Revenue Recovery Series Part 1: What is Revenue Cycle Management and What are Recent Trends in Lost Revenue?

By: Pearl Walia

Revenue Cycle Management and the Current Landscape of Lost Revenue

Revenue cycle management (RCM) refers to the financial process used by healthcare organizations to track and collect incoming patients, and encompasses the entire revenue lifecycle: from the initial patient scheduling to the final payment collection. Deficiencies in an organization’s RCM processes such as timeliness, accuracy and missing documentation can lead to lost revenue. According to a report by Change Healthcare, healthcare providers lose approximately $262 billion in revenue every year due to payer denials. Payer denials stem from a variety of reasons including discrepancies in an organization’s RCM process, some of which will be discussed in this post.

Payer Disputes and Recent Trends

According to the American Heart Association (AHA), about 15.7% of all Medicare Advantage claims are initially denied. The AHA also estimates that roughly 13.9% of claims from commercial payers such as Aetna, Cigna, and UnitedHealth Group are initially denied. The American Medical Association (AMA) has found that the leading cause of these denials is coding errors and missing codes. Only a fraction of initial denials are successfully overturned through appeals, a process used to challenge a payer’s decision when there is a financial discrepancy, whether an underpayment or an overpayment for services rendered. This process is both lengthy and costly. Providers must scramble to gather the documentation needed to support an appeal, including relevant medical records, formal appeal forms, and any letters of prior authorization or medical necessity. The process can span 30 to 90 days depending on the complexity of the issue, placing a significant strain on a provider’s cash flow, and its ability to focus on patient care.

What Factors Are Driving This Shift in Payer Requirements?

The rise in payer denials in recent years is largely attributed to increasingly complex payer requirements and more aggressive review processes. This shift stems from a simple goal: curbing unnecessary spending. Payers are prioritizing stricter criteria to ensure providers are not performing unnecessary treatments and procedures, resulting in more standardized guidelines across all provider types.

Prior authorizations are one of the leading drivers of this change. The Centers for Medicare & Medicaid Services (CMS) has found that prescription drug spending is one of the fastest-growing healthcare categories, and this growth has fueled the need for more prior authorizations, particularly for costlier medications. When a provider orders a test, procedure, or medication, the prior authorization process can take days or even weeks, as staff spend hours faxing forms to insurers and waiting on phone calls. This requirement has also been expanding into a broader range of services, including routine tests and outpatient therapies.

What Tactics Are Payers Using That Contribute to Rising Denial Rates?

Both public and private payers have implemented stricter prior authorization requirements, making the claims approval process more complex and time-consuming for providers. Public payers are government funded and include Medicare and Medicaid; these require strict compliance with government fee schedules and prior authorizations for vulnerable populations. By contrast, private payers are commercial or employer-sponsored (such as Aetna and Cigna) and focus on competitive, negotiated rates with customizable benefit plans. As for-profit entities, private payers tend to impose stricter prior authorization requirements than public payers to manage costs and reduce fraudulent transactions.

Even services long considered routine or reliably covered are now seeing higher denial rates. Many of these denials stem from intentional or systematic tactics payers use to increase oversight. Therefore, it is essential for providers to understand these tactics, in order to better prepare accordingly. Some of the most common tactics include:

