Coming Up Short on Revenue

By: David Ostrowsky

Providers may be getting reimbursed from insurers in a timely manner, but improved cash flow hasn’t correlated with bountiful payments. And the chief culprit, unsurprisingly, appears to be an increase in clinical denial rates, largely stemming from prior authorizations and/or medical necessity determinations.

Earlier this month, the reputable healthcare publication Fierce Healthcare cited a fascinating report from the healthcare technology company Kodiak Solutions, grounded in survey data from over 2,300 hospitals’ and 350,000 physicians’ revenue cycles, indicating that while the average time to insurance payment decreased from 57.4 days in 2024 to 55.2 days in 2025, revenue leakage, otherwise known as revenue that providers could have collected but ultimately didn’t, spiked by 25 percent, resulting in the surveyed hospitals missing out on a whopping $48.4 billion in 2025. Some more sobering numbers: The median rate for bad debt for hospitals included in the report got bumped up from 1.1% to 1.3%. Hospitals incur bad debt when providers are unable to collect from patients or their payers, resulting in a write-off.

Though there’s a lot of arithmetic involved, the multi-pronged dynamic boils down to a simple universal truth: If more claims (for both inpatient and outpatient care) are getting turned away—per the report, median final denial rates ticked up from 2.5% in 2024 to 2.7% in 2025 while the average clinical initial denial rate also inched up from 2.4% to 2.6%—some providers will get shortchanged (to say nothing of costs that may ultimately get passed down to unsuspecting patients) or, at the very least, have to fight harder to prove medical necessity of services rendered. And according to the report, these types of denials are incredibly hard to overturn or appeal. As a matter of fact, providers were less successful overall in reversing denials in 2025, with the average rate dipping from 42.7% to 42.1%. Such problems only get magnified when the claims are for inpatient care and services as they tend to be much costlier than those for outpatient care and services.

For many hospitals facing such imposing revenue challenges, these are indeed scary times. During calls with investors following quarterly performance reports, executives of healthcare facilities across the nation have acknowledged the financial headwinds from heightened denial activity—as well as the supplemental administrative costs incurred and operational time spent in haggling over them—they have experienced and are continuing to brace for. As hospital administrators are trying to navigate a minefield of constantly changing payer adjudication rules and a dizzying volume of complex denials, staffing plans, internal improvements, and perhaps most significantly, the welfare of patients, is in jeopardy.

According to the results from a recent study conducted by the prominent revenue cycle management (RCM) company Adonis, “This shift marks a departure from prior years, where internal optimization was viewed as the primary lever for improvement. In 2026, revenue performance is increasingly dictated by payer behavior rather than patient volume or internal capacity.”

Put another way, unlike at the beginning of the decade when many people were putting off medical appointments amidst the pandemic and soon thereafter healthcare facilities faced severe staffing shortages, people have resumed checking in to hospitals that are now adequately staffed. There are just different challenges at this hour—and ones that loom as maddeningly complex. According to the previously mentioned RCM report, there’s an alarming scarcity of data and insight into payer activity as well as payer contract and reimbursement terms. In short, many healthcare facilities are struggling to understand just how and why payers are denying a high volume of their claims. Perhaps, in the months ahead, they will be able to utilize AI technology to garner more insightful knowledge about payer behavior. Meanwhile, instilling tight accounts receivable discipline and maintaining stringent front-end patient pay processes may also prove beneficial in helping to offset the problem.

A problem that for millions of American patients could manifest itself in a myriad of ways in the years ahead.