COVER STORY
April 2026
The The Denials Tsunami: Why Payers Are Winning—and How Hospitals Fight Back
Escalating payer denials, revenue leakage, and aggressive tactics have forced health systems to rethink the revenue cycle.
COVER STORY
April 2026
The Denials Tsunami: Why Payers Are Winning—and How Hospitals Fight Back
Escalating payer denials, revenue leakage, and aggressive tactics have forced health systems to rethink the revenue cycle.
TAKEAWAYS
- Net revenue leakage jumped by more than 25% in 2025, reaching $48.4 billion as payers aggressively utilized automated audits and clinical downgrades.
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Revenue cycle leaders are countering payer algorithms by deploying large language models to draft appeals, increasing overturn rates by 25% and reducing payment timelines.
- To build structural resilience, hospitals are pulling clinicians into the revenue cycle and embedding strict protective language into managed care contracts to limit retroactive denials.
TAKEAWAYS
- Net revenue leakage jumped by more than 25% in 2025, reaching $48.4 billion as payers aggressively utilized automated audits and clinical downgrades.
-
Revenue cycle leaders are countering payer algorithms by deploying large language models to draft appeals, increasing overturn rates by 25% and reducing payment timelines.
-
To build structural resilience, hospitals are pulling clinicians into the revenue cycle and embedding strict protective language into managed care contracts to limit retroactive denials.
The reality of the healthcare revenue cycle in 2025 presented a sharp contradiction for hospital executives. On one hand, balance sheet efficiency improved. Payers remitted payments an average of two days faster, according to recent data from Kodiak Solutions, dropping the average time to insurance payment.
However, this acceleration in cash flow masks a degradation in yield. Despite moving accounts faster, net revenue leakage leapt to $48.4 billion. This represents a greater than 25% increase compared to the previous year.
The main driver behind this revenue loss is an escalating, technology-driven denial strategy deployed by payers. As insurers arm themselves with algorithms to systematically downgrade and deny claims, revenue cycle leaders are being forced to rethink their approach to denial management.
Fighting back means moving beyond traditional manual appeals and embracing automation, clinical integration, and aggressive contract negotiation.
The Algorithmic Threat and Administrative Exhaustion
The steady climb in revenue leakage is the result of payers deploying highly sophisticated technology to parse claims and medical records. Large language models and pattern recognition software allow payers to evaluate clinical documentation and automatically issue downgrades.
This algorithmic approach has fundamentally changed the volume and nature of denials, and looking at averages obscures the targeted nature of these payer tactics. Insurers are concentrating their denial efforts on high-value claims. Inpatient claims generally carry higher reimbursement values than outpatient claims, meaning a denial here represents a larger hit to net revenue.
- Commercial payers issued initial denials on 21% of inpatient claims.
- Medicaid plans denied 44% of inpatient claims initially.
- Clinical initial denials for inpatient care, which include medical necessity and prior authorization disputes, rose by more than 12% in 2025.
Sterling Coker
Chief Revenue Cycle Officer at Mercy
Additionally, Medicare Advantage (MA) plans are also demonstrating aggressive denial tactics compared to traditional Medicare.
In 2025, MA plans generated an initial denial rate of 10.1%, well above the 4.2% rate seen in traditional Medicare. This disparity persisted through the appeals process, with MA plans leaving hospitals with a 5.0% final denial rate, compared to just 1.9% for traditional Medicare.
Payers are also increasingly pausing payments to demand massive volumes of medical records for post-payment review audits.
“[Denials create] friction for everyone and administrative waste for everyone... And the patient's caught in the middle of it, with the payer knowing that the provider will not pursue it in many cases.”
—Sterling Coker, Chief Revenue Cycle Officer at Mercy
One specific payer targeted Mercy with more than 10,000 medical record requests in a single year, according to Chief Revenue Cycle Officer Sterling Coker. This creates a significant administrative backlog for revenue cycle teams.
"So why deny it if you're going to overturn it 84% of the time?" Coker asks. "It creates friction for everyone and administrative waste for everyone... And the patient's caught in the middle of it, with the payer knowing that the provider will not pursue it in many cases."
Payers are also using AI to cross-reference hospital claims against physician claims, according to Bradley Olson, Vice President of Managed Care for Mercy Health. If the billed levels of service do not match between the facility and the provider, the payer issues an automated denial, forcing the hospital to manually intervene and justify the discrepancy.
