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The Simple Solution for Payment Variance

This post is an excerpt from the ebook, “The Hidden Cost of Payment Variance: How to Stop Underpayments From Undermining Your Practice.” Click here to read the full ebook free.

When insurers pay the wrong amount, the costs include revenue, time, and patient satisfaction.

In healthcare, payment variance is the difference between what you expect to receive from a claim and what you actually receive. In most cases, “variance” refers to underpayment, but overpayment happens too.

Mistakes That Cause Underpayment

According to the Medical Group Management Association (MGMA), insurers routinely underpay U.S. healthcare providers by an average of 7–11%. Becker’s Hospital Review says payers and providers are both at fault for mistakes that cause underpayment. For each group, they cite the most common mistakes as: 

Payer Mistakes

Provider Mistakes

1. Pricing claims using incorrect contract terms 1. Submitting bills incorrectly and/or without required documentation
2. Calculating allowed amounts incorrectly 2. Taking too long to identify incorrect amounts
3. Interpreting contract terms differently 3. Interpreting contract terms differently



The Hidden Cost of Payment Variance

If you’re a provider, finding and correcting these mistakes isn’t easy—or free. MGMA estimates the average cost of reworking an “unclean claim” (any claim with errors) is $25. They also estimate that 50–65% of these claims are never reworked and remain underpaid.

Perhaps even more damaging to your bottom line are patient perception costs. For patients struggling with the lack of transparency in healthcare, getting corrected statements months after treatment may lead to low satisfaction scores and poor social reviews for your practice.

And, if a disgruntled patient walks away for good, you stand to lose over $1 million in lifetime household healthcare expenditures.

The Solution: Know What Payers Owe

While you can’t stop payers from adjudicating claims incorrectly, you can eliminate mistakes in your billing office by keeping contracts and fee schedules up to date.

The first step toward eliminating underpayments is adopting a system or process to continually monitor contracts, so you always know:

  • The term of each contract
  • Services covered and reimbursement rates
  • How long you have to submit claims after treatment
  • How long the payer has to submit reimbursement
  • Dispute procedures for denials and timelines for appeals

The next step is understanding why payers make contractual adjustments, so you can adjust your processes and expectations accordingly.

Why Payers Make Contractual Adjustments

Contractual adjustments can happen for many reasons, but are most often the result of procedure codes and modifiers such as:

Multiple Procedure Payment Reduction (MPPR) 

When multiple procedures are performed on the same date of service, it can cut reimbursement for subsequent procedures by as much as 75%.

Partial Procedures or Early Termination of Procedures

When a procedure is cancelled, partially reduced or eliminated, it can impact your expected allowable.

Provider Credentials

When payers are billed for services by advanced care practitioners (ACPs), including nurse practitioners and physician assistants, many states allow a reduced rate for the same allowable.

Being aware of these coding-related clauses in your contracts will help eliminate mistakes when you submit claims. It will also help you determine when you’re being underpaid and need to file an appeal.

Overpayment May Sound Great, But ...

You may be tempted to allow underpayments and overpayments to cancel each other out, but it doesn’t work that way. While different payers have different takeback clauses—and states have their own regulations governing those clauses—healthcare providers aren’t legally entitled to keep overpayments.

If you suspect a claim has been overpaid, contact the payer in writing to request that they reprocess the claim and send you an explanation of the payment along with a formal request for refund. Only then should you repay your payer.

To learn more about how to identify and resolve payment variance, download our ebook, “The Hidden Cost of Payment Variance: How to Stop Underpayments From Undermining Your Practice.”