The New Economics of Dermatology Claims: Understanding and Responding to Rising Denials

In the last few months​​​, one of the largest Blue Cross Blue Shield affiliates in the Northeast stopped paying reduced rates on evaluation and management (E/M) claims and started denying them outright—demanding medical records before releasing a dollar.​ Practices that were getting checks $20 to $30 short will now get nothing until they respond within a one-week window.^1,2

This isn’t a policy adjustment. It’s an escalation.

Thirteen major payers now run active automated programs targeting E/M codes. What started as scattered pilots is now industry standard.³

Understanding the Payer Denial Math Equation

The math behind these payer denial programs isn’t complicated.

Fewer than 1% of denied claims are ever appealed. In 2024, insurers denied roughly 85 million claims. Patients and providers filed about 263,000 appeals. That’s one appeal for every 323 denials.⁴

Now look at what happens when someone does fight back. More than 80% of prior authorization appeals succeed—a figure that’s held steady since 2019.⁵ A 2018 Office of Inspector General (OIG) report found that Medicare Advantage (MA) organizations overturned 75% of their own denials when members appealed. Only 1% of MA denials even reached the first appeal level.⁶

The vast majority of denials are overturned when challenged. Yet almost nobody challenges them. That gap is where the money is.

Premier Inc. surveyed 516 hospitals and included the results in their report, “Private Payers Retain Profits by Refusing or Delaying Legitimate Medical Claims.”⁷ Providers spent $25.7 billion on claim adjudication in 2023. Of that, $18 billion went to fighting denials that were ultimately paid.⁸ That $18 billion isn’t waste from the payer’s perspective. It’s a filter. It separates the practices that fight from the ones that absorb the loss.

Dermatology Is Ground Zero for Payer Denials

Modifier 25 appears on 61.5% of dermatology E/M claims, roughly 4 times the specialty average, according to a November 2025 OIG audit.⁹ That’s not overuse. It reflects the nature of nearly every dermatology visit: A patient comes in, the physician evaluates, and a procedure follows—a biopsy, cryotherapy, an excision. The E/M visit and the procedure are billed separately, connected by modifier 25.

That 61.5% rate means every payer’s claim editing algorithm flags dermatology practices at a volume no other outpatient specialty approaches. When a payer builds a rule targeting modifier 25, dermatology triggers it most often. When a health plan’s CCRP audits Level 4 and 5 visits, the dermatology procedure-intensive workflow generates more flags per provider than family medicine or cardiology.

The OIG found 90% compliance among the dermatology claims they audited. But payers don’t see the compliance rate. They see the $62.9 million in estimated overpayments from the 10% that didn’t comply, and they build programs that treat the entire specialty as high-risk.

Dermatology practices also face a compounding problem. A single visit treating 2 lesions with a separate E/M evaluation can require modifier 25 on the E/M-to-procedure relationship AND modifier 59/XS on the procedure-to-procedure relationship. Each modifier gets flagged independently. No other outpatient specialty carries this double modifier burden on routine visits.

As a practicing dermatologist and as the founder of a company that manages billing for more than 200 independent dermatology practices across 42 states, we have experienced these challenges first-hand. When Cigna introduced R49 in October 2025, the downcoding pattern appeared across our affected practices within weeks. When Horizon expanded its Outlier Program, our New Jersey practices saw the shift from partial payment to flat denial before any public bulletin was issued.

Dermatology Practices Can Embrace the Opportunity to Lean Into Denials

The response to this isn’t despair. If 75% to 80% of challenged denials are overturned, the problem isn’t that practices can’t win. It’s that most aren’t fighting.

For dermatology practices looking to push back against payer denials, there are 5 best practices you can implement today to save time and resources on battling payer denials and ensure your practice is appropriately reimbursed for the care you provide to patients:

• Appeal every clinically valid denial. This is the single highest-return action a practice can take: 75% of MA denials are overturned on appeal. Yet Change Healthcare estimates 65% of denied claims are never resubmitted.¹⁰ Assign one person to own denials. Track your top three CARC codes by dollar volume each week. The math works in your favor if you show up.
• Turn on real-time eligibility verification. Most practice management systems have this built in, but it’s often not activated. ​​​UT Medical Center saw a 66% reduction in denials after improving patient intake verification.¹¹ Verify insurance at scheduling and again at check-in. Front-end denials are the most preventable category.​
• File state Department of Insurance complaints. ​​​Maryland fined Cigna $80,000 in March 2026 and ordered the insurer to stop automatic downcoding.​ That happened because providers filed complaints.¹² State DOI complaints create regulatory paper trails that lead to enforcement. One caveat: This works for fully insured plans. ERISA-governed self-funded plans are exempt from state DOI authority.
• Run a weekly 30-minute denial huddle. Pull your aging and denial reports by payer and reason code. Identify the top three denial reasons by dollar volume. Assign ownership. One regional health network found that just 3 physicians accounted for 34% of authorization-related denials; targeted training virtually eliminated the problem. You likely have a similar concentration.

