Except they pass other costs onto the system

A large portion of most outpatient docs day is fighting these denials. That takes up time that could be used seeing other patients.

Then there's the fact that some percent of patients will switch insurance or die in the window you're denying them. As long as that outweighs the likelihood they end up in the hospital and cost you more than they otherwise would. You win.

Then you get large systems over billing in response because of their incentives, and a lot of money gets tied up in an arms race to fight the claims process better.

Every actor is doing things that are in themselves rational, but it creates a highly irrational system.