Healthcare Underpayments: The Complete Provider Guide

A practical guide to what underpayments are, why they hide from standard reporting, how much they cost, the recurring causes, and the workflow for finding and fixing them at the source.

Healthcare underpayments are partial payments from insurance payers that fall short of the rate stipulated in the provider's contract. They are not denials - the claim was paid - and that is exactly why they hide. The remittance lands, the claim closes in the patient accounting system, and the shortfall buries itself in the gap between contracted and deposited amounts. Across the industry, that gap typically eats 1% to 3% of net patient revenue every year. For a 100-physician group, that is $667K to $2M annually walking out the door.

Recent monetary awards underscore how systemic the problem is:

• In August 2025, a federal judge granted final approval for Blue Cross Blue Shield's plan to pay $2.8 billion in underpayments to hospitals and healthcare organizations. The record-setting ruling also stipulates BCBS adopt new business practices to resolve claims more fairly.
• An arbitration panel ordered UnitedHealthcare to pay $91.2 million to Envision Healthcare for violating their reimbursement agreement.
• When Radiology Imaging Associates adopted an automated underpayment identification and contract management solution, they identified $1.1 million in validated underpayments from a single payer.

Beyond direct recovery, providers that systematically identify underpayments turn the data into leverage during contract negotiations: trading away pursuit of past underpayments in exchange for higher rates on important CPT codes or removal of unfavorable terms like the lesser-of clause.

Key takeaways

• Underpayments are paid claims that fall short of the contract. They are not denials, and they do not show up on denial reports.
• The industry standard is 1-3% of net patient revenue lost annually. Some estimates reach 5-7% for organizations with weak contract management.
• Causes fall into three buckets: payer-driven (contract misinterpretation, fee schedule errors), revenue-cycle-driven (coding errors, missing modifiers, billing mistakes), and industry-driven (plan complexity, RCM staffing shortages).
• Recovery follows a three-phase workflow: Detect (find the variance), Recover (build contract-anchored appeals), Resolve (fix the root cause so the same leakage does not return).
• The 2025-2026 environment makes this urgent. AHA data shows Medicare and Medicaid underpaid hospitals by $130 billion in 2023. Denial rates above 10% now affect 41% of providers. Margins remain razor-thin.

What is on this page

• What are healthcare underpayments?
• Underpayments vs. denials vs. write-offs
• How bad is the underpayment situation for providers?
• The financial impact of underpayments
• Healthcare industry challenges fueling underpayments
• Payer-related sources of underpayments
• Revenue cycle-related causes of underpayments
• The detect-recover-resolve workflow
• How MD Clarity helps
• FAQ

What are healthcare underpayments?

Healthcare underpayments are the result of healthcare providers receiving less reimbursement from payers than the contracted or eligible amount for medical services rendered. Common causes include contract misinterpretation, coding errors, and incomplete documentation. Unlike claim denials, underpayments represent partial payments that fall short of the agreed-upon rate, impacting healthcare providers' revenue cycle and operational sustainability.

While payment discrepancies can be identified through payment variance reports, these reports miss many of the variances they should catch. In recent years, providers have turned to revenue cycle management systems that upload and digitize all contract and fee schedule terms and rates, then compare them to all payments coming in. These solutions render all underpayments by payer, CPT code, location, or physician - or any combination - in visual dashboards.

Take a quick, self-guided tour through a powerful underpayments detection tool:

Underpayments vs. denials vs. write-offs

Revenue cycle teams routinely conflate three categories of revenue leakage that behave very differently and require different fixes. Getting the distinctions right is the first step toward addressing all three.

• Underpayments. Paid, but not correctly. The claim shows "paid" in your system and the shortfall hides in the difference between the contracted rate and the deposited amount. The cause is typically a contract misinterpretation, a fee schedule error, or a modifier issue inside the payer's adjudication. The fix is contract-based variance detection followed by an appeal. Recovery rates run 70-85% when appeals cite the exact contract language and rate exhibit.
• Denials. Rejected outright. The remittance carries an explicit denial code; the claim is visible on standard denial reports the day it arrives. The cause is usually eligibility, coding, or documentation. The fix is to correct and resubmit, or appeal. Recovery rates run 50-70% depending on root cause.
• Write-offs. Accepted as lost. The provider has marked the unpaid balance as a contractual adjustment, charity care, or simply absorbed it because timely filing closed. The cause varies but the result is the same: permanent revenue loss. Crucially, many write-offs are mislabeled underpayments. A balance gets categorized as a "contractual adjustment" without anyone verifying that the contract actually allowed the lower payment.