• Shift Toward Value-Based Payment Models: Many payers have transitioned from fee-for-service reimbursement to value-based payment models which compensate providers based on patient health outcomes rather than volume of services. This places a greater financial risk on providers and increases payer scrutiny of medical necessity and documentation.
• Increased Prior Authorization: Payers continue to expand prior authorization requirements while introducing more detailed medical necessity criteria and documentation standards for treatment approvals. This increases the administrative burden on providers and prolongs the approval process.
• More Frequent Audits: Payers are conducting more frequent and comprehensive audits, increasingly relying on AI and sophisticated data analysis to flag minor deficiencies and identify opportunities to recoup payments. These deficiencies can include inputting incorrect billing codes that lead to improper reimbursement. For example, upcoding or downcoding occurs when a provider submits a claim using higher- or lower-paying code than the service actually provided, resulting in underpayment or overpayment. Providers then may have to resolve this mismatch through costly and time-consuming appeals. A growing number of commercial payers are also requesting itemized bills and medical records in order to audit claims before issuing payment.
• Stricter Contract Negotiations and Reimbursement Cuts: As providers face rising operating costs (i.e staff wages, supply costs, inflation), it has been increasingly difficult to maintain financial stability while delivering high-quality patient care. Many payers are responding by negotiating lower reimbursement rates and offering less favorable contract terms.
• AI-Based Claims Review: Many payers are incorporating artificial intelligence into their claim review process. For example, CMS launched “WISeR,” a program that uses AI to flag claims that may require additional review, such as prior authorization. These programs aim to reduce unnecessary healthcare spending by automatically identifying inconsistencies. While AI can improve efficiency, automated reviews lack the clinical context a human reviewer would consider, potentially resulting in an increase in initial claim denials.

How Do These Tactics Impact Providers?

The growing use of these payer tactics affects more than just the provider’s financial operations, it also disrupts daily workflows and patient care. The burden of handling denials places pressure on staff and diverts valuable time away from patient care, potentially delaying medications, tests, and procedures. This could negatively affect patient health outcomes and may also lead to higher costs for patients. Denials also strain the cash flow, as providers are forced to devote additional time and resources to costly appeals. Even when an appeal successfully overturns a denial, the process itself places a significant burden on the organization.

Ultimately, the impact extends beyond financial strain; it disrupts the functioning of an entire healthcare organization. Payer denials create instability that can contribute to staffing shortages and reduced patient services. In recent years, many healthcare providers have reported a worsening relationship with payers, driven largely by frustration over frequent denials, many of which providers believe stem from intentional or systematic payer tactics.

In response to these trends, some providers are shifting toward Direct Primary Care or concierge models, which give physicians greater clinical autonomy and less administrative burden. These models prioritize the doctor-patient relationship over volume, with patients paying a membership fee directly to the practice rather than navigating insurance protocols that dictate the terms of care. However, this membership model significantly narrows the patient pool by creating a costly option for patients, limiting access to care and raising concerns about its broader role in the healthcare landscape.

What Should Providers Keep in Mind Amid Rising Payer Requirements and Denial Rates?

As payer requirements continue to evolve alongside industry and economic trends, providers should regularly review each payer’s specific policies and requirements. A claim that appears well-prepared can still result in a denial or appeal because of a minor error. Although payer denials can be highly frustrating, a proactive approach to documentation, communication, and staying current on requirements can help reduce denial rates.

Some effective practices for reducing claim denials include:

• Strengthening staff education and training to ensure claims are submitted accurately and consistently.
• Communicating regularly with payers to better understand coverage requirements and stay informed about policy changes.
• Implementing corrective action plans to manage denial queues and streamline appeals.

How Can Our Firm Help?

The revenue-loss rates uncovered here are not simply statistics; they represent the real dollars leaving healthcare organizations each year, often due to denials and payer compliance gaps. Revenue management remains one of the most fundamental yet complex systems a provider operates.

The good news is that much of that lost revenue is recoverable. Firms like Jones Health Law have recovered millions of dollars of revenue each year for a range of practices and claim types. Providers who consult experienced healthcare attorneys are better positioned to identify discrepancies, navigate payer denials and appeals, and put efficient strategies in place to prevent future losses. Given how quickly payer requirements continue to shift, legal guidance is a core part of protecting your organization’s financial health.

At  Jones Health Law, we can help you strengthen your financial standing in a complex industry, particularly if your organization is losing revenue due to denials, delays, or payer disputes. Contact us so your team can spend less time fighting payers and more time doing what matters most: caring for your patients.

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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice; it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please get in touch with me using the contact information listed above.

All information and references to laws, rules, regulations, and advisory opinions were accurate as of this time, but laws are constantly evolving. Please get in touch with me to ensure that the law governing your business is up to date. Thank you.