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As artificial intelligence becomes increasingly embedded in healthcare claims processing, hospitals face mounting challenges from insurance denials, diagnosis downgrades, and reimbursement disputes. Insurers' use of automated review systems has raised concerns about transparency, clinical oversight, and whether payment decisions receive meaningful human evaluation. According to a 2026 KFF analysis, Medicare Advantage insurers denied approximately 4.1 million prior authorization requests in 2024, representing 7.7 percent of nearly 53 million determinations. Only 11.5 percent of those denials were appealed, yet 80.7 percent of appealed denials were partially or fully overturned.
As insurers expand their use of automation and hospitals struggle to challenge increasingly complex denials, how can healthcare providers strengthen their appeals strategies while protecting patients' rights to necessary care?
On this episode of Deny This, a PayerWatch podcast, host Brian McGraw welcomes Dr. Kendall Smith, Chief Medical Officer and Chief Physician Advisor at PayerWatch, to examine the growing imbalance of power between insurers, healthcare providers, and patients. Their conversation explores AI-assisted denials, disputed clinical validation audits, the importance of human oversight in appeals, and how patient representation could offer hospitals a stronger pathway to challenging unfavorable coverage decisions.
Key Takeaways from the Conversation
- AI-driven denials and diagnosis downgrades are increasing pressure on hospital revenue. Dr. Smith discusses insurer practices involving the removal of comorbidities and major comorbidities from claims, potentially reducing reimbursement despite documented clinical complexity. He highlights disputed sepsis denials and concerns about automated medical necessity reviews, emphasizing that hospitals need accurate, defensible documentation and a willingness to escalate appeals when appropriate.
- Human oversight remains essential as AI transforms the appeals process. While AI can efficiently identify relevant clinical information within lengthy medical records and accelerate appeal preparation, Dr. Smith argues that experienced physicians, nurses, and coding specialists must review and validate its conclusions. He advocates a human-in-the-loop approach that combines automation's efficiency with professional clinical judgment, accountability, and transparency.
- Patient representation could strengthen appeals, but hospitals need enterprise-wide systems to support it. McGraw and Dr. Smith explore how an Appointment of Representative (AOR) can authorize qualified advocates to pursue certain appeals on a patient's behalf, potentially opening pathways to independent review and administrative hearings. However, implementing these programs requires coordinated workflows, staff education, deadline tracking, and clear accountability across hospitals, clinics, and outpatient facilities to protect patients from losing valuable appeal rights.
Dr. Kendall Smith serves as Chief Medical Officer and Chief Physician Advisor at PayerWatch, where he focuses on healthcare appeals, clinical validation, medical necessity disputes, and strategies for challenging insurance denials. Through his work with hospitals and health systems, he helps healthcare organizations navigate complex reimbursement disputes and strengthen their appeals processes. Smith also contributes to industry education through webinars and discussions addressing payer accountability, clinical documentation, and the evolving role of artificial intelligence in healthcare reimbursement.
