Denials aren’t just a revenue-cycle nuisance. They’re a hidden profit-and-loss line item and when they go unworked, hospitals quietly donate earned reimbursement back to payers.
That “donation” is growing. Benchmarking and survey data continue to show denial pressure rising and spreading across payer types and denial categories. For example, proprietary benchmarking cited in 2025 reporting put 2024 initial denial rates at 11.81% with increases tied to medical necessity and requests for information (RFI) even as prior-authorization denials improved. Meanwhile, the American Hospital Association (AHA) has highlighted that nearly 15% of claims submitted to private payers are initially denied (with Medicare Advantage and commercial denial rates called out in the same analysis), and that hospitals spent $19.7B in 2022 trying to overturn denied claims. (American Hospital Association)
Hospitals already know denials are expensive. The more painful truth is this: a large share of denied claims are payable but only if someone works them. Premier Inc reported that 70% of denials were ultimately overturned and paid, but only after multiple rounds of review. (Premier) If a hospital leaves denials untouched (or works them inconsistently), it isn’t just losing cash, it’s losing cash it was likely entitled to receive.
Below is what that cost looks like, why “not appealing” compounds over time, and how hospitals can model (and capture) the upside.
Why Denials Go Unworked (Even When Everyone Knows Better)
Most denial backlogs aren’t caused by apathy. They’re caused by math and capacity:
- Volume exceeds labor. With initial denials often hovering around the low double digits, denial inventory scales faster than staffing. (Business Wire)
- Low visibility into ROI. When leaders can’t see which denial types and payers produce the highest yield, teams default to “first-in, first-out,” which is rarely optimal.
- Clinical complexity. Medical necessity, DRG downgrades, and level-of-care disputes require clinical skill, not just billing follow-up, so they sit longer or get written off.
- Timely filing and appeal windows. Once deadlines lapse, recoverability drops to zero, even when the underlying claim was valid.
- The “cost to touch” fear. Leaders worry that the cost to rework/appeal outweighs benefit, yet industry analyses show hospitals spend enormous sums contesting denials, which signals the benefit is often there, just not well targeted. (Premier)
The result: hospitals often invest heavily in front-end prevention (edits, authorization capture, eligibility) but underinvest in a disciplined appeals engine capable of converting preventable leakage back into cash.
The Hidden Financial Losses When Appeals Don’t Happen
When denials go unworked, the loss is bigger than the face value of the claim. It includes four layers:
1) Direct revenue leakage (the obvious one)
AHA has pointed out that denied claims are often tied to higher cost services and pegged an average denial to charges of $14,000+ in one analysis. (American Hospital Association) Even if you discount from charges to expected reimbursement, the dollar impact is meaningful.
2) Cash acceleration loss (the silent killer)
A recoverable denial paid 120 days later is not equivalent to cash paid in 30 days. Lost or delayed cash increases borrowing costs, constrains investment, and forces tough staffing decisions.
3) Write-offs and contractual erosion (the permanent loss)
Unworked denials become adjustments, bad debt, or “contractual” clean-up, masking payer behavior and lowering future leverage in negotiations.
4) Repeat-denial inflation (the compounding loss)
When appeal outcomes aren’t fed back into prevention (registration training, documentation improvement, payer-specific edits), the same denial patterns recur. That’s how an 11–12% denial rate becomes “normal.” (Business Wire)
Financial Modeling: What “Not Appealing” Costs a Typical Hospital
Let’s put simple, conservative math around it. (These are illustrative assumptions to show the mechanics; your actual rates will vary.)
Assumptions
- Annual net patient service revenue (NPSR): $600,000,000
- Denial rate (initial): 11.8% of claims (proxy benchmark)
- Portion of denied dollars that are recoverable with proper follow-up/appeals: 70% (industry-reported overturn share)
- Hospital’s current “effective recovery” due to limited capacity: 35% of denied dollars recovered
- Target “effective recovery” with a focused strategy: 55% recovered
- Administrative cost per contested claim: use $57 as a directional reference reported in coverage of Premier’s estimate (note: your internal cost may differ by denial type and labor mix) (Fierce Healthcare)
Step 1: Estimate denied dollars exposure
If 11.8% of claims are denied initially, the denied-dollar exposure is not exactly 11.8% of NPR (because denials don’t map perfectly to revenue recognized). But leaders often model denied exposure as a percentage of billable opportunity tied to NPR as a first approximation.
