Medical underpayments are a significant challenge healthcare providers face. Providers are reliant on payors, like insurance companies, yet payor-related underpayment makes up a substantial percentage of all underpayments.
If your facility is struggling with this problem, it’s important to know how to accurately identify the scope of the issue to find the best solution. Learn more about the causes of healthcare underpayments and what options you can implement.
What is underpayment in medical billing? Healthcare underpayments occur when the payor fails to reimburse the full eligible amount to a healthcare provider for the services they offer patients. Underpayments can happen due to both payor and provider errors.
These aren’t claim denials, however, which occur when the payor rejects a claim completely. Claim denials are sometimes easier to address, especially since payors generally won’t tell you if they’re underpaying. Instead, they’ll pay the billed amount but not the contracted amount, and it can be very difficult to contest that.
Underpayments in healthcare can occur for a few common reasons.
Payors frequently use outdated or inaccurate contract terms, like the wrong annual escalators. This requires healthcare providers to keep eagle eyes on each reimbursement and hold them accountable if there’s a variance.
Another concern is an incorrect diagnosis-related group (DRG) application. Insurers can purposefully assign the wrong DRGs to lower reimbursements. There may also be an incorrect bundling of services and other processing errors that lead providers to miss out on significant reimbursements.
Of course, payors may also deny claims or begin disputes based on their interpretations of the contract. These events can delay reimbursement and end up costing you even more.
Underpaid claims can also arise from revenue cycle management issues like invoicing mistakes. Any error in preparing or sending out invoices can result in underpayments. There may be missing due dates, inaccurate information, and a host of other problems.
Each payor will likely have certain requirements that you need to meet to process claims. If you fail to do so, you can miss out on full reimbursement. National drug code or indirect medical education adjustment mistakes also lead to underpayments, as can charges related to “lesser of” language in payor contracts.
Making claim submissions after a cut-off point is a common administrative error. This can also include trailer billing, which occurs when you bill for services after the initial claim has already been processed.
Revenue capture, which refers to accurately reporting and billing for all the services you’ve provided, is another potential problem. Failing to document all services will result in underpayments.
Even a small percentage of underpayments can accumulate and cause significant damage to your company’s revenue. Identifying underpayments and appealing them is also a time-consuming process that can worsen the financial losses of those underpayments.
Just one example of how you can miss out on revenue is if you don’t pay attention to “lesser of” language in a contract. “Lesser of” clauses stipulate that the payor will pay the lesser of the charged or contracted amount. In other words, if a service costs $300 and the contracted rate is $350, the payor will reimburse you for only $300.
The bottom line is that underpayments result in revenue loss, which ends up impacting patients. If you’re unable to make a profit, you can’t reinvest that money in equipment, personnel, and facility improvements to benefit the people you help.
When you’re looking for how to identify underpayments in healthcare, you want to rely on both tools and warning signs that indicate you’ve not been reimbursed in full.
A payment variance report can be an excellent tool. It’s a report produced by a provider’s host system or electronic health record system. It illustrates the discrepancies between expected and received payments, revealing any processing errors, annual escalators, and other crucial data.
Revenue cycle management systems allow for more efficient payment processing. They give you more accurate means to analyze claims data and can even help reduce the number of denied claims by eliminating errors in filing.
One of the main indicators of underpayments is payment discrepancies. If the reimbursements you receive consistently fall short of the rates in the contract you signed, that can mean the payor is underpaying.
If you start observing denial patterns for some services, that also could mean you’re being underpaid, as can deviations in contract terms. Look for inconsistencies in payment. If the payor reimburses you two different amounts for the same service, that’s a red flag.
Healthcare underpayment revenue recovery requires that you rely on a few key strategies.
You need to regularly review the contracts you’ve signed with different payors and ensure that they’re up to date. You also want to have audits of billing and coding practices to prevent future issues.
Technology can help you analyze payor performance and detect anomalies. There are tools that can also detect underpayments by harnessing data. They identify services, procedures, and payors that are consistently connected with underpayments.
Your staff has to be fully updated on billing and coding practices to help reduce errors that can lead to underpayments. Consider hiring experts in medical underpayment recovery to review the issues and appeal to payors to recover full reimbursement.
One of the most important ways to prevent underpayments in the future is by improving your revenue cycle management processes. Tools like what we offer at River Health make it easier to quickly spot underpayments with auto-payment variance detectors and payor assessments.
Boosting your communications with payors is also crucial for addressing concerns and contract discrepancies effectively. If there’s contractual language you’re not clear on, it’s important to get answers quickly.
In recent years, technology has been advancing rapidly. To keep up, you want to stay updated on the tools available to help you improve processes and strategies.
Underpayments can gut your healthcare business. Whether the problem stems from payor issues, administrative errors, or revenue cycle management concerns, contract management tools can help you address it.
At Rivet Health, we can point you to quality solutions that you can rely on. Learn more about investing in better underpayment management strategies by downloading our e-book on the hidden costs of contract management.
