Revenue leakage is a significant challenge for healthcare providers, impacting financial performance and resource allocation. It can occur slowly, over time, and is often difficult to identify. One of the primary areas where leakage occurs is through underpayments and denials from insurance companies. Hospitals must adopt proactive strategies to address these issues, ensuring they capture the full revenue owed while preventing future losses. Here’s how identifying and recovering underpayments and preventing denials can significantly improve a healthcare organization’s financial health.

Understanding Revenue Leakage

Revenue leakage happens when healthcare providers fail to receive the full amount they are owed for the services rendered. Common causes include underpayments, claim denials, and contractual misalignments. The complex landscape of insurance agreements makes it easy for healthcare facilities to overlook these discrepancies, particularly if they rely on manual processes or outdated systems.

The Role of Contract Management

At the core of addressing revenue leakage is effective contract management. Hospitals must maintain accurate, up-to-date records of their contracts with payers. By loading and tracking insurance contracts through an integrated system, such as a contract management module, hospitals can easily track insurance reimbursements and ensure they are paid according to the terms of their agreements.

An automated contract management solution allows hospitals to:

• Track expected vs. actual payments.
• Monitor both underpayments and overpayments.
• Identify discrepancies, such as downgrades in service levels or line-item denials.
• Support renegotiation efforts with clear insights into contract terms and performance.

Addressing Underpayments

Underpayments occur when payers fail to reimburse providers the agreed-upon amount for services. Many healthcare providers use spreadsheets or other manual tracking methods, which are inefficient and prone to errors. A robust system can automate this process, enabling providers to quickly identify underpayments and act accordingly.

Questions hospitals should consider include:

• How are you tracking underpayments?
• Are your teams identifying payment variances, or are these going unnoticed?
• Are you regularly reviewing contracts to ensure they are up to date and aligned with reimbursement rates?

Identifying and recovering underpayments can have a significant financial impact. For instance, in one case, a critical access hospital was able to recover over $343,000 in just one quarter by working collaboratively with a revenue cycle management team.

Preventing Denials

Denials, another source of revenue leakage, occur when payers refuse to cover specific services or line items. Denials can be outright rejections of claims, or more subtly, line-item denials where an insurance company refuses to pay for certain services without providing a reason. Hospitals must have systems in place to capture and address these denials promptly.

Effective denial management involves:

• Capturing line-item denials, even when payers do not provide specific denial codes.
• Ensuring accurate coding and billing practices to reduce the chances of denials.
• Having a system in place to flag and appeal denied claims promptly.

Improving Transparency and Accountability

By implementing an automated contract management and revenue tracking solution, hospitals can create a transparent system that holds payers accountable. With accurate reporting tools, facilities can track variances between expected and actual payments, run contract expiration reports, and maintain up-to-date records on payer contracts.

Additionally, these systems provide an educational opportunity for hospital staff. They help employees understand how contracts work, how denials and underpayments affect financial performance, and how to take corrective action when needed.

Key Takeaways for Hospitals

1. Automate and Streamline Contract Management: A robust system that tracks contracts and payments can help reduce manual errors and increase efficiency in identifying revenue leakage.
2. Proactive Underpayment Recovery: Consistently review contracts and payment records to ensure that underpayments are promptly identified and recovered.
3. Effective Denial Management: Establish a systematic process for addressing denials, including tracking line-item denials and appealing them as necessary.
4. Ongoing Maintenance and Reporting: Regularly update contract terms and fee schedules to ensure they reflect current payer agreements, and use reporting tools to track variances and ensure compliance.

By addressing these areas, healthcare organizations can significantly reduce revenue leakage, improve financial resilience, and ensure they receive the full compensation they are entitled to for the services they provide.