How underpayment is slowly taking a big chunk of your revenue out?

How underpayment is slowly taking a big chunk of your revenue out?

What is Underpayment?

Underpayment is a situation where the actual payment you are getting is lesser than your contracted rate with the payer. This could be because of different reasons but three of them are the most common reasons for getting underpaid. Let’s understand them in depth.

1. Underbilling:

Underbilling means you are billing less than the payer’s allowed amount.

For example, Insurance’s allowed rate is $120.00 for E&M code & you are billing it with a charge amount of $110.00. Now it’s common practice of Insurances if you bill less than their allowed they will pay you only how much you billed. So they pay $110.00.

Some providers may not realize it, they look at the payment and take it in a way that insurance is paying them at 100% but that’s wrong. You’re losing $10 each time you are billing.

Underbilling commonly happens for two reasons.

1 Sometime providers bill all their insurance claims with universal charge amounts not realizing some payers might have higher allowed rates for whom they need to increase their charges.

2 Every year insurances update their fee schedule although the common trend right now is the rates are decreasing even for Medicare but it’s not for all procedures there remains many procedures for which rates do increase. In this case if providers have kept their charges close to their last year allowed and haven’t reviewed the new changes it could result in underbilling.

For example, Let’s say for CPT A0001 Medicare rate was $147.00 in 2021 so the provider kept his charge amount at $150.00 Now for 2022 Medicare have change the rate to $153.00 but the provider didn’t got a chance to review the changes in fee schedule and kept the rate same. What would happen? Insurance will pay $150.00 but the provider would still lose $3.00 on each bill.

It may sound smaill about but if you bill the code more frequently & there are more such underbilled codes you’ll end up losing tons of money.

So what’s the solution?

The first step to avoid underbilling is to remain up to date on your contract rates. Prepare a spreadsheet of what your current contract rates are for each insurance. & mark a date on your calendar to check every 3 months if there was any update in the fee schedules of those insurance.

& never keep your charge amount close to your contracted rate. Ideally your charge amount should be 20 to 30% higher than your contract rate. Never keep it below 10%. Insurance is not going to Fine you if you bill high they will pay what their rate is high. So it’s Ok to be in a higher charge range then being in lower and losing money.

2. Underpaid even if billed correctly:

Most insurance companies tend to pay just 85 to 90% of what is in the contract. 10 to 15% is a huge loss to Medical practice especially the ones already struggling to make ends meet.

Recently we heard about the Lawsuit filed against one of the largest health insurance plans for underpayments.

Reference: https://www.ama-assn.org/delivering-care/patient-support-advocacy/patients-doctors-sue-hold-cigna-accountable-underpayments

Here’s a few steps you can take to stop underpayments:

• List down the CPTs you most frequently bill in your practice.

• Before initiating any new contract with insurance do ask them to give you the fee schedule for your CPTs.

• Review payer contracts & agreements every 3 months. Most Payers change their regulations often and it’s a best practice to keep ourselves informed.

• Keep a check of how much your claims are getting paid compared to the contract rate, Manually checking each line might not be possible. You can alternatively check with your EHR if they have any such functionality.

• If the payer is frequently underpaying it then take the issue to a higher level. Speaking to any low-level rep at insurance won’t fix the issue. Request your network manager to set up a call, give them the list and ask them to fix the problem from origin.

3. Higher patient balance and slow recovery

With the increasing trend of Higher deductible and copayment plans there’s more coming to the patient's bucket then before. Therefore it’s quite crucial to make sure you have an efficient collection system otherwise you’ll end up losing a portion of your contract rate and sometimes situations get worse to where you lose patients because of it.

We’ve written a detailed answer to how you can make your patient collection more efficient. Check it below:

Effective Ways to Increase your patient collection

Underpayment is assiduous poison that slowly eats up your revenue and more often goes unnoticed. It is better to be proactive keeping check of this rather than having late realization after losing tons of your hard earned money.

Feel free to contact us to help you with underpayment or any billing issues you’re having. Our consultation is completely free. We would be happy to be of any assistance.