A complete revenue integrity program addresses all three. Denials get the most attention because they are visible and feel urgent. Underpayments are typically bigger in aggregate dollar terms. And write-offs frequently mask both.

How bad is the underpayment situation for providers?

The situation is significant and worsening. One study published in Becker's Hospital Review found providers lose one to three percent of their net revenue annually due to underpayments from commercial payers. Other studies put that figure as high as 11%. The landscape in 2025 and 2026 has intensified:

• As of 2025, 41% of providers report that their claim denial rate is 10% or higher - a figure that has grown year over year.
• MedPAC projects that hospitals' fee-for-service Medicare margins will remain depressed at negative 10% in 2026, following four straight years of double-digit negative margins.
• The AHA's 2025 "Cost of Caring" report reveals that in 2023 alone, Medicare and Medicaid underpaid U.S. hospitals by $130 billion.
• Medicare reimbursement continues to lag behind inflation, covering just 83 cents for every dollar hospitals spent on care in 2023.

Payers are not the only source of provider underpayments. Errors made inside the provider's own revenue cycle office trigger them as well. At the heart of diminished revenue is the larger inefficiency of the American healthcare system, where competing interests of providers, payers, and patients have generated a complex and costly delivery and payment apparatus. This guide addresses all of those sources, no matter where they originate.

Payment variance

You may have heard the catch-all term "payment variance." Like underpayments, payment variances are the difference between the expected payment and the actual payment. Payment variance is the broader term and encompasses overpayments as well, while underpayment specifically refers to payments below the expected amount.

The key issue with the term "payment variance" is its appearance in the "payment variance report" offered by practice management systems. The PMS provides only basic payment variance reporting, often limited in scope and functionality, and it routinely misses significant lost revenue. Still, "underpayments" and "payment variances" are often used interchangeably.

Providers who use internal financial analysts or billing specialists to manually create payment variance reports find the method time-consuming and prone to errors. Many providers today are adopting dedicated contract management software that integrates with the EHR and billing systems. These platforms automate the discovery and compilation of underpayments end-to-end.

Because payer underpayments drain provider revenue, and overpayments expose providers to legal action, both directions of variance need to be addressed. Failing to rectify overpayments leaves providers exposed to Civil Monetary Penalties Law liability, False Claims Act liability, and exclusion from federal healthcare programs. Still, many groups and practices are not current on their variances.

The financial impact of underpayments

Underpayments translate directly to operating margin. Given that net revenue per physician full-time equivalent (FTE) recently hit $668,775, and a 1% to 3% underpayment rate, the dollar impact at different practice scales is concrete and large.

For a 20-physician group bringing in $13.4 million in annual net revenue, the underpayment window is $134K to $401K every year. A 100-physician major group at $66.9M in NPR is leaking $669K to $2M annually. A regional health system at 500 FTE physicians and $334M in NPR is exposed to $3.3M to $10M in recoverable revenue per year.

Beyond direct dollars, the strategic case is even stronger. To achieve common group goals like attracting capital, recruiting talent, or selling to a buyer, the group must show the most robust EBITDA possible. When private equity or other buyers compare figures among groups, demonstrating revenue integrity and a healthy underpayment recovery protocol is a competitive advantage. A group that has captured its underpayments shows up to a transaction with a higher revenue floor and a credible operating discipline.

Healthcare industry challenges fueling underpayments

To reduce underpayments and increase revenue, first understand how the existing healthcare system creates conditions that enable them.

Plan complexity

Any provider group receives payment from dozens of different insurance payers, and each of those offers multiple plan types (Bronze, Silver, Gold), multiplying benefit variations. Add the yearly restriction updates payers make, and back-office staff can miss a code, a charge, or a contract update. Consider, too, that the AMA updates ICD and CPT codes yearly (including 270 new codes, 112 deletions, and 38 revisions for next year) and it is easy to see how handling patient billing lacks precision. No practice, hospital, or group escapes these errors.

