By Ritesh Ramesh, CEO of MDaudit. MDaudit were winners of the ‘Best FinTech Solution for Healthcare and Pharmaceuticals‘ award at The 2025 FinTech Awards.

The first half of 2025 brought positive financial news to hospitals and health systems, with Kaufman Hall reporting higher patient volumes and more efficient patient throughput driving operating margins up to 3.3% over the first four months of the year.

However, a deeper look below the surface reveals that financial performance is not as smooth as it appears; several key performance indicators (KPIs) in revenue cycle management (RCM) indicate that many healthcare organizations are still reeling from a sustained onslaught of claim denials in 2025.

According to data analyzed by MDaudit, claim denial rates have been rising for at least three years. A 2024 analysis revealed a 51% increase in clinical denials over that period, driven by intensified payer scrutiny and documentation issues.

The significance of the blows being absorbed by healthcare revenues as their volume of denials climbs can be measured using five key statistics: initial denial rates, coding-related denials, average length of stay, case mix index, and payer audits.

Five metrics to watch

To measure the impact, MDaudit analyzed claims data from the first five months of 2025 and compared it to the same period in 2024. Data came from our benchmarking database, comprising information from approximately 800,000 providers and more than 4,000 facilities across the U.S. Here’s what we found.

1) Initial Denial Rates increased by 6.36% compared to 2024. Average Denied Amount per Inpatient Claim increased by 6.5% and per Outpatient claim by 11%. The average amount denied in the Medicare segment was driven by Hospital Inpatient (5.62%) and Outpatient (9.5%) claims, whereas commercial insurers denied a higher proportion of Professional claim dollars (36%). This metric has real implications for hospital finances and cash flow.

2) Coding-related Denials increased by 11%. When broken out by segments, Professional coding-related denials rose by 7.5%, Hospital Inpatient was up 9%, and Hospital Outpatient increased 16%. In our 2024 Benchmarking Report, we identified coding integrity as one of the biggest opportunities for healthcare organizations. Deploying technology is not sufficient; humans need to be trained to help with coding integrity, governance, and quality control.

3) Average Length of Stay (LOS) was relatively flat at 8-9 days, making this metric a shining spot for healthcare organizations as a leading indicator of well-managed utilization capacity and resources for Inpatient admissions.

4) Case Mix Index was also relatively flat, averaging approximately 2.3. Putting this in context, the previously cited Kaufman Hall report suggested that hospitals are managing patients better and more quickly by placing case managers in different care settings, thus reducing LOS. Examining this metric through the lens of the 2025 initial Inpatient and Outpatient denial rates reveals ample opportunities for hospitals to improve coding and clinical documentation.

5) Payer Audits. The total at-risk dollars and case numbers increased nearly 2.5 times for healthcare provider organizations in 2025. Hospital Inpatient and Outpatient cases were scrutinized more heavily due to their increased reimbursement value relative to professional claims.

Fighting back

Couple these metrics with recent news that the Centers for Medicare and Medicaid Services is rolling out an aggressive strategy to enhance and accelerate its Medicare Advantage auditing efforts and other payer reimbursement pressures, and it becomes incumbent on healthcare providers to deploy a proactive and cohesive revenue integrity strategy that involves investments in technology, analytics, and people.

Leveraging real-time data, technology, AI, analytics, and automation, prioritizing revenue optimization and risk mitigation, and connecting resources across mid-cycle and back-end RCM functions with continuous risk monitoring capabilities delivers the tools and insights needed to root out and resolve the systemic issues contributing to rising denial rates.