Artificial intelligence is increasingly being used by insurers to review and deny medical claims and healthcare leaders are beginning to raise serious concerns.

At the Healthcare Business Management Association (HBMA) 2025 Fall Conference, one topic dominated discussions: the growing use of automated systems to deny claims.

Reports cited during the conference indicated that one insurer used an algorithm to deny approximately 300,000 claims in just two months, reviewing each claim in roughly 1.2 seconds. Even more concerning, about 90% of those denials were overturned when appealed, suggesting many of the decisions were incorrect.
(Source: BenefitsPRO; Medscape)

For healthcare practices, this highlights an important reality: Many denied claims may actually be payable, but only if they are appealed.

The Hidden Revenue Loss Behind Denials

Between 2021 and 2023, U.S. health insurers issued more than 49 million claim denials annually. Yet less than 0.2% of patients appealed those decisions.
(Source: American Hospital Association; NPR)

While this statistic focuses on patients, it reveals a broader operational issue inside healthcare organizations. Many practices lack the staffing, systems, or workflows needed to consistently challenge denials. As a result, claims are often written off even when reimbursement may still be possible. Over time, these missed appeals can lead to significant revenue loss across the revenue cycle.

Put simply: Not appealing denied claims is not a sustainable way to run a medical practice.

Denials Also Impact Patient Access to Care

Insurance denials affect more than just practice revenue, they can also limit patient access to care.

Many patients do not know how to navigate the appeals process, or they simply do not have the time to manage complex insurance disputes while dealing with illness, work responsibilities, or caregiving obligations.

Denial letters often include vague explanations such as “not medically necessary,” leaving patients unsure how to respond.

As a result, many denied claims go unchallenged even when the denial may be incorrect.

When healthcare organizations actively review and appeal inappropriate denials, they are not only protecting revenue, they are also helping ensure patients receive the care their physicians determined was necessary.

States Are Beginning to Regulate AI Claim Decisions

Concerns about algorithmic denials have already led to new legislation.

California

California passed Senate Bill 1120 (SB 1120), the Physicians Make Decisions Act, which took effect in January 2025. The law requires that medical necessity decisions be made by licensed healthcare professionals rather than automated systems.

Texas

Texas implemented SB 1188 and the Texas Responsible Artificial Intelligence Governance Act (TRAIGA) in 2025. The legislation requires licensed practitioners to review AI-generated recommendations and make the final clinical decisions. Violations may carry civil penalties ranging from $5,000 to $250,000 per violation.
(Source: Texas Health & Safety Code; Holland & Knight)

These laws signal a growing trend toward greater oversight of AI in healthcare decision-making.

Why Denial Management Matters More Than Ever

As insurers adapt to new regulations, practices may experience:

• Increased disputes over claim denials
• Higher appeal success rates
• Greater documentation requirements

For many organizations, this will increase pressure on already strained administrative teams.

Peregrine Perspective

One of the most concerning trends in healthcare reimbursement is how many denied claims are never appealed.

When denial management is handled strategically, practices can:

• Recover revenue that would otherwise be lost
  • Identify payer patterns driving denials
  • Improve documentation and coding accuracy
  • Strengthen payer performance over time

In today’s environment, appeals are no longer optional… they are essential to protecting both practice revenue and patient access to care.

The Bottom Line

Artificial intelligence is accelerating insurance claim denials across the healthcare system. At the same time, regulators are beginning to require greater human oversight of these decisions.

For healthcare practices, the takeaway is clear: Denied claims should not automatically become lost revenue.

Practices that actively monitor and appeal denials will be better positioned to protect both their financial stability and their patients’ access to care.

Protecting Your Revenue Cycle

Many practices simply do not have the internal resources needed to monitor denial patterns and manage appeals effectively.

At Peregrine Healthcare, our team works alongside practices to identify revenue vulnerabilities, strengthen denial management workflows, and improve overall collections.

Request a complimentary revenue cycle audit

877-463-1110