Payers Are Not Making Mistakes. Is Your Strategy Keeping Up? 

Hospitals and health systems are losing money on claims they believed were billed correctly. A claim comes back lower. The case lands on a downgraded DRG. The gap disappears into a pattern that continues to surface in the data. 

These downgrades are no longer rare. They appear week after week in sepsis, respiratory failure, and other complex cases. Denials teams work through backlogs while leaders watch the trend move in the wrong direction. 

For Tami Knobbe, executive vice president at CorroHealth, this signals a deeper issue: too often, hospitals are “managing the symptom, not diagnosing the disease.” 

Denials, downgrades, readmission findings, and no-authorization rejections are often treated as separate problems to appeal, rather than signals of how documentation, coding, contracts, and payer strategy intersect. When organizations treat denials as symptoms, the work remains reactive. But, when they treat them as evidence of a systemic condition, the same data becomes a roadmap to root cause change. 

The pattern is not an accident 

A single DRG downgrade can look minor on paper. Losing a few thousand dollars on one case may not draw much attention. A run of similar cases tells a different story. Over a year, losses can reach well into seven figures for larger systems. 

These cases are often clinically complex. The chart supports a higher level of severity. The payer assigns a lower one. The difference may rest on documentation, coding, or payer interpretation, but the financial impact is the same. 

Vice President of Denials Management Services Erica Strick sees this pattern across many organizations. Her view is direct, “Payers are not making mistakes. Denials are part of their business model and your response needs to be just as intentional.” 

Recent data demonstrate how deliberate the trend has become. From 2020 to 2024, Medicare Advantage denials rates nearly doubled. According to the American Hospital Association’s Costs of Caring report, providers have lost billions to DRG downgrades and spent billions more fighting denials, with thousands of dollars commonly lost per case. 

Most organizations still respond case by case, appealing one denial, then moving to the next. The work continues, but the pattern holds. 

What the disease looks like 

The root cause of denials rarely sits within a single department. It typically forms in the space between clinical documentation integrity (CDI), coding, denials, managed care, and clinical leadership. 

CDI teams work with clinicians to ensure the record reflects the full patient story. Coders translate that record into a DRG. Denials teams respond after the payer makes a decision. Each group plays a critical role, but they often operate in silos. 

CDI and denials teams are fighting the same battle from opposite ends of the revenue cycle — and payers capitalize on the gap between them. A DRG downgrade surfaces in a denials report but never reaches the coder who worked the claim. It doesn’t inform CDI review criteria for the next similar admission. The organization learns too late, or not at all. As Knobbe puts it: “When documentation misses, it turns into a denial instead of an opportunity to correct upstream.” 

At the same time, the denials mix is evolving. 30-day readmission denials have become the largest driver, up 134% year over year, while no-authorization denials have risen 50%, based on CorroHealth client data. DRG downgrades are now only one part of a broader pattern. 

 The contract blind spot 

Contracts are another area where organizations often treat symptoms instead of causes. 

Managed care and legal teams may negotiate detailed DRG validation language, definitions of clinical validation, and specific timely filing requirements. Yet the teams managing claims and denials day to day often never see that language or encounter it only during a difficult appeal. 

The awareness gap is easy to test. Have you personally opened your top three payer contracts and read the DRG validation language — if it even exists? Not your legal team. You. For most revenue cycle leaders, the honest answer is no. That gap, Strick notes, is exactly what payers are counting on. That gap signals a missing control point. Organizations are arguing clinical and coding positions without fully leveraging the contractual terms already available to them. 

Some health systems are beginning to close that gap by negotiating clearer DRG validation criteria, securing rights to send a portion of denials to independent third-party reviewers, and establishing more realistic timely filing windows. These steps do not eliminate denials, but they shift the terms of engagement. 

Data is not enough 

As volumes rise, many organizations turn first to technology, such as dashboards, analytics platforms, and point solutions that promise to predict denials or accelerate appeals. 

Technology matters, but it cannot fix structural misalignment. 

Most organizations collect data. Far fewer use it to drive decisions. No technology outperforms a misaligned organization — which means the people and structure have to come first. As Strick puts it: “Get the people right first.” 

The organizations pulling ahead on payer denials are not the ones moving fastest on technology adoption. They are the ones that paused, identified the right tool for the right purpose, and built their human processes around it. “The ones winning,” Knobbe notes, “are the ones that actually have taken a break, bought the right technology at the right time and for the right purpose, and then built their human infrastructure around that.” 

Reports can surface downgrade trends and payer behavior, but they cannot change how CDI, coding, denials, managed care, and clinical leadership work together. Leaders must align teams, share information, and enforce accountability to drive that shift. 

People, contracts, technology—in that order 

Organizations that are reversing these trends are not doing anything glamorous. They are executing the fundamentals in a more connected way with three pillars in mind: people and culture, payer contracts, and technology that supports humans.  

They treat denials as a cross-functional issue, bringing teams together around shared data. Instead of focusing only on worklists, they examine patterns in DRG downgrades, readmission denials, and no-authorization findings, and decide collectively what needs to change upstream. 

They also treat contracts as a strategic lever rather than static documents. DRG validation terms, timely filing requirements, and audit provisions are translated into practical guidance for front-line teams. Processes are built to pause and review downgrades before codes are updated or claims are rebilled, preserving appeal strength. 

Technology then supports these aligned people and contract strategies. For many organizations, that support now includes VISION Clinical Validation Technology®, a clinically led AI technology that operates post-discharge, pre-bill, identifying cases at high risk for DRG downgrades or clinical denials before claims are submitted. By combining clinical logic with denials and patterns, it allows teams to validate DRGs earlier and act before payers have the opportunity to challenge them. 

What winning looks like 

DRG downgrades, readmission denials, and authorization issues are not going away. What can change is whether they remain a series of recurring symptoms or become actionable signals of a stronger revenue cycle. 

As Knobbe puts it, “the battle is winnable, but only if you stay intentional in your strategy.” For payers, mining their own data and evolving their playbook is a core asset. Providers must bring the same level of intention. 

Denials are more than a payment issue. They are a test of whether an organization can diagnose and address its own systemic gaps. The systems that move beyond managing symptoms to fixing root causes will protect margin today and build a more resilient revenue cycle for the future.