Underpayment Recovery for Medical Practices: A Step-by-Step Guide

You may have heard that physician group TeamHealth won $10.8 million dollars in their underpayments case against UnitedHealthcare.  

Did you know that over 100 Alabama hospitals are now suing Blue Cross, claiming a $5 billion loss due to underpayments? 

Big recovery amounts like these can spark envy in physician groups or medical practices that don’t have the attorneys, staff, or software to pursue payer underpayments. 

When you’re working as hard as you can to staff your practice, schedule patients, remain compliant with federal regulations, and collect from both patients and payers, that nagging thought that you’re not getting paid enough from an insurer tends to get ignored.

But what if just a month or two of focus on payer contracts, the amounts you charge, and the actual payer reimbursements could win you better net revenue for years to come? 

In pursuing your underpayments, you get to know your contracts and which payers offer the most favorable terms for your practice. This competitive intelligence helps you negotiate from a stronger position. Perhaps best of all, however, underpayment recovery and contract management convey the sense of control and clarity you and your team have been longing for. Most likely, you haven’t been on equal footing with your payers for a long time. 

With the guidance in this article, you can maximize your net revenue through underpayment recovery and contract oversight. You are within your rights to fight for every dollar and to find the trends that amount to even tens of thousands of dollars in recovered revenue. 

What are healthcare underpayments?

Underpayments in healthcare result when there's a discrepancy between the payment a provider anticipates receiving from the insurance company – as per contractual agreements – and the actual amount disbursed. Such disparities may arise due to errors committed by either the payer or the provider. 

How prevalent are payer underpayments today?

Prevalent. 

A study published in Becker’s Hospital Review found underpayments from commercial payers reduce provider revenue by one to three percent annually. Other researchers believe the figure could be as high as 11 percent. Providers that reach out to us often reveal their underpayments reach five to seven percent of net revenue. 

The majority of these underpayments go unrecovered. Payer-provider relationships can be contentious and can be tricky to navigate. Delivering the bulk of your income, it seems payers have all the power, and practice managers and physician owners hesitate to alienate them. You may even feel challenging payers is pointless, as some of our clients share. Because your prime directive is care, the majority of your energies go into providing that. Your financial health comes second. Conversely, payers are free to devote much of their time and energy to maximizing their revenue. 

As a result of this power imbalance, payers have become notoriously aggressive in establishing contract terms, sparking provider frustration, resentment, and even anger. 

At a Becker’s Hospital Review CEO and CFO event last year, one healthcare organization CEO said of his contract discussions with payers:

 “I don’t negotiate with terrorists.” 

Last summer, Prisma Health asked a judge to issue a temporary restraining order on UnitedHealthcare, and Blue Cross Blue Shield sued three UMMC executives for defamation. 

Behind this contentious relationship lies the profit differential. When payer net profits run into the several billion to tens of billions of dollars every year – a level no healthcare organization can hope for –  provider resentment is understandable. 

The bottom line: payers are underpaying regularly. How much could you be losing? 

Provider organizations can push back without damaging their payer relationships

As a practice or physician group, your negotiations with payers may not make headlines like those above, but you can make meaningful gains. (Read about how we helped one orthopedics group recover $10 million dollars in underpayments, and that’s just one success story.)  

Unfortunately, right now we find many practices too overwhelmed with revenue cycle duties during a staffing shortage to pursue underpayments. Sometimes they perceive the effort expended as not worthwhile, especially when they are trying to collect upfront from patients who now – because of the ubiquity of high-deductible healthcare plans – are responsible for 30 percent of practice revenues. 

Resolving to embark upon underpayment recovery, however, has robust rewards. The revenue earned helps you acquire that new clinician, piece of equipment, or time-saving software upgrade that other practices in your neighborhood don’t quite have the capital for yet. 

Further, if you’re pursuing capital investment or even a buyout, keep in mind that proactive underpayment recovery on your EBITDA can provide a competitive advantage. Private equity and larger organizations in the market to buy today are scrutinizing financial statements. A demonstrated focus on maximizing reimbursements  reflects well on your practice management approach. 

As far as keeping your payer relationships intact, when pursuing underpayments, you’re only asking for what the payer agreed to in the first place. They know their technology can be faulty and their people make errors. Approaching with a matter-of-fact demeanor to rectify these errors won’t alienate them. In fact, bringing their attention to an issue can help them refine their software or workflows. At the very least, it alerts them to the fact that you are paying attention. 

Start small with one payer or one CPT code and payer combination. Why is Blue Cross underpaying for rotator cuff surgeries? Use the following steps to get your reimbursements to the levels indicated in your contracts. 

