How underpayments affect the resources for delivering high-quality care?

How underpayments affect the resources for delivering high-quality care?
Pedro Stark
19 June 2024
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We discovered that by implementing effective revenue cycle management strategies, leveraging technology, and promoting collaboration, healthcare organizations can mitigate the impact of underpayments and better align financial incentives with patient outcomes. This approach can lead to more efficient and equitable healthcare delivery.


According to a study published in Becker's Hospital Review, providers lose 1 to 11% of their net revenue annually due to underpayments from payers. The American Hospital Association's analysis showed that in 2020, Medicare and Medicaid underpaid U.S. hospitals by $100.4 billion, indicating that underpayments are not limited to private payers. This issue is a major concern for healthcare providers as it can lead to financial struggles, reduced resources for patient care, and ultimately, a negative impact on the  quality of healthcare services.


Underpayments can occur due to various reasons, including coding errors, incorrect billing practices, misunderstandings of payer policies, and outdated or inadequate payment models. These factors can result in payments that do not accurately reflect the services rendered or the actual costs incurred by the provider. Consequently, providers must allocate substantial resources to identify and address underpayments, which can be a time-consuming and complex process.


To lessen the effects of underpayments, healthcare organizations need to implement strong revenue cycle management strategies. This includes ensuring accurate and compliant coding practices, streamlining billing processes, and maintaining up-to-date knowledge of payer policies and regulations. Additionally, providers should consider leveraging advanced analytics and automation tools to identify potential underpayments promptly and facilitate the appeals process.


Furthermore, collaboration between healthcare providers, payers, and policymakers is essential to address the root causes of underpayments. This may involve revising payment models to better align with the costs of delivering quality care, improving transparency in pricing and reimbursement policies, and fostering open communication channels between stakeholders.


Here are 10 common causes of underpayments in healthcare RCM:


1. Coding Errors and Medical Underpayments


Inaccurate medical coding can lead to underpayments. A study conducted by the American Medical Association (AMA) revealed that healthcare insurance companies have error rates as high as 19.3% when processing medical claims. This means that nearly one in five claims is processed incorrectly, leading to potential underpayments or denials.


Coding errors can occur due to various reasons, including:


1. Lack of Coder Training: Medical coders must be well-versed in the complex coding systems, such as ICD-10 and CPT codes. Inadequate training or experience can lead to coding mistakes.
2. Incomplete or Inaccurate Documentation: If the medical documentation provided by healthcare professionals is incomplete or inaccurate, coders may struggle to assign the correct codes, resulting in errors.
3. Software or System Glitches: Coding errors can also arise from software or system glitches, particularly when dealing with electronic health records (EHRs) and billing systems.


The Financial Impact of Underpayments


Underpayments due to coding errors can have severe financial consequences for healthcare providers. Even a small percentage of underpayments can accumulate over time, leading to significant revenue losses. This can strain the financial stability of healthcare practices, hospitals, and other medical facilities.


Moreover, the time and resources required to identify and appeal underpayments can be substantial, further compounding the financial burden on healthcare providers.


Mitigating Coding Errors


To address the issue of coding errors and minimize underpayments, healthcare providers can implement the following strategies:


1. Invest in Coder Training and Education: Providing ongoing training and education for medical coders is crucial to ensure they stay up-to-date with coding guidelines and best practices.
2. Improve Documentation Practices: Encouraging healthcare professionals to maintain accurate and comprehensive medical documentation can significantly reduce coding errors.
3. Implement Coding Audits and Quality Assurance Measures: Regular coding audits and quality assurance measures can help identify and correct coding errors before claims are submitted, reducing the risk of underpayments.
4. Leverage Technology and Automation: Utilizing advanced coding software and automation tools can help streamline the coding process and reduce the likelihood of human errors.


2. Lack of Expertise and Missed Reimbursement Opportunities


Each healthcare insurance company has its own set of policies and contract terms that govern reimbursement rates, covered services, and billing procedures. These policies can vary significantly between payers and are subject to frequent updates and revisions.


