Claim Denials Are Costing Hospitals Billions

Claim denials cost hospitals billions each year through rework, appeals, delayed reimbursement and lost revenue. This article examines six numbers that reveal the growing financial impact of denials—and explains how coding-focused review can identify root causes, strengthen appeals and prevent recurring coding and documentation issues.

How Much Do Claim Denials Cost Hospitals?

Claim denials cost U.S. hospitals billions of dollars each year in rework, appeals, delayed reimbursement and revenue that is never recovered. The American Hospital Association estimates that hospitals spent $43 billion in 2025 trying to collect payment from insurers for care already delivered, including nearly $18 billion spent overturning claim denials.

That is only one organization's measure of the financial impact. Recent findings from Premier, Kodiak Solutions, Experian Health, KFF (Kaiser Family Foundation) and the U.S. Department of Health and Human Services Office of Inspector General show that denials are becoming more frequent, more expensive to challenge and harder for hospitals to absorb.

Not every denial is based on coding. Eligibility, prior authorization, payer processing and billing issues also contribute. But when a denial involves code assignment, sequencing, DRG validation, medical necessity, clinical validation or documentation support, review by an experienced coding professional can help determine what happened—and whether the issue is preventable.

Here are six numbers that put the cost of hospital claim denials into perspective.

1. Hospitals Spent Nearly $18 Billion Overturning Claim Denials in 2025

The American Hospital Association estimates that hospitals spent nearly $18 billion in 2025 overturning claim denials. When prior authorization, repeated documentation requests, changing billing rules and other collection activities are included, the estimated cost rises to $43 billion.

These expenses do not represent additional patient care. They reflect the staff, technology and administrative time hospitals need to collect payment for services they have already provided. Coding teams may be pulled into this work to validate code assignment, review the medical record and support an appeal.

2. Claims Adjudication Cost Providers $25.7 Billion in 2023

A Premier analysis found that claim adjudication cost healthcare providers $25.7 billion in 2023, a 23% increase from the prior year. Premier estimated that nearly $18 billion of that expense was potentially unnecessary because approximately 70% of denied claims were ultimately overturned and paid.

The average administrative cost per denied claim also increased from $43.84 in 2022 to $57.23 in 2023. At hospital claim volumes, even a modest increase in rework cost can become a substantial operating expense. Preventing repeat coding and documentation issues can help reduce that rework.

3. Initial Claim Denials Reached 11.8% in 2024

Kodiak Solutions data showed that payers initially denied 11.8% of claims in 2024, compared with 11.5% in 2023 and 10.2% in 2020. The 2024 rate was 15.7% higher than the 2020 rate.

Initial denials are not the same as permanent lost revenue. Many claims are eventually paid. But every overturned denial can still create avoidable work, extend accounts receivable days and delay cash. Reviewing coding-related denials by cause, payer, service line, provider and code can show whether the issue is isolated or part of a larger pattern.

4. Net Revenue Leakage Rose 25% in One Year

In its 2026 revenue cycle benchmarking analysis, Kodiak Solutions reported that net revenue leakage among the hospitals in its dataset increased 25% from 2024 to 2025, rising from $38.6 billion to $48.4 billion. The analysis included more than 2,300 hospitals and 375,000 physicians.

Kodiak attributed the increase to payer behavior, more clinical denials and a slight decline in the percentage of initial denials overturned. The finding matters to coding leaders because clinical denials often require a close review of the coded claim, provider documentation, clinical indicators and payer rationale—not just the denial reason listed in the revenue cycle system.

5. Four in 10 Providers Report Denial Rates of at Least 10%

In the Experian Health State of Claims 2025 survey, 41% of providers said at least 10% of their claims were denied. That share increased from 30% in 2022 and 38% in 2024.

The survey also found that 54% of respondents believed claim errors were increasing, while 68% said submitting clean claims had become more difficult during the prior year. Although the survey included healthcare providers beyond hospitals—and many claim errors originate outside coding—it illustrates the broader pressure facing coding and revenue cycle teams.

6. More Than 80% of Appealed Medicare Advantage Prior Authorization Denials Were Overturned

KFF’s analysis of CMS data found that Medicare Advantage insurers denied 4.1 million prior authorization requests in 2024. Only 11.5% of those denials were appealed, but 80.7% of appealed denials were partially or fully overturned.

The KFF findings concern prior authorization rather than submitted claims, so they should not be treated as a hospital claim denial rate. They do, however, demonstrate the operational burden created when an initial adverse decision is later reversed.

