An analysis of 30 million claims shows denial rates climbed to 11.2%, driven by insurer automation, bundling edits, and surging prior authorization rejections.

Denials of clinical laboratory, molecular diagnostic, and genomics claims increased to 11.2% in 2025 from 8.0% in 2024, according to the 2026 Payor Denial Impact Report released by revenue cycle management provider XiFin.

The 40% year-over-year jump erased two years of improvement across the industry, according to the report, which evaluated more than 30 million claims processed through XiFin’s Empower system. The company serves 11 of the 15 largest laboratories in the US, providing segment benchmarks across clinical laboratory, molecular diagnostics, pathology, and hospital outreach settings.

“Health plans have modernized how they review claims. Decisions now happen in a fraction of a second with payors’ use of AI. Most healthcare providers haven’t, until now, had access to comparable AI-powered applications, and the numbers show it: more denials and more staff time to get paid for tests that were ordered and performed,” says Kyle Fetter, chief operating officer of XiFin, in a release. “Labs, molecular diagnostic providers, and pathology groups are absorbing that cost, even as patients are picking up a larger share of a bill that too often started with a denial.”

Key Drivers of Diagnostic Claim Denials

Denials increased across every insurer category, including traditional Medicare, which maintained the lowest denial rate at 3.4% of claims. Meanwhile, Medicare Advantage and Medicaid managed care plans, along with other insurer groups, drove notable increases in rejected claims.

The analysis revealed several shifting trends in payor adjudication:

  • Surging Prior Authorization Denials: Prior authorization denials for molecular and genetic testing more than doubled, increasing to 27.6% of all denials in 2025 from 13.1% in 2021. Although health plans have publicly pledged to ease prior authorization barriers, the report notes that rejections have largely shifted to technical and payment integrity categories, such as coding mismatches and documentation deficiencies.
  • Widespread Bundling Edits: “Procedure Not Paid Separately” emerged as the top reason for clinical laboratory claim denials. These bundling policies, which treat a diagnostic test as included within another paid service, accounted for 59% of clinical lab denials—nearly doubling from 33% in 2018. Bundling also drove more than 61% of denials for hospital outreach laboratories.
  • Shifting Patient Financial Responsibility: The patient’s portion of diagnostic bills expanded to 30% in 2025 from 26% in 2023. Concurrently, the collection rate on these patient balances fell from 12% to 9%.

The Cost and Value of Appealing Denials

According to the data, pursuing appeals remains financially viable but resource intensive. In 2025, a successful appeal recovered an average of $1684 for molecular and genetic tests, $235 for pathology, $171 for clinical laboratory tests, and $48 for hospital outreach laboratories.

However, securing payment often requires two to three appeal cycles, each taking a trained staff member 20 minutes or longer to assemble. Because 84% of health insurers now utilize artificial intelligence in daily operations, payors can issue claim rejections at nominal expense, while laboratories absorb manual administrative costs to contest them. Consequently, many facilities write off viable revenue rather than burdening personnel.

“When a provider keeps winning the same kinds of appeals, it can be a sign that those claims should never have been denied in the first place. Often, the claims met the payor’s policy, medical necessity, and documentation requirements all along,” says Fetter in a release. “That pattern creates an opening for providers and insurers to have a different conversation, one focused on reducing the denials that are consistently overturned on appeal, thereby reducing the administrative burden of this process for both sides of the cost equation.”

Automation in the Revenue Cycle

In response to rising denial rates, XiFin introduced Empower AI Appeals, an agentic application designed to operate alongside existing revenue cycle management platforms. The tool evaluates insurer policies, rejection reasons, and patient clinical documentation to generate electronic appeals, offering automated submission or human-review workflows.

“By pairing diagnostic denial insights with agentic AI appeal automation, XiFin is addressing a critical business challenge: expanding revenue recovery capacity while reducing the manual effort required to prepare each appeal,” says Sagar Mukhekar, industry analyst, healthcare and life sciences, Frost & Sullivan, in a release.

Early implementations indicate the technology can reduce appeal preparation times from more than 20 minutes to under three minutes, while lowering appeal processing costs by up to 60%.

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