Pediatric health systems, like their adult counterparts, are under more financial pressure than ever. Unfortunately, most of the current revenue cycle technology wasn’t built for them.
Children’s hospitals treat some of the most complex patients in health care on some of the thinnest margins in the industry.
A cohort of 21 children’s hospitals tracked by Advisory Board saw operating margins fall from double digits to roughly 1 percent this past year, driven largely by a 54 percent jump in bad debt — a median $4.8 million increase per children’s hospital, against $157,000 for hospitals generally.
At the same time, close to 2 million fewer children are enrolled in Medicaid than at the start of 2025. Medicaid is the majority payer for most children’s hospitals, so a shrinking, increasingly uninsured patient base adds significant pressure and makes margins even thinner.
That pressure lands admission by admission, chart by chart, and denial by denial. Unfortunately, current systems weren’t created with pediatric patients in mind, and subsequently leaves children’s hospitals poorly equipped to review and capture the value of the care they’ve provided.
The cost of getting pediatric criteria wrong
As a pediatric CDI specialist, Jeff Morris, RN, has spent years fighting denials and defending documentation for some of the most vulnerable patients in health care.
One frustration that would come up over and over for his pediatric team? Payers applying adult standards to their patients.
Take the time a payer challenged his team’s diagnosis of a newborn’s breathing issues and referenced their respiratory failure criteria.
Morris agreed. The newborn didn’t meet the criteria the payer cited. But that was exactly the problem: adult respiratory failure criteria do not apply to neonates. Evaluated against the correct neonatal criteria, the clinical picture was clear: the newborn needed hospital-level care.
So on top of caring for an extremely fragile infant, Morris and his team had to comb through the chart, assemble evidence, and write an appeal explaining why adult definitions don’t apply to a newborn. Multiply that fight across a full caseload of pediatric encounters, and the toll shows up in hours of expert time and real dollars spent re-proving that the care delivered was clinically sound.
Here’s the broader truth about pediatric medicine: kids are not small adults. Their diseases, physiology, treatment approaches, and documentation requirements are fundamentally different. Revenue cycle management and payer reviews must take that complexity into account.
Pediatric conditions don’t play by adult rules
Adult and pediatric medicine may share a diagnosis name, but they rarely share the same cause, course of treatment, or documentation standard.
The documentation requirements aren’t close. Pediatric cases demand far more specificity to reflect true severity. A note that would pass for adequate in an adult chart often falls short of what a pediatric case actually needs.
That gap cuts both ways. Documentation that doesn’t capture the full clinical picture doesn’t just risk denials later — it risks under-coding legitimate severity and complexity from the start, losing revenue that was earned before the claim ever goes out.
Clinical AI can improve documentation, coding, denial prevention, and revenue capture. But only if the clinical reasoning underneath it is appropriate.
A pediatric-centric system has to recognize the differences that matter: age-specific vital sign ranges, pediatric lab norms, neonatal clinical criteria, and diagnoses that present differently in children than in adults.
A system that treats a two-year-old like an 82-year-old will generate bad recommendations, noisy alerts, and missed opportunities.
The same holds for quality measurement, severity assessment, and risk adjustment. Pediatric clinical judgment needs its own lens, not an adult one with the numbers adjusted. Technology has to start from that same premise: built for pediatric providers, on pediatric terms, from day one.
Payer review still defaults to adult logic
Morris’ experience points to a broader issue: pediatric teams are often forced to defend care inside systems that were not built around pediatric medicine.
When a payer applies adult criteria to a pediatric case, the provider has to clear an unnecessary hurdle before the real clinical discussion can even begin. Consider neonatal respiratory distress. The question is not simply whether symptoms are present. Clinicians may need to distinguish respiratory distress syndrome from an underlying condition driving those symptoms, using neonatal-specific physiology and evidence.
Pediatric clinicians understand that distinction instinctively, but generic revenue cycle workflows often do not. And every hour spent explaining pediatric physiology to an adult-oriented reviewer, whether that’s an internal or payer reviewer, is an hour that cannot be spent providing patient care.
Denials are a scale problem
For pediatric documentation and revenue cycle teams, denials management isn’t a minor administrative burden — it’s a second job. Reviewing denials and drafting appeals occupied roughly a third of Morris’ workload. When volume spiked, entire days disappeared into the process.
And it’s getting worse. Payers are increasingly using automation and AI to flag diagnoses at a scale no human team can match manually.
For pediatric organizations already stretched thin, every additional denial means more work and slower reimbursement. Time spent fighting denials is time NOT spent capturing revenue that was earned outright — and as denial volumes rise, that trade-off gets more expensive every quarter.
Built for pediatric care, not adapted to it
The denial Morris remembers — adult respiratory failure criteria applied to a newborn — got resolved. The team proved the diagnosis was clinically valid, and the denial was overturned.
But the bigger lesson remains.
Most children’s hospitals don’t have the staff to fight every denial or the time to re-assess every under-coded chart at the rate the work piles up. With bad debt climbing, Medicaid rolls shrinking, and margins down to a single point, that gap is big enough to decide whether a hospital keeps a positive margin or falls into deficit. Closing it takes more than adapting adult tools. It takes technology built to understand pediatric medicine on its own terms, from the start.
Pediatric healthcare organizations shouldn’t have to settle for less. When the appropriate complexity is captured, supported, and paid for, hospitals can afford to keep delivering the care they are uniquely positioned to offer and that our children need and deserve.
See how SmarterPrebill helps pediatric teams capture clinically supported revenue before the bill ever goes out.
Kit Kieling, MD, is Senior Medical Director at SmarterDx and a board-certified pediatrician with more than 25 years of experience across clinical care, healthcare consulting, and technology. He previously worked at McKinsey & Company and co-founded Orderly Health, an AI/ML healthcare data company that was later acquired. At SmarterDx, he partners with health system leaders to drive measurable revenue and quality impact.
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