Identifying & Addressing Underpayments in Medical Billing

Identifying & Addressing Underpayments in Medical Billing

Is your medical practice unsure if it’s receiving full reimbursement for services provided? Underpayment in medical billing is a common concern, especially for smaller practices. Unlike denials, where a claim is rejected, underpayments involve receiving less than the billed amount. This can happen for various reasons, including coding errors, policy changes, or mistakes by the insurance company. The good news is that there are steps you can take to identify and address underpayments. By understanding the causes and  implementing proactive measures, you can ensure your practice receives fair compensation for its services. 

Understanding Claim Issues 

  • Denial: An insurer refuses to pay due to errors, missing documents, or services not covered by the policy. 
  • Underpayment: The insurer pays less than the billed amount. This can happen for several reasons. 

Reasons for Underpaid Claims 

  • Coding Errors: Mistakes in medical coding, a complex and ever-changing field, can lead to lower reimbursements. Even a missing modifier (extra details about a procedure) can cause problems. 
  • Unbundling: Billing each step of a bundled procedure (one code for everything) can result in underpayment, as insurers may view it as improper billing. 
  • Down Coding: Insurers may reimburse for a lower-level service than billed if they believe the higher code was unnecessary. 
  • Fee Schedules: Insurers have different fee schedules that determine reimbursement rates. Billing with the proper schedule or updated rates can lead to underpayment. 
  • Policy Changes: Insurers may update policies, reducing reimbursement rates or coverage. 

Preventing Underpayment 

  • Review Fee Schedules Regularly: Stay updated on insurer fee schedules to ensure proper billing. 
  • Monitor Coding Accuracy: Regularly review claims for coding errors. Invest in experienced coders and stay informed about coding updates. 
  • Verify Insurance Coverage: Confirm a patient’s coverage and pre-authorization requirements before providing services. 
  • Track Claims: Implement a system to track claim submissions, rejections, and payments. This allows for quick identification and follow-up on underpaid claims. 
  • Stay Informed on Policies: Regularly review insurer policies for reimbursement, coverage, and coding changes. 
  • Use Automation: Billing software and Electronic Health Records (EHRs) can streamline billing and reduce underpayment risks. 
  • Train Your Staff: Regularly update staff on insurance coverage and billing practices to minimize errors. 

Monitoring and Tracking 

  • Claims Tracking System: Use a system to monitor claim status and identify discrepancies. This allows for prompt action on underpaid claims. 
  • Review Reports: Regularly review billing reports to identify underpaid claims, coding accuracy issues, and reimbursement rates. 
  • Follow-up: Follow up on unpaid or underpaid claims to identify problems and negotiate fair reimbursement rates. 
  • Appeal Underpayments: If underpayments are identified, appeal the decision with the payer. Provide supporting documentation, such as medical records and coding details, to support the appeal. 

Small medical practices can minimize underpayment and ensure they receive fair compensation for their services by taking these steps. 


Recognizing underpayments in medical billing is crucial for maintaining a practice’s financial health. Unlike denials, underpayments are often less apparent, leading to potential revenue loss. Practices can implement proactive measures by understanding why claims might be undervalued, such as coding errors or policy changes. These include regular reviews of fee schedules, monitoring coding accuracy, and tracking claim submissions. This focus on preventive actions can ensure proper reimbursement and allow practices to concentrate on delivering high-quality patient care.


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