The Hidden Drain Sabotaging Lab Profitability

At a time when labs are operating on tight margins, revenue leakage is more dangerous than ever. Clinical laboratories, particularly those specializing in pathology, toxicology, molecular diagnostics, and genetic testing, are losing 20% to 40% of total billable revenue—and often don’t even know it.

Most of these losses stem not from payer cuts, but from systemic billing inefficiencies: denials, miscoding, improper frequency edits, front-end data errors, and outdated RCM workflows.

According to The Dark Report, an estimated $10–12 billion in lab claims go unpaid annually, and nearly 55% of denied claims are never reworked. Every missed dollar is a missed opportunity—and a vulnerability competitors will exploit.

In this blog, we’ll explore the top 7 revenue leaks in lab billing today—and show you exactly how to fix them using automation, analytics, and a smarter RCM strategy.

Incorrect CPT and HCPCS Coding

Lab coding is more complex than ever, especially for high-volume test panels and specialty services. Errors in CPT/HCPCS usage can lead to:

• Immediate claim rejections
• Post-payment audits (especially from MACs like NGS, Noridian, or Palmetto GBA)
• Lost trust from referring providers

Top Mistakes Include:

• Missing modifiers for reference lab services
• Unbundling components of panel tests

Fix It:

• Implement AI-driven CPT validation tools (for example, ADSRCM has it) 
• Perform monthly CPT usage audits segmented by test type
• Train billing staff quarterly on payer-specific changes

Frequency Denials and Modifier Misuse

Modifiers 59, 91, and 90 are responsible for a disproportionate share of denials. Most labs use them inconsistently—or not at all—leading to frequent CARC 151 and 234 denial codes.

Florida Labs report higher denial frequency due to tight UHC and Medicare Advantage rules on repeat testing, especially in substance abuse testing (SUD panels).

Examples:

• Modifier 91 used for panel repeats without justification
• Modifier 59 omitted for bundled test separation
• Modifier 90 used incorrectly when referring to external labs

Fix It:

• Build frequency edit checks into your LIS or billing software
• Maintain a living document of payer modifier policies
• Use automated routing for modifier-related denials

Denials That Are Never Reworked

According to CMS and the Dark Report, 55% of denied claims from labs are never followed up. Why? Many labs don’t have denial workflows. Denials sit in clearinghouse reports—or worse, get deleted.

This leads to:

• Extended DSO
• Lower monthly net collections
• Compliance risk from write-offs

In California, a molecular diagnostics lab lost $245K in 2024 due to unworked CARC 50 (medical necessity not met) denials. A manual review revealed that 75% of those denials could’ve been appealed and overturned.

Fix It:

• Install a denial dashboard with trend tracking
• Create automated workflows for top CARCs
• Assign SLAs (service-level agreements) for denial rework

Front-End Order Entry and Eligibility Errors

Bad data = denied claims.

Labs that rely on manual data entry from faxes, portals, or scribbled requisitions often submit claims with:

• Invalid insurance info
• Missing referring provider NPIs
• Incorrect patient demographics

New York labs, particularly those supporting urgent care centers, report high CARC 96 and 201 rates due to inconsistent insurance entry from mobile draw programs.

Fix It:

• Use front-end eligibility verification tools
• Embed NPI and taxonomy validation into ordering portals
• Limit free-text fields in your LIS/order forms

Improper EDI/Clearinghouse Configuration

Many labs don’t realize their claims never reach the payer—not due to denial, but because of file rejection caused by clearinghouse misconfigurations.

Common errors:

• Missing or incorrect payer IDs
• Misconfigured CLIA lab designations in ANSI 837 loops
• Invalid NPI/taxonomy mappings

A Texas-based reference lab saw a 10-day delay in cashflow after Noridian flagged its CLIA performing lab field as incomplete across 3,000 claims.

Fix It:

• Conduct a quarterly clearinghouse setup audit
• Work with your EDI team to verify ANSI loop compliance
• Check payer-specific trading partner agreements regularly

Unmonitored Write-Offs and Credit Balances

Sometimes the revenue leak doesn’t happen from denials—it happens when a bill is written off incorrectly or left in suspense.

Whether from:

• Underbilling
• Incorrect patient responsibility
• Unreconciled ERA files

Labs can see thousands in preventable losses monthly.

Illinois molecular labs report a rise in write-offs due to third-party billing vendors failing to post secondary payer balances.

Fix It:

• Perform monthly write-off audits
• Reconcile credit balances to avoid compliance flags
• Use AI-assisted balance verification before final adjustments

Lack of Lab-Specific Reporting & Benchmarking

Most labs use general-purpose billing tools that don’t account for lab-specific nuances like:

• Panel test rules
• Lab-to-lab workflows
• Modifier logic tied to test type

A multi-specialty pathology lab in Florida switched from a generic RCM vendor to a lab-specific solution and increased net collections by 18%—simply by benchmarking their CPT and denial data by specialty.

Fix It:

• Use lab-specific RCM systems/services (such as ADS or ADSRCM!)
• Generate weekly KPI dashboards broken out by:
  • Specialty
  • Payer
  • Denial type
  • Region

Case Study: Northeast Toxicology Lab

Location: Upstate New York
Volume: ~22,000 claims/month
Payer Mix: Medicare, UHC, MVP, Horizon BCBS
Problem: 16.3% denial rate, 42-day DSO
Interventions:

• Modifier logic automation
• EDI error clean-up across 5 payers

Results in 90 Days:

• Denial Rate: 16.3% → 9.1%
• DSO: 42 days → 27 days
• Clean claims: 74% → 89%
• Net revenue recapture: $398,000/year projected

Regional Revenue Leak Risk Hotspots

What Labs Should Do This Month

Within 30 Days:

• Pull 12-month denial data
• Map top 10 CPT/HCPCS codes to denial types
• Build or update modifier logic automation
• Audit clearinghouse setup
• Launch front-end eligibility process
• Start tracking write-offs with monthly reports

Your Next Step: Get a Free ADSRCM Lab Billing Analysis 

If you're unsure where your revenue is leaking, we’ll show you—backed by data.

✔ Review your CPTs, modifiers, and payer trends
✔ Benchmark your denial rate against regional labs
✔ Highlight automation wins and lost dollars
✔ Present a 90-day plan to increase clean claims and reduce denials

No cost. No risk. Big value.

If in-laboratory automation is preferred, the MedicsPremier platform is available from ADS. It’s the same MedicsPremier system used by ADSRCM!

Disclaimer: information about coding and initiatives are presented according to our best understanding of them. Please visit www.cms.gov if clarifications or more details are needed.