How medical practices can identify insurance underpayments
A claim can show as paid and still be underpaid.
The only way to know is to compare what the payer allowed on the ERA or EOB with what your contract says should have been allowed. A zero balance does not necessarily mean the payment was right.
Denials usually get attention because they create an obvious work queue. Underpayments are easier to miss. Money comes in, the account may close, and the difference can be posted as a contractual adjustment. Unless someone checks the remit against the contracted rate, the claim looks finished even when it deserves another look.
A paid claim can still be short
A denial tells you something went wrong before payment. An underpayment is different: the payer sent money, but the amount may not match the contract.
Because the claim is technically paid, it can disappear from normal follow-up unless your team is checking payment accuracy too.
Suppose the contracted allowed amount for a service is $220, but the remit reflects $187. If the remaining $33 is posted as a contractual adjustment and the account is closed, there may be no denial or open balance to bring it back to anyone's attention.
The difference only becomes visible when the payment is checked against the fee schedule.
The review itself is fairly straightforward: compare the remittance with the contracted allowed amount for the code as billed, including the modifier, units, and place of service when those affect reimbursement.
A mismatch is not automatically an underpayment, but it is enough to justify a closer review.
Do not confuse billed, allowed, and paid amounts
The billed charge is the amount submitted on the claim. For contracted payers, that number by itself tells you very little about whether reimbursement was correct.
The contracted allowed amount is the more important reference point. It reflects what the payer should recognize for the service under the applicable fee schedule or contract, subject to the details of the claim.
The paid amount is what the payer actually sent after patient responsibility and adjustments are applied.
A claim can be posted correctly from a patient-balance standpoint and still warrant review on the payer side.
That is why reports that only compare charges with collections can miss the issue. To evaluate insurance underpayments, you need the allowed amount in the middle.
How to check a paid claim for an underpayment
You can start with the data you already have: recent remits, the applicable contracts or fee schedules, and a manageable sample of paid claims.
This is a review process, not an EHR replacement project.
Pick a small group of recently paid, zero-balance claims across several payers. Include routine services as well as higher-dollar procedures that matter to the practice.
For each claim, compare:
- The billed amount
- The ERA or EOB allowed amount
- The payment
- The adjustment reason codes
- The allowed amount you expected based on the contract
When the expected allowed amount and the remit do not line up, review the adjustment reason codes before assuming the payer is wrong.
CO-45, for example, is commonly used when the charged amount exceeds the payer's fee schedule or contractual obligation. That adjustment may be completely valid.
The point is to investigate the variance, not label every adjustment as lost revenue.
Patterns matter more than a single odd claim.
If the same payer, code, or modifier repeatedly comes in below the expected contracted amount, the next question is whether anyone is routinely reviewing those variances or whether they are simply being posted and closed.
Start with a sample. The goal is to learn whether payment accuracy is actually being checked and whether the same type of variance keeps showing up.
Why a payment may look short even when it is correct
Not every difference is an underpayment.
Plenty of legitimate billing and reimbursement rules can change the amount a payer allows.
Modifiers, units, professional and technical components, multiple-procedure reductions, add-on services, fee-schedule differences, and other reimbursement rules can all affect the final allowed amount.
Technology can help surface the variance, but someone still needs to determine whether it is legitimate before the claim is disputed.
That distinction matters.
A variance should not be automatically appealed, but it should not be automatically written off either. Legitimate adjustments and real underpayments can look very similar until the remit is reviewed against the contract.
If your billing team cannot show how it reviews a sample of paid claims against contracted rates, it is worth asking how underpayments are being identified today.
Underpayments need a different workflow than denials
A denied claim usually moves into correction, appeal, or resubmission. The problem is visible because payment did not happen as expected.
An underpaid claim has already received payment, so the next step is usually to review the variance and determine whether payer follow-up is warranted.
If underpayments are only managed through a denial queue, many of them will never make it into the workflow at all.
A denial report can tell you a lot about unpaid claims. It cannot, by itself, tell you whether paid claims were reimbursed correctly.
What to do when the same variance keeps showing up
One unexpected payment may have a perfectly reasonable explanation.
Repeated variances tied to the same payer, code, or modifier deserve more attention. At that point, the issue is less about one claim and more about whether the practice has a reliable process for spotting the pattern.
If the remit remains below the expected contracted amount after the usual explanations are ruled out, payer follow-up may be appropriate.
The right path varies by payer and contract. It could involve reconsideration, a corrected claim, or a broader contract issue.
Identifying the variance is the first step. Recovery is a separate process.
When it is worth taking a second look
If nobody can show you how paid claims are being checked against your contracted rates, or a sample turns up the same unexplained variances repeatedly, it may be worth reviewing a broader set of payments.
That does not require changing billing companies first.
If you are not sure whether paid claims are coming in short of contracted allowed amounts, VeroRCM's Free Revenue Leak Audit can provide an independent look at payments and remits.
Common questions about insurance underpayments
How can a medical practice identify insurance underpayments?
Compare the ERA or EOB allowed amount with the contracted allowed amount for the service as billed.
A paid or zero-balance status is not enough on its own. Start with a sample across multiple payers and look for repeat variances.
Why can paid claims still cost the practice money?
Because receiving payment does not necessarily mean the payment matched the contract.
If a difference is posted as a contractual adjustment, the account may close without ever entering a denial queue. The variance becomes visible only when the remit is compared with the expected allowed amount.
What is a contracted allowed amount vs. billed charges?
Billed charges are what the practice submitted.
The contracted allowed amount is what the payer is expected to recognize under the applicable agreement, and the paid amount is what actually arrived.
Comparing all three is much more useful than looking only at charges and collections.
Start with a small sample of paid claims
If you are not sure whether paid claims are coming in below contracted allowed amounts, VeroRCM's free Revenue Leak Audit can look at payments and remits without requiring you to change billing companies first.