Lack of expertise in interpreting and adhering to these policies can result in:


1. Incorrect Billing Practices: Providers may inadvertently bill for services that are not covered or use incorrect codes, leading to claim denials or underpayments.
2. Missed Reimbursement Opportunities: Without a deep understanding of contract terms, providers may overlook opportunities for higher reimbursement rates or fail to negotiate more favorable terms during contract renewals.
3. Compliance Issues: Failure to comply with payer policies can result in penalties, audits, or even termination of contracts, further exacerbating financial losses.


The Complexity of Coding Requirements


Medical coding is a highly specialized field that requires extensive knowledge of coding systems, such as ICD-10 and CPT codes, as well as an understanding of coding guidelines and regulations. Lack of expertise in this area can lead to coding errors, which can have severe consequences for reimbursement.


Experienced medical coders can:


1. Ensure Accurate Coding: By correctly assigning codes based on medical documentation, they can minimize coding errors and ensure claims are processed accurately.
2. Maximize Reimbursement: Skilled coders can identify opportunities to code for higher-paying services or procedures, maximizing reimbursement for providers.
3. Stay Up-to-Date with Changes: Coding systems and guidelines are constantly evolving, and experienced coders can stay abreast of these changes, ensuring compliance and avoiding denials or underpayments.


Mitigating the Lack of Expertise


To address the lack of expertise and minimize missed reimbursement opportunities, healthcare providers can consider the following strategies:


1. Invest in Specialized Training: Providing ongoing training and education for staff involved in billing, coding, and reimbursement processes can help build expertise and ensure compliance with payer policies and coding requirements.
2. Leverage External Expertise: Partnering with experienced consultants, billing companies, or coding specialists can provide the necessary expertise to navigate the complexities of reimbursement and maximize revenue.
3. Implement Comprehensive Auditing and Quality Assurance Processes: Regular audits and quality assurance measures can help identify areas where expertise is lacking and implement corrective actions to improve reimbursement processes.


3. Inefficient Processes and Lack of Automation


Manual processes and lack of automation can be significant contributors to underpayments. Human errors, which are inevitable in manual tasks, can lead to inaccuracies in patient registration, insurance verification, and billing processes, resulting in denied or underpaid claims.


The Disadvantages of Manual Processes


Manual processes in healthcare settings are prone to various types of errors, including:


1. Data Entry Errors: Manually entering patient information, insurance details, and billing codes can lead to typos, transpositions, or other mistakes that can cause claim rejections or underpayments.
2. Missed Updates: Keeping track of constantly changing payer policies, coding guidelines, and reimbursement rates can be challenging when relying on manual processes, leading to outdated information and incorrect billing.
3. Inefficient Workflows: Manual processes often involve redundant tasks, paper-based documentation, and inefficient communication channels, resulting in delays, lost information, and potential errors.
4. Human Oversight: Even the most diligent healthcare professionals can overlook crucial details or make mistakes due to fatigue, distractions, or workload pressures, leading to billing errors and underpayments.


The Benefits of Automation


Automating tasks like patient registration, insurance verification, and billing processes can significantly reduce the risk of human errors and streamline workflows, ultimately minimizing underpayments.


Patient Registration and Insurance Verification


Automated patient registration and insurance verification systems can:


1. Capture Accurate Data: By integrating with electronic health records (EHRs) and insurance databases, these systems can automatically populate patient information and insurance details, reducing data entry errors.
2. Verify Eligibility and Benefits: Real-time insurance verification can ensure that patients' coverage and benefits are accurately checked, minimizing denials due to ineligibility or non-covered services.
3. Streamline Workflows: Automated processes can eliminate redundant tasks, improve communication between departments, and reduce the risk of lost or misplaced information.


Billing and Claims Processing


Automating billing and claims processing can:


1. Ensure Accurate Coding: Advanced coding software and automated coding assistants can help ensure that medical codes are assigned correctly, reducing coding errors and underpayments.
2. Comply with Payer Policies: Automated systems can be updated regularly with the latest payer policies, coding guidelines, and reimbursement rates, ensuring compliance and minimizing denials or underpayments.
3. Streamline Claims Submission: Electronic claims submission and automated follow-up processes can reduce delays and improve the overall efficiency of the revenue cycle.
4. Identify Underpayments: Automated systems can analyze remittance data and identify potential underpayments, enabling healthcare providers to take corrective actions promptly.


