How Claim Denials and Payer Audits Impacts Healthcare Revenue Cycle

Impacts of Claim Denials on Revenue Cycle

Denial rates, notably within Medicare Advantage, are on the rise, impacting both hospital revenue cycles and patient care, remarked the executive director of a Minnesota-based large multispecialty health care organization focused on Revenue Cycle management. Despite the organization reporting a favorable margin this year, it falls short in achieving profits comparable to those of insurers, particularly national insurers, where claim difficulties persist for the executive director.

The health care organization aims to maintain its cost-to-collect at 2%, emphasizing efficiency rather than solely addressing denials. However, the current rate stands at approximately 7%, indicating a substantial deviation from the desired target.

The executive director expressed concern about the exorbitant costs borne by our organization, attributing a significant portion of claim denials to the implementation of artificial intelligence within algorithms.

Health insurance plans faces a class action lawsuit alleging the unlawful use of an artificial intelligence algorithm to reject rehabilitative care for ill Medicare Advantage patients. Similarly, Healthcare Company is also the subject of a lawsuit that claims the Cigna PXDX algorithm allows automatic denials for treatments not meeting predetermined criteria, bypassing the required individual physician review process.

Contrary to these claims, a spokesperson from Cigna Healthcare emphasized that the majority of claims processed through PXDX receive automatic approval. The spokesperson clarified that the PXDX process doesn’t involve algorithms, AI, or machine learning but rather relies on a straightforward sorting technology employed for over a decade to match codes. According to the spokesperson, claims declined via PXDX account for less than 1% of the total claim volume.

An industry consultant, previously associated with UnitedHealth Group, countered these allegations, stating that the use of artificial intelligence by payers is not a recent development. According to the consultant, AI has been integrated into robotic processes, Excel statements, and algorithms for the past 20 years

According to the industry consultant, everyone involved operates with good intentions, and there exist reasonable controls to prevent fraud and abuse.

Claims are often denied due to missing information, sequencing errors, or incomplete representation of care within the claim. The consultant emphasized the importance of avoiding delays in care, stating, ‘We aim to prevent care from being postponed.

The vice president of Healthcare and Life Sciences highlighted that claim denials result in no winners. While payers may achieve short-term cost savings, the optimal scenario involves collaboration between payers and providers to proactively prevent denials. With over 25 years of experience in healthcare, initially on the health system side before transitioning to IT, the vice president stressed the increasing number of significant claims being denied, attributing this trend to potential errors within the ecosystem.

To address this challenge, the proposed solution involves constructing an agility layer to streamline workflows across the revenue cycle, starting from the initial claim submission and extending through the intricate denials processing stage.


The Executive Director noted a surge in denials over the past couple of years, alongside an increased frequency of payer audits occurring months post-payment. According to her, insurers are seeking justifications for retaining payments, particularly evident in Medicare Advantage claims.

One insurer, for instance, cited non-compliance with inpatient criteria and downgraded a claim to an observation status, prompting the organization to assert the appropriateness of their care practices. The Executive Director expressed confidence in their ability to justify the quality of care provided.

When asked about the drivers behind the escalating denial rates, the Executive Director pointed to a collective pursuit of maintaining high profit margins in the industry. She remarked, ‘The focus appears to revolve around profit margins; everyone is striving to bolster their margins, and we’re striving to stay financially viable.

In response to these challenges, the healthcare organization established a joint operating committee to foster successful partnerships with payers, aiming to combat denials collaboratively. While they’ve experienced more success with local Minnesota plans than national ones, the Executive Director remains optimistic about future prospects.

I remain optimistic about forming partnerships, she expressed. Several of the denials we face contradict their payer policies. Holding payers accountable is crucial for us.

Comparatively, larger health systems possess more influence, allowing our healthcare organization to collaborate with other health systems facilitated by the Minnesota Hospital Association.

The Executive Director highlighted the overlooked aspect in this situation—the patient. Sometimes, patients receive bills nearly a year post-procedure. ‘At times, the focus on the patient gets sidelined amid these processes,’ she lamented.

She further emphasized the elongated duration payers hold onto their payments, stating, ‘They retain our funds for extended periods, essentially holding it hostage. Some denials linger for up to 300 days, adding substantial administrative burden and expenses on our end. The process of obtaining these payments entails significant costs. By the time the claim is resolved, it’s a year later. It may seem like no one benefit, but there seems to be a victor on one side.