Underpayments vs Denials

Underpayments often occur due to contractual agreements between payers and providers, which can be complex and difficult to navigate. For example, if a practice has a contract with a payer that reimburses 80% of the billed amount, but the practice bills for $100, the payer will only reimburse $80. However, if the practice's fee schedule is higher than the payer's allowed amount, the practice may be leaving money on the table. In one instance, we saw a practice that was underpaid by $10,000 due to an incorrect fee schedule. By reviewing the contract and updating the fee schedule, the practice was able to recover the underpaid amount.

Another common cause of underpayments is incorrect coding or billing. If a claim is submitted with an incorrect code or missing information, the payer may reimburse for a lower amount or deny the claim altogether. For instance, if a practice bills for a service using a code that is not recognized by the payer, the claim may be underpaid or denied. In this scenario, the practice would need to resubmit the claim with the correct code or provide additional information to support the claim.

To prevent underpayments, it's crucial to have a thorough understanding of the billing and coding process. This includes staying up-to-date on the latest coding guidelines and ensuring that all claims are submitted with accurate and complete information. Additionally, practices should regularly review their contracts with payers to ensure that they are being reimbursed correctly.

The consequences of underpayments can be significant, as they can result in lost revenue and decreased cash flow for a practice. According to the Medical Group Management Association (MGMA), underpayments can account for up to 10% of a practice's revenue. This can be especially challenging for small or rural practices, which may not have the resources to absorb these losses. In one case, a small practice was underpaid by $5,000 per month, which resulted in a significant reduction in cash flow. By working with a revenue cycle management company, the practice was able to identify and appeal the underpayments, resulting in a significant increase in revenue.

Underpayments can also lead to a delay in payment, as practices may need to resubmit claims or appeal underpayments. This can result in a longer accounts receivable (AR) cycle, which can further exacerbate cash flow problems. For example, if a practice has an AR cycle of 60 days, an underpayment can extend this cycle by an additional 30-60 days, resulting in a significant delay in payment.

To mitigate the consequences of underpayments, practices should implement a solid revenue cycle management process that includes regular review of EOBs, contract analysis, and appeals of underpayments. This can help to ensure that practices are reimbursed correctly and that lost revenue is minimized.

To address underpayments, practices should start by reviewing their EOBs and identifying any claims that have been underpaid. This can be done by comparing the billed amount to the reimbursed amount and looking for any discrepancies. If an underpayment is identified, the practice should contact the payer to determine the reason for the underpayment and to request additional reimbursement.

In some cases, underpayments may be due to contractual agreements or payer policies. In these situations, practices may need to negotiate with the payer to resolve the issue. For example, if a practice is being reimbursed at a lower rate than agreed upon in the contract, the practice may need to provide documentation to support the higher rate.

Practices can also work with a revenue cycle management company to help identify and appeal underpayments. These companies have expertise in revenue cycle management and can help practices to navigate the complex process of appealing underpayments. In one instance, we worked with a practice to identify and appeal underpayments, resulting in a recovery of $20,000 in lost revenue.