Underpaid Claims: Navigating the Challenges

By Matthew Bridge

November 30, 2023

Healthcare organizations are facing an array of challenges that can impact their bottom line. The post-COVID era has seen tight profit margins, high patient volumes, and an increasing need for efficient claims adjudication. Amidst this complexity, healthcare organizations are grappling with the issue of underpayments – a silent revenue killer that often goes unnoticed but can represent millions of dollars in unrecognized net revenue. Our four-part series will share issues with underpayments, the Causes and Implications, a seven-step framework to quantify the issue of underpayments , and best practices for managing underpayments.

Underpayments occur when payers fail to reimburse the full eligible amount for services provided by healthcare providers, including large acute systems, ambulatory facilities, and physician practices. Unlike claim denials, underpayments do not result in a rejected claim; instead, they lead to the provider not receiving the full reimbursement they are entitled to, significantly affecting financial outcomes.

One major reason for underpayments is the lack of attention to uncollected revenue that is hidden in zero balance accounts (ZBAs). Once an account reaches a balance of zero, it often fades from view, leading to missed opportunities to identify and recover underpayments.

Additionally, the accuracy of payments from payers has dipped significantly, with the Health Insurance Report Card from the American Medical Association showing accuracy rates for both overpayments and underpayments as low as 77%. While overpayments are quickly identified and corrected, underpayments often rely on healthcare organizations or their partners to identify and pursue. Research indicates that underpaid claims can lead to a net patient revenue loss of 1% to 3%. This loss is distinct from claim denials and administrative write-offs since it can appear the claims are paid correctly, but in reality, they are not reimbursed appropriately.

Several factors in today's healthcare environment compound the issue of underpayments:

  • Changing payment methodologies: The introduction of value-based care has added complexity to determining the eligible or allowed amount for services.
  • Increased payer scrutiny: Payers are scrutinizing claims more rigorously, leading to additional challenges, including those resulting from the COVID-19 pandemic.
  • Cash protection strategies: Healthcare organizations must protect their cash flow while navigating these complexities, which are compounded by outdated contract management technology and limited analytics.
  • Staffing shortages: Healthcare organizations have limited staff and shrinking budgets, causing issues when addressing underpayments.

Issues can also arise in the provider-payer relationship. To ensure accurate and fair reimbursement, healthcare organizations need to understand the "why" behind underpayments and work collaboratively with payers to address systemic issues and improve contractual language.

Solutions through Technology and Collaboration

  • Rather than using manual methods or Excel-based models to identify and address underpayments, healthcare organizations today can leverage technology. Contract management platforms can help automate the identification of allowed amounts, making it easier to recover underpayments. Healthcare organizations often have a high volume of managed care contracts and tracking them manually is challenging.
  • Collaboration is essential in the fight against underpayments. It can't solely be the responsibility of the billing and collections department; managed care teams also need to be involved to improve payer accountability and reduce revenue loss impact from underpayments. When working an in integrated fashion, they can help identify and quantify underpayments, negotiate settlements, and submit claims for reprocessing, especially when systemic trends are at play.
  • When it comes to preventing underpayments and denials, it is essential to have an integrated tech-enabled process in place to automate and streamline the appeals process and mitigate the need for administrative staffing. By proactively managing underpayments and ensuring collaboration that includes an understanding of payer-provider relationships, healthcare organizations can protect their bottom line and ensure fair reimbursement for the services they provide.
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Listen to our webinar, “Underpayment Recovery and Its Impact on Your Bottom Line” to learn more, and watch for the next article in our series that discusses the causes and implications of underpayments.

Matthew Bridge

Matthew Bridge


As senior vice president of RCM services at AGS Health, Matt oversees strategic growth initiatives for the company’s Patient Access and Patient Financial Services business units. He possesses more than 15 years of experience in professional and managed services with expertise throughout the revenue cycle continuum. Matt’s career has provided him with broad experiences covering diverse provider settings and a deep understanding of the challenges facing customers of all provider types. He is passionate about mentoring and coaching others as they pursue their career journeys in revenue cycle and healthcare business management. Matt possesses a bachelor’s degree in business administration and management from Curry College in Milton, MA.

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