Summary
Underpayments and claim denials both impact healthcare revenue, but underpayments often cause greater long-term losses because they remain hidden within paid claims. Learn the key differences, financial impact, industry benchmarks, and proven strategies to identify, manage, and recover lost revenue through denial management and payer contract audits.
Book a Free Consultation Today!Most healthcare organizations treat claim denials as the biggest revenue cycle problem while overlooking underpayments. In reality, that approach can be costly. Denied claims are identified, reviewed, and often resubmitted. Underpaid claims, however, are processed, marked as paid, and frequently never reviewed again. Because they remain hidden within successfully processed claims, underpayments can create a greater long-term financial impact.
This article examines which issue costs healthcare organizations more and outlines strategies to identify and address both before revenue is permanently lost.
Underpayments often result in greater annual revenue loss than denials because underpaid claims are recorded as paid and are rarely audited afterward. While denial rates generally range from 5–11% of submitted claims and receive attention due to their visibility, underpayments can affect 7–11% of paid claims and often remain undetected without regular payer contract audits.
Denial and Underpayment Benchmarks: The Numbers Side by Side
| Metric | Benchmark | Source |
|---|---|---|
| Average claim denial rate across specialties | 5–11% | MGMA benchmarking data |
| Denials never resubmitted at all | ~65% | HFMA revenue cycle reports |
| Average cost to rework one denied claim | $25–$118 | AAFP practice management estimates |
| Paid claims affected by payer underpayment | 7–11% | Change Healthcare revenue integrity studies |
| Average shortfall per underpaid claim | 3–8% below contracted rate | Payer-contract audit findings |
| Practices running regular payer contract audits | Under 30% | HFMA survey data |
| Revenue recovered through systematic underpayment audits | 1–5% of net patient revenue | Advisory Board research |
| Average days to first denial follow-up | 15–30 days | MGMA operations benchmarks |
| First-pass acceptance rate, high-performing practices | 95%+ | Synergy HCLS client data |
| First-pass acceptance rate, industry average | 75–85% | MGMA benchmarking data |
| Denial appeal success rate, when appealed | 50–60% | HFMA data |
| Denials unworked due to staffing gaps | 35%+ | Advisory Board research |
| Typical time to detect an underpayment pattern without an audit | 12+ months | Industry observation |
| Underpayment recovery rate once flagged | 60–75% of the shortfall | Payer-contract audit findings |
| Average AR days, well-managed practice | 30–40 days | MGMA benchmarking data |
What a Denial Actually Costs Your Practice
A denial is highly visible. The payer issues a denial code, the claim remains unpaid, and the billing team is alerted that corrective action is required. This visibility is why denials are typically addressed.
However, not every denial receives follow-up. Industry reports indicate that nearly two-thirds of denied claims are never resubmitted—not because they cannot be appealed, but because billing teams often lack sufficient time and resources. Reworking a denied claim can cost anywhere from $25 to $118 in labor, depending on the payer and denial reason. When multiplied across hundreds of denials each month, those labor costs can significantly affect profitability.
Denials also increase days in accounts receivable (AR). Claims sitting in denial work queues for weeks delay collections and negatively impact AR performance, even if reimbursement is eventually received.
What an Underpayment Actually Costs Your Practice
Unlike denials, underpayments do not generate alerts or reason codes. The payer adjudicates the claim, issues payment, and the claim is marked as complete. Unless the payment is compared against the contracted reimbursement schedule, the discrepancy often goes unnoticed.
This lack of visibility is the primary challenge. On average, underpayments affect 7–11% of paid claims, with reimbursement typically falling 3–8% below the contracted amount. While individual shortfalls may seem insignificant, the cumulative impact across an entire year can exceed revenue lost through denials.
Underpayments also tend to repeat systematically. When a payer underpays a specific CPT code, the issue usually affects every claim containing that code. Without routine contract audits, these patterns may continue for months or even years before being identified, and payers rarely correct them proactively.
