Fall 2025 Issue

Cracking the Code
By Susan Chapman, MA, MFA, PGYT
For The Record
Vol. 37 No. 4 P. 14

How Health Care Organizations Can Shorten the Payment Timeline

As payer reimbursement timelines grow longer, hospitals and other health care providers are left struggling with cash flow issues. In 2024, the largest hospital systems, those with operating expenses totaling more than $2.5 billion, experienced a 12.2% deficit at the start of the year, with an average shortfall increase of 17.9% through March 2024. Meanwhile, the smallest hospitals, organizations with operating costs of less than $500M, were impacted by an average 17.1% shortage, beginning with a 12% deficit at the start of 2024 that then increased to 20.4% by the quarter’s end.1

Fortunately, there are tools health care providers can employ to help mitigate this issue. Data-driven insights can help address bottlenecks within the process that contribute to delays, and there are other strategies to accelerate reimbursement.

Causes of Delays
One potential reason for the delays health care providers are experiencing is the increased use of technology in payment decisions, with machine learning playing a greater role in denials. AI algorithms can be opaque, with even developers unaware of what could be triggering denials, leaving the customer care agents who are charged with assisting providers and patients in unraveling payer decisions often unable to help.2 The issue is so widespread that CMS noted that Medicare Advantage organizations “must ensure that they are making medical necessity determinations based on the circumstances of the specific individual … as opposed to using an algorithm or software that doesn’t account for an individual’s circumstances.”3 Additionally, denials “based on a medical necessity determination must be reviewed by a physician or other appropriate health care professional with expertise in the field of medicine or health care that is appropriate for the service at issue.”3

Teri Gatchel-Schmidt, vice president of consulting and business development with SYNERGEN Health, cites other reasons for these lag times. “Medicare continues to remain the best payer in terms of overall turnaround time, sometimes paying in as few as 21 days. However, other payers, due to the increase in denials, have slowed payments,” she explains. “Providers may not receive the denial for a couple of weeks, and then the response and appeal can take another few weeks. It could then be another 60 days before they receive a payer response, which can then result in about 120 days without payment. After that time, there still might need to be an additional appeal.”

Revenue Cycle Bottlenecks
Gatchel-Schmidt identifies the two primary areas where bottlenecks in the revenue cycle typically occur. The first common occurrence takes place if a health care provider’s claim falls under payment review.

“If that happens, it is one of the worst-case scenarios,” she says. “It means that, essentially, the provider will not be paid for a certain number of days, whatever the timeframe the payer decides the provider will be under a review. During that time, the provider must submit all medical records for all services performed. Then, the payer will review the medical records and decide whether payment can be made. That process can actually halt revenue, and we’ve seen it occur with specific payers for up to six months.”

The second way many providers are experiencing holdups is due to the complexity of claims processing and the need to address an enormous amount of correspondence from payers. “Many large health care systems have ways to automate the workflow so that they can deal with accounts receivable management and denials,” Gatchel-Schmidt says. “For example, there are workflow automation tools that help providers respond based on when they receive a standard denial or remark code. However, now, instead of a health care provider receiving a remittance that’s electronic for the team to post with an action code, like a response code, payers are sending paper correspondence, sometimes up to 150 pages. That paperwork requires someone to read and interpret it and then make a decision on what is needed, which is likely different each time. If a large provider is processing two million claims a month, that creates a tremendous burden on the staff.”

According to Gatchel-Schmidt, one solution to this problem is the incorporation of optical character recognition (OCR) technology, which automatically extracts text from a scanned image so that it can be read. “Then, we use large language models that enable us to interpret the reason that we’re getting the denial, what the payer is asking for, whether it is an actual denial, and what is the correct fix so that then we can drop it back into our workflow process. In that way, using automation, we can correct the issue,” she says.

Identifying Root Causes
Being proactive could enable health care organizations and providers to address denials before they occur, and one way to accomplish that is for providers to identify root causes, which they can do by tracking their denial trends. “If hospitals, physician groups, or labs are trending denials, they can identify their root causes and be able to correct them, which then stops the downstream impact,” explains Gatchel-Schmidt. “Whether providers are experiencing claim rejections immediately or receiving actual denials due to claim errors or omissions, if they’re not tracking and trending them, then it can have a huge effect on cash flow. Doing this makes those denials easily preventable. If you don’t have the analysis to trend, though, then you don’t have the visibility into what’s happening, and you can’t have a proactive strategy to reduce the denials.”

Gatchel-Schmidt notes that by using trending data, providers can create standard operating procedures for denials—denial playbooks—for their teams, ensuring they know how to proceed every time they encounter a denial. “Investment in automation is going to be key in the future to keep up with the increased volume of denials, but these procedures are ways that smaller groups, which can’t make high-end technological investments quite yet, can still manage the process,” she says.