Steps to underpayment recovery

Step 1: Develop an assertive and equal-partner mindset

Payers should not be the only ones creating contracts. You, too, must have input in determining: 

• reimbursement rates and fees
• days the provider has to submit a claim after a service or visit
• days the payer has to reimburse the provider for covered services
• scope of services covered by the payer
• claim denial dispute procedures
• notice periods for renegotiation and termination

Because payers create the contracts, the terms nearly always favor them.  One contested term that sheds light on the payer / provider power imbalance is the payer’s right to modify the contract at their discretion, without requiring any provider approval at any time.

In some of these cases, providers are given a 30-day notice to object to amendments in writing, but most healthcare organizations find this period far too short to respond in time. If the provider doesn’t meet this deadline, payers set their amendments to roll out automatically. 

Worse, in some cases, payers add stipulations that, should they decide to amend the contract, they are not obligated to get any approval from the provider at all.

This right to modification as well as all listed above should be negotiated fairly by both parties. Find all the terms involved in negotiating contracts with payers here. Don’t consider pursuing a law degree – simple awareness of points in your contracts where you have negotiating room is a meaningful first step in winning more fair terms.  

But how does a provider know what’s fair?

When you take a proactive approach to managing your contracts, you pretty quickly see which payers pay the most. From there, you can track the terms that lead to these higher reimbursements. Your next step is to find the payers with poor contract terms. We get into the details to conduct this exploration later. 

Another way to find out what’s considered fair payer terms is to talk with other physicians in your local area to get a sense of the terms they’ll tolerate and which they won’t. Contacting your state’s medical association or the AMA helps, too.

Step 2: Find and review your contracts

There’s evidence that payers count on the fact that many providers are just too overwhelmed to read and review their contracts and the yearly updates closely. 

They’re right. 

Some providers let their contracts languish for years, stuffing annual updates in the same file folder where the first hard copy was forgotten. According to a recent MGMA poll, 33 percent of providers fail to review their contracts yearly. To break it down, 17 percent report NEVER reviewing them, and 16 percent review contracts every 2 to 3 years or more. To tell the truth, we’ve had clients pull crumpled hard copies of contracts from file drawers that haven’t been opened for five years or more. 

58 percent do review annually – not bad. Of those 58 percent, however, not many renegotiate terms. 

It can take time, knowledge, and energy to win fair reimbursement from payers. The contracts originate with the payers after all. And they’re the ones with all the attorneys.  

Your first step in getting traction in this power dynamic is to get your hands on all contracts. If you can’t find your contracts – a common problem for overwhelmed providers – contact your payers. Remind them that you are entitled to your contracts and you expect them to be delivered quickly. Don’t let them intimidate or stonewall you. Repeat your requests if you must. 

Step 3: Create your contract management system or buy one

Either via hard copy, spreadsheets or software, get all your contracts centralized. 

Excel spreadsheets 

If you have an Excel or Google Docs spreadsheet whiz in the office, you may choose to organize your contract fees and terms using it. Using excel spreadsheets has some advantages

• Immediate Updates: Modifications to calculations are instantly reflected, especially when the required data sets are clearly defined.
• Accessibility: Thanks to cloud hosting, spreadsheets via Google Sheets and Microsoft Excel are accessible across various devices, including smartphones. 
• Cost Efficiency: Spreadsheets are more economical than vendor contract management software. 

Despite these advantages, spreadsheets don’t ping your staff with renewal update alerts. They don’t consolidate your underpayments and make them easy to search and parse by payer, CPT code, or a combination of these. Further, manual entry executed by staff is prone to errors. Software includes error detection, catching number and letter transpositions, inaccurate CPT codes, and more.  

Perhaps the toughest issue stemming from spreadsheet use, however, is the labor involved, particularly for practices or groups struggling to remain fully staffed. Complicating the lack of available staff, the specialists that wind up with this task often don’t have training in underpayment recovery or even contract terms. Finally, spreadsheets don’t stay current with updates to governmental regulations or contract changes. 

Use contract management software

Contract warehousing is just one convenience contract management software offers. We cover the ways it can streamline, empower and enrich your practice below. 

Step 4: Find out how each payer accepts an underpayment exploration request

The processes are typically straightforward. To find the specific instructions for the insurers you need to contact, use their provider portal, contact Provider Relations, or search Provider Resources. They should have a protocol.

For Blue Cross for example, you use these steps:

1. Review Contract and Payment Details: Before submitting an underpayment notification, review the contract terms with Blue Cross and the details of the payment received. Ensure that the payment discrepancy indeed qualifies as an underpayment based on the agreed contractual rates and services rendered.

