The Impact of Claim Denials on Healthcare RCM

There’s a saying about challenges being inevitable but defeat being optional. When it comes to both claims management and healthcare revenue cycle management (RCM), the challenges are inevitable, but accepting claim denials as a cost of business is to accept defeat.

Claim denials can be a huge drain on healthcare practice resources including time, teams, and finances. Understanding how claim denials siphon resources may not prevent them all, challenges are, after all inevitable, but it will give you options to mitigate the impact. The tools and resources available to modern healthcare practices can significantly reduce claim denials and help create a more reliable revenue management system.


Quick Links:

• Understanding Claim Denials: A Hidden Revenue Drain
• The Financial and Operational Costs of Claim Denials
• Root Causes of Claim Denials in Medical and Dental Practices
• The Role of Advanced RCM Tools in Reducing Denials
• Achieving Financial Resilience Through Claims Management

Understanding Claim Denials: A Hidden Revenue Drain

There’s little doubt that submitting a claim to insurance and having it denied is a major challenge in healthcare revenue cycle management (RCM), impacting cash flow, operational efficiency, and patient satisfaction.

While claim denials are often perceived as a normal part of the billing process, their cumulative effect represents a substantial revenue drain. Industry reports suggest that nearly 15% of claims are denied initially, and reclaiming these funds requires significant administrative time and resources, often with no guarantee of success.

Regardless of  the reason for claim denials, the cost to rework a denied claim averages $25. Unfortunately, depending on the complexity and volume of denied claims, some organizations may incur even higher expenses. This not only delays payment but diverts resources from higher-value tasks such as optimizing patient care or improving billing efficiency.

Additionally, claim denials impact revenue predictability. Healthcare practices rely on consistent revenue streams to maintain operations, and unresolved denials disrupt cash flow, sometimes forcing organizations to absorb losses or pursue potentially expensive legal and administrative remedies. Those payment delays can have a significant impact on practice growth and patient care. 

For healthcare organizations, maintaining patient trust while navigating the intricacies of healthcare RCM is a delicate balance, one that becomes even more challenging when claim denials go unaddressed.

The Financial and Operational Costs of Claim Denials

Claim denials are more than just administrative inconveniences—they represent significant financial and operational burdens for healthcare organizations. On the financial front, every denied claim translates into delayed or lost revenue.

As we mentioned above, the American Medical Association estimates the cost to rework a denied claim averages between $25 and $118. For practices processing hundreds or thousands of claims monthly, even a modest denial rate can lead to six-figure losses annually. Moreover, about 65% of denied claims are never resubmitted, compounding the financial hit as uncollected revenue accumulates. 

Operationally, claim denials force administrative teams to shift focus from productive tasks or patient care to time-consuming rework. Manually identifying the cause of a denial, gathering missing information, and resubmitting claims can take hours or even days per claim.

For smaller practices, this strain is often felt acutely as limited administrative resources are pulled away from tasks that directly impact patient care or operational efficiency. Even for larger organizations, high denial volumes can lead to bottlenecks, increased labor costs, and burnout among staff, as they grapple with redundant workflows.

Beyond rework costs, denials also result in indirect expenses. For example, unresolved claims may lead to underpayment issues, inaccuracies in financial forecasting, and increased reliance on external collections agencies—each of which introduces additional expenses. For practices that handle collections internally, this can complicate patient relationships as well.

Unfortunately, poor claim and denial management can also trigger compliance risks if claims are repeatedly flagged for issues like incorrect coding or missing documentation. This increases the likelihood of audits, fines, and reputational damage, which can further strain an organization’s resources and financial stability.

These financial and operational pressures highlight the need for healthcare organizations to adopt advanced software solutions tailored to denial prevention and resolution. Coding assistance, automated insurance verification, and automated claim support can all help reduce errors at the front end, significantly lowering the likelihood of denials.

Additionally, streamlined workflows and practice analytics capabilities empower organizations to identify trends in denials, implement corrective actions, and allocate resources more efficiently. Addressing the root causes of claim denials helps mitigate significant financial and operational costs, creating a more reliable and sustainable revenue cycle.

Root Causes of Claim Denials in Medical and Dental Practices

Claim denials often stem from preventable errors or inefficiencies in the healthcare billing process. For both medical and dental practices, the complexity of coding, payer-specific rules, and documentation requirements can create multiple points of failure. These issues not only delay reimbursements but also increase the workload for administrative teams, reducing operational efficiency.

Understanding the root causes of claim denials is critical to addressing them proactively. Many denials result from a lack of automation or real-time error detection in the claims process. Practices relying on manual workflows are especially prone to mistakes, as human error is more likely to creep into repetitive tasks such as coding and data entry.

