8 Healthcare Reimbursement Challenges, Causes, & Solutions

Healthcare reimbursement is the backbone of hospital operations. It ensures providers can deliver consistent, high-quality care while maintaining financial stability. Hospitals need to efficiently allocate resources and invest in innovative technologies. They must also support their staff in providing exceptional patient care. All this is far more challenging without reliable reimbursement processes.

Reimbursement is increasingly fraught with challenges. Hospitals face many obstacles that threaten their financial health. Addressing these issues requires a strategic approach, blending advanced technology with operational best practices. This strategy can help streamline processes and ensure financial success.

1. Rising Claim Denials

Challenge

Frequent claim denials remain a persistent issue for hospitals. This is probably the most frequent obstacle in the reimbursement cycle. Around two-thirds of healthcare providers agree denials are on the rise. Of the responding providers, 38% said their claims were denied 10% of the time or more, and other studies show that number is as high as 20%. According to the Journal of AHIMA, claim denial costs reach $5 million annually for hospitals. 

When denials occur, billing departments must review the ruling and decide whether or not to appeal. Appeals require some serious, time-consuming work on behalf of the hospital. More than 80% of denials are preventable, but fewer than half are reworked and appealed. 

Cause

There are several root causes of claim denials, including:

• Coding: Numerous changes to codes must be tracked each year. From 2024 to 2025, Current Procedural Terminology (CPT) released 420 updates.
• Documentation: Any inaccuracies that fail to meet payer specifications are denied. Documents must be complete and consistent to avoid denials. Yet, some claims require hundreds of pages of documentation.
• Prior authorization: Many services are eligible for prior authorization. Hospitals with manual, error-prone systems may have trouble securing it. They may even choose to forgo the process altogether.

When coding errors are paired with documentation gaps, it can cause significant disruption in cash flow. Failure to secure prior authorizations often leads to outright claim rejections, compounding the issue.

Solution

Strengthen Training Programs

Invest in comprehensive training programs for coding and billing staff. This can help reduce errors and improve claim accuracy. These programs should emphasize accuracy in documentation and alignment with payer-specific requirements. 

Streamline Denial Management

Implement denial management solutions to streamline the process. This software can identify patterns, address recurring issues, and resubmit claims efficiently. Leverage software that integrates with electronic health records (EHRs). This combination can automate claim reviews for your practice. It can also enable finance teams to identify patterns, resubmit claims efficiently, and recover revenue promptly.

2. Slow Reimbursement Cycles

Challenge

Delayed reimbursements create significant cash flow challenges for hospitals, affecting their operating ability. Slow reimbursement cycles hinder the effective allocation of resources, potentially jeopardizing patient care.

Reimbursement times vary between hospitals. They may depend on location, type, number of patients, and existing payer relationships. Still, one thing is certain: The slower the cycle, the harder it is to care for patients.

Cause

Factors contributing to slow reimbursement cycles include:

• Disparate Systems: When systems don’t align or talk to each other, data ends up stuck, stalled, and inaccessible to certain teams. Data should be easily integrated. 
• Manual Processes: Not only are manual processes slow, but they’re also prone to errors. Doing everything by hand delays claim submissions, reviews, and appeals. 
• Payer-specific Inefficiencies: Unfortunately, the hospital doesn’t have control over some factors. These may include a payer’s lengthy approval processes, but they can further delay the reimbursement cycle.

Inadequate communication between hospitals and payers further exacerbates these delays. It can create bottlenecks in the revenue cycle.

Solution

Automate Prior Authorization Workflows

Prior authorization can reduce delays by obtaining all necessary approvals before rendering services. However, a study in the Journal of Perspectives in Health Information Management found that 85% of the providers say the burdens of obtaining prior authorization are “high or very high.” Automation is a powerful tool for addressing this issue. Automating prior authorization workflows streamlines the process. It avoids the need for staff time and resources, making the revenue cycle a bit more predictable.

Improve Workflow Efficiency

Improving workflow efficiency through standardized processes and revenue cycle management software also helps streamline billing and claims submissions. Payers use automation, machine learning, and intelligence, so why not providers? Be picky about the technology you invest in and ensure it’s the best solution for you and your team.

Foster Payer Collaboration

Fostering collaboration with payers to resolve issues quickly. It can also ensure timely payments is crucial. Improved and open communication can make a difference in shortening reimbursement times.

