Underpayments: the silent revenue leak your ERA is hiding

Payers underpay 7–11% of claims. Most practices never catch it.

7–11%

of commercial claims are underpaid relative to contracted rates.
At $2M in annual collections, that’s $140K–$220K your practice earned but didn’t receive.

Build a contracted rate reference document. For your top 30 CPT codes by annual volume, document your contracted rate with each major payer. Include: the code, the payer, the plan type (PPO, HMO, etc.), the contracted rate, and the contract effective date. Keep this in a shared billing team location and update it when contracts change. This document is the foundation of underpayment identification.

Add an underpayment check to your ERA review workflow. For your two highest-volume payers, designate one billing team member to check 10 posted payments per week against the contracted rate reference document. Flag any payment that is more than 5% below the contracted rate. Calculate the dollar amount of the discrepancy and the frequency of the pattern. If you find a systematic underpayment — the same code, the same payer, consistently below rate — you have a formal dispute to file.

File a written underpayment dispute for any systematic pattern identified. The dispute letter should include: the specific CPT code and payer; your contracted rate per your agreement dated [date]; a table of the specific claims that were underpaid with claim number, date of service, contracted rate, amount paid, and underpayment amount per claim; and a formal request for reprocessing and payment of the balance. Copy your provider relations contact. Keep a record of all disputes filed and their outcomes.

An analysis of commercial insurance claims by Zelis found that 7–11% of claims were underpaid by commercial payers — representing billions of dollars in annual revenue that providers are owed but not collecting. Independent practices are disproportionately unlikely to catch underpayments because they typically lack the contract management infrastructure that larger health systems have.

Contract management software — tools that automatically compare ERA payments to contracted rates and flag discrepancies — is available for independent practices at a cost ranging from $200–$800 per month depending on features and practice size. For practices with $1.5M+ in annual collections, the ROI on this investment is typically positive within 90 days.

Many commercial payer contracts and state insurance prompt payment laws entitle providers to interest on late payments — typically 1–1.5% per month after the clean claim payment deadline. This interest is almost never pursued by independent practices, but for practices with high-volume payers that are consistently late, the accumulated amount can be significant.

Payer fee schedule errors are more common than most billing professionals realize. Insurance industry estimates suggest that approximately 3% of all payer fee schedules contain at least one entry error affecting provider payments — and that these errors, once introduced, persist for an average of 14 months before being identified and corrected.

The ERISA appeals process provides a legal mechanism for commercial health plan underpayment disputes for self-insured employer plans — which cover approximately 60% of commercially insured individuals. ERISA appeals have specific procedural requirements and timelines that differ from standard payer appeals and may require healthcare attorney involvement for complex disputes.

Your billing manager and AR team needs this.

Medicaid Underpayment Recovery — State-Specific Rules Apply. Medicaid underpayment disputes follow different rules than commercial payer disputes. State Medicaid programs and Medicaid managed care organizations are subject to state-specific prompt payment laws and Medicaid contract requirements. If you believe you have been underpaid by a Medicaid payer, your first step is to review your state Medicaid agency’s provider relations dispute process — not the commercial payer appeals process. Many states require that Medicaid payment disputes be filed within a specific window (often 90–180 days from the date of payment) and via a specific form or portal. Missing the state deadline forfeits your right to dispute, regardless of the merits of your claim.

From a reader managing a cardiology practice with a large Medicare Advantage population: ’We’ve noticed that our Medicare Advantage payments for the same CPT codes are consistently 10–15% lower than what our traditional Medicare patients generate. We have a contract with the MA plan. Is this normal, or are we being underpaid?’

Our answer: This may be normal, or it may be an underpayment — and the distinction matters enough to investigate.

Medicare Advantage plans are private insurance plans that set their own fee schedules — they are not required to pay at traditional Medicare rates. It is common for MA plans to pay 90–110% of Medicare for most services, so a 10% gap is not inherently suspicious.

However: if your MA plan contract specifies a rate expressed as a percentage of Medicare (e.g., ’100% of Medicare’), and you are being paid at 85–90% of Medicare, that is an underpayment. Pull your MA plan contract and find the rate table or the percentage-of-Medicare language. Compare it to the payments you’re receiving.

Also check: some MA plans have different rates for different plan products within the same plan family. A patient enrolled in the plan’s HMO product may generate a different payment than one in the PPO product. Confirm that claims are being processed under the correct plan type.

If you find a systematic gap between your contracted rate and actual payments, the underpayment dispute process applies — same as commercial payers.

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