The State of Claim Denials in U.S. Healthcare

$48.4 billion pain point

Kodiak Solutions' State of the Healthcare Revenue Cycle report, published in March 2026 and built on aggregated data from more than 2,300 hospitals and 350,000 physicians, found that providers lost more than $48 billion in net revenue in 2025 to final claim denials and uncollected patient balances - up from $38.6 billion in 2024. That's a 25% jump in net revenue leakage in a single year. Zrodlo: Kodiak Solutions

The median final denial rate rose from 2.5% in 2024 to 2.7% in 2025. That looks like a small move until you see what's driving it: clinical denials — claims rejected for lack of prior authorization or medical necessity — accounted for nearly all of the increase. For inpatient claims across all payer types, Kodiak found:

• Requests-for-information (RFI) initial denial rates up more than 10%
• Clinical initial denial rates up more than 12%
• Final denial rates up more than 14%

In other words, the growth isn't coming from sloppy paperwork getting slightly worse. It's concentrated in the categories payers have the most discretion over — and the most incentive to use that discretion aggressively.

The American Hospital Association's 2025 Cost of Caring report puts a second number on the same problem from a different angle: hospitals spent an estimated $43 billion in 2025 trying to collect payments insurers already owed for care that had been delivered, including nearly $18 billion spent specifically on overturning claim denials. That's not lost revenue — that's additional spend just to get paid for work already done.

Key numbers at a glance

Denial rates by payer type aren't equal

National denial rates average somewhere in the 10–12% range across commercial, Medicaid, and Medicare Advantage combined, but Medicare Advantage stands out. MA plans denied roughly 17% of initial claim submissions in the most recent reporting period — well above the blended average. Of those, 57% were eventually overturned on appeal, which sounds like good news until you account for what it actually means: most MA denials aren't permanent revenue loss, they're a forced detour through appeals, resubmission, and weeks or months of delay before the provider sees the money they were always owed.

The average denied amount on an MA-related claim also rose 22.4% year-over-year, landing at roughly $1,000 per claim — meaning each individual denial is not only more frequent, it's more expensive to chase.

The root-cause breakdown

Ask RCM teams what's driving the increase and the answer clusters around a small number of causes:

• Missing or inaccurate claim data — cited by 50% of respondents in 2025 surveys as the single biggest factor behind rising denials, up 4 points from 2024. A separate provider survey found 68% point specifically to inaccurate or incomplete data captured at patient intake — the very first step of the revenue cycle.
• Prior authorization issues — cited by 35% of respondents as a primary denial trigger.
• Coding inaccuracies — outpatient coding denials rose 26% from 2024 to 2025.
• Insufficient documentation — CMS itself identifies this as the single leading root cause of improper payments nationally: reviewers can't confirm a payment was proper because the supporting documentation wasn't there.

The pattern is consistent: the majority of denial growth traces back to the front and middle of the revenue cycle — intake, eligibility, authorization, and documentation — not to appeals or back-end collections. Which means most of this is, in principle, preventable before a claim is ever submitted.

The prior authorization problem is now a clinical problem

Prior auth deserves its own section because the 2025–2026 data shows it's stopped being purely an administrative headache and started being a documented driver of patient harm.

CMS's own CY2025 disclosures under CMS-0057-F show standard prior auth denial rates ranging from under 2% to above 27% depending on the plan, with a national mean around 11.5%. Some individual plans report denial rates as high as 52%. For Medicare Advantage specifically, insurers processed roughly 53 million prior authorization requests in 2024 and denied about 4.1 million of them — a 7.7% denial rate at massive scale.

The AMA's 2025 Prior Authorization Physician Survey is where the human cost shows up in the numbers:

• 95% of physicians say prior auth delays access to necessary care
• 95% say it significantly or somewhat increases physician burnout
• 92% say it negatively affects clinical outcomes for their patients
• 79% say patients abandon treatment altogether because of authorization friction
• 32% say requests are often or always denied
• 26% report that prior auth has led to a serious adverse event for a patient — including hospitalization, permanent impairment, or death
• The average physician now completes 40 prior authorizations per week

There's also an uncomfortable new wrinkle: as payers deploy their own AI to adjudicate authorization requests faster, decisions that used to take 3–5 business days for human review are now returned in hours — but the AMA's 2025 survey found those faster, more automated payer decisions carry denial rates 40% higher than human-reviewed ones. Payers are automating the denial side faster than providers are automating the prevention side. That gap is the single biggest strategic risk in RCM right now, and it's rarely named directly.