Given this complexity, 43% of all adults say they have received a medical or dental bill they thought contained an error, according to the Kaiser Family Foundation's Health Care Debt in the U.S. report. Other estimates claim errors exist on 80% of medical bills. Grasping the fine details of an individual patient's current benefits is often beyond the capability of even experienced billing staff.

Staffing shortage

Most provider organizations are experiencing the healthcare staffing shortage firsthand. The COVID pandemic along with demographic factors have thinned out the ranks of those willing to work in healthcare, including in revenue cycle roles. According to a study cited by Becker's Hospital Review, 63% of providers are grappling with revenue-cycle staffing shortages. When staff are limited, only the most pressing and lucrative tasks get done. If underpayments will not typically return revenue at the same hourly rate as denial appeals or A/R collections, they drop to the bottom of the list.

High volume

A shrinking administrative team means those who remain are overburdened with an insurmountable volume of claims. A recent survey from Brigham and Women's Hospital cited in The Harvard Gazette analyzes healthcare workforce burnout, the productivity-sapping malaise that occurs when the amount of work exceeds one's ability to complete it.

Among its 42,000 respondents are 11,000 non-clinical, administrative staff. Of these, 47.4% "perceived work overload" (compared to 37.1% of physicians). Researchers found this work overload to be "significantly associated" with both burnout and intent to leave the job. 32.6% of surveyed non-clinical staff reported plans for leaving.

Extra pressure does not help the work get done accurately. The more staff is pressured to rush through a large workload, the more errors occur. A sense of being continually behind becomes demoralizing, leading to lack of care and more errors. Underpayments often follow.

Study author Lisa S. Rotenstein, a primary care physician at Brigham and Women's Hospital and assistant professor at Harvard Medical School, recommends leaders adopt "more innovative approaches that do not simply shift responsibilities from some members of the healthcare workforce to others, but to automate or reimagine some of these responsibilities."

Staff inexperience with handling underpayments

Another impediment fueling higher underpayments is staff's lack of awareness that underpayments even occur. Underpayments require specific expertise to identify, manage, and rectify. Flagging an underpayment requires comparing payment received to figures stipulated in the contract - a document most revenue cycle team members have not read. Lack of familiarity with payer contracts plagues staff at providers of all sizes from single physician practices to large hospital systems. Physician groups typically juggle 12 to 20 payer contracts, and most teams do not have the time or bandwidth to assimilate the intricacies of each.

Similarly, when contracts get updated (yearly or more), the new information often gets filed and forgotten, and underpayments ensue. If a payer has increased reimbursement for a treatment by 3% due to an annual update, provider staff can miss the change and continue submitting at the previous year's lower rate.

Healthcare organizations take one of two approaches to addressing staff inexperience:

• Outsourcing to a contract specialist. Many providers outsource contract management to a third-party provider to track and pursue underpayments. Some find that using a third party separates the providers from the payers, leading to a loss of control and transparency.
• Using contract management software. Other providers use a contract management software solution that tracks underpayments and makes payer contracts easier to compare. This software frees staff from reconciling multiple spreadsheets, updating fee schedules, and spending time researching contract databases or payer portals. Some contract management software companies also provide underpayment recovery specialists who improve appeal outcomes, increase reimbursement yield, and track recovery. These professionals act as an extension of revenue cycle staff and keep providers aware of all interactions with insurers.

Insufficient prioritization due to perceived lack of value

Even when staff does examine contracts, many put underpayment work lower on the priority list. Time constraints send staff after the higher-dollar claims roadblocks first: denials. When higher-dollar denials are waiting to be appealed and accounts receivable must be collected, pursuing underpayments can seem like too much effort for too little gain. It is just simpler to locate and reconcile a denied claim than to research and challenge one instance of missed incremental revenue.

This mindset misses the fact that flagging repeated types of underpayments alerts you to trends. The money lies in rectifying these trends rather than addressing single instances one by one. Rectifying the root issue with the payer helps align both sides so future claims are reimbursed correctly. Chronic underpayment should never be tolerated.

