The High Cost of Denials: How Prior Authorization Challenges Are Draining Your Bottom Line

For healthcare CFOs tasked with preserving margins amid tightening reimbursements and rising labor costs, claim denials represent a persistent and costly challenge. One of the most significant and avoidable drivers of revenue loss? Denials related to prior authorizations.

According to the Medical Group Management Association (MGMA), prior authorization is consistently ranked among the top administrative burdens for healthcare providers, contributing to unnecessary delays, rescheduled services, and ultimately, denied claims that strain your organization’s bottom line [MGMA, 2023].

The Scope of the Problem

The American Medical Association (AMA) reports that 94% of physicians say prior authorizations delay access to necessary care, and 33% report that these delays have led to serious adverse events for patients [AMA, 2023]. For healthcare systems, those delays often cascade into missed revenue opportunities and downstream denials when documentation isn’t submitted on time or is found insufficient.

The Advisory Board found that as much as 12% of hospital revenue can be at risk due to denied claims, with prior authorization issues ranking high among denial reasons [Advisory Board, 2022].

Common Causes of Prior Authorization-Related Denials

1. Incomplete or Inaccurate Documentation
   Clinical documentation may be missing key details needed to meet payer requirements.
2. Failure to Obtain Authorization in Time
   Services are rendered before authorization is approved, especially for urgent or inpatient admissions.
3. Lack of Real-Time Payer Data
   Staff may be working from outdated requirements or payer rules, leading to non-compliance.
4. Fragmented Workflows
   Disconnects between clinical teams, authorization staff, and revenue cycle departments result in missed steps.

The Financial Impact on Health Systems

For CFOs, these operational missteps translate directly into revenue leakage. Denials require rework, delay payments, increase accounts receivable days, and often require costly manual intervention. According to the Council for Affordable Quality Healthcare (CAQH), the industry spends over $13 billion annually on prior authorization processes—an administrative cost that continues to rise [CAQH, 2023].

The average cost to rework a denied claim is $25–$118 per claim, depending on complexity [HFMA, 2021]. For large health systems, this can amount to millions annually in wasted labor and lost revenue.

How CFOs Can Drive Change

Addressing prior authorization denials requires a systemic and strategic approach.

1. Investing in Automation and AI

Leverage technology to auto-verify authorization requirements and track submissions in real-time. Tools that integrate with EHRs can flag missing data or recommend next steps, reducing human error.

2. Strengthening Documentation Processes

Partner with clinical documentation improvement (CDI) teams to ensure that provider notes include all payer-required elements up front. This prevents back-and-forth and increases first-pass approval rates.

3. Prioritizing High-Denial Service Lines

Focus resources on high-volume or high-dollar services that frequently require authorization (e.g., imaging, orthopedics, cardiology). Proactively target these areas for process redesign.

4. Collaborating Across Departments

Break down silos between clinical, operational, and financial teams. A shared dashboard or KPI reporting structure can improve visibility and accountability.

5. Outsourcing Strategically

If internal bandwidth is limited, consider outsourcing prior authorization management to specialized partners. These services often come with guaranteed turnaround times and denial reduction metrics.

Turning Denials into Dollars

For healthcare CFOs, addressing prior authorization denials isn’t just an operational concern—it’s a financial imperative. By investing in better processes and tools, you can reclaim revenue, improve patient satisfaction, and increase the financial resilience of your organization.

Reducing prior authorization denials isn’t only about compliance; it’s about control. And the organizations that take control now will be best positioned to thrive in an increasingly value-driven healthcare economy.

NYX Health – A Trusted RCM Partner

NYX Health is a Revenue Cycle Management company providing comprehensive services for individual healthcare facilities, hospitals, and hospital systems. Our customizable suite of revenue cycle management solutions addresses each hospital’s specific needs and challenges in the ever-evolving regulatory environment. We offer insurance verification, patient scheduling, prior authorization, medical coding, medical claim review, and CDI support. For additional information about our services or to request a quote, please call (866) 826-1539, email  info@nyxhealth.com, or visit nyxhealth.com.

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Sources:

• American Medical Association (AMA). “2023 Prior Authorization Physician Survey.”
  https://www.ama-assn.org
• Medical Group Management Association (MGMA). “Prior Authorization Survey Results.” 2023.
  https://www.mgma.com
• Advisory Board. “Hospital Denials Benchmarking Report.” 2022.
  https://www.advisory.com
• Council for Affordable Quality Healthcare (CAQH). “2023 CAQH Index Report.”
  https://www.caqh.org
• Healthcare Financial Management Association (HFMA). “The True Cost of Denials.” 2021.
  https://www.hfma.org