Cumbersome prior authorization policies and the rising number of denials that result from an inability to meet these requirements has taken a toll on health system operating margins and pushed many to either drop or consider ending their affiliation with health plans, resulting in higher out-of-pocket costs and limiting access to care for patients.

In a new report published by the Healthcare Financial Management Association (HFMA) and health strategy and market research company Eliciting Insights, HFMA Health System CFO Pain Points 2024: Margin Challenges & Opportunities for Vendors, 90% of health systems say denials are the top challenge for their revenue cycle teams and 82% of chief financial officers say that denials have only gone up significantly since pre-pandemic levels.

Due to its different policies, Medicare Advantage plans often issue more denials, making it “significantly more difficult to work with” than commercial and Medicare plans, said 62% of health systems. Nineteen percent already have discontinued at least one MA plan and 61% are planning to or considering dropping one of these payers.

"It can be disheartening for a health system to no longer be in-network for a patient who wants to use a particular provider. For those that don’t have alternatives, it can lead to higher out-of-pocket expenses. Many patients may have alternatives for a nearby health system that is in-network, but it’s most likely a farther distance and for many patients that can limit access," Richard Gundling, senior vice president of professional practice at Healthcare Financial Management Association, told HCB News.

Gundling says that prior authorizations not only delay patient care but are bad for business, as these delays inhibit a healthy, productive workforce.

High labor costs were also listed as a struggle and hit health system operating margins the hardest, as reported by 96% of CFOs. This has led to shortages in nursing (which 99% say is the top driver in lack of necessary staffing), lab techs, and radiology technicians. Low reimbursement from payers is another contributing factor, according to 84% of respondents.

To curb these effects, health systems are tamping down on labor costs, optimizing supply chains, delaying technology implementations, and resorting to other traditional cost-cutting measures. Many are also going further, scaling back capital and real estate investments (40%); decreasing less profitable service lines (32%); and outsourcing revenue cycle management (26%).

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