Hospitals and health systems spent an estimated $25.7 billion in 2023 contesting insurers’ claims denials, translating to just over $57 in additional administrative costs per claim, according to a report from provider group purchasing organization Premier.
That report, which surveyed 280 of the organization’s member hospitals, suggests a 23% increase in spending over a similar analysis of 2022 data Premier had conducted a year prior.
Premier calculated the total spend by multiplying providers’ reported 15% denial rates against the 3 billion medical claims processed by insurers annually (as of 2020 statistics from the Council for Affordable Quality Healthcare).
The group also found that 69% of those 2023 contested claims were eventually paid out by insurers, also up from 2022’s 54% ultimate payout rate. Extrapolating the 2023 rate suggests nearly $18 billion “was potentially wasted arguing over claims that should have been paid at the time of submission,” Premier wrote in its report.
In 2022, that estimate was $10.6 billion. Both tallies represent the provider side of the face-off, Premier noted, and do not represent the billions spent by payers.
“This continued burden has a tremendous impact on providers’ financial viability,” Premier wrote in the report, published Monday on its blog. “Over the past year, the average number of days of cash on hand for hospitals and health systems overall dropped to 196.8 days, the lowest level in a decade. When providers lack cash on hand, they are unable to re-invest in patient care and may also suffer from downgrades in bond ratings, making cash more expensive and harder to obtain.”
Premier’s members reported prior authorization requirements on over 20% of all 2023 claims, up from 17% in 2022, with Medicare Advantage plans specifically requiring prior authorization for 30.5% of claims. More than 10% of denied claims in 2023 included a preapproved claim.
Once denied, providers said they went through an average of three rounds of review with insurers before a claim was settled, Premier wrote, with each of those taking between 45 days and 60 days. The report also highlights the difficulties of “largely manual” claims submissions when many providers report staffing shortages.
Prior authorization and other so-called utilization management tactics are a key focus for provider lobbying groups, which point to Medicare Advantage plans as the worst offenders.
Though the Centers for Medicare & Medicaid Services finalized a rule early last year that will require health plans to send prior authorization decisions within three days for urgent requests and seven days for standard requests, starting in 2026, they’re pushing for additional legislation that would standardize the process.
Physicians are also worrying that new technologies employed by payers to reduce their administrative burdens could have detrimental effects. In a recent American Medical Association (AMA) survey, 61% of physician respondents said they are “concerned” that the use of AI by health plans is increasing prior authorization denials, driving avoidable patient harm and increasing administrative waste.
“Emerging evidence shows that insurers use automated decision-making systems to create systematic batch denials with little or no human review, placing barriers between patients and necessary medical care,” AMA President Bruce Scott, M.D., said in a Monday release. “Medical decisions must be made by physicians and their patients without interference from unregulated and unsupervised AI technology.”
Conversely, Premier is a vendor for automation and coding tools designed for provider customers. A segment of its report pointed to the technology as a potential resource for providers to “check payer policy changes, alert staff when prior authorization is needed, gather relevant documentation and review authorization requests for accuracy.”