Run the numbers on a single mid-sized practice and the problem stops feeling abstract. Send out 300 claims in a month, and at the roughly 11.8% initial denial rate that Kodiak Solutions and HFMA reported for 2024, about 35 of them come back denied. Here is the part that actually stings. HFMA also estimates that around 60% of denied claims are never reworked. So of those 35 denials, close to 21 quietly turn into revenue the practice earned but will never collect.
Now multiply that across a year, then across the country, and the scale gets hard to ignore. Change Healthcare’s analysis initially denied U.S. hospital claims at roughly $262 billion a year. Meanwhile, Experian’s 2025 State of Claims survey found that 41% of providers now run denial rates of 10% or higher, up from 30% in 2022. Denials, in other words, have shifted from an occasional annoyance into a steady leak in the floor.
The encouraging part is that most of that leak is preventable. And in 2026, a growing number of practices are plugging it much further upstream than they used to.
The real cost is the rework, not the denial
A single denial rarely looks alarming on its own. The damage is in what it takes to fix. According to MGMA, reworking one denied claim costs about $25 or more in staff time, and the messy ones run far higher. Premier estimated that U.S. hospitals spend roughly $19.7 billion a year just overturning denials, at around $57 per reworked claim.
Then there is the cash-flow drag. Even when a claim eventually gets paid, the appeal can take 45 to 90 days, which pushes revenue further and further from the date of service. For a practice running on thin margins with a small billing team, that delay is often the difference between making payroll comfortably and sweating it.
Why denials are climbing in 2026
Several pressures are stacking up at once. Prior authorization requirements keep expanding, for one, and payers are applying automated edits more aggressively than before. Guidehouse’s 2026 Revenue Cycle Trends Report found that the share of providers reporting denial rates above 5% nearly doubled, jumping from 12% to 20%.
Regulation is shifting the ground too. Since January 1, 2026, the CMS Interoperability and Prior Authorization Final Rule (CMS-0057-F) has required affected payers to decide standard prior authorization requests within seven calendar days, handle expedited ones within 72 hours, and give a specific reason for every denial. That transparency should help over time. In the short term, though, it lands alongside stricter coding edits and new procedure classifications that can turn a previously clean claim into a rejected one overnight.
Most denials are decided before the claim ever goes out
Here is the pattern that surprises people. The majority of denials do not originate in the billing office. They start at the front desk and in the exam room, in the electronic health record where the visit is documented, well before anyone hits submit.
The usual culprits are familiar:
- Eligibility and coverage errors, like an outdated member ID or a plan mismatch caught too late
- Coding gaps, including missing modifiers, unsupported diagnoses, or improper bundling
- Thin clinical documentation that does not support medical necessity
- Prior authorization that was missed, left incomplete, or filed after the fact
Because these issues get baked in early, chasing them after a denial is the slow and expensive way to solve the problem. Fixing them before submission is the cheap way. That single distinction is quietly changing how billing teams spend their time.
The shift from recovery to prevention
That logic is driving the biggest change in revenue cycle work right now. For years, denial management mostly meant reacting: a claim comes back, someone appeals it, and everyone waits. Increasingly, practices are flipping the order and catching problems at the source instead.
In practice, prevention looks like real-time eligibility verification before the visit, automated claim scrubbing against payer-specific rules, and a clean charge-capture process that does not drop implant lines or miss modifiers. The number to watch is the first-pass, or clean claim, rate, which is simply the share of claims paid on the first try. Teams that put systematic pre-bill scrubbing in place often move their denial rate from the 11 to 15% range down to 5 to 7% within 60 to 90 days.
This is also where software has quietly become the workhorse. Modern revenue cycle management platforms that catch coverage and coding problems before a claim is ever submitted fold eligibility checks, claim edits, and denial tracking into one connected workflow, so fewer errors slip through to the payer in the first place. The point is not fancier technology for its own sake. It is moving the work earlier, to the stage where each fix costs the least.
Where automation helps, and where it doesn’t
Automation has real limits, so it is worth being honest about them. AI is genuinely good at the repetitive, rules-based parts of billing. For instance, flagging a missing modifier, confirming coverage, prepping a prior authorization packet, drafting a first-pass appeal. An HFMA and AKASA survey found that 80% of health systems were exploring, piloting, or implementing generative AI for revenue cycle work in 2025, up from 58% two years earlier.
What automation cannot do is replace judgment. A tool can flag that a claim looks risky, but a person still decides how to code an unusual encounter or how to frame a medical-necessity appeal. The practices getting the most out of these tools tend to treat them as a way to clear busywork off the desk rather than as autopilot. Used that way, the payoff shows up fast. In one recent survey, 69% of providers using AI in their claims process said it had reduced denials and improved resubmission success.
A practical place to start
You do not need to overhaul everything at once. If denials are creeping up, a focused first pass usually surfaces most of the missing money:
- Pull 90 days of denials, sort them by reason code, payer, and provider, then fix your top three categories before touching anything else
- Verify eligibility before the visit, and re-check it 24 to 48 hours ahead for scheduled encounters
- Keep superbills and coding templates current with the latest CMS updates
- Track your first-pass rate every month, so you catch a payer’s new edit before it costs you a full quarter
None of this makes denials vanish outright. Payers will keep tightening the rules, and some rejections are simply unavoidable. Even so, the gap between practices that treat denials as a cost of doing business and those that treat them as a fixable process keeps widening. The second group is the one holding onto that 21-in-35 that would otherwise slip away. And in a year when reimbursement is getting squeezed from several directions at once, recovered revenue like that is often the easiest money a practice will find all year.