Underpayments occur when a payer reimburses a claim at a rate lower than the contracted fee schedule — without issuing a formal denial. Because the claim is technically ‘paid,’ it often passes through payment posting without triggering a review.
Common causes of hospital underpayments:
- Payer applied an outdated fee schedule or wrong contract tier
- Incorrect DRG assignment — claim paid at a lower-acuity DRG than documented
- Bundling: multiple billable services paid under a single reimbursement that doesn’t reflect the contracted rate for each
- Coordination of benefits errors on dual-coverage patients
- Carve-outs and implant cost outliers not reimbursed per contract terms
- Stop-loss provisions not applied correctly on high-cost inpatient stays
The revenue at stake is significant. A health system collecting $200M annually with a 1.5% underpayment rate is losing $3 million per year in revenue it has already earned and contractually is owed. Most underpayments are never identified because:
- Payment posting staff process volume, not auditing accuracy
- The contracts are complex and vary by payer, plan type, and service line
- Most billing systems do not automatically flag payments that are below contracted rates
Squadyen’s underpayment recovery process involves systematic contract-level auditing of paid claims, identification of underpaid accounts, and formal appeal submission — recovering revenue that most health systems are currently leaving behind.