Dive Brief:
- Hospitals collectively lost an estimated $132 billion last year due to write-offs for bad debt and final claim denials, according to a new report from revenue cycle analytics company Kodiak Solutions.
- Revenue leakage was up by nearly 18% compared to 2024, as hospitals continued to see write-offs take up about 10 percent of net revenue last year, the analysis of Kodiak’s proprietary data showed.
- This increase comes in the face of rising revenue cycle technology budgets, with more AI tools coming to market promising to improve hospitals’ financial performance, Kodiak executives said.
Dive Insight:
Hospitals have operated on razor-thin margins coming out of the COVID-19 pandemic due to surging operating expenses, growing administrative friction and rising uninsured and underinsured rates.
Coupled with industry-wide staffing shortages, hospital leaders have invested more in technology, especially AI tools, to bolster their bottom lines. Collectively, these budgets have increased by 7.6% to $69 billion this year, according to a February report from Forrester cited in the Kodiak analysis.
Revenue cycle management has been a hotbed of hospital IT investments, especially with emerging agentic AI technologies that promise to take some resource-intensive — and notoriously burdensome — tasks, such as prior authorizations.
Despite these steep investments, though, hospitals continue to face the same revenue cycle challenges over the last couple of years. The Kodiak analysis found that the hospitals using their platform lost $52 billion last year from bad debt and final claim denial write-offs, with that number growing exponentially when extrapolated to all 6,100 registered hospitals in the country.
The write-offs stemmed from bad debt, which as a percentage of net revenue has hovered around 7% over the past three years. Final denial rates also plateaued at around 3% during this time.
While these key metrics of hospitals’ financial health haven't increased, facilities are losing more money overall, likely due to high-dollar denials, case mix shifts and a rising tide in total hospital revenue.
With little financial improvement, providers may not be “adequately distinguishing between technology needed to operate the revenue cycle and the capabilities needed to optimize their financial performance,” Kodiak researchers explained in the analysis.
Revenue cycle technologies may be lacking the depth of data analysis providers need to pinpoint exactly why they are losing revenue and where there are opportunities to improve reimbursement and collections, they said.
These tools may also be making flawed processes more efficient as payers and providers race to implement AI to streamline their workflows and cut costs, according to a report from Peterson Health Technology Institute earlier this year.
For example, prior authorizations have been a top use case for AI in healthcare, but the PHTI report said the technology has yet to reduce costs across the healthcare system as a whole, despite individual organizational savings. More structural changes to how payers design prior authorizations would be more effective, the report indicated.
AI implementation remains a priority for insurance companies as they seek to clear operational bottlenecks in claim processing and counter hospital revenue increases driven by more aggressive coding enabled by AI billing software.
Matching or exceeding payer AI investments has been the difference between sink or swim for providers. The healthcare industry has been described as a zero-sum game in which a dollar successfully denied or clawed back adds to a payer's bottom line while taking from the hospital's operating margin. This has given rise to an AI arms race as both sides try to streamline operations and improve financial performance.
However, hospitals may need to reconsider their technology budgets to implement automated tools that help lift their key performance indicators while remaining competitive with payers, according to Kodiak.