4. Missed Charges


Failing to capture all billable services or charges can result in underpayments. According to Ingenious Med's research, organizations are leaving 15% of revenue on the table due to issues like missing charges and charge lag.


The Consequences of Missed Charges


Missed charges can occur for various reasons, including:


1. Incomplete Documentation: If healthcare professionals fail to accurately document all services provided, coders may miss billable charges during the coding process.
2. Lack of Charge Capture Processes: Without robust processes in place to capture all charges, billable services can easily slip through the cracks, leading to underpayments.
3. Manual Charge Entry: Relying on manual charge entry processes increases the risk of human error, resulting in missed charges or inaccurate charge capture.
4. Charge Lag: Delays in entering charges into the billing system can lead to missed billing opportunities, especially for time-sensitive services or procedures.


Strategies to Minimize Missed Charges


To address the issue of missed charges and maximize reimbursement, healthcare providers can implement the following strategies:


1. Improve Documentation Practices: Encouraging healthcare professionals to maintain accurate and comprehensive medical documentation can help ensure that all billable services are captured.
2. Implement Charge Capture Automation: Automated charge capture systems can integrate with electronic health records (EHRs) and other clinical systems to automatically identify and capture billable charges, reducing the risk of human error and oversight.
3.  Conduct Regular Audits: Implementing regular audits and reviews of charge capture processes can help identify areas for improvement and ensure that all billable services are being captured accurately.
4. Leverage Data Analytics: Utilizing data analytics tools can help identify patterns of missed charges, enabling healthcare providers to take corrective actions and optimize their charge capture processes.
5. Provide Staff Training: Investing in ongoing training and education for staff involved in charge capture and billing processes can help ensure a thorough understanding of billing requirements and best practices.


5. Payer Disputes


Payers may dispute or deny claims based on their interpretation of contract terms or policies, leading to underpayments. Providers must be vigilant in identifying and appealing such disputes.


The Root Causes of Payer Disputes


Payer disputes can arise from various factors, including:


1. Contract Interpretation Differences: Providers and payers may have differing interpretations of contract terms, such as covered services, reimbursement rates, or billing requirements, leading to disputes over claim payments.
2. Coding Discrepancies: Payers may dispute claims due to perceived coding errors or discrepancies between the medical documentation and the assigned codes, resulting in denials or underpayments.
3. Policy Changes: Payers may update their policies or guidelines without adequate communication, leading to disputes when providers are unaware of the changes and submit claims based on outdated information.
4. Medical Necessity Disputes: Payers may challenge the medical necessity of certain services or procedures, leading to denials or reduced reimbursement.


The Financial Impact of Payer Disputes

Payer disputes can have significant financial consequences for healthcare providers. Underpayments or denials can accumulate over time, resulting in substantial revenue losses. Additionally, the time and resources required to identify, appeal, and resolve disputes can further strain healthcare organizations' financial and operational resources.


Strategies for Addressing Payer Disputes


To mitigate the impact of payer disputes and ensure proper reimbursement, healthcare providers can implement the following strategies:


1. Strengthen Contract Management: Thoroughly reviewing and understanding payer contracts can help providers identify potential areas of dispute and negotiate more favorable terms during contract renewals.
2. Enhance Coding Accuracy: Investing in experienced medical coders and implementing robust coding audits can help minimize coding errors and strengthen the provider's position in disputes related to coding discrepancies.
3. Stay Informed on Policy Changes: Maintaining open communication channels with payers and regularly monitoring policy updates can help providers stay ahead of changes and avoid disputes arising from outdated information.
4. Implement Robust Appeals Processes: Establishing efficient and well-documented appeals processes can increase the likelihood of successful dispute resolutions and ensure that providers receive appropriate reimbursement.
5. Leverage Data Analytics: Utilizing data analytics tools can help identify patterns in payer disputes, enabling providers to proactively address recurring issues and strengthen their negotiating position with payers.