Denied exposure: $600M × 11.8% = $70.8M
Step 2: Estimate recoverable dollars
Recoverable potential (at 70%): $70.8M × 70% = $49.56M
Step 3: Quantify the gap between “current” and “target”
- Current recovered (35%): $70.8M × 35% = $24.78M
- Target recovered (55%): $70.8M × 55% = $38.94M
- Incremental upside: $14.16M annually
That $14M+ isn’t a theoretical best case. It’s the difference between a denial program that works “some” denials and one that works the right denials, consistently, before deadlines.
Step 4: Subtract the cost to work/appeal (so leadership sees true ROI)
Assume the improved approach requires more touches (staff time, clinical review, letter generation). If we (conservatively) assume 60,000 denied claims touched per year at $57 each (directional):
- Added admin cost: $3.42M
Net upside estimate: $14.16M − $3.42M = $10.74M annual net improvement (before any prevention improvements from feedback loops).
Even if your internal cost per touch is higher, the margin can still be dramatic, especially when you prioritize high-dollar and high-win-rate denial cohorts.
Case Examples: What “Unworked” Really Looks Like
Case Example 1: The “Medical Necessity Drift” problem (clinical denials)
A hospital sees rising DRG downgrades and observation conversions. Denials are reviewed sporadically because RN resources are limited. The team appeals only the largest cases, but without payer-specific arguments or complete clinical documentation packaging.
What happens:
Win rate stays low.
Denials become normalized.
The hospital loses revenue twice: once on the downgraded claim, and again when the same patterns repeat next month.
This aligns with broader industry concern around payer denial tactics and the scale of administrative burden required to contest them.
Case Example 2: The “RFI Pile-Up” problem (technical/clinical hybrid)
RFIs (requests for information) balloon because documentation is scattered and follow-up is inconsistent. A portion of these denials are easy wins—if retrieved quickly. But after 30–45 days, they age into low-recovery territory.
What happens:
Denial inventory grows.
Staff spend time “hunting” information instead of resolving.
Timely filing risk rises, permanently reducing recoverability.
Benchmark reporting has specifically pointed to RFI-related denials as a growing driver of denial rates in recent periods.
Case Example 3: The “No One Owns It” problem (coordination + accountability)
Denials bounce between teams (HIM, coding, patient access, billing, clinical). No single owner drives closure. The hospital may even win on appeal—but the win reason isn’t captured, so the same denial returns.
What happens:
You pay the labor tax repeatedly.
Payers learn you’re unlikely to fight consistently.
Denials become a predictable payer strategy, not an exception.
The Appeals Strategy That Changes the Math
Hospitals don’t need to appeal everything. They need to appeal intelligently:
- Segment denials by “appealability” and “preventability.”
Appealability: expected win rate, documentation readiness, payer behavior
Preventability: root cause in registration/auth/coding/clinical documentation - Build a payer-specific playbook library. AHA notes denials can occur even when services were preapproved; payer rules and interpretations matter.
- Run a denial “investment committee.” Weekly triage: high-dollar, near-deadline, high-win cohorts first.
- Close the loop. Every appeal outcome should inform prevention edits, training, and documentation prompts.
- Measure what matters. Recovery rate by payer/denial type, days-to-resolution, overturn rates, write-offs avoided, and net yield after labor cost.
How Action RCM Can Help
If your team is forced to choose between prevention and appeals, you’re not alone, but the highest-performing programs do both: prevent what you can and aggressively recover what you’ve already earned.
Action RCM helps hospitals stop denial dollars from dying on the shelf by bringing a structured, payer-smart denials and appeals engine that includes:
- Denial segmentation and financial modeling (so leaders see true ROI by category, payer, and facility)
- Work queue design + prioritization focused on the highest-yield denials first (value, win probability, deadline risk)
- Clinical and technical denial workflows that reduce touch time and improve win rates with tighter documentation packaging and payer-specific rationale
- Closed-loop feedback to prevent repeat denials (so appeals don’t become an endless treadmill)
- Transparent reporting that shows recoveries, cycle time, and net yield after effort—so you can defend staffing and investment decisions with data
If you suspect “unworked denials” are costing you more than you think, Action RCM can quantify the upside, stabilize your appeal performance, and turn denials from a monthly surprise into a controlled, measurable recovery program.
