The True Impact of Medical Billing Errors - Stats and Solutions

Simple Breakdown for Providers, Billers, and Investors tied to a Clinic's Financial Success

Summary:  As the healthcare system becomes increasingly complex, medical billing and coding have become critical components of the revenue cycle management process. Accurate billing and coding are essential for healthcare providers to receive timely payments for their services, while also ensuring that patients are billed correctly and fairly. However, unnecessary medical billing errors are a pervasive issue in the healthcare industry, resulting in financial losses, administrative burdens, and potential legal liabilities. In this blog post, we will explore the impact of unnecessary medical billing errors, provide statistics to highlight the prevalence of the issue, and discuss common medical codes associated with billing errors. We will also provide URL links to reputable sources for further reference.

Impact of Unnecessary Medical Billing Errors

Unnecessary medical billing errors can have significant consequences for healthcare providers, patients, and the overall healthcare system. One of the primary impacts of billing errors is financial loss. When claims are inaccurately coded or billed, healthcare providers may not receive the full reimbursement they are entitled to, leading to lost revenue. This can affect the financial stability of healthcare practices, particularly smaller ones with limited resources. In addition, healthcare providers may need to spend significant time and effort to correct billing errors, leading to increased administrative burdens and decreased efficiency in their operations.

Billing errors can also result in negative consequences for patients. Incorrect billing can lead to overbilling, which may result in patients paying more for their healthcare services than they should. This can cause financial strain for patients and erode trust in the healthcare system. Moreover, incorrect billing can also result in underbilling, where patients may not be charged appropriately for the services they received, leading to potential billing disputes and legal issues.

Unnecessary medical billing errors can also have broader implications for the healthcare system as a whole. Billing errors can contribute to the rising costs of healthcare by leading to overpayment or underpayment for services, which can affect insurance premiums and overall healthcare expenses. Additionally, billing errors can result in increased scrutiny and audits from insurance companies and government payers, leading to potential fines, penalties, and reputational damage for healthcare providers.

Statistics on Unnecessary Medical Billing Errors

Unnecessary medical billing errors continue to represent a material financial and operational burden across the healthcare system, with denials rising faster than many providers can afford to appeal. Industry and government data consistently show that coding inaccuracies, administrative complexity, and systemic process gaps drive billions in lost or improperly paid claims each year, often remaining unresolved. These trends underscore why billing accuracy and proactive oversight are no longer optional, but foundational to revenue integrity and compliance.

The Cost of Denials to the US Healthcare System and how it all works

Denial Process: Provider vs. Payer

The claim denial process introduces parallel but misaligned workflows for providers and payers. On the provider side, denials typically require manual triage to determine whether the issue stems from coding accuracy, documentation sufficiency, eligibility, authorization, or payer policy interpretation. This is followed by record retrieval, corrections, resubmission, and often multiple rounds of payer communication. For payers, denials trigger internal review queues, policy validation, compliance documentation, and audit trails to support the denial decision. While both parties are operating within regulatory and contractual frameworks, the lack of shared, real-time visibility into encounter data and clinical context frequently results in repetitive work, delays, and disputes that add administrative cost without improving payment accuracy or patient outcomes.

Denials and appeals cost to providers

For providers, denials represent a direct and compounding financial burden. Industry analyses estimate that the administrative cost to appeal a single denied claim averages $40–$45 per appeal, driven by staff labor, system access, documentation review, and follow-up activity. For low- and mid-dollar claims, the cost of appeal can exceed the expected reimbursement, leading many organizations to strategically abandon valid claims. Over time, this creates material revenue leakage, particularly for smaller practices and outpatient facilities with limited RCM resources. Beyond lost revenue, persistent denials divert clinical and administrative staff away from patient care, increase burnout, and undermine the financial predictability required to sustain operations.

Cost for Health Plans and Payors

For health plans and payers, the true cost of denials is increasingly measured in human time and operational drag, not just dollars recovered. Each denial requires analyst review, policy validation, documentation, appeal response handling, and audit defensibility—work that is often repeated across similar claim scenarios. As denial volumes rise, payers must staff larger operations teams or accept growing backlogs, both of which increase administrative overhead without improving accuracy or member experience. Much of this effort is spent managing avoidable errors that could have been identified earlier in the encounter or coding lifecycle.

In response, many health plans are now investing $100,000 to $5 million annually in automation and AI-driven denial systems to reduce manual workload and scale decision-making. These technologies aim to triage claims, apply policy logic consistently, and flag issues earlier, but they also reflect how resource-intensive denial management has become. While automation can improve efficiency, it does not eliminate the underlying cost of fragmented data and late-stage intervention. Payers that rely primarily on denial automation without strengthening upstream data integrity and encounter-level oversight risk perpetuating a high-volume, high-cost denial ecosystem rather than meaningfully reducing administrative waste.

The Most Common Medical Coding Error in US Healthcare

Evaluation and Management (E/M) Codes:

Evaluation and Management (E/M) codes: E/M codes are commonly used for billing office visits, hospital visits, and other evaluation and management services. However, they are also one of the most common areas where billing errors occur. Common errors include incorrect selection of the level of service, insufficient documentation, and upcoding or downcoding, which involves billing for a higher or lower level of service than what was actually provided. These errors can result in claim denials, payment delays, and potential legal liabilities.

Modifier codes are a big billing error

Modifier codes are used to provide additional information about a service or procedure, such as indicating that a service was performed by a different provider or at a different site of service. However, incorrect use or omission of modifier codes can result in billing errors. For example, using a modifier code inappropriately to increase reimbursement or failing to use a required modifier code can result in claim denials or payment delays.

Procedure codes:

Procedure codes are used to describe the services or procedures performed during a patient's visit. Errors in procedure coding can occur when selecting the appropriate code for the service or procedure, using outdated codes, or incorrectly bundling or unbundling services. These errors can result in claim denials, payment delays, and potential audit risks.

Laboratory and diagnostic codes:

Laboratory and diagnostic codes are used to bill for laboratory tests, radiology services, and other diagnostic procedures. Errors in these codes can occur when selecting the appropriate test or procedure code, using outdated codes, or failing to document medical necessity. These errors can result in claim denials, payment delays, and potential audit risks.

Cost of Billing Errors Summary

The growing reliance on denials and appeals highlights a deeper structural problem in healthcare billing and payment operations. When both providers and payers must expend significant human effort and invest millions in automation simply to manage avoidable errors, the system is no longer operating efficiently. Sustainable improvement requires shifting focus upstream—addressing data integrity, coding accuracy, and encounter-level validation before claims are adjudicated—so denials become the exception rather than the primary control mechanism for managing payment accuracy and compliance.