6. Lack of Data Analytics


Without comprehensive data and analytics, providers may struggle to pinpoint trends and opportunities for process improvements, perpetuating underpayments.


The Challenges of Operating Without Data Analytics


Operating without comprehensive data analytics can lead to several challenges for healthcare providers, including:


1. Inability to Identify Patterns: Without the ability to analyze large datasets, providers may fail to recognize patterns or trends in underpayments, making it difficult to identify systemic issues or areas for improvement.
2. Lack of Insight into Root Causes: Without data-driven insights, providers may struggle to pinpoint the root causes of underpayments, such as coding errors, missed charges, or payer disputes, hindering their ability to implement targeted solutions.
3. Inefficient Resource Allocation: Without data-driven decision-making, providers may allocate resources inefficiently, failing to prioritize areas with the highest potential for revenue recovery or process optimization.
4. Missed Opportunities for Process Improvements: Lack of data analytics can prevent providers from identifying opportunities for streamlining processes, automating tasks, or implementing best practices that could minimize underpayments.
5. Reactive Approach: Without proactive data analysis, providers may find themselves constantly reacting to underpayments rather than taking a proactive approach to prevent them from occurring in the first place.


The Benefits of Leveraging Data Analytics


Healthcare providers can unlock numerous benefits and gain a competitive edge in addressing underpayments:


1. Identify Trends and Patterns: Advanced data analytics tools can help providers identify patterns and trends in underpayments, enabling them to pinpoint areas for improvement and prioritize their efforts.
2. Uncover Root Causes: By analyzing data from various sources, such as claims data, remittance advice, and clinical documentation, providers can uncover the root causes of underpayments and implement targeted solutions.
3. Optimize Resource Allocation: Data-driven insights can help providers allocate resources more effectively, focusing on areas with the highest potential for revenue recovery or process optimization.
4. Drive Process Improvements: By leveraging data analytics, providers can identify opportunities for process improvements, such as automating tasks, streamlining workflows, or implementing best practices to minimize underpayments.
5. Enable Proactive Approach: With data-driven insights, providers can take a proactive approach to addressing underpayments, implementing preventive measures and continuously monitoring and refining their processes.

7. Regulatory Compliance Issues


Failure to comply with regulations like the No Surprises Act or price transparency mandates can result in underpayments or penalties.


The No Surprises Act and Surprise Billing


The No Surprises Act, which went into effect on January 1, 2022, aims to protect patients from surprise medical bills resulting from out-of-network care. Under this act, healthcare providers are required to provide patients with upfront cost estimates and obtain consent for certain services.


Failure to comply with the No Surprises Act can result in:


1. Claim Denials: Payers may deny claims if providers fail to provide the required cost estimates or obtain proper consent, leading to underpayments.
2. Penalties: The act imposes penalties of up to $10,000 per violation for providers who engage in surprise billing practices or fail to comply with the act's requirements.
3. Reputational Damage: Non-compliance can damage a provider's reputation, potentially leading to loss of patients and revenue.


Price Transparency Mandates


Price transparency mandates, such as the Hospital Price Transparency Rule and the Transparency in Coverage Rule, require healthcare providers and insurers to make their standard charges and negotiated rates publicly available.


Failure to comply with price transparency mandates can result in:


1. Penalties: The Centers for Medicare & Medicaid Services (CMS) can impose penalties of up to $300 per day for non-compliance with the Hospital Price Transparency Rule.
2. Reputational Damage: Lack of transparency can erode public trust and damage a provider's reputation, potentially leading to loss of patients and revenue.
3. Competitive Disadvantage: Providers who fail to comply with price transparency mandates may find themselves at a competitive disadvantage compared to those who embrace transparency.


Mitigating Regulatory Compliance Risks


To mitigate the risks associated with regulatory compliance issues and avoid underpayments or penalties, healthcare providers should implement the following strategies:


1. Stay Informed: Regularly monitor regulatory changes and updates to ensure compliance with the latest requirements.
2. Implement Robust Compliance Programs: Develop and maintain comprehensive compliance programs that address all relevant regulations, including the No Surprises Act and price transparency mandates.
3. Provide Staff Training: Invest in ongoing training and education for staff to ensure a thorough understanding of regulatory requirements and best practices.
4. Leverage Technology: Utilize technology solutions, such as patient estimation tools and price transparency platforms, to streamline compliance processes and ensure accurate and timely information is provided to patients and payers.
5. Conduct Regular Audits: Implement regular audits and reviews to identify and address potential compliance gaps or areas for improvement.