"They're connecting that service between the hospital and the provider," Olson says. "And they're saying, is that level the same? If that level is not the same, then where can that denial come in?"
The Battle of the Bots
Providers cannot counter this algorithmic onslaught with manual processes alone. Hospitals lack the staff, specifically clinicians and coders, required to manually read 500-page medical records, extract clinical evidence, and draft appeal letters. To survive what Coker describes as the "battle of the bots," revenue cycle leaders are deploying their own automated solutions.
To counter the flood of payer documentation requests, Mercy developed proprietary bots that automatically pull and submit the required medical records back to the payers.
"Their bot is requesting records and our bots are sending the fulfillment of that record request," Coker explains.
Heather Ambrose
CNO at Allegheny General Hospital (AGH)
Net revenue leakage reached $48.4 billion, a >25% increase year over year
Automation is equally critical on the front end, where the majority of administrative errors occur. Around half of all denials stem from front-end process breakdowns, such as missed eligibility checks or authorization failures. At WellStar, AI-powered bots conduct real-time eligibility and benefit verification.
"These technologies really help accelerate those accounts receivable, reduce the manual workload, and really enable the staff to focus on those more complex cases that really require human judgment," says Keshia Lewis, Executive Director of Integrated Authorization Services at WellStar.
By checking coverage and eligibility automatically before services are rendered, health systems prevent downstream denials and reduce manual registration errors.
The Contractual Defense
Operational efficiency and accurate coding can only go so far when payers arbitrarily change adjudication rules. To protect net revenue, revenue cycle leaders are increasingly turning to contracting teams to establish boundaries.
Revenue cycle leaders should collaborate closely with their managed care teams to mandate specific protective language in all payer agreements, according to Olson. Essential contractual clauses include:
- Material Financial Impact Language: These clauses guarantee that if a payer implements a new policy that materially alters the financial relationship before the contract is up for renewal, the payer must come to the table to negotiate the impact.
Keshia Lewis
Executive Director of Integrated Authorization Services at WellStar
- Accounts Receivable Protection: This language caps the percentage of AR that can age past 90 or 120 days due to payer delays. If a payer’s audit requests or processing delays push the aged AR above the negotiated threshold, the payer is penalized or forced to adjust their review practices.
- Joint Operating Committee (JOC) Mandates: Contracts should require mandatory, recurring face-to-face or virtual meetings where payers must report on denial patterns, rather than hiding behind automated portal rejections.
Furthermore, health systems are leveraging contract negotiations to force payers to issue medical necessity denials concurrently, while a patient is still receiving care, or forfeit the right to deny the claim retroactively, according to attendees at the most recent HealthLeaders Revenue Cycle Exchange.
This ensures that peer-to-peer clinical reviews occur when the clinical details are fresh and the attending physician is immediately available. Providers are also beginning to track payer compliance against state-level regulations, such as California’s requirement to adjudicate claims within 30 days, to enforce accountability.
The Importance of Data-Fluent Leadership
As the revenue cycle becomes highly automated and deeply intertwined with clinical operations and payer contracting, the demands on leadership have evolved. There is a critical need for data fluency among mid-level and senior managers.
“These technologies really help accelerate those accounts receivable, reduce the manual workload, and really enable the staff to focus on those more complex cases that really require human judgment.”
—Keshia Lewis, Executive Director of Integrated Authorization Services at WellStar Health System
Revenue cycle leaders must possess the curiosity to interrogate complex analytics and uncover hidden operational leaks. However, understanding the data is only the first step. Executives must possess the communication skills required to translate datasets into actionable, easily understood narratives for stakeholders who do not live in the revenue cycle daily.
The stakes for effective execution have never been higher. The growing gap between median performers and top-tier organizations proves that proactive strategies work. In 2025, the top 25% of providers maintained a final denial rate of just 1.6%, compared to the median rate of 2.7%. Additionally, top performers captured 28.4% of cash collections at the point of service, outpacing the median of 16.4%.
As payers continue to scale their algorithmic denial capabilities, hospitals can no longer afford to operate reactively. Surviving the denials tsunami requires an approach that fights payer bots with provider AI, realigns clinical partnerships to ensure flawless documentation, and embeds protections into every payer contract.
Luke Gale is the Revenue Cycle editor for HealthLeaders.
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