The most common root causes of claim denials include:

• Coding Errors: Incorrect or incomplete procedure and diagnosis codes, particularly in specialties with complex coding systems like dental practices.
• Missing or Incomplete Documentation: Absence of required records, such as treatment notes or prior authorizations, to support the claim.
• Eligibility and Coverage Issues: Claims submitted for patients with inactive insurance, unmet deductibles, or uncovered services.
• Timely Filing Errors: Claims not submitted within the payer's specific filing deadline, leading to automatic rejection.
• Mismatched Patient Information: Errors in demographic or insurance data, such as misspelled names, incorrect policy numbers, or outdated addresses.
• Policy Changes by Payers: Denials caused by payer-specific rules or updates that are not communicated effectively to providers.
• Duplicate Claims: Submitting the same claim multiple times without indicating corrections or additional information.
• Unbundling and Bundling Issues: Incorrectly separating or grouping services that should be billed together, violating payer rules.

By identifying these root causes, practices can take targeted actions to reduce denial rates. Advanced software solutions with dental and medical coding assistance and automated claim scrubbing can play a pivotal role in detecting and correcting these errors before submission, ultimately saving time, resources, and revenue.

The Role of Advanced RCM Tools in Reducing Denials

As much as they are a challenge, claim denials need not be a time-consuming focus for your practice. Advanced healthcare RCM tools are transforming how medical and dental practices handle claim denials, shifting the focus from reactive troubleshooting to proactive prevention. 

Practices equipped with automated tools can identify and address potential issues before claims are submitted, significantly lowering the risk of denials.

One of the most impactful features of modern RCM software is coding assistance. Coding tools use AI and machine learning to suggest accurate procedure and diagnosis codes, flagging inconsistencies and compliance risks before claims are sent.

Additional billing and claims support can further improve accuracy by checking for missing information, mismatched data, or payer-specific rule violations. With these resources, practices can avoid common errors like incorrect codes or eligibility mismatches, which account for a significant portion of claim denials.

RCM tools can also help streamline resubmissions and appeals for denied claims. More specifically, detailed denial analytics help practices identify trends and root causes, enabling targeted corrective actions. For example, practices can track which payers or services experience the highest denial rates and adjust workflows or billing strategies accordingly. 

Beyond reducing denials, advanced RCM tools improve operational efficiency and cash flow. For example, when starting with automated insurance verification, practices can first ensure patients are covered for treatments or procedures and then maximize that coverage by scheduling out covered follow-ups in advance.

Additionally, automated workflows reduce the administrative burden on staff, freeing them to focus on higher-value tasks like patient engagement. Faster claim approvals and fewer resubmissions also lead to quicker reimbursements, improving financial stability and revenue predictability.

Achieving Financial Resilience Through Claims Management

Effective claims management is crucial for building financial resilience in healthcare and dental practices. Advanced RCM tools play a pivotal role in this effort, helping practices meet coding challenges by automating error detection, improving coding accuracy, and enhancing claims tracking.

However, technology alone isn’t enough. Practices must also foster a culture of continuous improvement, focusing on training staff, monitoring key performance indicators (KPIs), and collaborating effectively with payers to reduce friction in the claims process.

Here are actionable tips to enhance claims management and achieve financial resilience:

• Invest in Coding Assistance Tools: Use software that suggests accurate codes and identifies potential errors before claims are submitted.
• Automate Insurance Verification: Implement systems that verify patient insurance coverage and eligibility in real-time to avoid rejections.
• Train Billing Staff Regularly: Provide ongoing education on payer policies, compliance requirements, and software tools to reduce human error.
• Monitor Denial Trends: Use analytics to track denial rates, identify recurring issues, and address root causes systematically.
• Stay Updated on Payer Policies: Regularly review payer guidelines and communicate updates to billing teams to avoid unnecessary denials.
• Streamline Documentation: Ensure all required records, such as prior authorizations and treatment notes, are collected and submitted with claims.
• Implement Timely Filing Alerts: Use automated reminders to ensure claims are submitted within payer deadlines.
• Leverage Denial Management Software: Adopt tools that simplify the resubmission and appeals process for faster recovery of denied claims.
• Engage Patients Early: Provide clear estimates of costs and insurance coverage to avoid confusion and improve collections.

If you’re ready to see how the right tools and the right healthcare workflow platform can help you meet your RCM goals, reach out to the iCoreConnect team today and book a demo. Our software was built to help not only to help with claims management solutions, but also to help healthcare practices minimize revenue losses, improve efficiency, and establish a more reliable and resilient financial foundation.