How Denials, Underpayments and A/R Create Healthcare Revenue Leakage

Denials, underpayments and accounts receivable are often managed as separate revenue cycle functions. Financially, they can represent different stages of the same problem: a hospital delivered care and has not yet received the full reimbursement it expected.

Understanding the distinction between them is important because each requires a different response. Understanding the connection is equally important because revenue can move from one category to another as the claim ages.

Denials: Revenue the Payer Has Refused

A denial is visible. The payer has declined all or part of the claim, usually with a reason that triggers correction, resubmission or appeal. Denials create open work, deadlines and administrative expense.

For the complete denial framework, see Denial Management in Healthcare Guide.

Underpayments: Revenue That Can Look Resolved

Underpayments are harder to detect because the payer sends money. The account may close even though the amount received was less than the amount due. Detection therefore requires payment validation, contract or reimbursement analysis and, in many cases, zero-balance review.

See Healthcare Underpayments: Identification, Recovery & Prevention.

A/R: Where Unresolved Revenue Accumulates

Accounts receivable is the inventory of balances that have not yet reached final financial resolution. That inventory can contain clean unpaid claims, denials, post-appeal balances, complex claims and other unresolved payer issues.

See Accounts Receivable Management in Healthcare.

How One Problem Turns Into Another

Consider a medical necessity denial. It begins as a denial. The hospital appeals and the payer overturns it. If the reprocessed payment does not arrive, the clinical appeal may be “won” while the balance remains in A/R. If the payer eventually pays but reimburses below the amount due, the account may become an underpayment issue.

The labels change, but the financial objective does not: move the account to accurate reimbursement and final resolution.

Why Separate Work Queues Create Gaps

Specialization is necessary, but handoffs create risk. A denial team may stop tracking an account after an overturn. An A/R team may see a paid account and close it without validating reimbursement. An underpayment team may discover a discrepancy after the contractual appeal window has narrowed.

Closed-loop workflows reduce those gaps by defining ownership at each transition and maintaining visibility until cash posts.

See The Claim-to-Cash Lifecycle in Healthcare.

Revenue Leakage Is Bigger Than Any One Work Queue

The administrative burden surrounding payment has become substantial. The American Hospital Association estimates hospitals spent $43 billion in 2025 trying to collect payments insurers owed for care already delivered, including nearly $18 billion devoted to overturning denials.

Those figures underscore why revenue-cycle performance cannot be evaluated solely by whether claims were submitted or appeals were filed. Hospitals need visibility into whether payment was accurate and whether unresolved accounts actually converted to cash.

A Connected Recovery Model

• Denials are categorized and worked according to the correct resolution path

• Appeal wins remain active until the expected payment posts

• Paid claims are evaluated for material payment discrepancies

• Underpayment findings are pursued through the appropriate dispute process

• A/R reporting identifies why balances remain unresolved, not only how old they are

• Recovery findings are fed back into patient access, authorization, coding and payer-management processes

For the broader revenue-leakage framework, see Healthcare Revenue Leakage: Where Hospitals Lose Earned Revenue.

The result is a more useful way to think about revenue recovery: not as three separate departments trying to optimize their own queues, but as one connected process focused on realizing the reimbursement the organization has earned.

Explore the complete Healthcare Revenue Cycle Management framework.