Inadequate technology

The healthcare staffing shortage has left many providers with a skeleton crew often made up of long-tenured staff. While loyalty has its benefits, these employees can get entrenched in trusted processes and known technology. They were hired on as billers and made their way up to revenue cycle manager or director. After enduring chaos starting from the federal rollout of the EMR mandate in 2009, they may resist the idea of new technology or yet another platform.

Healthcare leaders are consistent that integrating new technology is imperative for optimizing revenue and navigating the staffing shortage. McKinsey & Co. forecasts that "AI, traditional machine learning, and deep learning are projected to result in net savings of up to $360 billion in healthcare spending."

Payer-related sources of underpayments

Now that the systemic context is clear, the next step is to focus on underpayments triggered by payer mistakes or unfavorable contract language.

The AMA reports that commercial health insurers' claims-processing error rate stands at 19.3%. The AMA estimates that eliminating these payment errors would save providers $17 billion. Some of these errors will spawn underpayments.

AMA Board Member Barbara L. McAneny, MD, called the shortfall inexcusable: "A 20 percent error rate among health insurers represents an intolerable level of inefficiency that wastes an estimated $17 billion annually."

Contractual items

These are the most common payer errors that result in underpayments, followed by an example for each. These are issues you can dispute. Spotting a group of similar errors or a trend will lead to the most meaningful revenue recovery.

Annual escalators

Payers include "annual escalators" in their contracts that allow for an annual increase in payment rates. Payers sometimes make errors with these escalators.

• Example: A contract may stipulate a 3% annual increase in provider rates. If the payer bases payment on the prior year's rate, the provider is underpaid.

Bundling

Underpayments occur when the payer incorrectly bundles services.

• Example: Not all surgical procedures are bundled with follow-ups. When the two are incorrectly bundled into one payment, you may be reimbursed at a reduced rate.

Carve-outs

Payers establish "carve-outs" for specific services they delegate to other plans. Underpayments can happen when payer representatives get confused about which services, treatments, and medications a plan covers and which another insurer covers.

• Example: Health plans often cover most medical services but carve out behavioral or mental health services to another payer.

Combined accounts

Underpayments occur when the payer incorrectly combines accounts.

• Example: Confusion on the payer end can occur when a patient has two separate procedures on different days. Sometimes the payer combines these into one account and pays only one procedural fee when the contract stipulates the provider is entitled to two.

Interest payments

Payers are often obligated to pay interest to providers when they delay payments. Most contracts stipulate timeframes when interest begins accruing.

• Example: If a payment is made 60 days late and the contract states interest accrues after 30 days, interest must accompany the payment.

Processing errors

Processing claims can be tedious work. Payer staff mis-key or mis-read figures frequently and may misunderstand contract terms. These issues are open to dispute.

• Example: A simple inversion of numbers can result in an incorrect CPT code, prompting an underpayment. Changes for next year include 270 new codes, 112 deletions, and 38 revisions.

Items written into contracts

The following items may trigger a "payment variance" notification, but they were written into a contract the organization accepted. Refer to the contract, and if the revenue lost is significant, lobby to change the term during the next contract update.

"Lesser of" language

Contracts often include "lesser of" clauses stating that the payer will pay the lesser of the charged amount or the contracted rate. These terms can significantly affect expected reimbursement. Reviewing and renegotiating these clauses can help capture all revenue earned from that point forward.

• Example: If a service costs $200 and the contracted rate is $250, the payer only uses your $200 charge in the reimbursement calculation.

Reduction of charges

Some contracts allow payers to reduce charges for specific services. These have a direct impact on reimbursement.

• Example: If a contract allows a 10% reduction for a certain procedure, you will lose that 10% - or possibly more if the reduction is applied incorrectly.

Stop loss

A stop loss provision sets the maximum amount the insurer will pay. This provision can cause significant underpayments if not accounted for during pre-billing.

• Example: If a patient's treatment costs $200,000 but the stop loss clause stipulates $150,000 for that treatment, you will be on the hook for the remaining $50,000.

Policy

Aside from contractual issues, healthcare underpayments can stem from a payer's overarching policies.

Charge audits

Payers routinely audit charges to ensure they align with services provided and contract terms. During this audit process, errors can lead to underpayments.