Underpayments vs. Denials: The Real Difference
Denials are primarily a workflow challenge, while underpayments are a visibility challenge. Organizations can dedicate resources to denial management and often see measurable improvement. Underpayments, however, require proactive monitoring because paid claims generally appear accurate unless specifically audited.
| Factor | Denials | Underpayments |
|---|---|---|
| Visibility | High — identified immediately | Low — closes as paid |
| Detection method | Automatic through denial codes | Manual through contract audits |
| Typical fix | Correct and resubmit | Dispute payment using contract terms |
| Volume affected | 5–11% of submitted claims | 7–11% of paid claims |
| Total annual revenue impact | Significant but often addressed | Frequently larger and often missed |
How to Build a Workflow That Catches Both
Organizations do not need to choose between denial management and underpayment recovery. Both require dedicated processes operating simultaneously because they rely on different workflows and monitoring methods.
- Separate denial management from payment variance reviews, even if handled by the same team.
- Maintain current payer fee schedules at the CPT-code level for all contracted payers.
- Conduct monthly payment variance reviews comparing paid claims to contracted reimbursement rates.
- Address denials within 15 days to maximize appeal success rates and reduce AR delays.
- Escalate recurring underpayment trends as formal payer contract disputes rather than isolated claim corrections.
If AR days are increasing rapidly, denials should be addressed immediately because they directly affect cash flow. However, an underpayment audit should also be completed within the same quarter to prevent ongoing reimbursement losses.
A low denial rate does not automatically indicate a healthy revenue cycle. An organization with a 4% denial rate may still lose more revenue through unnoticed underpayments than one with a 9% denial rate that actively manages appeals and reimbursement recovery.
Where Synergy HCLS Fits In
Synergy HCLS manages denial resolution and payer contract audits as separate revenue cycle functions rather than combining them into a single workflow. Our medical billing specialists monitor denials using a 15-day follow-up standard, while our audit team performs monthly payment variance reviews against actual payer contracts.
Organizations partnering with Synergy HCLS achieve first-pass acceptance rates exceeding 95% and frequently recover 1–5% of net patient revenue during their initial underpayment audit.
If your organization has not completed a payer contract audit within the past year, that may represent the most significant revenue opportunity. Denials receive attention because they are visible. Underpayments require a deliberate effort to uncover and correct.
10-Point Checklist: Are You Losing Revenue to Both?
☐ You know your exact denial rate for the last 90 days
☐ Denials are routed to a biller within 15 days
☐ You track denial reasons by category, not just totals
☐ You maintain current CPT-level fee schedules for every contracted payer
☐ You have completed a payment variance review within the last 90 days
☐ Underpayment analysis is managed separately from denial follow-up
☐ Fee schedules are reviewed after every payer contract renewal
☐ A designated team member handles underpayment escalation
☐ Your first-pass acceptance rate exceeds 90%
☐ Your days in AR remain below 40
About Synergy Healthcare
Synergy Healthcare & Life Sciences (Synergy HCLS) is a USA-based leading medical billing and coding outsourcing company, specializing in Revenue Cycle Management (RCM) solutions.
With over 25 years of combined experience, Synergy HCLS helps physicians, clinics, and healthcare organizations improve cash flow, reduce denials, and ensure HIPAA-compliant documentation.
Their services include medical billing, medical coding, physician credentialing, accounts receivable management, transcription, and record summarization, making them a trusted partner for healthcare providers across multiple specialties.
Frequently Asked Questions
A denial occurs when a payer refuses to reimburse a claim. An underpayment occurs when the payer reimburses the claim but pays less than the contracted amount. Denials are visible because claims remain unpaid, whereas underpayments often go unnoticed after payment is posted.
Underpayments typically result in greater total annual revenue loss because they affect a significant portion of paid claims and often remain undiscovered. Denials may be more expensive to correct individually, but they are generally identified and addressed.
Review paid claims against payer fee schedules on a CPT-code basis. A payer contract audit is the most effective method for identifying recurring underpayment trends.
At a minimum, quarterly. Audits should also be conducted after contract renewals or fee schedule changes, as reimbursement discrepancies often begin during those transitions.
A denial rate below 5% is generally considered strong performance. Industry averages typically range between 5–11%, depending on specialty and payer mix. Rates consistently above 10% often indicate front-end process issues.
Yes, provided the billing partner maintains separate processes for denial management and underpayment recovery. Without dedicated workflows, underpayment reviews often receive less attention because denials are more visible.
A payer contract audit compares actual reimbursement amounts against contracted fee schedules to identify discrepancies. This process helps uncover revenue leakage that standard AR reviews frequently miss.