Most revenue cycle teams can quickly identify what happened when a claim is denied. What many don’t know is what was paid incorrectly or what was never billed at all. Several of the country’s top revenue cycle leaders this say represents a larger category of loss that hospitals increasingly can’t afford.
“The biggest leakage is the money hospitals think they collected correctly — but didn’t,” said Joanna Caballero, corporate vice president of revenue cycle at Scripps Health in San Diego. “Denials show up in a work queue, they get reported, and everyone knows there is a problem. Underpayments, on the other hand, can be much quieter. The payer sends a payment, the account may look resolved, cash gets posted and unless the organization has strong expected reimbursement logic, the shortfall can be missed entirely. Underpayments do not always look like leakage. They look like payment.”
Erin Hodson, vice president of revenue cycle at Inova in Fairfax, Va., described a similar discovery when her team shifted to a more granular analysis of payer behavior.
“Once we started analyzing payer behavior differently, we realized every payer has its own playbook. That visibility was a game changer,” Ms. Hodson said. “We found that some of our biggest revenue leakage wasn’t coming from denials at all — it was coming from subtle underpayments and large-scale payment retractions that often go unnoticed because they’re much harder to identify and quantify.”
The mechanics of how underpayments pass through undetected go to the structure of billing systems themselves. Ekbal Alnajar, president of Insight Revenue Cycle Management at Insight Health System in Chicago, sees the core problem first hand.
“Most health systems have robust workflows for managing outright denials, but underpayments quietly bypass these queues,” he said. “When a payer processes a claim, posts a partial payment and the balance reaches zero, standard billing systems generally assume the contractual adjustment is accurate. In reality, complex payer contracts, misapplied bundling logic and subtle processing errors frequently result in hospitals accepting less than they are contractually owed.”
DRG downgrading — where payers reduce the assigned diagnosis-related group to lower a payment — adds another layer. Ron Wachsman, chief revenue officer of Baptist Memorial Health Care Corp. in Memphis, Tenn., identified it as one of the most consequential forms of leakage precisely because it can surface either as a reduced original payment or as a recoupment after the fact.
“Not only is it substantial, but it is difficult to manage as they can occur as a reduction of normal payment or the result of recoupments from post payment audits,” Mr. Wachsman said. “Limiting this activity has become a key item in payer negotiations.”
The losses that precede billing are frequently just as significant. Paul LePage, vice president of revenue cycle at UC Davis Health in Sacramento, Calif., said incomplete documentation and charge capture errors create a category of revenue loss that never enters the denial workflow at all.
“Most organizations focus heavily on denied claims because they’re highly visible. However, the revenue that’s never billed — or billed incorrectly — often exceeds what is ultimately denied,” Mr. LePage said.
That gap between the clinical encounter and the claim originates in documentation. If the services aren’t documented correctly, then it won’t be paid for. Jeff Mincher, senior vice president and chief revenue cycle officer of Texas Health Resources in Arlington, said the prevalence of documentation failures should shift how organizations allocate their recovery resources.
“The biggest source of revenue leakage is typically upstream process breakdowns, not downstream billing issues. Challenges in areas such as patient access, authorization, documentation, charge capture and payer policy compliance often create preventable denials and missed reimbursement opportunities,” Mr. Mincher said. “The greatest value comes from preventing issues before claims are submitted rather than trying to recover revenue afterward.”
The structural condition that enables those breakdowns is fragmentation. Heather Dunn, senior vice president and chief revenue officer of Novant Health in Winston-Salem, N.C., described how independent departmental operations convert small process gaps into compounding financial losses.
“Revenue leaks when scheduling, authorization, registration, clinical documentation, coding, billing and payer management operate independently,” Ms. Dunn said. “Small defects introduced early in the patient journey can compound downstream into possible denials, delayed reimbursement, write-offs and unnecessary administrative costs.”
Payer behavior compounds those internal gaps. Stephanie Wells, system vice president of revenue cycle at Ochsner Health in New Orleans, said the accumulating effect of evolving payer policies — expanded authorization requirements, new documentation rules, differing clinical criteria — creates a drag on reimbursement that is difficult to detect claim by claim.
“Revenue leakage occurs when payers adopt clinical criteria or coverage policies that differ from those used by the hospital — for example, differing definitions for emergency department services, sepsis or medical necessity,” Ms. Wells said. “Because the financial impact is frequently dispersed across thousands of claims and multiple departments, organizations may underestimate the true cost.”
For rural hospitals operating with lean administrative staff, the weight of correcting payer errors falls heaviest. Leticia Longoria, patient financial services director at Hemphill County Hospital in Canadian, Texas, described a case in which more than $400,000 in swing bed claims were denied because a payer’s third-party vendor failed to communicate valid authorizations — requiring months of escalations before the claims were resolved.
“The revenue leakage isn’t because the claims aren’t payable; it’s because providers spend countless hours correcting payer errors instead of being paid correctly the first time,” Ms. Longoria said. “Every unnecessary denial delays cash flow, increases administrative costs and diverts limited resources away from patient care.”
The leaders who spoke consistently framed the solution as a shift in posture — from reactive recovery to continuous monitoring across the full revenue lifecycle, not just the denial queue.
“Cash flow is not just a finance metric,” said Prajay Kotamreddy, manager of claims at Desert Valley Hospital in Victorville, Calif. “It is the final report card of an organization’s operational discipline.”
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