Why are claims denied?
Claims are most often denied for registration and eligibility errors (24 percent of denials in Optum's 2024 Denials Index), missing or invalid claim data (16 percent), missing or denied authorization (13 percent), requests for medical documentation (12 percent) and services not covered (10 percent). Optum's figures come from hospital claims processed in 2023.
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Definition
A claim denial is the payer's refusal to pay all or part of a submitted healthcare claim, typically accompanied by a Claim Adjustment Reason Code (CARC) explaining the denial.
The detail
Denials cluster into a small number of recurring categories. Optum's 2024 Revenue Cycle Denials Index, which analysed about 124 million hospital claim remits from 2023, ranks them: registration and eligibility (24 percent of denials), missing or invalid claim data (16 percent), authorization or pre-certification (13 percent), medical documentation requested (12 percent), service not covered (10 percent), medical necessity (7 percent), medical coding (5 percent) and untimely filing (4 percent). Half of the registration and eligibility denials are coordination-of-benefits problems. The 2024 CAQH Index adds that eligibility and benefit checks are the most frequent administrative transaction in healthcare, at 31.5 billion in 2023. Within each category, the underlying causes are mostly preventable workflow issues: not verifying eligibility at booking and check-in, not capturing complete demographics, not running prior authorization before service, using wrong CPT or modifier combinations, and submitting after timely filing windows. Optum classes 44 percent of denials as front-end problems, the largest stage of the revenue cycle, and 84 percent as potentially avoidable. Fix the workflow at the front desk and your denial rate drops faster than any technology investment. To work a specific rejection, the CARC denial code reference gives the official X12 wording and which team owns the fix.
Registration and eligibility caused 24 percent of denials in 2023 and missing or invalid claim data 16 percent, in Optum's analysis of hospital claims.
Eligibility and benefit verifications are the most frequent administrative transaction: 31.5 billion in 2023, 51 percent of medical transaction volume.
Source: 2024 CAQH Index
Optum classes 84 percent of denials as potentially avoidable, and of the almost 32 percent that are unequivocally avoidable, 40 percent cannot be recovered once denied.
What this means for clinic owners
From Sorso
If you have not run a denial reason code report in the last 90 days, do it this week. The top three reasons usually account for half of all denials, and they are almost always fixable with workflow changes that cost nothing except attention.
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What is a good clean claim rate?
The widely cited target is a 98 percent clean claim rate on first submission. HFMA repeats it in its 7 KPIs guidance, attributing the figure to Becker's ASC Review; it is a target, not a measured average, and every point below it is revenue sitting in rework rather than in the bank.
What is a healthy denial rate?
A healthy initial denial rate is under 5 percent of submitted claims: HFMA calls that optimal, AAFP calls it more desirable, and both put the industry average at 5 to 10 percent. Optum's 2024 Denials Index, based on hospital claims, found an average denial rate of 12 percent in 2023. Track denial write-offs as a share of net patient revenue too, the metric HFMA lists as AR-6.
How do I appeal a denied claim?
Appeal a denied claim by reading the CARC and remark code, gathering supporting documentation, submitting a written appeal within the payer's deadline, and escalating to second-level appeal or external review if needed. Medicare allows 120 days from receipt of the initial determination to request a redetermination; commercial deadlines come from the plan and your contract. Appeals are worth filing: when Medicare Advantage prior authorization denials were appealed in 2024, 80.7 percent were fully or partly overturned (KFF).
What is modifier 25 used for?
Modifier 25 indicates that a significant, separately identifiable Evaluation and Management (E/M) service was performed by the same physician on the same day as a procedure, allowing both to be billed when properly documented.
How does prior authorization affect revenue?
Prior authorization drives about one denial in eight: authorization and pre-certification problems caused 13 percent of denials in Optum's 2024 Denials Index, based on hospital claims. Manual transactions cost providers materially more than electronic ones. In the AMA's 2025 survey, practices completed an average of 40 prior authorizations per physician per week, taking about 13 hours of physician and staff time.
What are the most common billing errors in healthcare?
The most common healthcare billing errors are eligibility verification failures, missing prior authorization, incorrect or missing modifiers (especially modifier 25 and 59), upcoding/downcoding, missing documentation for medical necessity, and timely filing failures.
How does Medicare telehealth reimbursement work for outpatient clinics in 2026?
Medicare pays telehealth under the Physician Fee Schedule, billed with the same CPT or HCPCS code as the in-person service plus a telehealth place-of-service code: POS 10 when the patient is at home, POS 02 anywhere else. Since January 1, 2024, visits to patients at home are paid at the non-facility rate, the same rate as an office visit. The pandemic-era flexibilities that let patients receive telehealth anywhere, including at home, run through December 31, 2027 under current law, after which most non-behavioral services revert to patients in a medical facility in a rural area.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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