Understanding this key healthcare revenue cycle function
One out of five adults say they have experienced a denied claim: when an insurance company refuses to pay for the healthcare services they’ve received or a prescription, according to a recent survey.[1] Yet only half of people appeal a denied claim, mostly because they aren’t sure how to do so or who to contact, the same survey found.
Meanwhile, 11.65% of all healthcare claims were denied on first pass in 2025. Sometimes, these initial denials occur within seconds after submission.[2]
The ability for a healthcare provider to successfully appeal and overturn denied claims is called denials management.
Why denials management matters
In healthcare, denials management is essential to protecting healthcare revenue and the organization’s bottom line. It’s also an important part of ensuring patients receive the care they need, when they need it at an affordable cost.
Denials management is one of the toughest tasks in healthcare revenue cycle management. It involves:
- Submitting an accurate claim to strengthen the chances that it will be approved on first pass
- Verifying that the patient’s health plan will cover the care or services delivered before the patient arrives for medical care
- Determining the cause of the denial, how to respond to the denial so it will be overturned, and how to avoid a similar denial in the future
Most claim denials are successfully overturned on appeal. However, there is a cost to appealing a denied claim. Premier estimated this amount at $57.23 per claim, based on a 2025 analysis. The total cost of fighting claim denials for U.S. healthcare providers: more than $25 billion in 2023, up 23% year over year, the analysis found.[3]
Why are claim denials increasing at such a high rate? Experts say it’s due to the use of AI by healthcare payers, or health plans, to scrutinize claims and look for opportunities to reject or underpay a claim. More and more, hospitals, health systems and other providers are using AI to fight back. It’s a scenario that is being referred to as the “Battle of the Bots.”[4]
How healthcare providers are fighting back
Some healthcare revenue cycle leaders are applying AI innovation to denials management. Their efforts largely center on preventing a claim denial before it happens or using AI to write appeals letters in seconds, speeding the appeals response.
But there is still a lack of trust among healthcare revenue cycle leaders in what AI can achieve in the denials management space. As a result, only about one in five healthcare providers apply AI to denials management.[5] Instead, providers have turned more of their AI investments toward:
- Documentation support such as ambient listening (64%)
- Clinical documentation improvement and compliance assurance for payer interactions (43%)
- Medical coding (30%)
One often-missed opportunity for hospitals to head off denials is to verify the credentials of ordering physicians before a procedure is performed, according to an expert who spoke at HFMA’s 2025 Revenue Cycle Conference.[6] But this is still largely a manual endeavor — and it’s one where AI is not useful at this time.
One path forward: Strengthening payer-provider relations
An HFMA survey found that nearly 58% of healthcare finance leaders report their organization’s relationship with payers has become “somewhat negative” or “mostly negative” in recent years, largely due to challenges around denials management.[7]
What will it take to optimize these relationships so everyone — including the consumer — wins? One way would be to somehow boost trust among the parties involved.
Industrywide, there is a call for increased collaboration between payers and providers. Among respondents to the HFMA survey, three out of four believe increased transparency on the part of payers will be vital to strengthening payer-provider relations.
It’s an area where HFMA is working to make a difference, bringing together payers, providers and other key stakeholders to find common ground.[8]
References
[1] The Commonwealth Fund, “How health insurance coverage denials affect Americans,” June 4, 2026.
[2] Williams, J., “Battle of the Bots intensifies over denials,” hfm, February/March 2026.
[3] Alkire, M.J., Saha, S., and Ingram, M., “Claims adjudication costs providers $25.7 billion – $18 billion is potentially unnecessary expense,” Premier, Feb. 24, 2025.
[4] Williams, J., “Battle of the Bots intensifies over denials,” hfm, February/March 2026.
[5] Feinberg, A., Berger, E., and Dowling, C., “Healthcare IT investment: AI moves from pilot to production,” Bain & Co., Oct. 9, 2025.
[6] Barr, P., “Prevent denials by catching credentialing issues,” HFMA Rev Cycle Edge newsletter, May 26, 2026.
[7] Williams, J., Bridging the payer-provider divide, HFMA, November 2024.
[8] Williams, J., Bold conversations for a healthier system, HFMA’s Vitalic Health initiative, November 2025.
FAQs
What is denials management?
Denials management helps healthcare organizations resolve denied insurance claims and receive the payment they are owed.
What are the most common reasons claims are denied?
The most common reasons healthcare claims are denied include:
- Missing information
- Lack of supporting documentation to explain why the care or service was neededThe type of care or service received isn’t covered by the patient’s health plan
- Medical necessity (in other words, the health plan might not believe the care or service was medically necessary)Lack of prior authorization, which are required by health plans for some procedures
- Lack of timely filing, which occurs when the claim is filed too long after the procedure took place (typically, six months or longer)
How does the denials management process work?
When a denied claim is received, the healthcare revenue cycle team determines the cause of the denial, how to respond to the denial so it will be overturned and how to avoid a similar denial in the future.
Often, a claim is incorrectly denied. For example, use of AI by a health plan might have determined that the care received wasn’t covered by insurance. However, review of the patient’s health plan might indicate otherwise. Ninety percent of claim denials are overturned on appear.
A claim might also be underpaid. In this instance, careful review of the hospital’s contract with the health plan may be needed to counteract the underpayment. This type of scenario is happening more frequently in healthcare.
How can providers prevent denials?
Providers can prevent denials by ensuring that all of the information needed to file a claim is presented accurately. Increasingly, providers also are using AI and predictive analytics to determine why claims are being denied. With this information in hand, providers can then work to proactively prevent denials.
How is AI used in denials management?
On the provider side, AI is used to prevent denials before they happen, such as by analyzing key reasons for denials by each health plan and reviewing claims before they are submitted to ensure they are “clean.” AI is also used to write appeals letters for claims that are denied. AI can produce an appeals letter much more quickly than a human can. Humans then review letters for complex or higher-cost claims before they are submitted.
What is the role of denials management in RCM?
Denials management is a key function for ensuring hospitals, health systems and healthcare providers get paid for the care they deliver. It is essential to protecting a healthcare organization’s ability to meet the needs of the community it serves.
Find out more about denials management
For more resources on understanding denials management in the healthcare revenue cycle, see:
- “Battle of the Bots intensifies over denials,” hfm, February/March 2026
- “Prevent denials by catching credentialing issues,” HFMA Rev Cycle Edge newsletter, May 26, 2026
- Bridging the payer-provider divide, HFMA, November 2024
- “AI Adoption in denials management lags as other RCM uses expand,” HFMA Rev Cycle Edge newsletter, Feb. 5, 2026
- “For-profit health systems turn to AI and automation to manage payer denials,” HFMA, April 7, 2025
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