The automation opportunity is real... and mostly unclaimed

The good news, if there is any, is in the CAQH Index. The 2025 edition (covering 2024 data, released February 2026) found that U.S. healthcare avoided an estimated $258 billion in administrative costs through electronic transactions and automation — a 17% increase in cost avoidance year-over-year, alongside a 9% reduction in medical administrative spend.

But the same report is a map of exactly how much is still on the table:

• Electronic prior authorization adoption sits at just 40% — the lowest of any major transaction type CAQH tracks
• Claim status inquiry automation has reached 81%; claim payment, 78%
• Documentation attachments — the exact artifact behind most "insufficient documentation" denials — lag at just 24% (medical) and 28% (dental) electronic adoption
• Fully adopting the electronic prior auth standard alone could save the industry $515 million annually and 14 minutes of staff time per authorization
• CAQH estimates $20 billion or more in additional annual savings is achievable simply by shifting the remaining manual transactions — the ones still done by fax, portal re-entry, and phone — to electronic workflows

More than half of health plans and roughly a quarter of provider organizations now report using AI somewhere in administrative workflows. That adoption curve is moving. It's just moving faster on the payer side than the provider side — which is exactly why denial rates are climbing even as overall automation spend increases.

What the cost-per-denial math actually means for RCM teams?

None of this lands unless you connect it to the unit economics RCM leaders manage every day. Industry benchmarking (AAPC, MGMA, HFMA, and others) consistently puts the average cost to rework a single denied claim at around $25 — if it's caught and worked within three days of denial. Let it sit for 30 days or more, and that cost climbs to roughly $118 per claim — a 4.7x cost multiplier driven purely by delay.

That's the quiet part of the denials story: the financial damage isn't just the face value of the denied claim. It's the compounding labor cost of every day a claim sits untouched in a queue, multiplied across thousands of claims a month, on top of the $1,000-per-claim average now typical for a Medicare Advantage denial.

The strategic shift: from appeals to prevention

Two philosophies are competing for RCM budget right now, and the data above makes the case for one of them more clearly than most vendors are willing to say out loud.

The first is detection and appeal — reviewing charts and claims after the fact, usually with clinical or coding expertise, to catch what should have been billed correctly or to build a stronger appeal once a denial has already landed. It's valuable, and it's where a lot of clinical-AI vendors in this space concentrate their product.

The second is prevention at the source — using automation at eligibility verification, prior authorization submission, and claims preparation to stop the RFI and clinical denials (the categories actually driving 2025's increase) from being generated in the first place. Given that Kodiak's data shows the entire rise in denial rates is concentrated in RFI and clinical categories — not random noise — prevention-first automation is targeting the actual growth curve, not the historical baseline.

Neither approach replaces the other. Appeals will always be necessary for genuinely disputed clinical decisions. But if 50% of denials trace back to missing or inaccurate data at intake, and prior auth electronic adoption is still stuck at 40%, the highest-leverage fix available to most RCM teams in 2026 is upstream: eligibility, authorization, and claims prep automation that keeps the error from ever reaching the payer.

The bottom line

Denials aren't a back-office nuisance anymore — they're a $48 billion line item, a documented driver of delayed and abandoned patient care, and a race that payers are currently winning because they've automated faster than providers have. The data points in one clear direction: the highest-leverage response isn't better appeals letters, it's closing the automation gap upstream — at eligibility, prior auth, and claims prep — before a denial is ever generated.

Summary:

At Flobotics we focus exclusively on automating what matters most in U.S. healthcare revenue cycle management – no generic bots here.

Ready to scale without growing headcount?

Let's talk!

👉 Book a call with our CTO

• Kodiak Solutions, "State of the Healthcare Revenue Cycle" (March 2026)
• Modern Healthcare — "Rising claims denials denting provider revenue: Kodiak Solutions"
• TechTarget — "Hospitals lost over $48B from claims denials, uncollected bills"
• Healthcare Finance News — "Hospitals' net revenue leakage increases 25% due to denied claims"
• BusinessWire — Kodiak Solutions 2025 proprietary data release
• American Hospital Association — 2025 Cost of Caring Report
• CMS-0057-F Prior Authorization Metrics (public disclosures, CY2025)
• American Medical Association — 2025 Prior Authorization Physician Survey
• AJMC — "AMA Survey Highlights Growing Burden of Prior Authorization on Physicians, Patients"
• CAQH — "2025 CAQH Index Shows U.S. Healthcare Avoided $258 Billion..."
• AAPC 2024 Denial Management Benchmarks (cited via industry rework-cost analyses)

‍