Reducing and Collecting on Healthcare Payer Denials and Underpayments

On 13th Aug 2018
healthcare payer contract management

Reducing and Collecting on Denials and Underpayments Through Healthcare Payer Contract Management

Of all the pressure points faced by healthcare organizations today, healthcare payer contract management remains at the top of the list. Healthcare denials management and underpayment management are the achilles heel of every revenue cycle management function. According to MGMA, it’s estimated that seven to 11 percent of all claims are underpaid, and that is just the tip of the iceberg.

The increasing complexity of payer contracts, the move to a value-based payment system, legacy billing and coding systems all contribute to a slow, inefficient reimbursement process for many health systems, hospitals, and physician practices. Overall, collections have decreased while denials and underpayments have increased. The bottom line for the majority of healthcare organizations is anemic at best, in the red at worst. Providers can’t tolerate losses generated by inadequate revenue collection and sluggish reimbursement cycles; but that is the reality across the country.

  • A recent analysis shows that the average 350-bed hospital has probably lost $3.5 million to denials over the past four years.

  • According to MGMA, some healthcare organizations and physician practices see an initial denial rate as high as 15 to 20 percent.

  • The American Academy of Family Physicians puts the average denial rate across the healthcare industry at five to 10 percent.

Denials and underpayments are a financial double whammy for healthcare revenue cycles. First the revenue is lost, then money must be spent to retrieve the lost revenue. The American Medical Association (AMA) studied this issue and found that practices spend an average of $15,000 re-working denied claims. Coping with the Medicare RAC audits (Recovery Audit Contractor) appeals process is even more costly. The AMA found:

  • 43 percent of providers spent in excess of $10,000 in one fiscal quarter to manage RAC audits.

  • 26 percent spent more than $26,000

  • 8 percent spent $100,000


Lost money, shared reasons

Many healthcare organizations experience the same reasons for underpayments and denials in healthcare payer contract management.

They include:  

  • Payers pricing claims using incorrect contract terms and rates

  • Payers calculating the allowed amount incorrectly

  • Contract terms being interpreted differently by the payer and the provider

  • Incorrect multiple procedures discounts

  • Payers fail to accurately calculate complicated stop loss rates

Some industry estimates indicate that 90 percent of all claims denials are preventable. We would tend to agree. In fact, we believe that 100 percent collections is attainable with the right healthcare payer contract management strategies in place. When foundational changes are made and proactive denials and underpayment strategies are put in place, revenue can be recouped. In today’s healthcare environment, losses to denials and underpayments are accepted as the painful status quo. It’s time to change the landscape.


Knowing contracts, knowing your payer

Payers have different reimbursement rates. The American Medical Association national health insurer report card issued in 2016, (the last one issued, using data from 2010 to 2013) found  that more than $43 billion could have been saved if commercial payers paid claims correctly.

However, it seems that the healthcare industry accepts a certain level of denials and underpayments as the status quo. The American Academy of Family Physicians (AAFP) tells its members that a 5 to 10 percent denial rate is the industry standard.

There are many reasons for the rate of commercial denials, chief among them is the contract. Payers are changing how they rewrite their contracts. They are becoming increasingly complex to meet regulation and policy changes. The contracts are including an ever-growing number of details ranging from patient outcomes to billing requirements. Appeals windows vary by payer and knowing them is essential to successful denials management.  

Contracts may also be a cause of underpayment. Avoiding underpayment begins at the re negotiating table. A smart healthcare payer contract management system will simulate payer contracts and their financial impact on proposed payer rates during the re negotiation process. It allows the healthcare organization to go into renegotiations armed with tools for success. The best healthcare payer contract management systems:

  • Start with the existing reimbursement rates and terms

  • Model proposed contract profiles for comparison using a “copy contract function"

  • Create various contract modeling “what-if” scenarios to compare and catch rate changes

  • Simulate inpatient, outpatient and physician terms to determine the full financial impact of changes.

  • Create user-defined historical modeling data sets using claim history

  • Use a contract comparison tool to determine if the proposed contract variables will increase or decrease net patient revenues

Without these features, renegotiating contracts with many different commercial payers can seem like the Wild, Wild West.


After the contract; collection

Commercial payers have increased their scrutiny of claims. Healthcare organizations need the data to scrutinize denials and underpayments just as carefully.

A robust healthcare contract management software will track money owed and money underpaid by payers. It will identify what the healthcare system, hospital or practice should be paid with combined payer contracted rates, contractual language, EDI billing data and remit data.

Denials should be managed with the same precise data-driven management. The right healthcare denials and underpayments management software will avoid the sole use of 835 remits. Rather than generating appeals on the payers reason not to pay, which can be based on incorrect data, they should reflect accurate data. The right denials management software will use:

  • Correct, current payment rates

  • Updated renegotiated rates

  • Appropriate codes

  • Terms of the current contract

This provides the data necessary to determine exactly why a claim was denied and the steps necessary to overturn that denial.

The questions surrounding healthcare payer contract management, revenue management, claims and denials are enough to keep a CFO up at night. Rules and regulations change constantly and there is never enough staff to guarantee maximum revenue. However, the right healthcare payer contract management software can reduce sleepless nights and increase revenue through claims precision and a sharp underpayment watchdog.

Interested in learning more about healthcare payer contract management technology that can help you simplify denials and underpayments management? Call us today at (877) 591-2590 or email us at to book an introductory call with one of our senior reimbursement experts. Revenue Masters is dedicated to combining healthcare cloud contract modeling and management with fast and efficient payment recovery workflows to create the most advanced platform that enables 100 percent collections across all payers.