Healthcare revenue cycle teams are facing unprecedented challenges. Recent findings from the American Hospital Association reveal a troubling trend: half of all hospitals and healthcare systems are struggling with over $100 million in aged accounts receivable claims exceeding six months. In this high-pressure environment, it’s no surprise that underpayments often fall to the bottom of the priority list.
The healthcare industry’s financial landscape continues to grow more complex each year. As margins tighten and operational costs rise, hospitals can no longer afford to overlook the substantial revenue that’s being left on the table through underpayments.
So, what’s the solution? The first step is understanding where to look for these hidden revenue opportunities.
Decoding Underpayments: A Significant Revenue Recovery Opportunity
When a healthcare provider receives less than the full amount they’re entitled to for services delivered, that’s an underpayment. These partial reimbursements occur for numerous reasons—sometimes the payer calculates incorrectly, other times the provider’s billing process falls short. Regardless of cause, the outcome remains consistent: financial benefit for payers and corresponding revenue shortfalls for hospitals.
Underpayments typically stem from two sources: payer actions or provider processes. Below we examine 10 of the most significant contributors to this persistent revenue challenge, drawing from both categories.
Common Payer-Related Causes of Underpayments
1. Clerical or Calculation Errors
The payer makes a clerical error when calculating the amount owed to the healthcare provider or when processing the claim for payment. These errors can include incorrect application of fee schedules, misinterpretation of modifiers, or simple mathematical mistakes that result in reduced payments. Regular audits of remittance advice can help identify these issues.
2. Shifting Payer Policies
Changes in payer policies, such as reimbursement rates or coverage criteria, can lead to underpayments if providers are unaware or do not properly adjust to these changes. Payers may update their policies quarterly or even monthly, making it challenging for revenue cycle teams to stay current with all modifications without dedicated resources for monitoring.
3. Multi-Payer Coordination of Benefits Failures
Underpayments can occur when primary and secondary insurers do not coordinate benefits properly. When patients have multiple insurance coverages, determining which insurer is responsible for what portion of the bill can become complex, leading to payment gaps that fall through the cracks and reduce overall reimbursement.
4. Partially Resolved Claims Rejections
Inappropriately denied claims that are reprocessed and paid at a lesser rate can result in underpayments. This scenario often occurs when providers appeal denials but accept partial payments rather than pursuing the full amount due, creating a pattern of revenue leakage over time that compounds with each occurrence.
5. Contract Compliance Shortfalls
The payer doesn’t fully pay a claim according to the terms outlined in the contract. These underpayments often go unnoticed without proper contract management systems in place to automatically flag discrepancies between expected and actual payments based on contractual agreements. Effective contract management is essential for identifying these discrepancies.
6. Bundling & Downcoding
When a payer bundles services together or downcodes billed services to lower-paying codes, some may be done incorrectly resulting in underpayments for healthcare providers. This practice can significantly reduce reimbursements when multiple procedures or services are performed during the same visit but should be billed separately according to proper coding guidelines.
Common Provider-Related Causes of Underpayments
7. Revenue Cycle Workflow Inefficiencies
From contract load missteps to billing-related issues and overlooked specific payer edits, underpayments can lead to additional revenue leakage. Inefficient workflows, inadequate training, or outdated technology within the revenue cycle management process can all contribute to missed opportunities for full reimbursement.
8. Insufficient Clinical Documentation
Incomplete or insufficient documentation can lead to underpayments as payers may require detailed documentation to justify the services billed. When clinical documentation doesn’t adequately support the level of service provided, payers may downcode claims or issue partial payments. Strong clinical documentation improvement (CDI) programs can help address this challenge.
9. Incomplete Services Charges
From missing billable charges to CDM inaccuracies and more complex charge capture issues, underpaid claims for the services rendered can lead to lost revenue. Studies show that hospitals may lose 1% of potential revenue due to charge capture problems alone. Comprehensive charge capture audits can reveal systemic issues.
10. Coding Errors
Inaccurate or inappropriate medical coding can lead to underpayments as payers may reimburse at lower rates for services coded incorrectly or documented improperly. With the complexity of medical coding systems like ICD-10 and CPT, even minor coding errors can have significant financial implications for healthcare providers.
Addressing the Underpayment Challenge
As revenue cycle professionals continue to grapple with mounting financial pressures and overwhelming workloads, underpayments may be deprioritized as resources are needed elsewhere. After all, underpayments tend to be a more difficult type of claim to work than most.
However, with healthcare margins continuing to shrink, providers can no longer afford to leave this money on the table. An experienced vendor partner could help recover your lost revenue by implementing robust underpayment detection systems, conducting regular contract compliance audits, and leveraging artificial intelligence and advanced analytics to identify patterns.
Develop a game plan for recovering your underpaid revenue by partnering with specialists who understand the complexities of healthcare reimbursement and can implement systematic approaches to identify and resolve underpayments before they impact your bottom line. Aspirion has dedicated experts that will prioritize recovering your underpayments.
Ready to explore how Aspirion’s expert team of incisive data scientists, attorneys & legal professionals, clinicians, and claims specialists—along with its advanced AI platform—can substantially impact your underpayment recovery? Contact us about your specific RCM needs and challenges here!
