New AHA Report: Hospitals and Health Systems Squeezed by Persistent Economic Challenges

The American Hospital Association's Costs of Caring report documents the persistent economic pressures squeezing hospitals and health systems, with denial management and administrative complexity identified as significant contributors to financial strain. While the AHA report focuses on hospitals, the dynamics it describes affect physician practices with equal force — and in some ways, greater vulnerability.

The report paints a picture of an industry where clinical revenues are increasingly consumed by the administrative machinery required to collect them. For physician practices operating on thinner margins than hospitals, the implications are worth examining closely.

The Administrative Cost Problem

The AHA report documents that administrative costs continue to consume a growing share of healthcare spending. Denial management is a significant component of this administrative burden. Every denied claim generates downstream costs: staff time to review the denial, clinical time to provide additional documentation, administrative time to prepare and submit appeals, and management time to track outcomes and identify patterns.

For hospitals, these costs are spread across large revenue cycle departments with dedicated denial management teams. For physician practices, the same work falls on a much smaller staff — often on the same people responsible for patient scheduling, billing, collections, and every other administrative function. The per-claim cost of denial management may actually be higher in physician practices because the work cannot be specialized.

Payer Behavior as a Financial Pressure

The report identifies payer policies — including prior authorization requirements, claims editing, and post-payment audits — as contributing factors to the economic pressure on healthcare providers. This is significant because it frames administrative burden not as an intrinsic cost of healthcare delivery but as a cost imposed by payer behavior.

That framing matters for physician practices because it positions the cost of denial management as a negotiable element of the payer-provider relationship. When a payer's denial rate increases, the payer is not just denying individual claims — it is imposing costs on the practice that reduce the effective reimbursement rate below the contracted rate. A payer contract that reimburses at $150 per visit but denies 15 percent of claims is not actually a $150-per-visit contract. It is a contract that pays less than $150 per visit after accounting for the claims that are denied and not recovered.

The Revenue Cycle Squeeze

The AHA report highlights several dimensions of the revenue cycle squeeze that are directly relevant to physician practices:

• Rising denial rates. Initial denial rates have climbed steadily, with some data sources showing rates exceeding 10 percent across all payers. For specific service categories and payer combinations, denial rates can be substantially higher.
• Increasing appeal complexity. Payers are requiring more detailed clinical documentation for appeals, extending the time and expertise needed to contest each denial.
• Post-payment recoupment. Payer audits that result in post-payment takebacks add another layer of revenue uncertainty, requiring practices to defend payments already received.
• Staffing costs. The labor market for qualified billing and revenue cycle staff remains competitive, with salaries rising while the pool of experienced professionals remains limited.

Implications for Physician Practice Strategy

The AHA report reinforces what many physician practices already feel: the economics of healthcare delivery are being eroded by the administrative costs of getting paid. The question is what to do about it.

Practices cannot control payer behavior, but they can control their response to it. The most effective responses include:

Treating denial management as a revenue function, not an administrative function. The return on investment for effective denial management — measured in recovered revenue per dollar spent on appeals — typically exceeds the ROI of many other practice investments. Practices that chronically understaff or under-resource denial management are making a financial decision, whether they recognize it as one or not.

Using denial data to inform payer contract negotiations. When a practice can demonstrate that a specific payer's denial rate imposes measurable administrative costs, that data becomes a negotiating asset. The effective reimbursement rate — net of denials and the cost of managing them — should be the metric used to evaluate payer contracts, not the nominal fee schedule.

Investing in denial prevention. The AHA report's emphasis on rising administrative costs underscores the value of preventing denials before they occur. Clean claim submission, accurate coding, thorough documentation, and proactive eligibility verification all reduce the volume of denials that require downstream management.

The AHA's Costs of Caring report describes a systemic problem. Physician practices cannot solve systemic problems individually. But they can position their operations to survive and succeed within the current environment — and that starts with treating denial management as a strategic priority, not a back-office afterthought.