• Example: A payer may mistakenly identify an overcharge due to a misinterpretation of billing codes. When an unnecessary deduction follows, the provider is underpaid.

Implant definitions

Underpayments can arise from disagreements over what constitutes an "implant" under policy terms. A healthcare provider may consider a certain medical device an implant and charge accordingly, but if the payer's policy defines the item differently, they may refuse to cover it as an implant.

• Example: UHC does not consider liquid or absorbable materials like hemostats and sealants, synthetic sealants, topical absorbable hemostats and topical thrombins, bone morphogenetic protein, bone putty or cement, catheters, staples, and clips to be implants. They must be billed under a different designation.

Supplies definitions

As with implants, disputes can occur over what constitutes "supplies." Providers and payers may have different interpretations of what items fall into the category.

• Example: A healthcare provider might categorize certain specialty bandages as supplies. If the payer's policy does not recognize these items as supplies, the payer might refuse to reimburse the full amount.

Revenue cycle-related causes of underpayments

Some underpayments are caused by issues in the provider's own revenue cycle. Each example below illustrates the category.

Billing

Indirect Medical Education (IME) adjustments

IME adjustments are additional payments made to teaching hospitals to account for the higher patient care costs associated with medical education. If these adjustments are not correctly calculated or applied during billing, underpayments result.

• Example: If a hospital incorrectly calculates or reports the ratio of residents to beds, this could lead to a smaller IME adjustment than the hospital is entitled to. If some residents are omitted from the calculation or temporary bed increases are not accounted for, the resident-to-bed ratio is understated and the hospital is underpaid.

Invoices

Mistakes in preparing or sending invoices lead to underpayments. An invoice might mistakenly exclude services provided, or an incorrect billing code might be used.

• Example: Not mentioning a payment due date, sending invoices to the wrong payer, failing to itemize services correctly, and adding the wrong tax rates are common invoice errors that produce underpayments.

National Drug Codes (NDC)

NDCs are unique codes assigned to each drug marketed in the United States. Errors in including or inputting these codes during billing lead to underpayments.

• Example: Common NDC errors include using an unverified code, failing to use a 5-4-2 grouping, and putting dashes or special characters in the NDC field.

Payer-specific edits

Each payer is entitled to a unique set of requirements for processing claims. Failing to meet these payer-specific requirements during billing produces claim denials or underpayments.

• Example: A payer might require a set of specific radiology films to support an ACL tear diagnosis. If the claim does not include these, the claim might be partially paid or rejected.

Revenue code alternate logic

Sometimes payers use alternate logic to interpret revenue codes. This mismatch results in underpayment.

• Example: You might bill a procedure under a certain revenue code expecting a specific reimbursement rate, but the payer might interpret the code differently and reimburse at a lower rate.

Trailer billing

Trailer billing refers to billing for services after the initial claim has been processed, usually for procedures or services with delayed reporting, like certain laboratory tests.

• Example: A provider treats a patient but delays submitting the claim due to administrative backlog. In the meantime, the patient's insurance policy changes to cover less of the procedure's cost. When the claim is eventually submitted, the provider receives less reimbursement than under the original policy.

Charging

Close to stop loss

As reviewed above, stop loss sets a maximum limit on the amount the insurer will pay. Charging glitches arise when costs of care approach this limit. If accumulative charges for a patient are not accurately tracked and unknowingly exceed the stop loss limit, the payer may refuse to pay the excess, leading to an underpayment.

• Example: A policy stipulates a stop-loss cap of $150,000 for breast cancer therapies. As a patient's accumulated costs draw close to this limit, they experience a relapse necessitating further treatment. The incurred expenses surpass the cap before the reconciliation process can occur, leading to a temporary underpayment for the provider.

Lesser of language at the charge level

"Lesser of" also comes into play when providers make errors. If the billed charge is incorrectly lower than the contracted rate, the obligation falls on the provider.

• Example: If a procedure costs $300 but you mistakenly charge $250, and the contracted rate is $275, you will only receive $250.

New or deleted codes

Medical billing codes are constantly updated. As mentioned above, the AMA recently created 270 new codes, 112 deletions, and 38 revisions for next year.

