Practice Management Lab: You Call That a Payment?

June 1, 2006

Underpayments and "zero-pays" are a growing problem. Here's some advice to help you handle them.

Thus far this year, this column has focused primarily on preventive management within billing. We have provided techniques and data to help you improve your previsit readiness and eligibility checking. Even last month’s denial management column was primarily about learning from denials to improve your ability to prevent them.

Preventive management is crucial. But it’s time to face reality: No one is going to achieve 100 percent claim payment.

In fact, you receive no reimbursement even for some of your “paid” claims. According to athenahealth’s data, 3.5 percent to 4 percent of the average practice’s monthly charges are “paid” at zero dollars - effectively, the same as a denial but not recorded as such. Another 5 percent to 7 percent of practices’ monthly charges may be underpaid when measured by the parameters of individual payer-provider contracts.

The fact is that nearly three quarters of zero-pays - and all underpays - can be appealed.

So if zero-pays and underpays account for such a significant percentage of a practice’s loss of income, what can they do to achieve fair reimbursement?

Zero-pays and underpays are two fairly different animals and require different approaches in terms of monitoring and recovery to successfully minimize your losses.

So we’ll take them one at a time.

Dealing with zero-pays

Zero-pays are typically charges in which the payer remits a payment at $0 for a given procedure, typically because the payer claims that the service is part of a bundled or global service for which it has already paid. Depending on the payer, these charge lines may be easy to spot and diagnose based upon remark codes, but sometimes zero-pay charge lines appear as contractual discounts. Zero-pays have become a common problem affecting doctors across the country as traditional managed-care bureaucratic measures - such as utilization review, extensive preauthorization/certification lists, and tight provider networks - have fallen out of favor with consumers.

Payers are increasingly turning to alternative methods of containing medical costs. The zero-pay phenomenon stems at least in part from the many disparate efforts being taken by medical directors in health plans across the country to take advantage of the ability of claim edit programs to essentially rebundle procedures. Practices subsequently face the daunting challenge of submitting claims against a variety of slightly different policies, many of which are at odds with physician opinions or conflict with national standards put forth in the Correct Coding Initiative (CCI).

At athenahealth we use the CCI as the basis for evaluating the “appealability” of zero-pays. CCI is the closest thing we have to a national benchmark, and while it is not legally binding for health plans, it provides a very solid basis for appeal. Generally we have found that when zero-pay claim appeals are based on the CCI, we are successful roughly half the time.

To illustrate this, we examined our database for zero-pays for March 2006. In Figure 1, you will see a pie graph that illustrates the seven diagnostic categories payers use to explain the root causes for zero-pays.

We think zero-pays that fall within the categories “unclear basis for denial,” “code billed within global period,” and “modifier allowed for separately identifiable procedure” are good candidates for appeal, as long as the service is worth $200 or more. Obviously, that can add up to a significant amount, especially on an annual basis, so if you want to minimize your zero-pay exposure, we recommend three areas on which to focus: prevention, identification, and prioritization of appeals.

Because zero-pays are typically related to payer-specific idiosyncrasies, there is little you can do to prevent them. However, if you evaluate all of your coding against the CCI edits and then make any necessary corrections as supported by medical documentation before submitting claims to your payer, you can lower your likelihood of zero-pays. More important, you will know that when you do get them, you can appeal using CCI as your basis. Of course, applying this CCI filter to all of your claims will mean that certain procedures should not be billed at all.

The next trick is catching zero-pays as they arrive. Because these claims are not necessarily denied in the traditional sense, you really have to scrutinize the charges within your claims to identify which ones were paid at zero dollars. You will need to confirm that the zero-paid claim in question satisfies all CCI edits before you consider appealing it. Of course if you run all your claims through CCI before submitting them, this step is already done for you, and you can move right to prioritization for appeal.

Appealing zero-pays can be a lot of work, and many zero-paid charges are too small to be worth the effort, so focusing on high-dollar zero-pays is critical to maximizing the return on investment for your time-consuming appeal work. The good news here is that for most practices, as much as half of your recovery opportunity in these cases is within “high-dollar” charges ($200 or more), which represent less than 10 percent of the zero-pay charge lines. (see Figure 2)

Dealing with underpays

Underpays are a much different animal than zero-pays. Underpays are more correctly defined as “contract variances” - that is, payment mismatches in which charges are underpaid per the parameters of the contract between the provider and the payer. Payers are not systematically setting out to ignore contract terms - but mistakes are often made when your contract is loaded into their adjudication systems, as this is often a manual process subject to human error and the limitations of adjudication technology. The proliferation of more types of health plans - including the new consumer-directed varieties - also compounds payers’ difficulties in accurately paying claims according to individual provider contracts.

According to national estimates and athenahealth’s experience, as much as 5 percent to 7 percent of monthly charges may be incorrectly paid per the parameters of a payer contract. However, identifying and correcting these underpayments is obviously a potentially complex challenge. So how can you minimize your contractual variances?

In general, do not expect much success appealing variances claim-by-claim - if your contract is built incorrectly into your payer’s system, you will continue to get the same results. The goal with underpays is to demonstrate an ongoing pattern of variance to your payer to get it to fix the way your contract is set up in their adjudication system. Of course, if the payer disagrees with the complexity of the underlying service, routine appeals may be a more effective approach.

Here are a few tips for identifying variance patterns and demonstrating them to your payers:

  • Understand the ins and outs of your payer contracts at a very granular level.

  • Make sure you receive a copy of your agreed-upon fee schedule at contract execution.

  • Dig beneath the flat procedure rates to understand which modifiers your payer will acknowledge the fee affects.

  • Understand your payer’s algorithm for multiple procedure reductions and determine whether these reductions occur in descending RVU ordering.

  • If you work in a multispecialty practice and negotiate different rates for specialists and primary-care physicians, make sure you understand which providers your payer classifies as PCPs.

  • Track payments that vary from contracted amounts on a monthly or quarterly basis, particularly after new contracts are executed.

  • If patterns of variance are detected, treat this as a contracting event with the payer, and work with your provider relations representative to address the underlying issues.

  • When you do approach your payer, come armed with data - prepare spreadsheets with the relevant claim IDs, dates of service, and member accounts, as well as your understanding of the variance between expected and actual payments.

Jeremy Delinsky is director of process innovation for athenahealth, a revenue cycle management company for medical practices whose database of billing information is the statistical basis for this series. He can be reached via


This article originally appeared in the June 2006 issue of

Physicians Practice.