The Power of the Payer Contract: Your Key to Underpayment Appeals
Underpayments are a persistent and costly problem for healthcare providers. While denied claims usually grab immediate attention, underpayments often fly under the radar—quietly chipping away at practice profitability. According to MGMA, underpayments can account for 3–5% of total contracted revenue, which for many practices translates into hundreds of thousands of dollars in lost income every year.
The key to fighting them lies in a tool many organizations already have but underutilize: the payer contract. More than just paperwork, payer contracts are legally binding agreements that, when used effectively, can serve as your strongest weapon in recovering underpaid claims.
Table of Contents
Understanding the Payer Contract
A payer contract defines the terms of your reimbursement relationship with an insurance company. It is the legal document that sets expectations for how your services will be paid. Yet, a recent survey by HFMA found that over 60% of providers do not systematically reference their contracts during appeals, leaving significant amounts uncollected. Understanding its critical components ensures you have a solid foundation for appeals:
Fee Schedules: Clearly outlines reimbursement rates for CPT and HCPCS codes.
Prompt Payment Clauses: Establish timelines within which payers must remit payment and outline penalties for late payments.
Dispute Resolution Processes: Define the formal pathways for addressing payment disputes.
Silent PPO & Network Leasing Terms: Specify whether payers can lease your rates to third parties.
Escalation or Arbitration Provisions: Outline next steps if informal resolution fails.
Why Contracts Are Your Best Defense
Contracts aren’t guidelines—they are enforceable agreements. When payers underpay, they are in violation of their obligations. By referencing exact clauses in appeals, providers move from asking for money to demanding compliance. This legal leverage not only increases the likelihood of successful appeals but also strengthens your negotiating position during renewals.
Case in Point: A multispecialty clinic in the Midwest recovered over $250,000 in underpayments over 18 months by creating a process where billing staff automatically cross-referenced every variance against the contract’s fee schedule. By shifting the argument from opinion to contract obligation, the payer had no room to maneuver.
How to Use Contracts in Underpayment Appeals
1. Identify the Discrepancy
Compare the Explanation of Benefits (EOB) or Electronic Remittance Advice (ERA) against your contracted rates. Even small variances must be flagged and documented. Remember: most contracts impose strict appeal windows, often 30–90 days—miss that deadline and the revenue is gone.
2. Find the Relevant Clause
Pull the exact contract section that covers the fee schedule, payment timeframe, bundling rules, or other disputed areas. Precision matters—cite section numbers and quote contract language directly.
3. Build a Strong Appeal Letter
Begin by identifying the underpayment with supporting claim and EOB details.
Quote the contract clause verbatim that supports your claim.
Attach proof: fee schedule excerpts, claim copies, correspondence, and ERA/EOB documentation.
Keep tone professional, concise, and fact-driven.
Example:
“Per our signed agreement dated [Date], Section 4.2 specifies that CPT 99214 is to be reimbursed at $150. The payment received of $125 represents an underpayment of $25 per the contract.”
4. Escalate If Needed
If the payer resists, follow the contract’s dispute resolution process. This may involve arbitration or mediation, both of which carry more weight when your case is rooted in contract terms. Also be prepared for payer tactics such as downcoding or bundling services—again, the contract is your shield.
Best Practices for Contract Management
Your ability to leverage contracts is only as strong as your contract management system. To ensure you’re always ready:
Centralize Contracts: Store all payer agreements in one digital repository.
Create a Contract Cheat Sheet: Summarize key reimbursement terms for easy reference by billing staff.
Track Updates and Amendments: Ensure any changes are reflected promptly in your system.
Implement Technology: Contract management software integrated with your billing system can reduce variance identification time by 40–50%, according to Black Book Research.
Assign Governance: Designate a “contract custodian” or team to maintain updates and manage renewals.
Train Your Team: Provide billing teams with regular training on how to locate and reference contract clauses in appeals.
Proactive contract management turns your payer contract into a living, breathing tool—rather than a forgotten file.
Conclusion: Contracts as Your Ally
Your payer contract is more than a formality—it is your shield and sword in the battle against underpayments. By treating the contract as the legal and financial backbone of your reimbursement strategy, you gain not only the ability to recover lost revenue but also the leverage to prevent future losses. And remember: every dollar lost to underpayment is a dollar not reinvested into patient care.
“Contracts aren’t just documents to file away. They’re the roadmap to ensuring you get paid what you’ve earned.”
Conclusion
Every day an underpayment goes unchallenged, your practice loses money you are rightfully owed. Don’t fight underpayments alone. At MBW RCM, we specialize in auditing payer contracts, identifying opportunities, and leveraging contract language to recover revenue effectively.
👉 Contact MBW RCM today to schedule your complimentary contract audit and reclaim the revenue that belongs to you.
