Revenue cycle challenged by low collection rates, high denials

Photo: Emir Memedovski/Getty Images

Hospitals and health systems have been challenged by lower collection rates from insured patients and higher initial denial rates, which created financial headwinds in 2024, according to data from Kodiak Solutions.

The collection rate for providers from commercially insured patients fell from 37.6% in 2023 to 34.4% in 2024, numbers showed. The lower collection rate came as patients were responsible for a slightly higher percentage of allowable charges.

Provider organizations have offset some of the impact of a lower patient collection rate by improving point-of-service collections and collection on bad debt, the data suggests.

WHAT’S THE IMPACT?

For the fourth straight year, medical providers also faced higher initial claim denials. Payers initially denied 11.8% of claims in 2024, up from 11.5% in 2023 and a 15.7% increase from 2020. The rate of final denials of claims held steady at 2.8%, comparing 2024 to 2023, although the final denial rate is 16.7% higher than in 2020.

The initial denial rate, the data showed, is being driven by commercial health plans and Medicare Advantage plans, which are primarily operated by commercial health insurance companies. Both payer categories saw their initial request for information denials increase from 2023 to 2024, and they were the top payer categories in that metric in both years.

In a statement, Kodiak Vice President of Revenue Cycle Intelligence Matt Szaflarski said that revenue cycle leaders are attempting a range of strategies to combat these headwinds.

“While our data suggest that these headwinds continue to gather strength, I am encouraged by the conversations that my colleagues and I are having with revenue cycle leaders across the country,” Szaflarski said. “These leaders are using revenue cycle data to pinpoint problem areas and then developing creative solutions that will drive their revenue cycle performance in 2025.”

Examples include improving patient education and communication about health plan benefit design and the overall financial experience; furthering integration of their clinical departments with revenue cycle operations; and inserting stronger language in payer contracts and service-level agreements to limit pre-payment audits and denials.

THE LARGER TREND

Nearly 15% of all claims submitted to private payers for reimbursement are initially denied, including many that were pre-approved to move forward through the prior authorization process, according to a national survey of hospitals, health systems and post-acute care providers conducted in March by Premier.

An average of 3.2% of all claims denied included those that were pre-approved via the prior authorization process.

Despite the initial denial, more than 54% of claims rejected by private payers were ultimately paid. Many others may have been ultimately paid but were not fully pursued for payment due to issues such as resource constraints.

Denials tended to be more prevalent for higher-cost treatments, with the average denial pegged to charges of $14,000 and up.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.