3. Staffing Shortages and Training Gaps

Challenge

Hospitals nationwide have been dealing with years of staffing shortages. This often leads to reimbursement issues. Staff shortages and insufficient training in billing and coding can cause inefficiencies and errors in claim submissions. They often result in missed opportunities for revenue recovery.

Cause

The primary reasons for this challenge include:

• High Turnover Rates: During the COVID-19 pandemic, healthcare workers started burning out left and right. This doesn’t just mean doctors - billing staff, too. This has contributed to high job turnover among billing and administrative staff.
• Inadequate training: Coding and billing practices are always evolving. Regulations and best practices must be followed for best results, but it can be hard to keep track. Staff members may struggle to keep up with the demands of complex healthcare billing. When this happens, errors increase, burdening already strained teams.

Solution

Right-Size Staffing

Right-sizing staffing levels is a critical first step. Create a rigorous analysis of current and upcoming needs. This ensures your teams are adequately staffed to handle billing volumes. 

Upskill Teams

Ongoing education and certifications in medical coding and claims processing improve staff skills. Without training, staff can experience increased denials and a lengthened reimbursement cycle. A lack of training can cause a strained relationship between the hospital and patients.  After onboarding, offer ongoing education to improve staff proficiency. Include certifications in medical coding and claims processing. In an ever-evolving industry, constant training is a must. 

Leverage Technology

Leverage billing and coding software to automate repetitive tasks. This allows staff to focus on resolving complex issues efficiently. Technology can pick up a ton of slack for teams with staffing shortages or constrained resources, so work can still be done in-house. 

4. Inadequate Documentation Practices

Challenge

Inconsistent documentation across departments results in errors and delays in claims processing. This problem often stems from disjointed communication between clinical and administrative teams. Some claims require hundreds of pages of documentation that must be neatly collected, bundled, and sent out. 

Cause

• High Patient Volumes: Teams can scramble to do the bare minimum when too many patients come through the doors. Too many patients also mean too much documentation, making it harder to keep things organized. 
• Disjointed Communication: Without standardized protocols, inconsistencies arise. This increases the likelihood of errors that delay reimbursements.

Solution

Standardize Documentation Protocols

Establish clear protocols for documentation to ensure consistency across departments. Standardizing documentation protocols is vital for improving accuracy. Train staff on best practices and provide easily accessible resources. This can help them remember rules for documentation.

Adopt Advanced EHR Systems

Deploy EHR solutions with integrated documentation templates. This can improve accuracy and efficiency while ensuring compliance with payer requirements. Keeping documents electronic means teams no longer need to print out and send reams of paper. Instead, everything can be nicely and securely transferred via the cloud. 

Implement Quality Audits

Regular audits of patient records and billing can find and fix errors. This reduces the risk of claim denials and delays. It’s good to get into the habit of an annual quality audit to make sure you’re prepared to submit complete and accurate claims. 

5. Regulatory Compliance Burdens

Challenge

Staying current with frequent regulatory changes is time-consuming and resource-intensive for hospitals. A lack of compliance can create costly financial penalties and damage a hospital’s reputation. Keeping up with regulations affects revenue, productivity, patient experience, and staff morale.

Cause

The following factors make adherence challenging for healthcare organizations:

• Policy Updates: Regulatory changes and scarce resources make compliance challenging for healthcare organizations. Providers tend to accidentally fall behind in this area simply because there’s so much to keep up with on the state and federal levels.
• Insufficient Resources: Finance teams often lack the tools and skills to navigate complex regulations. Teams that work manually tend to be hit the hardest. The burden of keeping up relies entirely on their ability to receive news of changes and implement process adjustments from the top down. 

Solution

Invest in Compliance Software

Investing in compliance software is a proactive approach to managing regulatory changes. These tools help track regulatory updates and ensure the organization remains compliant.

Establish a Compliance Task Force

A compliance task force should oversee adherence to regulations and proactively address compliance issues. Members should meet regularly to assess processes and roll out plans for improvement to the larger staff.

Train Staff on Compliance Standards

Providing regular training sessions ensures all employees understand current regulations and their responsibilities. This training should be documented for future reference and updates. 

6. Shifts in Patient Care Preferences

Challenge

Patients increasingly opt for cost-effective care options over traditional hospital care. These may include telehealth and outpatient services. Some patients even opt to be classified as self-pay to seek care out-of-network or otherwise avoid charging insurance. This shift directly impacts hospital revenue streams. The patient’s classification affects how long it takes the hospital to receive reimbursement. 

