Best Practices to Prevent, Find and Overturn Underpayments

On 21st Jan 2019
Healthcare Underpayments

Underpayments and denials might as well be alligators in a swamp -  you can’t see them and you can’t fight them until you are on the losing end. But it doesn’t have to be that way. You can implement systems that safeguard your practice from repeated revenue losses in hidden line items. It is possible to see, and successfully appeal, healthcare underpayments and denials to increase revenue and bolster your bottom line.

Underpayments and denials - a difference of root causes

There is debate about the very definition of underpayments and denials. Are all denials underpayments? Are underpayments a type of denial? We are tempted to call it a semantics argument because no matter what the name, they both have the same end result; nonpayment and reduced revenue.

According to the insurance industry, the “official” definition of a denial is; “The refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for healthcare services obtained from a healthcare professional.”

This is why we say, whether it is classified as an underpayment or a denial, it needs to be found, appealed, and paid.

Root causes  

Some providers write off healthcare denials as “contractual allowances”. That doesn’t change the damage they can wreak on practice revenue. Despite different root causes, healthcare underpayments and denials pose high risk to practices;  

  • They can be appealed but rarely are (payers count on that)

  • They can be hidden and repeatedly lie undiscovered (appeals windows expire)

  • Pended claims pile up (without response to payer, they remain unpaid)

Common root causes of denials can include:

  1. Missing information

  2. Duplicate claims or services

  3. Service in the claim was already included in the payment for another service

  4. Service/treatment is not covered by the payer

  5. The filing window expired

Underpayments can occur for other reasons including:

  1. Incorrect billing from the provider

  2. Clinical documentation missing  

  3. Claims priced using incorrect contract terms

  4. Payers calculate the allowed reimbursable amount incorrectly

  5. Providers don’t catch the underpayment

  6. Payor and provider interpret contract terms differently

The secret to successfully battling underpayments and denials management is to find a vendor partner who will identify root causes. They can unearth the evidence necessary to develop process improvements that support denial prevention efforts. The result is a more robust bottom line.

Hidden underpayments

Denials and underpayments are often automatically applied as part of the payment and sometimes not clearly seen by A/R staff. It takes more time to pull apart each payment and review it line by line, and usually isn’t. All in all, the situation tips in favor of 3rd party payers who really don’t expect every A/R person to review every claim to find underpayments and denials.

To get a sense of the overall value of underpayments to providers in the United States, one only has to look to CMS Recovery Audit Contractors (RAC).  In fiscal year 2016 they returned $69.46 million to providers to make up for CMS underpayments. Granted, it was far less than the $404.46 they took back from providers for overpayments, but it still represents an enormous amount of revenue for providers across the country.

It’s all about healthcare underpayment prevention

The most efficient way to prevent underpayments is to partner with an experienced healthcare contract management vendor who can protect the facility. Successful vendors maintain a staff of underpayment and denial management experts that are accustomed to researching and resolving claims-related issues to accelerate payments.

Experienced staff that can:

  • Sort claims by underpayment and denial types, including eligibility, documentation, coding, duplicate claims, or medical necessity edits

  • Automatically route claims to the appropriate resource for correction and resubmission

  • Provide robust reporting and analysis tools

  • Identify root causes and other trends by payer, provider, facility, and more

  • Isolate root causes that can be corrected to prevent future underpayments and denials

These strategies must be complemented by a payer contract management tool. It’s the enforcer that finds the would-be thieves of revenue in the payer world; secretive underpayments and denials.

A rigorous contract management tool will automatically detect non-compliant payments (underpayments) and denials and alert staff so they can be addressed, appealed and reimbursed appropriately. An accurate system will incorporate triggers to notify A/R staff of changes in:

  • Fee schedules

  • AWP (Average Wholesale Price) pricing

  • Medicare or Medicaid updates

Only a healthcare contract modeling tool will help ensure that payers are towing the line and abiding by every single contract term that your facility negotiated.

Revenue Masters (RM) implements a detailed revenue recovery process for every client that focuses on underpaid and denied claims. When it comes to the particularly tough issue of underpayments, RM attacks and remedies them with a proven, results oriented strategy. Once underpayments are discovered, RM will:

  • Validate underpaid claims and assign them to experienced collectors in our recovery unit for resolution

  • Call the insurance company to recover additional payment

  • Assign automated, prompt follow up for every claim

  • File technical appeals for non-clinical underpayments and denials as required by payer (w/ required documentation)

  • File clinical appeals for clinical denials (medical necessity, etc) based on review of medical records

  • Conduct timely follow up on all disputed claims to ensure payers received necessary documentation and appropriate payment

  • Submit balance adjustments as appropriate

The results of the RM contract modeling tool is increased net revenues and improved insights into practice operations including:

  • Feedback on payer/contract/facility issues

  • A summary of results reported by facility, payer, and by reason code

Eight years ago, in 2011, an article in Becker’s Hospital CFO Report said the following about underpayments: “Hospitals are increasingly outgunned today by healthcare payers when it comes to managing their contracted payments. Most of the major managed care payors, for example, employ a multi-level hierarchy of strategies utilizing third-party vendors to obtain non-contracted discounts and to identify and collect any overpayments they believe have been made to a hospital.”

Nothing has changed. It’s 2019 and the healthcare industry is still struggling to address healthcare underpayments and denials. It’s time for providers to take advantage of advanced technology and professional vendors who can help them stand their ground. It’s time to get paid the contracted amount every time, for every patient.


About Revenue Masters™

Revenue Masters is a leading provider of revenue cycle technology and services. With a comprehensive suite of reimbursement technology and services, Revenue Masters is helping modernize healthcare contract management and modeling to make navigating the healthcare financial system easier and more intuitive for everyone.