Hospitals in the United States lost tens of billions of dollars in 2025 due to inefficiencies in what finance teams call the middle revenue cycle, a critical but often overlooked phase of healthcare billing where clinical care is translated into reimbursable claims, according to a new analysis of industry data.
The middle revenue cycle, also referred to as the clinical revenue cycle, encompasses documentation, coding, utilization review, and payer communication during patient care. Failures in this phase do not always appear immediately but surface weeks later as denied claims, underpayments, or unexplained revenue leakage, the analysis found. By the time these issues are detected, the opportunity to correct them has often passed, leaving hospitals with little recourse but to absorb the financial loss or invest heavily in appeals.
According to the American Hospital Association’s 2025 Cost of Caring Report, hospitals spent nearly $18 billion that year solely on overturning claims denials. The total cost of collecting payments owed by insurers for care already delivered reached $43 billion, the report estimated. On average, each hospital employed approximately 64 administrative and billing staff dedicated to these functions, accounting for roughly 6.5% of total hospital employment.
Kevin Coloton, CEO of healthcare revenue cycle firm HURC, said the distinction between clinical and middle revenue cycles, though widely used in hospital finance, is largely artificial. "The terms exist for organizational convenience, not because they represent different work," Coloton wrote in an industry analysis. "In practice, they describe the same battleground where revenue is either protected or lost."
The traditional revenue cycle is divided into three phases: front end (registration and eligibility), middle (documentation and coding), and back end (billing and collections). While hospitals may excel in front end registration or back end collections, breakdowns in the middle phase can undermine the entire process. Common issues include documentation gaps that lead to denials, utilization decisions that extend hospital stays, and unclear communication with payers that results in delayed payments or write offs.
Payers, Coloton noted, do not distinguish between clinical and middle revenue cycles. They focus on whether medical necessity is clearly documented, whether care aligns with policy, and whether claims are defensible on first submission. "The most effective models treat this as a single, continuous workflow that operates in real time during care," he wrote, rather than a handoff between separate clinical and financial teams.
To address these challenges, some hospitals are adopting integrated, tech enabled service models that combine software with experienced operators. These models embed directly into existing workflows, reducing onboarding time and relieving internal teams from the burden of constant policy translation and appeals. Early adopters report reductions in clinical denials, shorter hospital stays, faster post acute placement, and meaningful net revenue gains, all without reducing staff. In many cases, hospitals have reallocated administrative teams to patient facing roles where they can add greater value.
Despite the financial stakes, the middle revenue cycle remains a persistent source of frustration for both clinicians and finance leaders. Clinicians often feel pressured to fix revenue problems after the fact, while chief financial officers bear the brunt of lost margins. The solution, Coloton argued, lies not in further dividing the process but in treating it as a unified function where clinical and financial teams collaborate in real time to ensure accurate, defensible claims before submission.
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