Managing Underpayments in Medical Billing: Getting Every Penny You Deserve

Elizabeth W. Woodcock, MBA, FACMPE, CPC April 11th, 2011

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 Insurance payer rates vary anywhere from 77% to 98%, affecting your medical billing significantly

With today’s complex coding and reimbursement systems, it came as no surprise to discover that payment accuracy rates among insurance companies dip as low as 77 percent. That finding comes from the American Medical Association’s Health Insurance Report Card, a survey published annually by the AMA. Among other variables, the Report Card examines how often payers’ allowed amounts for medical claims equals the contracted fee schedule amount. The results are, arguably, alarming. It’s simply not healthy for your practice’s bottom line if nearly one in four insurance payments – or even one in ten – is wrong.

Historically, insurance companies paid a percentage of your charge, but that reimbursement formula has gone by the wayside. In today’s system, payers set prices for each service. The challenge is to ensure that you actually get that price. Underpayments often go unnoticed but they hurt your bottom line all the same. Spending a little time now to improve tracking and management of payments pays off down the line.

Here’s how:

Know what you should get paid. It’s impossible to identify underpayments if you don’t know what you deserve to be paid. Ask all insurance companies with which you participate to provide a current fee schedule. They may balk or delay in providing you with their rates for all 7,000-plus CPT codes, but that’s ok. All you really need is a list of your top 50 CPT codes (including modifiers). Compile the list and request that the payer lists its fees for each one.

Seek other sources. Some companies may ignore your request or drag their feet when asked about prices. The good news is that Medicare and Medicaid reimbursements are publically available; the Centers for Medicare and Medicaid Services (CMS) offer a fast and easy online look-up tool for Medicare. Most states also post their Workers’ Compensation rates online. Commercial reimbursement, however, remains a challenge.

Deploy alternate strategies. If you are signing up with a payer for the first time, require that a list of the rates for your specialty’s top services by volume accompany your contract before you will sign up. If you already have a contractual agreement, don’t despair. Call the company’s customer service center – many offer a provider line for speedier service. If the representative who answers can’t help you, ask for a supervisor. If the payer has assigned a provider representative to you, contact that person. If those channels don’t work, ask to speak to the medical director. Document each attempt at communication and every point of contact. If efforts to telephone the insurance company don’t pay off, start typing: write a letter to the medical director to request the fee schedule. If you don’t hear back, write another letter, but raise the stakes by carbon copying your state’s insurance commissioner. Many states have laws requiring insurance companies to respond to physicians’ request for rates. If you are not sure about your state’s law, ask your medical society. Your state or county medical society also can fill you in about the American Medical Association’s settlements with several large, high-profile health insurance companies. Those settlements stem from the companies’ use of flawed data and other practices that unfairly reduced payments to physicians.

Establish a process to ensure payments are correct. Getting your rates in hand is just the first step. Now, you need to set up a review process to ensure that you get them 100 percent of the time. True, your staff could manually compare each incoming Explanation of Benefits (EOB) against the payer’s rate schedule, but that could consume many hours a week. Instead, use the power of automation: choose a practice management system that stores payers’ rate schedules and performs automatic cross checks on each line item. Comparing the EOB with the expected rate allows you to be automatically alerted to variances between what’s been paid and what should have been paid.

Examine remittances. Using a practice management system, the same type of automatic crosschecking of EOBs can be performed on electronic remittances as they are posted. Your management system can then spit out an “exception” report showing underpayments as well as any overpayments. Don’t just lay this “exception” report aside or toss it in the trash. Use it! Follow up on underpayments with the same vigor and tenacity as you would a denied claim. Remember, too, that like denials, underpayments should be identified on a line item basis. Don’t accept reimbursement for one line item as “payment in full”. Scrutinize by line item, not by encounter. 

Evaluate staff motivation. Determine if you’ve inadvertently incented your employees not to ensure payments are always correct. Measuring performance through key indicators, such as days in receivables outstanding is critical. Be aware, however, of a tricky dynamic that can come into play – and reduce your ability to identify underpayments. Here’s how it can happen. Payments from contracted insurance companies are below your full charge. The difference is considered a contractual adjustment. By contract, you may or may not be able to seek that difference from the patient; the variance is typically written off. Posting the payment, and making the corresponding contractual adjustment, removes that invoice off your receivables. All fine and good if it’s the correct payment, but it’s not uncommon to see some employees take the adjustment, write off the remaining receivable and call it a day – even when the payment is lower than what should have received. They may find that doing so wraps up their work neatly without a lot of troublesome follow-up. You may be aiding and abetting this behavior by stressing 100 percent completion rates in the billing office, or rewarding employees solely for high-volume production. Don’t just push to get the receivables down and throughput up. Take a balanced approach by also communicating to employees the importance of accuracy and cash flow (which, coincidentally, pays their salaries).

Recognize that underpayments may not come from the insurance company. The fee schedule from an insurance company represents allowables. These allowables reflect the total of what you are allowed to collect – from the insurer and from the beneficiary (the patient). Historically, the insurance company owed you the majority of the allowable. With the uptick in high deductible health plans in recent years and the growing number of employers selecting insurance plans with higher copayments and coinsurance, patients are owing  – and paying – a greater portion of their health care costs. If you find that you routinely get less than what you expected for contracted services, don’t overlook the impact of uncollected coinsurance, unmet deductibles and skipped copayments from patients. You may have to start paying closer attention to collecting cash more effectively from your patients, as well from their insurance companies.

Underpayments are not a minor inconvenience or a rare occurrence. It pays to pursue underpayments, but in the long run, you’ll be best served by taking steps to prevent them or, at least, detect them as soon as they occur. The AMA Healthcare Report Card found that payer accuracy rates range from 77 percent on the low side to a little over 98 percent (Medicare) on the high side. If your practice was entirely Medicare, you’d still face underpayments of almost 2 percent of your allowables. Figure that for a physician who brings in $250,000 annually, each percentage point equals $2,500. Now, apply the AMA’s findings and it should be crystal clear that the return on investment to improve detection of underpayments can really pay off – year after year. Now is an opportune time to get your game on to ensure that you’re being paid what you deserve.

For more information on How to Incentivize Your Staff for Optimal Performancewatch a recorded webinar featuring Elizabeth Woodcock speaking on this topic now.

Elizabeth Woodcock, an expert in practice profitability, advises managing underpayment in your medical billingElizabeth Woodcock, MBA, FACMPE, CPC, is an expert, author, speaker and trainer in practice management operations and revenue cycle management whose clients include Kareo medical billing software. She is a co-author of “The Physician Billing Process: Avoiding Potholes in the Road to Getting Paid.”

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