Cause

• Telehealth: The last five years have seen a major increase in virtual care. This comes with different billing and coding requirements. Virtual care is often less expensive and more convenient than in-person appointments, especially for minor issues. 
• Outpatient Services: In-patient services are more profitable to the hospital. Yet, like telehealth, outpatient services are rising in popularity. They're preferred for their lower costs and increased convenience. 

Solution

Expand Virtual Care Offerings

Expanding virtual care offerings allows hospitals to meet patient demands. It enhances access and convenience. 

Enhance Billing Transparency

With an increased focus on cost savings, patients want billing transparency and good faith estimates ahead of service. Providing clear, itemized bills after service builds patient trust. It also encourages timely patient payments. Legislation like the No Surprises Act also mandates billing transparency for providers. 

Leverage Technology to Improve Experience

Leveraging patient engagement technology improves the overall care experience, fostering loyalty and retention. When patients can book appointments, pay, and ask questions online, they feel more connected to their health and wellness. They're also

more willing to return to your office.

7. Healthcare Audits and Overpayment Risks

Challenge

Audits are a seemingly never-ending cycle of documentation and appeals that puts a huge strain on providers. Frequent audits can lead to financial penalties and operational disruptions for hospitals. The increased scrutiny of medical claims and documentation places more strain on finance teams. One error can lead to a denial despite days of work on the audit response, and reimbursement from the payer is not guaranteed. 

Cause

• High Claim Volumes: Often, an auditor will ask for all claims under a certain care category. The more claims a hospital has in this area, the harder it is to gather all required documentation by the deadline.
• Documentation Inconsistencies: Incorrect documentation often triggers audit flags. Hospitals need robust internal processes to ensure audit readiness. Without them, they're more likely to face challenges during these reviews.

Solution

Use Audit-Ready EHR Systems

Adopting audit-ready EHR systems ensures documentation meets regulatory standards. It also reduces the likelihood of audit issues. Moving from manual processes is also the best way to ensure accuracy. 

Establish Audit Response Teams

Establishing specialized audit response teams helps efficiently manage and respond to auditor requests promptly. Every team member should know their role and understand their place in the workflow. 

Train Staff on Audit Triggers

Educate staff on common audit triggers and how to avoid them through proper documentation and billing practices. This minimizes risks and streamlines the audit process.

8. Medicare Payment Cuts

Challenge

According to data from the American Hospital Association, 

“Payment denials by Medicare Advantage plans jumped 56% for the median health system between January 2022 and June 2023, contributing to a 28% decline in median cash reserves.” 

Cuts to Medicare reimbursements strain hospitals that depend on this revenue. These cuts often force hospitals to reevaluate their financial strategies.

Cause

• Policy Changes: In 2022, Medicare announced a 4.5% reduction in payments, which shocked advocacy groups managed to corral down to 2%. In 2024, Medicare introduced a physician fee, which further decreased payments. 
• Over-Reliance: Many hospitals treat Medicare as a primary revenue stream. This enhances the effects of lessened payments. As reimbursements decrease, hospitals face greater difficulty balancing budgets and maintaining operations.

Solution

Diversify Revenue Streams

Diversifying revenue streams is an essential strategy for mitigating the impact of Medicare payment cuts. To broaden their revenue base, hospitals can explore outpatient care partnerships or offer specialized services. 

Advocate for Policy Adjustments

Advocating for policy adjustments through industry groups can also help address reimbursement inequities. Work with other organizations to advocate for policy changes that support fair Medicare reimbursement rates.

Enhance Efficiency with Analytics

Data analytics to identify operational efficiencies further offset revenue losses, ensuring financial sustainability. Hospitals should monitor performance and benchmarking anyway. This practice allows staff to better understand changes in revenue needs over time.

Conclusion

Healthcare reimbursement challenges significantly impact hospital operations. Finance teams can navigate these issues effectively with the right strategies and tools. Using advanced EHR software, improving workflows, and training staff can help recover revenue and ensure financial stability for the long term. Solutions like automated denial management and compliance tracking can empower hospitals to overcome these challenges and thrive in an ever-changing healthcare landscape.

By tackling these challenges, hospitals can run efficiently. They can then focus on their main mission: delivering high-quality patient care. 

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