Payer Allowed Amounts: Part 2

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between what's being collected versus what's being allowed, this allows you to determine something very unique and special which is, underpayment. That's what we generally find in this scenario, underpayment. This is why this problem is so important because these underpayments tend to be very small. These underpayments tend to be around, you know, either $4 underpaid or even sometimes 10 cents underpaid. Much of the time insurance companies, what they won't tell you is that this is their way of checking you. This is their way of saying, I wonder if I can get away with paying them less because I got away with it somewhere else? If they do get away with it, for them it means that it is now, generally acceptable. Underpayments should never be acceptable! That's why it's really important for you to be tracking your allowed amount not just in a passive way, but in an active way, so that, not only are you tracking the average that's being paid on these, you should be tracking three numbers when it comes to allowed amounts, okay? These three numbers are super important. You have your minimum expected, allowed amount, your maximum and your average. This is all calculated based on what you're billing and what's being allowed by the payer over time, right? So, for example, if you're finding that your minimum, maximum and average are the same number, that insurance company, for that clinician, for that procedure is probably okay, right? That's how we know and that's why this problem is difficult to solve because these three numbers can change. So it's easy to see just up until this point, how much more complex this problem is than just understanding billed versus collected.

Not only does the collected mount not referenced directly to the billed amount, but it's also different because we need to actually look at what's being allowed by the insurance company versus what we're charging. And then, of course, referencing the allowed amounts and understanding that the collected amount references more than just one month of service or one month of claims, right? It's the same thing with cash. You may get patients paying you for services from two months ago because they were late on those bills, that happens. We don't want that to happen and that's why there are solutions for this like keeping cards on file and making sure that patients pay upfront or using third-party financing services. There are all kinds of approaches here, but again, just throwing approaches at problems without fully understanding them is like throwing stuff against the wall and seeing what sticks. It's not a financially sound way to do things because oftentimes, you're going to end up spending way more money than necessary to put a solution in place for the best ROI. So, your approach really is all about producing maximum return on investment. Maximize your ROI by avoiding approaches that save you some money up front but end up costing you more overall because of all the other things you had to try, because you did not fully understand the problem first.

Generally, when I work with practice owners, this is where practice owners tend to feel overwhelmed. That's why it's so important to slow this process down. The last thing you want to do is try to rush to a solution when it comes to your money. You know, it's one thing to say, when it comes to scheduling patients, just plug in this script or this process or whatever, and let's see what works as a way to get things done. There are cons to that approach as well. At the very least, those problems don't have direct results on the finances that have already been collected. So, when we see a difference in the minimum, maximum, and average allowed amounts, that's where you want to start looking to see what your average allowed amount is, right? Then figure out what your maximum allowed amount is. If the minimum is lower than those two numbers, that's where you want to start looking into it and have your billing team or your biller say that you are getting underpaid. If you have a minimum allowed amount that's different from the other two, this is due to underpayments.

This problem can generally be characterized by understanding our minimum, maximum, and average allowed amounts by all three of those factors: by payer, by clinician, and by procedure, right? It is a big kind of report and so in Vericle, for example, we have our payer allowed amounts report where we can do all of that, but we really want to allow practices who aren't benefiting from our approach or our software yet to understand this problem as well and maybe even put some band-aids in place. We want to help everybody. We understand that this is how we want to look at this problem and we understand why it's important. Even though on a given month, this is why you want to look at these numbers, the amount underpaid might be, let's say $2 per claim, but let's use an example. If I'm seeing 500 patients a month and these kinds of underpayments are happening for all 500 patients, that's $1,000 a month. Now again, you might not be thinking about that number as a huge number, but that's $12,000 every year, right? Or $120,000 over a 10 year period, $120,000. That is huge, right?!

As a practice owner, when I work with other practice owners one on one, when I consult with them, this number is the one that has the biggest impact, over 10 years, right? Because we have families, we have children, we think, oh, that could send a kid to college or for sure or that can help pay down a mortgage. It could help! If I'm not thinking personally on this, if I'm thinking business wise, that could help me reinvest money back into my practice, right? I could give someone a raise, I could give someone a bonus, I could start giving bonuses to employees based on performance with this number, right? New opportunities can be created if you take advantage of this, but when we look at it as an individual problem, it's very easy to become distracted by one claim that's worth $200. Some underpayments may only look like a couple of dollars but when added up, it turns out it's actually a bigger problem than that one, $200 claim, right? This is where we really want to understand return on investment.

So again, we understand this problem is very, very important. It is difficult to solve because of how complicated it is because it deals with three factors at once, right? Not only minimum, maximum, and average allowed amounts, but we're also dealing with our payer, our clinician, and our procedure all at the same time. You're going to have lots of payers, if you have multiple clinicians as well as all of the procedures that your clinicians are providing for patients. All of those factors have to be reported on. It's a mind-numbing thing to do in an Excel spreadsheet, right? So, if you don't have Vericle in your office, it's got to be done.

Hopefully, whatever software you use has some kind of patchwork version of this that will automatically keep track of what's being posted by the insurance company as minimum, maximum, and average allowed amounts by payer, clinician, and procedure, so that you can look at this number. If you can't do this, then you're never going to understand how difficult this problem is to solve because you won't understand the scope of the problem, right? Also, when you look at how to approach this problem, once you understand which payers, for which clinicians, and for which procedures you're getting underpaid, right? Once you understand that, you can go back to your biller, billing team and tell them, "Okay, here are the payers where we're having problems for these procedures, for these clinicians." If you have multiple specialties, for these specialties, "I need you to go back to the payer and find out why these are being rejected, or why they're being underpaid rather." Right? And so this is really important because this process here, you may have to start this process manually, but that manual process still creates a positive return on investment for you. And I say manually because ideally this process should be automated.

Any software that you're using should automatically be telling you these three numbers and then, of course, you can make the determination that you expect the maximum allowed amount, if that's what you want to do. Your software should automatically reject a claim if it comes back as below this maximum allowed amount. Now that's weird because generally speaking, when an allowed amount comes back from a payer, that's a "clean claim," right? But when we're being underpaid, we don't want to consider that a clean claim. We don't want the insurance companies to trick us here. We have to have an intelligent enough system in place that when a claim comes back beneath whatever we've established, for either our average or maximum allowed amount, whether it's by $2, $5, $10, $20, or even one penny, that claim gets kicked back to whoever's responsible for follow up so that they can call the insurance company and say, "Okay, you're underpaying us here. The allowed amount is lower than what we're expecting."

Nine point nine times out of 10, you'll get a correction on that claim and you can follow up on multiple claims on a single phone call. And so what'll happen is, if you can, let's say we can adjust 9 out of 10 which is 90% of this money, right? So we're talking about overall $900 in revenue per month that we would not have seen before, right? We're only losing 10%. Let's say an insurance company plays hardball with you and your billing team is just unable to cover that gap, but it's still 90% of money that you wouldn't have had otherwise, right? So, 90% of that money here, we're talking about, in this case is $108,000 that you would not have had over the next 10 years. Now, that's in a medium, small-medium sized practice, and that's for a small difference in allowed amount.