Financial Challenges Faced by Small Healthcare Providers

According to the American Medical Association, nearly 49% of physicians operate their practices. However, small healthcare providers, whether it be independent physicians, rural clinics, or even small surgical practices, face huge challenges in managing their finances. These providers lack the resources and infrastructure of the large hospitals. Which makes it harder to maintain a healthy bottom line.

Most providers report challenges like rising operational costs and reimbursement delays as the biggest hurdle in their revenue generation. Fortunately, there are some simple solutions to these problems. In this blog, we will look at the most frequently faced financial problems by healthcare providers and how you can overcome them. 

So, let’s start. 

One of the most persistent headaches for small healthcare providers is the delay in reimbursements from payers like Medicare, Medicaid, and private insurers. If we look at the data, the average reimbursement times range from 12 days to 75 days. This situation gets even worse when the claims are denied. 

For a practice already operating on thin margins, these delays can disrupt cash flow, making it hard to cover payroll, rent, or medical supplies.

Practices focusing on value-based care add another layer of complexity to their finances. These types of practices have to wait longer for incentive payments or might have to comply with risk-sharing agreements. Rural providers, in particular, feel this pinch. That’s because there is a lower volume of patients and higher rates of uncompensated care. So, even a few weeks' delay can push these providers to the brink. 

According to a report by Becker’s Hospital published in 2024, over 700 rural hospitals are at risk of closure. It gives you an idea of how serious the situation is. 

Just like all other industries, small healthcare practices are hit the hardest by inflation. Did you know in June 2024, medical inflation (3.3%) was higher than the average inflation in the entire country?

Plus, even though the COVID-19 era has ended, the disruptions it left are still affecting the healthcare industry. Due to these disruptions, drug and equipment prices have risen by as much as 15% in some categories. 

While this might not sound much, for small providers, these increases are tough to absorb without passing costs onto patients.

Hiring new staff is another cost that drains the money out of your pocket. The shortage of nurses, doctors, and other staff has skyrocketed. The data suggests the average toll of hiring medical staff is about $4,700. However, this number can be a bit misleading because HR experts suggest that when you include other costs like training and lost productivity, the amount could triple or even quadruple. 

So, if a small practice wants to hire a new medical code, this could mean a $30,000 hit, and that’s putting it mildly! Not all practices can afford such a burden. 

High-deductible health plans (HDHPs) are now common, especially among people working in private companies, 55.7% of private sector workers are enrolled in HDHPs as of 2025. 

This puts more financial responsibility on the patients. You might now be thinking that if patients bear the costs, then how does it affect health practices? Well, as you might know, private employees often struggle to pay out of pocket. For small practices, this means chasing after unpaid bills, which is a task that eats up time and resources.

On the payer side, insurance complexities further complicate revenue cycles. Small practices often lack the bargaining power of larger systems, leading to lower reimbursement rates or longer payment timelines. Plus, these small organizations also don’t have trained medical billers and coders. 

These billers then make mistakes while filing claims, leading to claim denials. The icing is that the untrained billers don’t even know how to resubmit a claim after a denial. This might be a shocker, but over 60% of the denied claims are never resubmitted. 

No doubt the challenges are huge. However, this doesn’t mean small healthcare providers have to face them alone. By partnering with healthcare revenue cycle management companies, practices can significantly improve their cash flow and ease their financial struggles. 

Here’s how they help:

Faster Claims Processing

RCM companies have tens and hundreds of trained and professional medical billers and coders. These professional teams are much faster at filing and processing claims. RCM experts use advanced software with claim scrubbers to catch errors before submission, boosting clean claim rates to 99%. This not only reduces the rate of denials but also provides faster reimbursement, which means higher cash flow for you. 

Denial Management

Another way RCM companies help healthcare providers is by providing medical billing services for small practices. As mentioned above, these companies have certified billers and coders who can monitor denials in real-time.

Plus, if you outsource your billing operations to these companies, they have a much higher rate of successful claims. They are also good at appealing rejected claims. This recovers revenue that might otherwise be lost.

Consider a solo biller or practice spending hours weekly on billing. With a billing service, those hours shrink to zero.

Patient Collections

From up-front collections to following up on overdue balances, RCM companies take the burden off providers. They integrate payment reminders, and online portals, and even negotiate payment plans, making it easier for patients to pay and for practices to collect.

Small healthcare providers face undeniable financial challenges. These challenges range from delays in reimbursements to claim denials. However, by partnering with revenue cycle management companies, not only can they survive but thrive.

These companies improve your cash flow by tackling claims, denials, and collections. When the burden of billing and claims denials is off the shoulders of small practices, they can focus on providing much better services and care. So, make the smart decision and outsource your medical billing and coding operations.