Finally, the American Medical Association built a set of advocacy tools that take 3 to 5 minutes per staff member: pre-written letters to Congress, state-by-state law charts, and a portal to submit your practice’s story. Visit FixPriorAuth.org to find out how your data and your voice can help accelerate this shift.

When Dermatology Practices Fight Back, They Win

​​​​​On January 1, the CMS Interoperability and Prior Authorization rules took effect, requiring impacted ​​payers ​​to publicly disclose their ​prior authorization​​​ denial rates for the first time.^13,14 Kaiser Southern California published early: a 19.48% denial rate, with 74.52% of denied cases still denied after appeal.​^{14 ​}

Now, all practices can see the full picture. The only question is whether your practice is going to be one of the 99% that absorb the loss, or one of the practices that fights back and wins.

Ashwin Krishnan is the founder and CEO of Clarity RCM.

Matthew J. Elias, DO, FAAD, is a dermatologist at and the co-founder of Elias Dermatology in Fort Lauderdale, Florida.

References

1. Outlier program expansion: high-level E&M coding. Horizon Blue Cross Blue Shield. July 31, 2025. Accessed June 22, 2026. https://www.horizonblue.com/providers/news/news-legal-notices/outlier-program-expansion-high-level-e-m-coding
2. Provider outlier program frequently asked questions. Horizon Blue Cross Blue Shield. Accessed June 22, 2026. https://www.horizonblue.com/providers/policies-procedures/policies/administrative-policies/provider-outlier-program-frequently-asked-questions
3. Growing trend of downcoding among commercial payers. American Academy of Sleep Medicine. November 14, 2025. Accessed June 22, 2026. https://aasm.org/growing-trend-of-downcoding-among-commercial-payers/
4. Claims denials and appeals in ACA Marketplace plans in 2024. Kaiser Family Foundation. March 24, 2026. Accessed June 22, 2026. https://www.kff.org/patient-consumer-protections/claims-denials-and-appeals-in-aca-marketplace-plans-in-2024/
5. Over 80% of prior auth appeals succeed: why aren’t there more. American Medical Association. October 3, 2024. Accessed June 22, 2026. https://www.ama-assn.org/practice-management/prior-authorization/over-80-prior-auth-appeals-succeed-why-aren-t-there-more
6. Medicare Advantage appeal outcomes and audit findings raise concerns about service and payment denials. US Department of Health and Human Services Office of Inspector General. September 25, 2018. Accessed June 22, 2026. https://oig.hhs.gov/oei/reports/oei-09-16-00410.asp
7. Trend alert: private payers retain profits by refusing or delaying legitimate medical claims. Premier Inc. March 21, 2024. Accessed June 22, 2026. https://premierinc.com/newsroom/blog/trend-alert-private-payers-retain-profits-by-refusing-or-delaying-legitimate-medical-claims
8. Claims adjudication costs providers $25.7 billion; $18 billion is potentially unnecessary expense. Premier Inc. February 24, 2025. Accessed June 22, 2026. https://premierinc.com/newsroom/policy/claims-adjudication-costs-providers-257-billion-18-billion-is-potentially-unnecessary-expense
9. Dermatology providers generally met Medicare requirements for evaluation and management services performed on same day as minor surgical procedures. US Department of Health and Human Services Office of Inspector General. November 18, 2025. Accessed June 22, 2026. https://oig.hhs.gov/reports/all/2025/dermatology-providers-generally-met-medicare-requirements-for-evaluation-and-management-services-performed-on-same-day-as-minor-surgical-procedures/
10. The 2024 Revenue Cycle Denials Index. Optum for Business. Accessed June 22, 2026. https://business.optum.com/en/insights/denials-index.html
11. Case study: denials reduced by 66% at UT Medical Center with improved patient intake. Experian Health. March 24, 2025. Accessed June 22, 2026. https://www.experian.com/blogs/healthcare/case-study-denials-reduced-by-66-at-ut-medical-center-with-improved-patient-intake/
12. MIA v. Cigna Health & Life Insurance Company Case No.: MIA-2026-03-009. Cigna Health & Life Insurance Company. March 13, 2026. Accessed June 22, 2026. https://www.medchi.org/Portals/18/MIA-2026-03-009%20Letter%20%26%20Order.pdf
13. CMS Interoperability and Prior Authorization Final Rule CMS-0057-F. Centers for Medicare & Medicaid Services. January 17, 2024. Accessed June 22, 2026. https://www.cms.gov/newsroom/fact-sheets/cms-interoperability-prior-authorization-final-rule-cms-0057-f
14. CMS 2.0 prior authorization metrics. Kaiser Permanente. March 27, 2026. Accessed June 22, 2026. https://healthy.kaiserpermanente.org/content/dam/kporg/legal/prior-authorization-metrics-report-scal-en.pdf