Identifying and Collecting Underpayments: 7 Ways to Increase Your Success

Hospitals are increasingly outgunned today by healthcare payors when it comes to managing their contracted payments. Most of the major managed care payors, for example, employ a multi-level hierarchy of strategies utilizing third-party vendors to obtain non-contracted discounts and to identify and collect any overpayments they believe have been made to a hospital. Although hospitals use sophisticated patient accounting systems to calculate the amount due from the payor at the time of billing, these systems are not always capable of handling multi-tiered contract structures. Hospitals have both a responsibility and a financial need to identify and correct erroneously calculated contractual discounts and to reverse inappropriate claim denials from payors.

Success in this process can have a material impact on a hospital's bottom line. Recoveries vary considerably depending on the effectiveness of current efforts and the complexity of payor contracts and mix, but can range from 2-6 percent of paid claims. Importantly, it can also help providers achieve higher patient satisfaction levels, because patients (and medical staff members) often wind up in the middle of an inaccurate claims adjudication process. In today's highly competitive healthcare environment, hospitals cannot afford to confuse, irritate or lose patients due to administrative complexities.

The majority of underpayments stem from four main causes:

•    Providers billing incorrectly and/or not providing appropriate clinical documentation for the services provided.
•    Payors pricing claims using incorrect contract terms.
•    Payors calculating the allowed amount incorrectly and providers not immediately identifying the incorrect amount.
•    Contract terms being interpreted differently by the payor and the provider.

Increased focus on the following seven key areas can help prevent underpayments from occurring and increase your collection rate when they do occur:

1. Document accurately.
Citing detailed contract terms and calculations that demonstrate an underpayment helps make your case appeal-resistant. Many times it's nearly impossible to determine how the payor arrived at their allowed amount under the contract. Documenting how you have calculated payment for each line of the claim as outlined in the contract puts the onus on them to explain why they reached a different amount. If you have many cases with the same reason for an underpayment, it's best to establish agreement from the payor on a specific case, then cite that agreement in subsequent requests for additional payment on a group of claims with the same issue.

2. Make the gray areas black and white. The best form of prevention is to make sure that contract terms are clear and unambiguous, and can be paid consistently and accurately with automated systems. Many seemingly straightforward contract terms can be interpreted differently by the hospital and payor. Contract management software and internal claim payment systems often do not price complex contract terms correctly. If possible, send a test file of claims for the payor to price prior to the effective date of the new contract to ensure you're on the same page in the interpretation of terms and that the contract terms and fee schedules driving the paid amount calculate the same result.

3. Assign accountability for coordinating key players. One person with ultimate responsibility for coordinating the communication and strategies among the various departments involved in revenue cycle and contract management — clinical, coding, registration, legal, finance, contracting, patient accounts — will make a huge difference in identifying problem areas and establishing priorities. The attorneys or executives responsible for negotiating contract terms must be aware of any internal challenges that may make administration of certain contract terms difficult. Constant, ongoing communication and training among the people responsible for managing provider contracts is essential.  

4. Manage by metrics. What are your current statistics with respect to the percent of underpayments you experience, and what are the specific causes? What are your short-term and mid-term objectives and timeframes, and what are the most effective ways to achieve improved results? If you don't measure your current and desired results and communicate and set realistic goals, material improvements will be difficult to achieve.

5. Augment and audit your internal efforts. Search the market for expertise in software and processes that address coding, charge capture, out-of-anetwork discounts and contract underpayments to increase your efficiency and effectiveness. Assemble an arsenal of internal and external efforts to stand up to the resources employed by your payors, and be willing to continuously test and tweak your approach.

6. Focus on the most difficult areas of payment accuracy. Five key areas present opportunities primarily because of complexity and difficulties in obtaining accurate, automated pricing of contract terms:  
•    Stop-loss terms
•    Carve outs such as implants and high-cost drugs
•    Outpatient APC Medicare claims
•    Medicare Advantage HMO claims
•    Length of stay, billed amount and DRG outliers

7. Have processes in place for contract and pricing changes.
Even if your systems and processes are very accurate, you risk underpayments if any fee schedules, AWP pricing, Medicare or Medicaid updates or other pricing changes are not installed and tested immediately upon the effective date of the changes. Establish internal triggers to eliminate weeks or months of lag between the effective date of changes and your monitoring of proper payments. Immediately after a new contract effective date, scrutinize your remittance data to make sure that all contract terms are performing exactly as expected.


Timothy Smith is president of Claricon LLC, a Naperville, Ill.-based firm specializing in identifying, documenting and collecting contractual and other underpayments or missed payments for hospitals and other healthcare providers.

Learn more about Claricon.

Related Articles on Hospital Reimbursements:

Debt-Ceiling Law Could Reduce Medicare Payments to Hospitals by $1.4M Per Year

Massachusetts Hospitals Set to Receive $275M More Per Year in Medicare Payments

$90M in Medicare Reimbursements to Be Split Among 40 New Jersey Hospitals


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