Underpayments are a major struggle for most healthcare organizations that significantly impact revenue. Our recent article highlights the common causes and implications of this issue along with insights and strategies for addressing underpayments. https://www.agshealth.com/blog/underpayments-in-healthcare-causes-and-implications/

1. Underpayments in Healthcare: Causes
and Implications
Underpayments are an often overlooked challenge of the revenue cycle
management process for many healthcare organizations, as detailed in our
recent article. Large acute systems to ambulatory practices are grappling with
underpayments, which occur when payers fail to reimburse the full eligible
amount for services provided. The common causes can be classified into four
main categories: people, process, technology, and payers.
1. People-related challenges include:
• Capacity constraints: Healthcare organizations often face
resource limitations when it comes to pursuing underpayments.
The underpayment team, despite its potential for a high return on
investment, may receive inadequate attention and resources.
• Limited knowledge and skill sets: The individuals responsible for
managing underpayments may lack the required expertise and
skills, leading to suboptimal efforts in identifying and addressing
underpayments.

2. • Understanding front-end denial causes: Healthcare organizations
may struggle to grasp the root causes of front-end denials and
their impact on overall reimbursement rates.
• Lack of alignment between teams: A lack of alignment between
revenue cycle operations and internal managed care teams can
result in inefficiencies and wasted efforts.
2. Process-related challenges include:
• Interpreting contract terms: Differences in the interpretation of
contract terms between healthcare organizations and payers can
lead to discrepancies in eligible reimbursement rates.
• Incorrect calculation of allowed amounts: Errors in calculating
the allowed amount for services can result in underpayments.
• Reactive-only approach: Some organizations adopt a reactive
approach to denials, addressing issues only after they occur,
leading to increased rework and costs.
• Volume prioritization: Inefficient prioritization of underpaid
claims can result in resources being misallocated and systemic
issues going unaddressed.
• Suboptimal processes: Inadequate processes governing handoffs
between revenue cycle operations and managed care can hinder
the identification and quantification of underpayments.
3. Technology-related challenges include:
• Lack of robust systems: Many organizations rely on outdated
systems, including EMRs, practice management systems, or
manual Excel-based models, to identify potential underpayments.
• Data integrity challenges: Data integrity issues can make it
difficult to trust the data and take action on potential
underpayments.
• False positives: Without a robust external contract management
system, healthcare organizations may encounter false positives of
underpayments, leading to unnecessary research efforts.
4. Payer-related challenges include:

3. • Incorrect pricing: Payers may price claims incorrectly by using
outdated or inaccurate contract terms, putting the onus on
healthcare organizations to monitor and hold them accountable.
• Margin protection: Payers may engage in margin protection
strategies, which can lead to underpayments.
• Lack of standardization: Lack of standardization in rate cards for
complex claims across states can create ambiguity and contribute
to underpayment volumes.
• Payment variance: Payments may not align with contractual
terms due to misinterpretation, margin protection, or creative
interpretations by payers.
• Incorrect DRG application: Payers may inaccurately assign DRGs
to lower reimbursement rates.
• Incorrect bundling: Incorrect bundling of services can cause
healthcare organizations to miss out on reimbursement.
• Timely contract loading: Payers may fail to load contracts in a
timely manner, leading to outdated fee schedules and
reimbursement challenges.
• Nonpayments: Some payers may deny payment for services or
not respond, leading to no response and contestable scenarios.
Addressing the multifaceted issue of underpayments in healthcare requires a
combination of resources, expertise, technology, and collaboration between
healthcare organizations and payers. By proactively identifying and
addressing underpayments, healthcare organizations can protect their
financial health and ensure fair reimbursement for the critical services they
provide to patients.
Listen to our webinar, “Underpayment Recovery and Its Impact on Your
Bottom Line” to learn more and watch for the next article in our series that
outlines a seven-step framework for quantifying underpayment issues.
Source of content: AGSHealth Blog - Underpayments in Healthcare: Causes
and Implications