The approach to auditing commercial managed care reimbursement is straightforward, yet potentially overwhelming. There are five steps hospitals should take to protect managed care revenue.

Review managed care contracts, taking a close look at rates and terms that affect payment. Terms to pay particularly close attention to include annual rate-adjustment language and any corresponding calculations as well as requirements surrounding annual rate adjustments, such as chargemaster and rate increase documentation.

Analyze up to two years of paid claims data by individual account, comparing payments against the expected, contracted amount. Consider whether the correct DRG is being tied to the appropriate rate and whether correct units are being calculated into the final payment. Conduct an audit of contract management systems and validate that contract terms are being modeled appropriately, calculating expected payment correctly, and reporting variances accurately. Large systems should perform regular audits of their contract management systems, while small hospitals should perform comprehensive, regular audits of paid claims. If a contract management system has not been employed, calculate expected payments by consolidating account information on a single line item and factoring in payer adjustments and payments against billed charges. Include financial class and place of service to determine whether specific services (e.g., emergency department charges) are consistently underpaid.

Calculate the total variance by payer, including overpayments, documenting reported contract amounts and actual contracted rates. Validate underpaid amounts in the organization’s accounts receivable system on a sample of claims to demonstrate the variance pattern. Compile all contract documentation supporting the corrected, expected payment (e.g., current rate amendment documentation).

Identify the appropriate payer contact and develop an outreach strategy to recover dollars on underpaid amounts. Implement any corrective measures to avoid future underpayments. Consider regular calls with payer contacts (at least quarterly) to discuss any payment variances, denial trends, or customer-service issues. Hospital leaders who are hesitant to pursue underpaid claims for fear of a payer retaliating during the next round of rate discussion need only consult their organization’s respective managed care contracts. Seeking payment owed on underpaid claims has nothing to do with next year’s chargemaster increase.

Develop and maintain professional relationships with payer representatives. Many issues can be addressed with a phone call to the appropriate contact, provided the hospital’s team has assembled documentation supporting the claim. As in any problematic situation, payers are prone to respond in a timelier manner if the solution is presented to them (e.g., claims that the hospital believes have been underpaid are presented to the payer with supporting reimbursement documentation). Payers have system issues just like the rest of us. Even simple payment methodologies can experience a “glitch,” resulting in underpaid claims. Contract management systems and corresponding reporting mechanisms are not infallible, as incorrect programming can lead to errors in variance documentation.

Megan M. Iemma is senior consultant, Blue and Co., LLC, Indianapolis, and a member of HFMA’s Indiana Pressler Memorial Chapter (

Publication Date: Friday, February 01, 2013

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