8. Cybersecurity Threat


Medical identity theft and data breaches can compromise patient data, leading to billing errors and underpayments. According to the Federal Trade Commission, cases of medical identity theft increased by 532% between 2017 and 2021.


The Impact of Medical Identity Theft and Data Breaches


Medical identity theft and data breaches can have far-reaching consequences for healthcare providers, including:


1. Billing Errors: Compromised patient data can lead to inaccurate billing information, resulting in claim denials, underpayments, or overpayments.
2. Compliance Violations: Data breaches may violate regulations such as the Health Insurance Portability and Accountability Act (HIPAA), potentially leading to hefty fines and penalties.
3.Reputational Damage: High-profile data breaches can severely damage a healthcare provider's reputation, eroding patient trust and potentially leading to loss of business.
4. Financial Losses: In addition to underpayments, providers may incur significant costs associated with investigating and mitigating data breaches, as well as potential legal fees and settlements.
5. Operational Disruptions: Cybersecurity incidents can disrupt normal operations, leading to delays in billing and reimbursement processes, further exacerbating financial losses.


Mitigating Cybersecurity Risks


To address the growing threat of cybersecurity incidents and minimize their impact on billing and reimbursement processes, healthcare providers should implement a comprehensive cybersecurity strategy, including:


1. Solid Data Security Measures: Implement strong encryption, access controls, and data backup and recovery protocols to protect sensitive patient data.
2. Employee Training and Awareness: Provide regular cybersecurity training to employees, emphasizing the importance of data protection and best practices for identifying and responding to potential threats.
3. Incident Response and Recovery Plans: Develop and regularly test incident response and recovery plans to ensure prompt and effective action in the event of a data breach or cybersecurity incident.
4. Third-Party Risk Management: Carefully vet and monitor third-party vendors and partners who have access to sensitive data, ensuring they adhere to stringent cybersecurity standards.
5. Continuous Monitoring and Improvement: Regularly assess and update cybersecurity measures to address evolving threats and vulnerabilities.


9. Workforce Shortages


Staffing challenges in revenue cycle management teams can lead to errors and inefficiencies, contributing to underpayments. In 2023, workforce was the top issue confronting hospitals, according to the American College of Healthcare Executives.


The Consequences of Understaffed Revenue Cycle Teams


When revenue cycle management teams are understaffed, the following challenges can arise:


1. Increased Workload and Burnout: Existing staff members may be overwhelmed with excessive workloads, leading to burnout, decreased productivity, and a higher risk of errors.
2. Delayed Billing and Follow-up: With limited resources, billing processes and follow-up on denied or underpaid claims may be delayed, resulting in cash flow disruptions and potential revenue losses.
3. Lack of Expertise: Staffing shortages can lead to a lack of specialized expertise in areas such as coding, billing, and appeals, increasing the likelihood of errors and missed reimbursement opportunities.
4. Inefficient Processes: Understaffed teams may struggle to maintain efficient processes, leading to bottlenecks, duplicated efforts, and increased operational costs.
5. Compliance Risks: Overworked staff may inadvertently overlook regulatory requirements or fail to keep up with changing policies, increasing the risk of non-compliance and potential penalties.


Strategies to Mitigate Workforce Shortages


To address the challenges posed by workforce shortages and minimize their impact on revenue cycle management, healthcare providers should consider the following strategies:


1. Invest in Recruitment and Retention: Offer competitive compensation packages, professional development opportunities, and a positive work culture to attract and retain top talent in revenue cycle management roles.
2. Leverage Technology and Automation: Implement advanced technologies and automation tools to streamline processes, reduce manual tasks, and improve efficiency, allowing existing staff to focus on higher-value activities.
3. Outsource or Collaborate: Consider outsourcing certain revenue cycle functions or collaborating with third-party providers to supplement in-house teams and access specialized expertise.
4. Cross-train Employees: Implement cross-training programs to develop a versatile workforce capable of handling multiple revenue cycle functions, improving resilience and flexibility.
5. Optimize Workflows and Processes: Continuously evaluate and optimize workflows and processes to identify inefficiencies, eliminate redundancies, and maximize productivity.


