Denial Rates Are Climbing: What Healthcare Revenue Cycle Leaders Should Be Watching in 2025

OS Healthcare published an analysis of climbing denial rates and the strategic implications for healthcare revenue cycle leaders in 2025. The report documents a multi-year trend of increasing initial denial rates across both commercial and government payers, with the trajectory showing no signs of reversal. For physician practices, this trend demands a shift from reactive denial management to proactive denial strategy — because the volume of denials arriving at your practice is likely to increase, not decrease, in the near term.

The data is consistent with multiple other sources: initial denial rates have climbed from the high single digits to above 10 percent across the industry, with specific payer-specialty combinations showing denial rates significantly higher. The question is no longer whether denial rates are rising. The question is what practices are going to do about it.

The Drivers Behind Climbing Denial Rates

Several interconnected factors are driving the increase in denial rates:

• Expanded prior authorization requirements. Payers continue to add services to their PA lists, creating more opportunities for PA-related denials. Each new PA requirement creates a new administrative hurdle that, if not cleared perfectly, produces a denial.
• More sophisticated claims editing. Payers are deploying increasingly advanced claims editing software that identifies coding combinations, modifier issues, and documentation gaps that trigger automatic denials.
• Tighter medical necessity criteria. Medical policies are being revised to apply more restrictive criteria for services that were previously approved more routinely. These policy changes produce denials for services that would have been paid in prior years.
• Post-payment audits and recoupment. Even claims that are initially paid are increasingly subject to retrospective review, with payers recouping payments months after the service was rendered.
• Staffing constraints at payers. Payer staffing challenges can paradoxically increase denial rates, as automated systems process more claims without human review and backlogged PA requests result in missed timelines.

The Strategic Shift Required

When denial rates are low and stable, a reactive approach — dealing with denials as they arrive — can be adequate. When denial rates are climbing, a reactive approach leads to an ever-growing backlog of unworked denials, missed appeal deadlines, and accelerating revenue leakage.

The strategic shift that climbing denial rates demand is a move toward denial prevention and early intervention:

Prevention means identifying the root causes of denials and addressing them before claims are submitted. This includes eligibility verification before service, accurate coding at the point of service, thorough documentation of medical necessity, and proactive management of PA requirements. Every denial prevented is a denial that does not need to be appealed.

Early intervention means identifying denied claims immediately upon receipt and triaging them for appeal based on clinical merit, dollar value, and likelihood of success. A denial that sits in a queue for weeks has already consumed part of its appeal window and may have already been written off psychologically by staff.

Metrics That Matter

Practices navigating climbing denial rates need to track several metrics to understand their position and measure improvement:

• Initial denial rate by payer. Not all payers are equal. Identifying which payers deny at the highest rates allows practices to allocate resources and attention accordingly.
• Denial rate by reason category. Understanding whether denials are driven by PA issues, medical necessity, coding errors, or eligibility problems directs prevention efforts to the highest-impact areas.
• Appeal rate. What percentage of denials are appealed? If the appeal rate is below 50 percent, there is almost certainly revenue being left unrecovered.
• Appeal success rate. When appeals are filed, how often do they succeed? A high success rate on low appeal volume suggests the practice should be appealing more aggressively.
• Days to appeal. How quickly are appeals filed after denial? Faster appeal submission correlates with higher success rates and reduces the risk of missing appeal deadlines.
• Net collection rate. The ultimate measure of denial management effectiveness is the gap between what the practice bills and what it collects. A narrowing gap indicates improving denial management; a widening gap indicates that climbing denial rates are outpacing recovery efforts.

The Resource Question

Climbing denial rates create a resource dilemma for physician practices. More denials require more staff time to manage, but the revenue impact of those denials may constrain the practice's ability to hire additional staff. This creates a downward spiral: understaffed denial management leads to lower appeal rates, which leads to lower revenue recovery, which further constrains staffing.

Breaking this cycle requires either investment in denial management capacity — whether through additional staff, technology, or outsourced services — or a fundamental shift in how existing staff time is allocated. Practices that continue to treat denial management as a secondary responsibility of billing staff who also handle claims submission, payment posting, and patient collections will struggle to keep pace with climbing denial rates.

The trend is clear: denial rates are going up. The practices that respond strategically will recover more revenue. The practices that do not will watch the gap between billed and collected revenue widen year over year.