By Justin Fugazy, Head of Client Engagement at Revecore
Healthcare CFOs are facing a brutal financial paradox. Hospital operating margins recovered to 4.9% in 2024 yet health systems are barely holding at 1.5%, with 40% of hospitals still operating in the red. These razor-thin margins leave zero room for error. And beneath this fragile stability, a revenue crisis is accelerating.
Claim denials surged to 11.8% of initial submissions in 2024, up from 10.2% just a few years earlier. The financial toll is staggering: hospitals confront $260 billion in denied inpatient claims annually. Worse, 65% of denied claims are never resubmitted, representing permanent revenue leakage that organizations can’t afford. The average amount per denied claim jumped 12% for inpatient and 14% for outpatient claims from 2024 to 2025, with medical necessity denials spiking 70% to an average of $450 per claim.
And this pressure extends far beyond denials. Payer audit volumes increased 30% year-over-year, with the average at-risk amount per audit rising 18%. Administrative costs to manage each denied claim have escalated, from $43.84 in 2022 to $57.23. Meanwhile, commercial payers’ underpayments drain 1-3% of net revenue annually—losses that directly erode already compressed margins.
The Cost-to-Collect Trap
For decades, healthcare finance leaders have optimized revenue cycle management around a single question: What does it cost to collect each dollar? “Cost to collect” became the industry’s North Star metric, driving efficiency initiatives and vendor selection.
But this metric has a fatal flaw: it incentivizes minimizing expense while ignoring the revenue you’re leaving on the table.
When two-thirds of denied claims go unrecovered, when underpayments escape detection, when preventable rejections bleed margin—cost to collect tells you nothing about the opportunity cost of inaction. You might be collecting dollars efficiently while losing millions to unchallenged denials and payer underpayments.
In an environment where margins are measured in single digits and denial rates exceed 10%, the critical question is no longer “how cheaply can we collect?” It’s “how much revenue are we failing to capture?”
The ROI Imperative
This is why leading healthcare finance organizations are fundamentally reframing how they measure revenue cycle performance. They’re shifting from cost center thinking to profit center metrics, with return on investment as the primary lens.
ROI as a metric transforms the conversation. Instead of asking “what does denial management cost,” CFOs ask “what does effective denial prevention return?” Instead of viewing underpayment detection as an expense line, they calculate the margin recovered per dollar invested.
The financial logic is compelling. When you’re operating on 1.5% margins, recovering even 1% of the $260 billion in denied claims still represents billions in bottom-line impact—far exceeding the cost of prevention and recovery programs. And when administrative costs per denial have risen 30% in two years, investing in AI-powered denial prevention becomes a margin protection strategy, not a discretionary expense.
ROI metrics also align revenue cycle strategy with organizational financial goals. Board members and executive leadership understand return on investment. They don’t intuitively grasp whether a 2.8% cost to collect is good or problematic. But they immediately recognize the value proposition of investing $1 million to recover $15 million in denied revenue.
Managing RCM at Scale
The scale of today’s revenue cycle challenges demands this strategic shift. With claim denial rates climbing annually and payer audits increasing 30% year-over-year, managing exceptions has become the norm. Organizations need industrial-scale approaches to revenue integrity, and these approaches require investment.
The business case becomes clear when framed through ROI:
Investing in predictive analytics that prevent denials before submission doesn’t just reduce rework costs. It protects revenue that would otherwise be permanently lost when 65% of denials go unrecovered.
Deploying AI to detect underpayments doesn’t just create work. It recovers the 1-3% of net revenue currently being underpaid by commercial payers.
Building robust denial management workflows doesn’t just process paperwork more efficiently. It enables organizations to challenge and overturn the 54% of denials that providers can successfully appeal.
The Path Forward
Healthcare organizations can no longer afford to view revenue cycle management as a necessary cost of doing business. With margins this compressed and revenue leakage this significant, RCM must be repositioned as a strategic profit center.
The metric that drives this transformation is ROI. It’s the language of financial leadership. It justifies investment in denial prevention, underpayment detection, and revenue integrity. Most importantly, it shifts organizational mindset from minimizing what RCM costs to maximizing what it returns.
At a time when every percentage point of margin represents the difference between strategic investment capacity and survival mode, CFOs need this clarity. Because with $260 billion in denied claims at stake and margins too thin to absorb continued leakage, the cost of inaction far exceeds the investment required to act.