When the System Stalls: How Claim Denials Are Undermining Healthcare's Revenue Cycle

Across the United States, healthcare providers are facing a growing challenge that strikes at the core of their financial sustainability: a sharp rise in claim denials. Particularly within the Medicare Advantage space, these denials aren’t just minor delays—they represent a mounting burden that threatens the stability of hospitals, especially those serving rural populations.

At the center of this crisis is a fundamental tension between providers and payers. While healthcare systems are working to deliver quality care, insurers are increasingly leveraging automated processes to scrutinize claims—often long after care has been delivered and payment has been issued. The result? A ballooning backlog of unresolved claims, prolonged payment cycles, and a revenue cycle that’s rapidly losing efficiency.

The Financial Fallout of Denials

In health systems across the country, denial rates are rising year over year. Industry benchmarks show that denials can now account for up to 10% of gross revenue, and resolving a single denial can cost a provider more than $100 in administrative labor. This problem becomes especially costly for rural hospitals and clinics, which often operate on razor-thin margins and lack the staff to keep up with growing administrative demands.

Revenue cycle management teams are now spending more time than ever chasing down dollars for care that has already been provided—time that could be spent optimizing patient outcomes or streamlining workflows. And the numbers show it: many systems are seeing their cost to collect double or triple from their original targets, making it harder to reinvest in patient care or facility improvements.

The Role of Algorithms and Automation

Technology is playing a major role in how claims are being evaluated—and rejected. Insurance companies have adopted algorithms that flag inconsistencies or errors in claims submissions, ranging from incorrect billing codes to incomplete documentation. While automation can help eliminate fraud and reduce human error, it also opens the door to blanket rejections, especially when nuanced clinical decisions are reduced to code-based criteria.

In some cases, payers are retroactively auditing claims and reclassifying inpatient procedures as outpatient services, which can significantly reduce reimbursement amounts. This practice has become particularly prevalent in the Medicare Advantage program, where the complexity of rules and the drive to contain costs are creating a perfect storm for denials.

Lawsuits have emerged questioning whether some insurers are using AI tools in ways that bypass required physician review, raising ethical and legal concerns about transparency in the process. Whether or not machine learning is directly involved, the trend is clear: automation is tilting the balance toward payer profit preservation, often at the expense of providers.

Administrative Burden, Delayed Care

The effects of increased denials go far beyond the finance department. Denials tie up administrative staff, strain revenue cycle teams, and create ripple effects that reach all corners of a health system. Patients may be caught in the middle—receiving bills months after their procedure, or facing unexpected charges due to claim reclassification. These billing surprises can erode trust in providers and create long-term reputational damage.

Moreover, delayed payments restrict how quickly providers can invest in new services, hire additional staff, or adopt innovative technologies. For hospitals already under financial pressure—especially in underserved communities—this can limit access to care and reduce service offerings over time.

Building a More Collaborative System

In response to these pressures, some health systems are taking proactive steps to work with insurers through joint committees, partnerships, and shared platforms. The goal is to build relationships that focus on minimizing denials from the outset, rather than resolving them after the fact. Local insurance plans tend to be more responsive to these efforts, while larger, national insurers present more complex challenges due to scale and bureaucracy.

What’s needed is a shift in how both parties—payers and providers—approach the revenue cycle. Rather than seeing it as a battleground, the focus must shift to transparency, efficiency, and shared accountability. Technologies that enable clearer documentation, real-time data exchange, and smarter claims tracking could help bridge the gap and reduce friction.

Putting Patients Back at the Center

At the heart of all of this lies the patient—who often becomes the collateral damage of system inefficiencies. When a bill arrives 10 months after a visit, or a denial leads to a delay in follow-up care, the impact is personal and immediate. For a healthcare system built on trust and outcomes, restoring the patient’s place in the revenue conversation is crucial.

As healthcare evolves, the revenue cycle must evolve with it. With increased attention on denial trends, payer accountability, and smarter technology, the opportunity exists to build a more sustainable, fair, and patient-focused model. But it will take more than automation to get there—it will take genuine collaboration, thoughtful leadership, and a willingness to prioritize long-term outcomes over short-term gains.

Take Control of Your Revenue Cycle

If your healthcare practice is struggling with rising claim denials, inconsistent payer reimbursement, or the growing burden of revenue cycle management, you're not alone. Paracletos LLC specializes in customized medical billing services and consulting for private practices, designed to help you reclaim your time, protect your revenue, and refocus on patient care.

Let our team walk you through proven strategies to reduce denials, streamline workflows, and build stronger relationships with payers.

Book your free consultation with Paracletos LLC today and let us help you take back control of your revenue cycle.