What Denial Trends Can Reveal About Revenue Cycle Operations

By Two Pillars & Co Advisory Group · Sources checked October 2026

What does a denial tell you?

When a payer denies a claim in whole or in part, it signals that something failed: the patient was not eligible, an authorization was missing, the service was not covered, documentation did not support medical necessity, coding was wrong, the claim was filed late or the payer made an error. Each of those failures originates in a particular part of the revenue cycle. A single denied claim is a case to fix; a pattern of denials is a process to fix.

The costs go beyond lost revenue. Staff time on rework and appeals, delayed cash and patient dissatisfaction add to the burden. The American Hospital Association, citing a Premier study, reports that hospitals spent $26 billion in 2023 managing insurance claims, a 23 percent increase over the previous year, and that 70 percent of denied claims were eventually paid, but only after multiple costly reviews.^[2] Those are trade-association figures, but they match the experience of many revenue cycle leaders: denials are often recoverable, at a price.

How are denials measured?

The Healthcare Financial Management Association’s MAP Keys offer standard definitions. The remittance denial rate divides the total number of claims denied by the total number of claims remitted, using 835 remittance files. It counts “actionable denials,” those that may be addressed and corrected within the organization, and includes both initial denials and subsequent appeal denials. It excludes denials for non-covered services and patient responsibility (group code PR), denials for duplicate claims and recoupments by Recovery Audit Contractors.^[1]

A second measure, denial write-offs as a percentage of net patient service revenue, divides net dollars written off as denials in the month, net of recoveries, by average monthly net patient service revenue. It captures the final loss after appeals are exhausted or the hospital chooses not to appeal.^[1] The two together distinguish how often claims are denied from how much is ultimately lost.

How should you analyze denial patterns?

Break denials down by reason code, payer, service line, location, registrar or coder, and time. Look for concentrations. If 40 percent of denials come from one payer for one service line, the cause is probably authorization or a payer policy. If they cluster at one facility, the cause may be a local process. If they rise sharply after a system change, the cause may be an interface or edit problem.

Classify them by stage. Front-end denials (eligibility, authorization, registration errors) are the most preventable and should be addressed in patient access. Mid-cycle denials (medical necessity, coding, missing documentation) call for clinical documentation and coding work. Back-end denials (timely filing, payer processing errors) point to billing workflows and payer relations.

An invented example: a hospital’s denial rate is 11 percent. Analysis shows that 3.5 points come from missing prior authorization for outpatient imaging, 2.5 from medical necessity denials in one orthopedic group, 2 from eligibility errors at registration and the rest from varied causes. Three focused fixes could remove most of the problem. The numbers are illustrative only.

What about audits and post-payment review?

Some denials arrive after payment. The Centers for Medicare & Medicaid Services runs the Medicare Fee for Service Recovery Audit Program, whose mission is to identify and correct Medicare improper payments through detecting and collecting overpayments and to identify underpayments. Recovery Audit Contractors conduct automated and complex post-payment reviews, and to obtain medical records the contractor issues an Additional Documentation Request.^[3] Complex reviews require a qualified reviewer to examine the medical record.

A hospital should track audit requests, response timeliness, outcomes and appeal results as a separate stream. Strong documentation and coding practices reduce exposure.

How should leaders act on denial data?

Assign owners to the top denial categories. Fix root causes upstream through registration checks, authorization workflows, order-entry prompts and documentation education. Build appeal workflows for high-value, high-success categories. Negotiate with payers where patterns reflect payer policy or errors. And track outcomes monthly using the same measures.

Use denial data as an early warning. A rising denial rate is often an early sign of trouble in a process before it appears in margin. The interactive example below uses invented figures to show how denial reasons might be broken down.

Frequently asked questions

What to do next

1. Pull 12 months of denials by reason, payer and service line.
2. Classify denials as front-end, mid-cycle or back-end.
3. Assign owners to the top three categories.
4. Track the remittance denial rate and write-offs monthly.