10. Transition to Value-Based Care


The shift towards value-based care and alternative payment models requires accurate performance measurement and data analytics to ensure proper reimbursement. According to the Advisory Board, 93% of executives are optimistic about value-based care, but it requires both clinical and financial transformation.


The Importance of Accurate Performance Measurement


In value-based care models, reimbursement is tied to the quality of care provided and patient outcomes, rather than solely based on the volume of services rendered. As a result, accurate performance measurement becomes crucial for healthcare providers to receive appropriate reimbursement. This requires:


1. Comprehensive Data Collection: Capturing and integrating data from various sources, including electronic health records (EHRs), claims data, patient-reported outcomes, and clinical registries.
2. Solid Data Analytics: Leveraging advanced data analytics tools and techniques to analyze complex data sets and derive meaningful insights into patient outcomes, care quality, and cost-effectiveness.
3. Standardized Metrics and Benchmarking: Aligning with industry-standard metrics and benchmarks to accurately measure and report on performance, ensuring fair and consistent reimbursement across providers.


Challenges in the Transition to Value-Based Care


While the shift to value-based care holds promise for improving patient care and controlling costs, healthcare providers face several challenges in ensuring proper reimbursement:


1. Data Silos and Interoperability: Integrating data from disparate systems and ensuring interoperability can be a significant hurdle, hindering comprehensive data collection and analysis.
2. Lack of Expertise: Many healthcare organizations may lack the necessary expertise in data analytics, performance measurement, and value-based care models, potentially leading to inaccurate reporting and underpayments.
3. Operational and Cultural Shifts: Transitioning to value-based care requires significant operational and cultural changes within healthcare organizations, which can be challenging and time-consuming.
4. Financial Risk: Value-based care models introduce financial risk for providers, as reimbursement is tied to performance. Inaccurate measurement or failure to meet quality targets can result in reduced payments.


Opportunities and Strategies for Success


Despite the challenges, the transition to value-based care presents opportunities for healthcare providers to improve patient outcomes, enhance operational efficiency, and optimize reimbursement:


1. Invest in Data Infrastructure and Analytics: Building robust data infrastructure and leveraging advanced analytics tools can enable accurate performance measurement and data-driven decision-making.
2. Develop Expertise and Partnerships: Cultivating in-house expertise or partnering with specialized firms can provide the necessary knowledge and support for successful value-based care implementation.
3. Embrace Operational Transformation: Adopting a culture of continuous improvement, streamlining processes, and aligning organizational goals with value-based care principles can facilitate a smoother transition.
4. Collaborate and Share Best Practices: Participating in industry collaborations and sharing best practices can accelerate learning and drive collective progress towards value-based care success.


Addressing these common causes of underpayments through technology, data analytics, expertise, and process improvements can help healthcare providers in Europe maximize their reimbursements and minimize revenue leakage.




Becker's Hospital Review: https://www.beckershospitalreview.com/finance/underpayments-from-private-health-plans-cost-hospitals-billions-annually.html
American Hospital Association: https://www.aha.org/fact-sheets/2020-01-07-fact-sheet-underpayment-medicare-and-medicaid
American Medical Association: https://www.ama-assn.org/practice-management/cpt/cpt-coding-errors-cost-billions-annually
Ingenious Med: https://ingeniousmed.com/revenue-cycle-management-challenges/
Federal Trade Commission: https://www.ftc.gov/news-events/news/press-releases/2022/03/new-data-shows-medical-identity-theft-cases-increased-532-percent-2017-2021
American College of Healthcare Executives: https://www.ache.org/publications/trending-health-care-issues
Advisory Board: https://www.advisory.com/topics/value-based-care

How Underpayments Affect the Resources for Delivering High-Quality Care


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