A recent study from the Medical Group Management Association (MGMA) estimates that insurers routinely underpay U.S. healthcare providers by an average of 7-11%. Is your clinic vulnerable to this oversight?
For perspective, it is helpful first to understand the business model of an insurer. Insurers derive approximately 79% of total revenue from healthcare premiums, and reimbursements paid to physicians represent about 70% of total operating costs. If you view an insurer’s business model in a vacuum, net income equals healthcare premiums net of reimbursements paid to physicians. For any business, it is always easier to control expenses than revenue. You can only adjust pricing so much without cannibalizing loyal customers. However, you can eliminate costs by terminating a contract or ending payment for a service.
Commercial insurers are for-profit corporations. The objective of these organizations is to generate and grow their profits. Insurers process hundreds of millions of claims every year, and they are not keen to pay more expenses than legally required. Due to the sheer volume of incoming claims, insurers are not in a position to correct claims and increase reimbursements for physicians. Well, why not? Every additional dollar paid out to healthcare organizations reduces their profit.
How Do Underpayments Occur?
According to Becker’s Hospital Review, the majority of underpayments stem from four primary sources:
- Providers provide insufficient documentation for services in the claim
- Payers price claims using incorrect contract terms
- Payers calculate the allowed amount incorrectly, and providers do not immediately identify the error
- The payer and the provider have conflicting interpretations of contract terms
By using your 835-remittance data, your fee schedules, and payer rules, our Underpayment Detection software will detect instances where your practice was not paid correctly in real-time. As underpayments are detected, we provide a process to identify at scale and resolve payment inaccuracies that boost your bottom line. For a six-provider group, our Underpayment Detection discovered and addressed over $120,000 in underpayments!
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