When insurers pay less than the rate specified in a practice's contract, it can drain revenue without physicians even realizing it. As much as 3% of a typical practice's expected revenue is lost to underpayments, according to one estimate.
To win back underpayments, billing staff must first root them out and then try to collect the correct amount from the insurer. Both tasks can be challenging — and most practices don't do them in any kind of systematic way, according to Taya Gordon, a practice management consultant with the Medical Group Management Association.
"There are many practices that don't know what the insurer has agreed to pay," Gordon said. "Even when they do know, they may not be able to review all payments, so they can only spot-check for underpayments."
How Underpayments Come About
Many underpayments are caused by insurers. They may miscalculate the amount due, interpret payment rules in the contract differently, or simply take unilateral actions, such as reducing an evaluation and management (E&M) code, even though the documentation is correct, Gordon said.
But billing staff also can cause underpayments when they do not code and document properly, according to Fred Horton, president of AMGA Consulting, an affiliate of the American Medical Group Association.
"Mistakes are the result of lack of training," Horton said. "In many cases, practices haven't committed enough resources for billing staff in the form of higher salaries and paying for regular training. This problem is worsened by an ongoing shortage of qualified billing personnel."
The following are some common mistakes by practices that cause underpayments, according to David J. Zetter, a practice management consultant in Mechanicsburg, Pennsylvania.
Not Providing Enough Documentation. Higher E&M codes require extra documentation to justify the higher reimbursement. "When there is no documentation to justify a level 4 or 5 code, the payer simply lowers it to level 3," Zetter said.
Setting the Practice's Fee Schedule Too Low. Practices must have the same fee schedule for all third-party payers, regardless of what they pay. "Your fee schedule should never be lower than the rate any insurer has agreed to pay," Zetter said. "If your charge is lower than any insurer's rate, that insurer may simply pay your rate and not the agreed-upon amount."
Intentionally Undercoding for Services. "This happens when billers aren't sure about thecoding rules or the allowable payment," Zetter said. "They don't want to be overcoding, which could lead to a payer audit, so they intentionally choose less lucrative codes." He advises practices to work hard on correct documentation to be confident they can withstand an audit.
Rooting Out Underpayments
Underpayments often go unnoticed. When the insurer pays the bill, it does not indicate that it decided to pay less, as it does when it denies a claim. "It is up to the practice to figure out that it has been underpaid," Zetter said. Consulting the billed amount is no help because it is not what the practice expects to get.
"You need to compare the payment with the rate stipulated under the contract," Zetter said. "But many practices don't have a copy of their contracted rates. Payers don't want you to have this information. If you don't know it, it's easier for them not to pay you accurately."
Zetter said it is possible for practices to get a copy of the rates, but they have to ask. "Payers are obligated to provide their contracted rates after the practice signs a contract with them," he said. "If you wait until later, it gets more difficult."
"It's easier for a practice to get the rates for the common codes it uses," said A. Michael La Penna, a practice management consultant in Grand Rapids, Michigan. "A primary care practice only has about 80 common codes."
To pursue underpayments, practices can beef up their billing staff and develop a strategy for underpayments, said Dickson M. Capps, chief administrative officer of Piedmont Community Physicians in Winston-Salem, North Carolina.
"One part of that strategy could involve using a spreadsheet to plot the payer's contracted rates and the fees the payer has allowed," he said. The difference, called a variance, could be an underpayment.
Billing staff must then check variances with the insurer's payment rules. The insurer's rules might state, for example, that when multiple procedures are billed, the first is paid at 100% of the contracted rate, while the rest are paid in descending percentages.
Gordon said this manual process is too time-consuming to monitor all payments. She advises automating at least part of the work by loading contracted rates into the practice management system. This process, which may require special software, produces a variance report showing potential underpayments individually, as well as trends over time. Staff would then have to verify that the variance is indeed an underpayment, she said.
Most practices, however, don't automate because it is time-consuming, Capps said. Staff have to key the contracted rates into the practice management system. "This work can take hours, even if it's just for 40-50 codes," he said. Staff would have to key in a different set of numbers for each contract.
Capps said the work could pay off, though, if the practice doesn't constantly renew its contract, as is the case for many small practices. Then the rates would stay the same for years, and the work would have lasting value.
"In addition to monitoring at the time of payment, it's a good idea to monitor on a monthly basis," Penna said. "Sometimes, the variance wasn't detected the first time around."
Monitoring will inevitably uncover overpayments, too. They can happen when the practice overcodes a submission. "Do not ignore overpayments," Capps advised. "The insurer typically has 2 years to detect overpayments and will likely do so. It will recoup the amount by deducting it from a current payment, without explanation."
This unexplained payment reduction can make it difficult to balance the books. "It's better if you control the process and simply report overpayment," Capps said. "You can find a form to do this on the payer's website."
Getting the Money Owed
Some underpayments are easy to correct. For example, if the claim was downcoded because it lacked documentation, Penna said, the billing staff could find the missing information and refile the claim. "If it's that simple," he said, "you could resolve it without speaking to anyone."
Capps said most insurers allow practices to report simple underpayments on their website and request reprocessing.
"If you provide all the necessary information, you could be paid without any further effort," he said. "But the website won't work for complicated matters — for example, if the insurer recoded the service or bundled several codes together that should be paid separately."
When a conversation is needed to resolve the problem, the practice must call a claims representative at the insurer. Waiting your turn may take more than an hour, and the problem still may not be fixed.
"It helps to cultivate a relationship with a particular rep," said Mike Coppola, chief operating officer at AMGA consulting. "That will make it easier to resolve issues."
If the rep did not resolve the problem, escalate to a network manager at the plan.
"The network manager has more authority and knowledge, but they should not be the first call," Capps said. "If you get overly aggressive with an insurer, they may retaliate by dropping their contract with you." Small practices are especially vulnerable, he added.
"You should let the process unfold," Capps advised. "Let's say you talked with the claims rep and they agreed to reprocess the claim, but it did not happen. At that point, you might call the network manager and note that under the state's Prompt Pay penalty, delaying payments involves an interest fee."
"If the insurer refuses to make good on your claim, the next step could be arbitration," Capps said. "You will need to hire an attorney and pay a fee of $15,000-$20,000." He said this can be justified by bundling together many different claims worth more than the cost. He added that many doctors shy away from arbitration, but well-prepared practices have good chances of winning their cases.
Summary
Ameliorating underpayments requires reducing billing errors, identifying underpayments, and contacting insurers to obtain the correct payment. Practices must know the contracted rates and payment rules. Software can help identify potential underpayments, but verifying the underpayment still requires manual work. Insurers often agree to make good on simple underpayments, but in many cases, practices have to take multiple steps with the insurer to get the money.
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