• Example: In 2023 home care plan oversight codes 74710 and 99441 were deleted. If you use one of these (or one of the 112 others that were deleted), the payer may refuse to pay for that service.

Pharmacy multipliers

Pharmacy charges involve complex calculations, including multipliers of dosage, days, and packaging. Errors in applying multipliers result in charging mistakes and underpayments.

• Example: Getting the medication dosage off by one decimal point can significantly reduce the total amount of medication prescribed and billed.

Revenue capture

Revenue capture refers to accurately documenting and billing for all services provided. If services are missed when charging, underpayments follow.

• Example: Major surgeries are based on time, but less invasive procedures often get charged separately. When a group of separately chargeable procedures occurs, one or two tend to get missed.

Coding

DRG validation

Diagnosis-Related Group (DRG) validation is the process of verifying that services provided align with the billed DRG code. Errors in this process lead to underpayments.

• Example: DRG validation accounts for the patient's complications or co-morbidities (CCs), which can increase the DRG weight and thus the reimbursement. If a provider fails to record or code these CCs correctly, it could lead to assignment of a lower-weighted DRG and an underpayment.

Missing diagnosis

Failure to code or document a diagnosis can lead to underpayment. The absence of a relevant diagnosis code can make the billed service appear unnecessary or inappropriate.

• Example: Two patients may both have a diagnosis code for pneumonia, but if one also has co-morbidities, you must include those diagnosis codes as well. The treatments for the patient with co-morbidities will be more extensive and costly than for the patient without.

Modifiers

Modifiers are additional codes that provide more information about a procedure. Incorrect use of modifiers leads to underpayments. Missing modifiers are one of the most common reasons medical claims are denied. Omitting a modifier that indicates a service was more complex than usual can result in the payer reimbursing at a lower, standard rate.

• Example: Medical coders often miss modifier 59, "Distinct Procedural Service." Modifier 59 indicates that clinicians performed two or more procedures during one visit to different areas of the body.

Procedure ordering

The order in which procedures are coded can impact reimbursement. If a less significant procedure gets coded first, the payer may apply a multiple procedure payment reduction, resulting in underpayment.

• Example: In cases where two surgeries occur at the same event, coders sometimes code the less costly procedure first. The payer might then reduce the payment for the more costly procedure.

Transfers

Transfers, particularly for inpatient stays, have specific coding requirements. Misinterpretation can lead to underpayment.

• Example: If a patient is transferred from one hospital to another, the first hospital should bill with a specific transfer DRG. Failure to do so can result in the claim being paid as if it were a regular discharge, which is typically a lower reimbursement.

The detect-recover-resolve workflow

A mature underpayment program follows a three-phase workflow. Each phase is necessary. Skipping any one of them either leaves dollars on the table or recreates the same leakage next quarter.

Phase 1: Detect

The first step is finding the variance. Given the complexity of healthcare plans and contracts, detection benefits from a combination of three approaches: advanced technology, seasoned experts, and dedicated staff time.

Use current technology. Healthcare leaders are unanimous in urging providers to adopt technical solutions. McKinsey explains that "the healthcare industry faces an acceleration in costs of nearly $600 billion in 2027, which could make healthcare less affordable and threaten the sustainability of industry margins. However, a path to weather the storm exists - the staggering $1 trillion opportunity to create value and improve healthcare by transforming the delivery of care, improving clinical productivity, applying technology, and simplifying administrative procedures."

When technology is the only realistic path to providing care and remaining viable, resilient providers are overcoming inertia to invest in revenue cycle solutions. Third-party solution partners now ensure that integrations are as touchless as possible, with insights bubbling up through existing systems and thorough onboarding from the partner. Despite initial resistance, employees consistently embrace automation: in a SalesForce survey, 79% of respondents reported increased productivity and 89% experienced higher job satisfaction after implementing automation tools.

Leverage seasoned experts. Experts who understand the nuances of healthcare reimbursement develop rules and guidelines that help identify underpayments. If current staff does not have the experience or is stretched too thin, providers can find outside revenue cycle audit experts. Some contract management software providers also offer revenue recovery specialists who connect with payer reps and push for maximum reimbursement, then train internal staff to systematize the discipline.

