Underpayment of Medicare and Medicaid Claims

Healthcare providers, unfortunately, experience underpayment of many claims, which impacts their ability to sustain a successful healthcare practice. Underpayments from both public and private insurers continue to be a persistent challenge to hospitals’ efforts to recover revenue. Underpayment can occur for various reasons, including coding discrepancies and differing policy interpretations. They can also happen whether reimbursement is coming from private insurance, Medicare, or Medicaid. Underpayment resulting from Medicare or Medicaid can present unique challenges for healthcare providers, however. Here is what healthcare providers should know when their claims are underpaid by Medicare or Medicaid.

Explaining Underpayments 

It is important to first understand the difference between underpayment and denial. A denial means the insurer refuses to pay the claim at all, often citing lack of coverage, missing information, or medical necessity. Underpayment, on the other hand, occurs when the insurer approves the claim but reimburses less than what is contractually owed. It refers to the difference between the actual cost a hospital incurs to deliver care and the amount it is reimbursed by government programs such as Medicare or Medicaid. 

This situation arises when the reimbursement received is less than the full cost of providing the necessary medical services. These costs include expenses for personnel such as doctors, nurses, and support staff, as well as investments in medical technology, equipment, facilities, and other essential goods and services required to deliver quality hospital care.

Underpayments are often more common than outright denials because they can be harder to detect. Providers may assume payment was correct and will not challenge discrepancies that are buried in complex remittance details.

Understanding Medicare and Medicaid Claims 

Participation in Medicare and Medicaid is technically voluntary for hospitals. However, not-for-profit hospitals must treat Medicare and Medicaid patients to qualify for federal tax-exempt status as community healthcare providers. Nearly all hospitals find it necessary to participate in Medicare and Medicaid.

Unlike private insurers, which negotiate payment rates with hospitals, Medicare and Medicaid payment rates, with the exception of those under managed care plans, are determined by law. These legally set rates are currently below the actual cost of providing care, leading to significant underpayment.

Medicare has long reimbursed hospitals at rates below the actual cost of providing care; however, recent data reveal that payment levels reached historic lows in 2022. According to figures from the American Hospital Association, Medicare reimbursed hospitals just 82 cents for every dollar they spent caring for Medicare patients that year, which is the lowest rate on record. This shortfall resulted in 99.2 billion dollars in Medicare underpayments in 2022 alone, a figure that is nearly two and a half times higher than the amount reported in 2012.

When hospitals are reimbursed at rates below these actual costs, they experience a financial shortfall known as underpayment. This is distinct from a contractual allowance, which refers to the difference between a hospital’s full billed charges and the fixed payment rates set by government insurance programs. While contractual allowances are built into the payment structure, underpayments represent a real loss that hospitals must absorb, often putting additional strain on their financial stability.

In addition to underpayment, medical providers also have to be concerned about overpayment. The Center for Medicare & Medicaid Services (CMS) will reimburse providers. An overpayment happens when CMS reimburses a provider more than what is allowed under current laws and regulations. Once identified, the excess amount is considered a debt that must be repaid to the federal government. Providers must remain diligent of overpayments, and are required to report and return any self-identified Medicare overpayment to their Medicare Administrative Contractor (MAC) within 60 days of identifying the overpayment, within 6 years of receiving it, or by the due date of any applicable cost report. When a provider receives an overpayment of $25 or more, the MAC initiates the recovery process by sending a demand letter, which formally requests repayment of the excess amount.

Contesting Medicare and Medicaid Claims

Medicare and Medicaid regulations are notoriously complex, and when a claim is underpaid, the process for challenging that decision can feel overwhelming. Fortunately, providers are not without recourse. 

Medicare claims must be contested by going through an administrative hearings process. From an initial redetermination request to potential federal court involvement, each stage provides an opportunity for greater scrutiny and the presentation of additional evidence. Understanding this process is key to protecting your right to full reimbursement and holding Medicare accountable when underpayments occur.

When Medicare underpays a claim, the decision can be appealed through a multi-step process designed to ensure thorough review. The first step is to submit a request for redetermination to the regional Medicare contractor responsible for claims processing in the area.

If the regional contractor denies the redetermination appeal, the next level involves filing a reconsideration appeal with a qualified independent contractor, commonly known as a QIC. The QIC is an independent entity responsible for objectively reviewing denied claims. The reconsideration appeal must be submitted within the deadline specified in the redetermination denial notice. The QIC conducts a more detailed review and issues a written decision.

If the QIC also denies the appeal, the case may be taken to an administrative law judge (or ALJ) by requesting a hearing. The ALJ hearing provides an opportunity to present additional evidence and make oral arguments in support of the claim. This hearing is more formal than previous appeal stages and aims to provide a fair, impartial review of the dispute. The ALJ issues a written decision based on the evidence and testimony presented.

If the ALJ rules against the appeal, a review may be requested from the MAC in Washington, D.C. The MAC reviews the ALJ’s decision and may uphold, reverse, or remand the case for further review. The MAC’s decision is generally the final administrative step in the Medicare appeals process.

If the MAC denies the appeal or issues an unfavorable ruling, judicial review can be sought by filing a request for a hearing in federal district court. This final step involves bringing the case to the federal court system, where a judge reviews the legal and factual basis of the claim.

Medicaid, which is administered by states, follows a separate, state-specific process. When a provider believes Medicaid has paid less than what is owed, the first step is to review the remittance advice to identify any coding errors, rate miscalculations, or claim processing mistakes. Providers should then submit a formal appeal or adjustment request to their state Medicaid agency, following that state’s specific procedures and deadlines. 

Providers in Georgia, for instance, are required to submit a payment dispute within three months from the date the claim was paid. The adjustment request must contain enough documentation to clearly identify each claim included. All necessary supporting documents should be submitted, as incomplete requests may be returned without further review. CareSource will make a payment dispute decision within fifteen calendar days of receiving the request.

Contact An Experienced Healthcare Law Attorney 

Navigating the appeals process for underpaid Medicare or Medicaid claims can be time-consuming and complex, with strict deadlines and procedural requirements at every stage. Having an experienced healthcare law lawyer can make a critical difference in recovering the reimbursement your practice is rightfully owed. If your claims have been underpaid or improperly processed, contact a knowledgeable healthcare law attorney who can help you evaluate your options, prepare a strong appeal, and advocate for your financial interests every step of the way.