Every organization knows the frustration of a claim denial. It shows up on the remittance, a member of your team has to review it, and it creates waste that impacts your bottom line. Underpayments are similar, but in this scenario, the claim appears to have been processed successfully on first review without receiving the full contracted reimbursement amount.
Both instances affect your revenue, but in two very different ways. Understanding the difference between a denial and an underpayment is the first step to catching and reclaiming the revenue owed to your organization.
What Is a Claim Denial?
A denial occurs when a payer rejects a claim, either in total or for specific line items. Denials often contain a code or reason for the rejection, such as:
- Missing or incorrect patient insurance details
- Lack of prior authorization
- Services not covered by the policy
- Coding errors
- Claim duplication
- Late submission
What Is an Underpayment?
An underpayment is a situation in which a claim was not reimbursed at the appropriate rate. In other words, although the payer found that your organization was entitled to reimbursement for the submitted claim, they did not reimburse you at the rate outlined in your contract. In most cases, an underpayment will not alert you as a provider.
Underpayments can occur for a variety of different reasons. The most common causes include:
- Use of an outdated fee schedule by a payer
- Multiple procedure discounts in which certain modifiers are applied to reduce reimbursement for some procedures
- Incorrect application of bundling rules
- Contract changes that were not updated in the payer’s system
- Claims processed under the assumptions of an incorrect plan
- Network designations that should not have applied to the claim
The Core Difference: Visibility
In many ways, visibility is the main difference between a claim denial and an underpayment. A claim denial tells you there’s a problem. An underpayment hides it.
In the case of a denied claim, the question you will likely ask is, “Why was this claim denied?” In the case of an underpayment, the question rarely asked is, “Did I get reimbursed at the rate I was supposed to?” Unless you have specific language built into your revenue cycle, an underpayment will not stand out as a concern.
Why Denials Still Slip Through
Since denials are visible, one would assume that they always get addressed. The unfortunate reality is that denials often slip through the cracks.
Organizations often have limited bandwidth, and a denied claim may require resources that the organization doesn’t have available. As a result, denials that require appeal or are particularly complex with regards to resolution get deprioritized. This means that a claim denial may sit untouched until they pass the payer’s deadline, and the funds can no longer be recovered.
In other cases, the complexity of a denial may take up too much staff time with no resolution, wasting the organization’s resources. Furthermore, an organization addressing one denial after another without looking at the larger trend of denials may fail to recognize the source for these issues, creating a significant waste of organizational resources.
Why Underpayments Go Unnoticed
When underpayments go unnoticed, there are several different explanations. First, as mentioned above, many organizations do not have the processes or tools in place to compare what they are being paid with what the appropriate reimbursement should be. As a result, an underpayment rarely triggers a second look.
Second, it’s possible that the payer is using a contract with lower reimbursement that has not been updated. Organizations are likely to utilize their current understanding of the payer mix and contracts in place, without regard to whether this information is up-to-date or accurate.
Third, underpayments often get posted as contractual adjustments without a second look. Once that adjustment is made, the account balance shows zero, and nothing prompts anyone to revisit it.
What Missed Revenue Costs Your Practice
Whether it involves a denied claim or an underpayment, both represent lost revenue that can affect your operations. Not only do you lose out on funds that belong to your organization, but you may also have to adjust staffing and operational plans based on revenue that was expected but not received.
In addition to affecting general operations, revenue loss can also create a misleading picture of performance. If a particular payer consistently denies claims or underpays them, this can create inaccurate assumptions about its overall value to your organization. Lost revenue can also affect reporting, skewing your understanding of your revenue cycle and where your organization’s revenue is actually coming from.
The good news is that much, if not all, of the revenue lost through claim denials and underpayments may be recoverable with the right procedures in place.
How to Catch Both Before It’s Too Late
A strong behavioral health revenue cycle should include processes for catching and addressing these issues. In both cases, this involves putting the appropriate procedures in place to ensure that a denial is addressed or that payment is made in accordance with contract terms.
In the case of a denial, this may involve continuously reviewing denied claims and determining whether the denial can be overturned. It also includes analyzing denial patterns to identify common issues and address them systematically. In addition, appeals should be submitted in a timely manner so that you don’t miss out on funds owed to your organization.
Addressing these issues takes time and effort, as well as a deep understanding of revenue cycle processes and operations. This is why many organizations choose to partner with a team of experts who understand the nuances of the revenue cycle and can identify opportunities to reduce waste and recover lost revenue.
Recover What Your Practice Has Earned with Integrity Billing
Integrity Billing can help your practice recover revenues that may have been lost due to denied claims and underpayments. Our team of experts will ensure that your claims are followed-up on and addressed fully in accordance with the contract terms.
If you believe that your organization has lost revenue due to denied claims and underpayments, or you want to increase the efficiency of your revenue cycle, contact Integrity Billing today to discuss your options.