Review variance reports - but understand their limits. Variance reports from the practice management system pinpoint discrepancies between expected and actual payments. The goal is not to find underpayments one by one - the robust recouped revenue comes from spotting and addressing trends. Crucially, variance reports often miss:

• Documentation gaps. The report does not measure documentation accuracy. Incomplete or non-specific codes can lead to claim denials or reduced reimbursements that the report does not flag.
• Internal process inefficiencies. The report may not reflect operational bottlenecks causing delays in claims submission or processing.
• Data integration challenges. When data from EHRs and billing systems are not effectively integrated, issues go unnoticed or take additional effort to identify.

A robust underpayments tool catches these gaps where the variance report cannot.

Phase 2: Recover

Identifying underpayments is half the work. Converting them to cash requires dedicated resources, organization, and proactive management.

Dedicate resources. Assign a team or individual focused solely on collecting underpaid accounts. This team handles payer communication, documentation, and the collection process. Persistent, focused effort is what converts variance into recovered cash.

Group and prioritize accounts. To expedite the recovery workflow, group and prioritize accounts by:

• The amount of underpayment
• The payer
• The age of the claim

Prioritize accounts with substantial underpayments and those nearing the end of the claim submission window. Automate appeals wherever possible. Templated appeal letters with payer-specific language save time and standardize the process.

Build contract-anchored appeals. Successful appeals are specific. They reference exact contract language, fee schedules, or rate exhibits rather than generic complaints. The appeal packet should include claim identifiers, a clear variance statement (expected vs. actual allowed amount), the exact contract clause that supports the position, and the supporting documentation.

Automatically identify and escalate payer issues. Software tools identify recurring underpayment issues associated with specific payers automatically. These tools:

• Detect and flag underpayments by comparing returns to bills and contracted rates
• Schedule regular underpayment detection and review incoming payments for manual review as needed
• Automatically notify staff to appeal when underpayments arise
• Track patterns of underpayment to alert providers to payers most likely to underpay

Phase 3: Resolve

The final phase resolves the underlying issues that trigger underpayments. The goal is durable improvement: revenue that stays recovered.

Analyze root cause reporting and trending. Conduct a thorough analysis to identify the root causes of underpayments. Look for trends in the data:

• Are certain payers consistently underpaying?
• Do underpayments frequently occur with specific procedures or codes?
• Are coders missing common charges?
• Are missed contract updates causing underpayments?

Provide direct feedback to revenue cycle teams. Share findings with revenue cycle management teams. Direct feedback involving all team members justifies workflow adjustments and gets everyone on the same page. Encourage feedback to fuel continuous improvement.

Renegotiate problem contract terms. Use the underpayment data as leverage during contract negotiations. If a payer consistently processes claims incorrectly or applies lesser-of clauses against the chargemaster, that pattern is grounds to push for better language or higher rates at renewal.

Re-measure quarterly. Track the repeat-leakage rate by payer and code as the prevention KPI. If the same underpayment pattern keeps recurring on the same payer, the root cause has not actually been fixed.

Automatically detect underpayments with MD Clarity

MD Clarity brings payment transparency to the entire revenue cycle, lifting the bottom line and improving the patient experience. RevFind detects, recovers, and resolves underpayments efficiently and accurately. It scrutinizes every payment against contract terms automatically, flagging discrepancies and potential underpayments. When payers propose contract changes at renewal time or throughout the year, RevFind lets you model actual impact to net revenue so you can make informed decisions based on concrete data. It also tracks the underpayment recovery your team has achieved. By revealing underpayment root causes, RevFind helps you share and rectify revenue-draining workflow issues so underpayments consistently diminish.

For revenue cycle teams needing a resource to pursue the underpayments RevFind identifies, MD Clarity offers Underpayment Recovery Services. Experienced underpayment specialists act as an extension of your team, using deep expertise in payer reimbursement methods and appeals processes to collect your earned revenue. They use insights from RevFind to inform their interactions with payers. With this two-pronged approach, you get a powerful end-to-end solution that sweeps in net revenue without the need for additional hires.

Get a demo to see RevFind in action and learn about the seasoned underpayment recovery specialists who pursue every flagged variance through resolution.