappear in the next few years, the hope is that smarter tools and fairer practices can contain the problem — allowing providers to focus more on patient care and less on fighting for reimbursement.