2. Gather Necessary Documentation: Compile all relevant documentation that supports the claim of underpayment. This may include the original claim submission, the remittance advice received from Blue Cross, a copy of the contract specifying the agreed payment rates, and any other supporting medical records or billing documents. You can see that you must have the contract to recover your underpayments.

3. Contact Blue Cross Provider Services: Reach out to Blue Cross Provider Services for guidance on their specific underpayment notification process. This step is crucial as procedures may vary by state or specific Blue Cross affiliate. They can provide you with the exact process, including any specific forms that need to be filled out or documentation required.

4. Submit Underpayment Notification: Based on the guidance received, submit the underpayment notification along with all the necessary documentation. Ensure this is done within the timeframe specified by Blue Cross to avoid any issues with claim reconsideration deadlines.

5. Follow Up:  After submitting the underpayment notification, keep a close eye on the process. Follow up with Blue Cross Provider Services if you do not receive a response within the expected timeframe. Maintaining communication can help resolve the issue more efficiently.

6. Appeal if Necessary: If the underpayment issue is not resolved to your satisfaction, inquire about the appeals process. Providers typically have the right to appeal payment disputes, and Blue Cross should provide information on how to initiate an appeal.

Remember, the specifics of submitting an underpayment notification can vary, so it's essential to consult the most current provider manual or contact Blue Cross directly for the most accurate and up-to-date information.

Where physician groups and practices can find help with underpayment recovery

Of course, the AMA, HFMA, as well as practice management publications (Physicians’ Practice or MGMA) share robust information about underpayment recovery and navigating payer relationships. Still, given workloads,  you may be tempted to turn the whole process over to someone with more experience and training. 

Hire a contract specialist

Hiring a contract specialist on a part-time basis can be a strategic move for physician groups looking to navigate the complexities of healthcare contracts more effectively while maintaining a focus on patient care and operational efficiency.

Hiring a contract specialist, whether full-time or part-time, offers several benefits. First, you’re bringing on a professional with expertise in payer contract negotiations whose prime directive is to defend your practice’s best interests. Beyond their legal training, they have deep knowledge about healthcare regulations and compliance requirements, an advantage that reduces your risk of contractual violations. Further, because their success is based on the net revenue they help you recoup, they are driven to negotiate better rates, identify underpayments, and appeal denials to demonstrate their success (and get a return invitation for the next year or quarter).

The flexibility of hiring a contract specialist on a part-time basis means escaping the financial burden of a full-time salary. This arrangement can be particularly beneficial for practices that may not have a high volume of contracts to manage or for those looking to test the waters before committing to a full-time hire. They may even recommend ideal software that will automate your contract management tasks. 

Finally and most importantly, with a specialist handling contracts, physicians and their teams can focus on patient care rather than getting bogged down by administrative and financial issues.

If you’re considering hiring a part-time contract specialist, look on LinkedIn, as well as the consulting arms of organizations like HFMA and MGMA. 

Use a third party that offers contract management software 

When juggling multiple spreadsheets starts overwhelming you or your team, you may want to consider contract management software.

 After reading, ingesting, and parsing the data in your contracts, this software automatically alerts you to:

• Which payers, CPT codes, or combinations of those two have the most underpayments
• which payers are providing the best fees and terms
• ways to improve future contracts
• contracts returning the most revenue
• how proposed contract changes will impact cash flow
• contract renewal dates, alerting you to which contract to review, when

Often the software vendor uploads contracts for you, saving your staff from a repetitive task. Well aware of the time and bandwidth constraints you and your team are laboring under, the vendor will make sure that the work required on your end is limited and will remain as touchless by staff as possible. You are just on the receiving end of critical data and action alerts. These vendors can also provide the amounts you stand to recoup so you can get an idea of how well the investment in this software performs. Typically, contract management software wins a positive ROI. 

Get the underpayment and contract backup you need 

Practices have limited resources for both comprehensive patient care and administrative tasks. When you do turn your attention to underpayments, your reward will be the improved revenue that gets you that new clinician, piece of equipment, or time-saving software upgrade. 

MD Clarity’s RevFind’s payer contract management solution digitizes and consolidates your contracts in one place. It compares every payment to contract terms and flags discrepancies so staff can act quickly. It also helps you easily benchmark your reimbursements against national standards, including Medicare. Not only does RevFind provide the contract insights you need to negotiate proactively, but it also supports you through the recovery process and helps identify the root cause to prevent future underpayments. Get a demo to see it in action.

‍