Revenue Cycle Management and Contract Compliance: How to Analyze your Payment Variances

Medical Coding Revenue Cycle Management

Payment variances may have many causes, but they typically land in two major categories. The first category is when a payer has updated their payment system to account for issues like a new contract fee schedule. The second major category of occurrence that can cause payment variances is when a payer has made changes to their payment system, but the configuration wasn’t successfully applied. Since both of these situations tend to happen at the start of a new contract year, that’s the time to pay attention to issues that crop up by analyzing your payment variances before they get out-of-hand.

Get the Scoop on Payment Variances

The goal is to make sure you collect 100 percent of any underpayment with every payer. Here are some things to look at in the payment system to figure out what’s going on with your payment variances:

Underpayments – Keep an eye out for errors as small as $5 or $10 in underpayments. Even small issues in the system, like the discrepancy of $5 or $10, when multiplied by many procedures through out the year can end up adding up to 10’s of thousands of dollars in under paid claims if not more. Small underpayments can happen for a variety of reasons and are easy to go unnoticed if the proper systems of checks and alerts are not in place. Most, if not all, practice management systems provide a function or module for contract compliance, however, in our experience we have yet to find one that allows you to manage this issue successfully. At HIS, we go an extra-step and create a spreadsheet with our client’s contracted rates by procedure and by carrier, to ensure contract compliance for each and every payment that comes in. It may seem like a time-intensive effort, and it is, but it is well worth the effort. This way we are able to accurately compare the payments received to the contracted rates to be sure proper payment is being received each and every time. And when an improper payment is identified it is promptly and appropriately adjudicated.

Modifiers – Add-on procedures for specialty practices or surgery can be reimbursed at different rates, depending on whether it is the first procedure or the fifth. Medicare sets a limit for reimbursement after the fifth procedure. Other payers don’t. Make sure to get as detailed as possible with modifier coding and documentation, since inaccurate modifier coding can significantly affect reimbursement. The more specific in documenting unusual procedural services, the higher the likelihood reimbursement will be forthcoming.

Fee Schedules and Contract compliance Policies – How current is your organization with its standard fee schedules and contract compliance policies? Fee schedules should be current and loaded into the practice management system correctly and accurately. Set a practice policy as to when and how underpayments are to be handled. For example, we suggest for all commercial payors when an underpayment is identified, a demand letter is generated and sent to the payor requiring proper payment according the executed contract.

Time-Sensitive Practices – How quickly can a coding error be spotted and correctly resubmitted? How efficient is the office in getting reimbursed appropriately and identifying improper payments when they occur? As codes change from ICD-9 to ICD-10, it will be important to be able to spot these errors quickly. Most payor contracts have time limits associated with errors in payments for both under and over payments. Know your timely-filing limits for each payor. Create your practice policy and procedures for contract compliance and underpayments with those limits in mind. The more efficient and accurate everyone performs, the quicker the issues can be resolved and reimbursement obtained at the appropriate rate.

We at Healthcare Information Services, LLC, know how important it is to look at the details when it comes to payment variances and contract compliance. Our staff are trained to manage the revenue cycle with expertise in optimizing reimbursements, while maintaining compliance. This allows you to focus on providing the needed medical services, while staying confident that the you are being paid correctly and that your contract is being honored by the payors. For more information, visit us at


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