The problem is not limited to authorization decisions. An HHS Office of Inspector General review found that 18% of sampled Medicare Advantage payment denials met both Medicare coverage rules and the plan’s billing rules. OIG attributed many of these payment denials to manual review and system-processing errors. This is an important reminder that a denial does not automatically mean the hospital coded the claim incorrectly. Coding review can help distinguish a valid coding concern from a payer interpretation or processing issue.

What Is the True Cost of a Hospital Claim Denial?

The cost is larger than the unpaid balance on the claim. Hospitals may also absorb:

• Staff time spent researching, correcting and appealing the denial
• Physician advisor, CDI, coding and utilization review time
• Delayed cash and longer accounts receivable cycles
• Write-offs when an appeal is missed or no longer economical to pursue
• Lost productivity when the same denial pattern repeats

This is why denial rate alone does not tell the full story. A hospital can overturn a high percentage of denials and still carry a significant cost from the work and delay required to obtain payment.

Which Coding-Related Denials May Be Preventable?

Not every denial begins in coding, and not every denial is within the hospital’s control. Still, recurring coding and documentation denials often reveal patterns that can be addressed before the next claim is submitted. Common opportunities include:

• Incomplete or conflicting clinical documentation
• Unsupported, incorrect or incomplete diagnosis and procedure coding
• Missed specificity, sequencing or principal diagnosis issues
• DRG changes tied to CC/MCC assignment, procedure coding or clinical validation
• Medical necessity documentation gaps
• Inconsistent application of payer requirements
• Breakdowns between clinical, coding, utilization review and billing teams
• Failure to turn appeal outcomes into focused education and process changes

The most useful coding-denial analysis moves beyond counting reason codes. A coding expert reviews the denial against the complete medical record, coded claim, applicable guidelines and payer rationale. This helps determine whether the original coding was correct, an appeal is supported, documentation could have been stronger or corrective education is needed.

A Coding-Focused Approach to Reducing Preventable Denials

1. Group denial data. Review coding-related denials by payer, service line, provider, coder, diagnosis, procedure, DRG, denial reason and financial impact.
2. Validate the root cause. Compare the denial with the medical record and coded claim to determine whether it resulted from coding, documentation, clinical validation, medical necessity or payer interpretation.
3. Assess appeal support. Determine whether coding guidelines and the documented clinical facts support defending the original claim or revising it.
4. Prioritize by risk. Focus first on patterns with the greatest financial, compliance or operational impact—not simply the highest volume.
5. Review records before billing when appropriate. Targeted prebill or concurrent coding review can identify repeat issues before claims reach the payer.
6. Close the feedback loop. Give coders, CDI specialists and providers focused education based on actual denial findings.
7. Measure what changes. Track recurrence, overturn rates, coding trends, dollars at risk and final revenue retained after corrective action.

Use Coding Denials to Find the Problem Before It Repeats

Coding-related denials should not be treated only as accounts to work after payment has been withheld. They are also a source of intelligence about documentation, code assignment and workflow risk.

HIA’s coding experts can review denied claims alongside the complete medical record to determine whether code assignment, sequencing, DRG validation, clinical validation, medical necessity support or documentation contributed to the denial. The review may validate the original coding, identify a needed correction or uncover a recurring issue that calls for focused education or prebill review.

The goal is not simply to appeal more claims. It is to understand which coding and documentation issues are contributing to denials—and reduce the likelihood that the same issue reaches the payer again.

Sources

• AHA: Costs of Caring (2025 Data)
• AHA: Payer Denial Tactics—How to Confront a $20 Billion Problem
• AHA: Administrative Costs and Commercial Insurer Policies
• Premier: $25.7 Billion in Claims Adjudication Costs
• Premier: Private-Payer Claims Denial Survey
• Kodiak Solutions: 2024 Revenue Cycle Headwinds
• Kodiak Solutions: 2025 Net Revenue Leakage
• Experian Health: State of Claims 2025
• KFF: Medicare Advantage Prior Authorization in 2024
• HHS OIG: Medicare Advantage Denials Meeting Coverage and Billing Rules
• HFMA: Standardizing Denial Metrics
• Becker’s: Claims Denials Are Costing Hospitals Nearly $20B Per Year

FAQ

For more than 30 years, HIA has been the leading provider of compliance audits, coding support services and clinical documentation audit services for hospitals, ambulatory surgery centers, physician groups and other healthcare entities. HIA offers PRN support as well as total outsource support.

The information contained in this coding advice is valid at the time of posting. Viewers are encouraged to research subsequent official guidance in the areas associated with the topic as they can change rapidly.