Automation
A survey published by the American Medical Association (AMA) notes that the increasing use of AI is creating great concern among health care providers when that technology is used in the prior authorization process. Health care plans use prior authorization to control costs by “requiring advance approval to obtain a prescription medication or medical service for a patient. … Spending rises under this practice due to additional office visits, unanticipated hospital stays, and out-of-pocket costs for treatment.”4

According to AMA Immediate Past President Bruce Scott, MD, “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.”4 The survey, which included 1,000 physicians, 400 of whom were primary care providers and the remainder from other specialties, revealed that more than 80% of those queried stated that the prior authorization process has sometimes led patients to opt out of treatment altogether. More than 90% of physicians surveyed said that the practice of obtaining prior authorization has at least delayed care.4

The AMA points to a 2024 Senate committee report that found the rising use of AI among payers has contributed to a care denial rate that is up to 16 times higher than the typical rate, something Scott believes is counter to what health care professionals and their patients want. “Using AI-enabled tools to automatically deny more and more needed care is not the reform of prior authorization physicians and patients are calling for,” Scott says.4

Utilizing OCR, as Gatchel-Schmidt and her team do, is one way organizations can efficiently manage the paperwork they receive from payers, thereby accelerating the payment process and providing information that can help identify trends. Front-end solutions, including eligibility and coverage discovery, are reasonable starting points for providers.

“Everyone should know what their top denials are,” Gatchel-Schmidt advises. “Usually, when we do an analysis, eligibility and verification are typically at the top of what can help mitigate the payment delays. With automation, for example, you can do bulk eligibility and verification, and, at the same time, you can do primary and secondary payer validations. Organizations can even create rules to build in individual payer nuances, helping to identify differences such as those between Medicare plans and Medicare Advantage, among other things.

“This brings us back to watching trends,” Gatchel-Schmidt adds. “You have to be monitoring your trends to know what the top denials are, what percentage of claims is being denied, and how to fix those. But what we also often look at is what we call the first-time payment rate, which is a good indication of how many of your claims, or what percentage of your claims, are getting paid with little to no intervention.”

Smaller Organizations
Many revenue cycle vendors partner with health care organizations of varying sizes, essentially providing an extra set of hands that allows them to have the technology that they otherwise could not afford. When it comes to smaller, rural organizations, however, even that type of partnership may not be viable. Smaller organizations often have limited budgets and potentially lack the technical expertise that would enable them to adopt more complex technology easily. Additionally, smaller organizations and providers face the challenges of having a smaller pool of data from which AI systems can learn, making it more challenging to ensure that AI tools can be effective in their settings.5

“I believe it is going to be very challenging in the future for smaller health care organizations especially, if they do not have a partner in this process,” Gatchel-Schmidt says. “But what is good now is that there are all types of hybrid contracts that are available with outside vendors. Gone are the days when an organization might consider outsourcing the complete revenue cycle services to a vendor. Instead, vendors may be providing only some assistance with denial management and appeals.”

Potential Opportunities
Health care leadership can sometimes fall prey to misconceptions regarding denials, for example, believing that increased denials are due to staff errors. However, oftentimes, staff do not have the proper tools or technology to address the increased volume of paperwork they receive from payers.

“Cash flow delays due to denials really have an impact on an organization,” Gatchel-Schmidt says. “Yet the easiest thing to improve your cash flow is to reduce the denials. So, if providers don’t have the proper analytics to point staff in the right direction as to what is being denied, then the organization won’t have a good understanding of why their cash flow has taken a significant turn.” Gatchel-Schmidt notes that a transformation of the revenue cycle would occur if patients could swipe their insurance cards at the time of service and providers would be paid accordingly. However, such immediate payment is not yet the reality in health care.

While AI can present challenges, as with the opacity of its algorithms and, for some providers, the technology’s expense, AI can also present new opportunities for the health care industry. “It’s an exciting technology in many ways, and some of the automation that we’re seeing can be greatly beneficial, despite the challenges it also presents,” Gatchel-Schmidt says. “I believe that there are ways that we can see improvements in the payment turnaround, but I think it’s going to take a combined effort with some legislation as well as some active and vocal groups to effect change.

“The idea of paying at the time a patient is being seen is something that could be on the horizon and is certainly being discussed among providers. In fact, some providers are already receiving payment in advance. If they know whether a patient has met their deductible and their contracted rate, they can provide an estimate and collect for services rendered. But as far as the payers’ meeting their responsibility, we haven’t seen it yet. As we move into different payment models, though, we could see a scenario where payment could indeed be rendered in advance, which would make a significant difference in revenue cycle management and cash flow.”

— Susan Chapman, MA, MFA, PGYT, is a Los Angeles–based freelance writer, editor, and author.

 

References
1. Wasson S. Performance trends report, first quarter 2024. https://info.stratadecision.com/hubfs/Performance%20Trends%20May_HC.0000.05.24_Final.pdf

2. Mello MM, Rose S. Denial—artificial intelligence tools and health insurance coverage decisions. JAMA Health Forum. 2024;5(3):e240622.

3. Medicare program; contract year 2024 policy and technical changes to the Medicare Advantage program, Medicare Prescription Drug Benefit program, Medicare cost plan program, and Programs of All-Inclusive Care for the Elderly. Federal Register. April 12, 2023. https://www.federalregister.gov/documents/2023/04/12/2023-07115/medicare-program-contract-year-2024-policy-and-technical-changes-to-the-medicare-advantage-program

4. Lubell J. How AI is leading to more prior authorization denials. American Medical Association website. https://www.ama-assn.org/practice-management/prior-authorization/how-ai-leading-more-prior-authorization-denials. Published March 10, 2025.

5. Esmaeilzadeh P. Challenges and strategies for wide-scale artificial intelligence (AI) deployment in healthcare practices: a perspective for healthcare organizations. Artif Intell Med. 2024;151:102861.