In the consumer world, you pay for what you get. Unfortunately, in healthcare, it doesn’t exactly work that way. The complex world of healthcare billing means that patients and providers alike are often left confused with what items they’re being charged or for what services they’ve been paid. While there are several reasons for this, the first is that healthcare is complex. Health systems have to account for staff time, facility, equipment and materials usage, medications provided, overhead, and dozens of other nuances that help define both the cost of care and the charges applied to a patient account. On the payer side, government-mandated reimbursement policies, negotiated contracts, and many other factors mean that providers are often paid less than it actually costs to deliver care and even worse, underpaid per contractual obligations.
The Impact of Underpayments
No one wants to get paid less than they’re spending to provide a service and especially less than expected reimbursement, which quite often is already significantly low. Yet, it’s a reality that hospitals and healthcare providers face every day in excess of millions of dollars per year. Much of this is due to Medicare and Medicaid, whose payment rates are set by law and fall below the costs of providing care. In 2018, combined underpayments for Medicare and Medicaid for US hospitals resulted in underpayments of $76.6 Billion. With Medicare and Medicaid accounting for more than 60% of care provided by hospitals, it almost seems like hospitals are destined for financial failure. Conversely, commercial payments are thought to help offset these losses – but only if providers and payers alike focus on accuracy and proper reimbursement. Accurate insurance information, documentation, coding, billing, proper payer calculations, and applying the correct contract terms are all critical to ensuring healthcare organizations receive the intended payments they negotiated for the services rendered.
Top Three Considerations to Reduce Underpayments
While underpayments viewed at an account level may seem nominal, in aggregate, the uncollected dollars add up and have a substantial impact on receivables. Many factors can contribute to underpayments, focusing on these key items will certainly move the needle (and the bottom line) in the right direction.
- Identify Your Top Root Causes. Are any of your underpayments due to in-house (hospital) practices or are they coming from the payer side? Common hospital errors include those related to insufficient clinical documentation, improper coding, inaccurate billing, or a misunderstanding of contractual terms leading to false residual balances. On the payer side, some of the problems could be miscalculations, line item denials, medical necessity, or often misinterpretation of contract terms. Assigning a team of experts to dig into the countless issues that attribute to underpayments is the first step in trending and tracking the contributors of lost revenue. In each case, identifying the most common areas of opportunity can help your organization develop a performance improvement plan that allows you to collect proper reimbursement the first time around.
- Get in the Weeds. A comprehensive understanding of payer contracts is critical – particularly since the responsibility for identifying, appealing, and proving underpayments falls on the provider. Organizations that aren’t intimately familiar with contract terms are less likely to identify an underpayment, and even less likely to be able to demonstrate that the contract terms weren’t upheld. Ultimately the goal is to prevent future underpayments, but in the meantime, existing underpayments are clogging up workflows, preventing secondary billing, holding up patient balance transfers, and consuming copious amounts of staff’s time that are unfamiliar with the complicated collection practices tied to underpayments. A team deeply ingrained in the intricacies of payer contracts and focused on properly calculated reimbursement is vital to collecting on current backlogs and in working to prevent future occurrences.
- Audit Regularly. Perhaps the most important way to reduce the impact of underpayments is to audit regularly so they’re identified promptly in order for the appeals process to begin. Early detection is crucial, as most underpayments and associated appeals have time limitations. Having a highly trained team with the ability to quickly recognize an underpayment and to determine the need for an appeal, is your best bet for accurate revenue capture. Without this focus, underpayments will fall to the wayside and the systemic issues will continue, leading to a receivables nightmare.
Payment discrepancies like underpayments can leave health systems financially vulnerable. Keeping a keen eye out for underpayments is an essential function that should be a top priority – and one that should be managed by both internal and external (outsourced) teams for optimal results. To learn how GeBBS Healthcare Solutions can assist you with your RCM operations, please visit: www.gebbs.com or Request Consultation with one of our solutions experts.