Medical Billing Underpayment Risk Management

Average medical practice may lose as much as 11% of its revenue due to underpayments. Underpayment identification is difficult because an underpaid claim falls outside the domain of clearly identifiable claims that are fully paid or denied. The degree of underpayment adds further complexity to and exacerbates the difficulty of underpayment identification. Upon defining claim underpayment concept in more precise terms, this article roughly estimates recovery potential at 5% of monthly claims volume. Quantification of recovery potential drives the design of a disciplined three-stage underpayment avoidance and recovery process.

Partial Underpayment

A procedure is partially underpaid if it is paid below its contractually allowed or "reasonable and customary" amount. Zero payment is a limiting case of partial underpayment. Some billing service providers estimate partial underpayments to make up 7% of claim volume [Delinsky, 2006].

Zero Payment

In a claim with multiple procedures, one or more procedures may be paid at zero (zero payment) if the payer pays at least one of the multiple procedures and bundles unpaid procedures with paid procedures. Zero payments add yet another degree of complexity to underpayment identification and recovery. Some billing service providers estimate 4% of monthly charges paid at zero dollars.

Underpayment Recovery Potential

A claim runs a risk of underpayment in five typical situations, such as undercharging (charging below allowed amount or omitting a CPT code), charging for multiple procedures on the same claim, using modifiers to differentiate between services, providing service during the deductible period, and in cases of more complex contracts. An overlap of several such conditions exacerbates the risk of underpayment.

A disciplined billing office manages underpayment risk in three ways, namely, avoids underpayment prior to claim submission, identifies underpayment upon review of explanation of benefits (EOB), and appeals underpayments. As a rule, every partially underpaid claim and majority of zero payments must be appealed. Some billing service providers report 75% rate of zero payment appeals, or 3% of monthly charges. Therefore the total volume of appeals makes up 10% of monthly claims volume (7% for partial underpayments and 3% for zero payments). If only half of the appeals succeed, the total potential for underpayment recovery adds up to 5%.

Underpayment Avoidance and Recovery Process

Underpayment avoidance and recovery process has three phases, including scrubbing, identification, and appeal. First, underpayment avoidance involves pre-submission scrubbing by comparing claim with Correct Coding Initiative (CCI) regulations, diligent review of modifiers used to differentiate between procedures on the same claim, and comparison of charged amount with allowed amount according to previous experience or contract to avoid undercharging.

Next, underpayment identification involves comparison of payment with allowed amount, identification of zero-paid items, and evaluation of payment timeliness. The results of the second stage should be displayed in a comprehensive underpayment report sorted by payer, provider, claim identification, and the amount of underpayment.

Finally, appeal management includes appeal prioritization, preparation of arguments and documentation, tracking, and escalation. Note that CCI spells out bundling standards but the number of standard interpretations grows in step with number of payers. Therefore, CCI provides justification basis for an appeal and every appeal must be argued on its own merits, including medical notes.

Increasing volume of patients necessitates computerized processing because of complexity of identification of underpayments, which requires individual comparison of every payment to its allowed or "reasonable and customary" fee for every CPT code and for every payer. Automation of appeal process reduces the cost of individual appeal management, enabling less selective prioritization and consequently, higher recovery potential.

In summary, underpayments make up significant proportion of claim volume. Payment recovery potential is as high as 5% of total claim volume, justifying separate management focus. Underpayment management involves all phases of claims processing and requires powerful Vericle-like computing platforms for exhaustive comparisons of payments versus allowed amounts and subsequent appeal management.

Reference:
Delinsky, J., "Practice Management Lab: You Call That a Payment?" Physicians Practice, June 2006.

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Billing Depot, Inc. is a national Third Party Billing Service, Certified by the New Jersey Department of Banking and Insurance. Headquartered in East Windsor, New Jersey, it guarantees improved profitability and 100% transparency throughout the billing process. The service uniquely leverages comprehensive practice workflow technology, including patient scheduling, SOAP notes, Electronic Medical Records (EMR), electronic claim submission, followup, and 24x7 online financial reporting.

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Pat Freeze, President
Billing Depot
(877) 542-4557
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