Burdened by tight margins, hospitals and health systems are looking at all possible ways to avoid missed revenue.
One way is by addressing underpayment issues. However, hospitals often limit their efforts due to lack of dedicated resources focused on underpayments and overreliance on payment variance reports to identify opportunities to recover revenue.
Ensemble, which helps dozens of health systems and hundreds of hospitals enhance their revenue cycle capabilities, has found that the majority of revenue-recovery opportunities lie outside of the variance report. Therefore, addressing underpayments requires looking at the revenue cycle more holistically and not just focusing on the payment variance report.
In a Becker's Hospital Review webinar sponsored by Ensemble Health Partners, Andrew Bess, chief operating officer of physician and ambulatory solutions, and Lane Rosenthal, senior vice president of revenue cycle, both of Ensemble, discussed challenges with underpayments, common variance reporting issues and tips to creating a successful underpayment recovery program.
Four key takeaways were:
1.) Underpayments are a big deal. On average, 1 to 3 percent of provider net revenue is lost annually to commercial payers due to underpayment. "Accurately identifying underpayments requires awareness and analysis of any opportunity across the revenue cycle that may prevent you from being paid per your contract, optimally and compliantly." Mr. Rosenthal said. "It really is a holistic review of registrations and final payment."
2.) The two primary causes of underpayments are payer issues and preventable revenue cycle issues. Payer issues include contractual underpayments, process errors and complex claims.
"There are also self-inflicted wounds within the revenue cycle that are preventable and fixable, such as coding, charging and billing," Mr. Rosenthal said . "All of these functions need to be optimized for commercial contracts and reimbursements." For many hospitals, focusing on coding can represent a significant opportunity to address underpayment and improve revenue.
3.) Only a small fraction of underpayment-related data is available on variance reports. The majority of revenue cycle-related issues are not on variance reports. Among the areas that are visible on the payment variance report are stoploss, carveouts, annual escalators, bundling and payment variance. Also visible are various "false variances."
However, despite the importance placed on variances, in many instances they represent only a faction of underpayments. "In 2022, Ensemble recovered more than $200 million in underpayments for clients of which 70 percent were identified beyond the variance report," Mr. Rosenthal said. To go beyond the variance report, "you have to move past the mindset of only thinking about variances and think holistically about revenue cycle."
4.) A successful underpayments recovery program is composed of three phases: identify, recover and resolve. These elements involve having a dedicated, focused team devoted to underpayments.
- Identify: Start by identifying seasoned experts who understand reimbursement to create necessary rules, Mr. Bess advised. Review the variance report, eliminate false variances, use machine learning to support workflow and anomaly detection and deploy dedicated analysts to thoroughly review all revenue issues.
- Recover: Recovery includes having resources to collect on underpaid accounts and utilizing automation to prioritize and expedite tasks.
- Resolve: Resolution must then include root cause analysis, providing feedback to revenue cycle teams and partnerships with managed care to review opportunities.
By looking beyond the variance report, by having a dedicated underpayments team and by working with a partner like Ensemble, hospitals and health systems can create a successful underpayments recovery program. The impact can be millions of dollars in cash recovered and improved margins.
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