Underpayments and Downcoding: Why Paid Claims Deserve a Closer Look

An office visit leaves the practice as a 99214 and comes back paid at the 99213 level. There is money to post, an adjustment to apply and potentially no full denial to push the account into a familiar work queue. Who owns the difference?

Healthcare underpayments can sit inside claims that appear resolved. Downcoding is one way that happens: the payer reimburses a lower service level than the one submitted. Other discrepancies come from the wrong fee schedule, a missed contract update or a payment reduction that does not apply to the service.

A denial report cannot tell you whether those payments were correct. That takes a comparison between what the organization should have received and what the payer actually allowed, with enough evidence to explain the difference.

Providers are reporting more payment friction

In its 2026 Healthcare Provider Survey, PNC interviewed financial executives at 30 hospitals and health systems. Some reported a sharp rise in underpayments alongside denials and reimbursement delays. Physician groups also face a review challenge. A February 2025 MGMA Stat poll of 193 professionals found that 30% of medical group leaders audited payer payments against contracted rates monthly, 18% quarterly and 30% annually.

An annual review may establish that the organization has a problem after months of similar claims have already paid. For a group adding providers or acquiring practices, different contracts and payment-posting conventions can make that comparison harder to perform consistently.

An underpayment needs a defensible baseline

For contract-payment review, an underpayment occurs when reimbursement falls below the amount owed under the applicable agreement and payment terms. The difference between the charge and the payment is not enough to establish one.

A practice may charge more than the contracted allowed amount. The difference between the charge and the contracted rate is an expected contractual adjustment, not an underpayment. A potential underpayment happens when the payer’s allowed amount falls below the amount required by the applicable agreement, after accounting for patient responsibility and other legitimate adjustments.

The word “underpayment” also appears in research describing Medicare or Medicaid payments below the cost of delivering care. That is a different financial problem from a payer failing to honor a contracted rate.

These categories can overlap. Downcoding can produce an underpayment when the higher level was supported and payable. A legitimate reduction should not become an appeal simply because the payment was lower than expected.

Downcoding changes the payment even when the claim pays

Payer downcoding means reducing a submitted service to a lower level for reimbursement. An E/M claim billed as 99214 and reimbursed at the 99213 level is a familiar example. The AMA’s downcoding resource describes scenarios in which payers reduce the payment with or without changing the code shown on the remittance.

That makes a code comparison useful but incomplete. The submitted and adjudicated codes may match while the reimbursement reflects a lower level. Teams may need the payer’s adjustment explanation or separate correspondence to establish how it calculated the payment.

The payer’s decision also does not settle whether the original code was correct. Review has to return to the encounter. CMS’s E/M guidance explains that most E/M visit families use medical decision making or qualifying time to select the visit level. The applicable code family matters; emergency department levels, for example, are selected using medical decision making.

A reduced payment should prompt a focused review of the documentation supporting the original code. If the level is supported, the team needs that evidence to challenge the payer’s adjustment.

Peer comparisons do not replace encounter review

Payers may use billing patterns to decide where to look. UnitedHealthcare’s professional E/M policy, for example, says it may request records when a clinician’s billing pattern deviates significantly from peers or claim attributes suggest possible errors.

For the provider, a peer comparison is a reason to investigate. The record still needs to support the code submitted. If it does, the response should explain that support. If it does not, the organization needs to correct the coding or documentation process rather than defend a level it cannot substantiate.

A $30 difference can become a recurring payment problem

Consider this hypothetical example. These are illustrative amounts, not published reimbursement rates. A physician group submits 99214. Assume the encounter supports that level and the applicable contract allows $150. The payer instead adjudicates the service at the 99213 level, with a $120 allowance. Assume no patient responsibility or other reductions so the comparison is direct.

The potential underpayment is $30. If review validates the same discrepancy on 200 comparable claims, the amount at issue is $6,000. That is disputed reimbursement, not recovered revenue. The organization still needs to establish which claims qualify, submit the appropriate dispute and confirm any additional payments.

The operational question becomes more specific: Is this one payer, one product or one effective date? Does it affect a particular clinician, location or E/M level? Are the same services being paid differently elsewhere under the same terms? Those answers determine whether the team needs a claim correction, a payer escalation or a broader review of how charges are prepared.

Five steps to investigate underpayments and downcoding

1. Establish what should have paid

Start with the contract and fee schedule in force on the date of service. Confirm the payer product, rendering provider, location and relevant modifiers. Include applicable payment methodologies, such as multiple-procedure reductions, before calling the difference an underpayment.

Preserve the source of the expected amount. A number imported from an outdated fee schedule can create a convincing exception that is wrong.

2. Reconcile the submitted claim with the payment outcome

Match the submitted 837 to the 835 remittance advice and any payer correspondence. Review the allowed amount and service-line adjustments alongside the payment. Separate patient responsibility from a payer shortfall and check for subsequent reversals or corrected remittances. Base the comparison on the latest valid adjudication. An initial underpayment may later be reversed, corrected or offset, so the first remittance does not always represent the final financial outcome.

CARC and RARC codes help explain the adjustment, but a reason code alone does not prove that the contract was applied correctly. A bank deposit is also an unreliable substitute for this comparison because it may include multiple claims and provider-level offsets.

3. Validate the coding before choosing a response

For a downcoded E/M service, have a qualified coding specialist review the documentation against the applicable guidance. Establish whether the original level was selected using medical decision making or time and whether the record supports that selection.

The AMA’s guidance on payment problems recommends reviewing the documentation and considering an appeal when a service level was improperly reduced. An incorrect submitted claim may instead require a correction. Follow the process and deadlines that apply to the payer and agreement.

4. Define the affected group of claims

Once the discrepancy is validated, look for the same condition across comparable claims. Keep payer products, contract versions and dates distinct. A reduction affecting one plan does not establish that all claims from the payer are wrong.

Prioritize using the validated amount at issue, the remaining dispute window and the evidence available. Track potential exposure separately from amounts submitted for recovery and cash actually received.

5. Give the finding an owner beyond the appeal

A contract configuration error belongs with the people who can correct it. A documentation gap needs focused clinical or coding follow-up. A payer applying an unsupported reduction may require escalation with the evidence assembled across affected claims.

Record the finding and the chosen response. Then measure whether comparable claims continue to receive the same reduction after the intervention. A successful appeal on one account does not establish that the recurring condition has stopped.

Correct coding should survive the recovery process

There is a tempting shortcut when one payer repeatedly reduces a service level: submit the lower level and avoid the dispute. That can conceal a payer problem inside a new internal billing habit. The coding decision should follow the documented service and applicable guidance. A payer’s previous payment is evidence to examine, not a replacement for those standards.

Prevention also has limits. Better documentation and charge review can address errors the provider controls. They cannot guarantee that a payer will adjudicate a correctly coded claim properly. Some findings belong in payer relations and contract enforcement, even when the internal workflow is sound.

Put recurring payment findings to work

A validated finding is more useful when the next coding specialist can act on it without reconstructing the entire investigation. That may mean a targeted review before submission or a clearer route for escalating the next affected payment.

RemitIntel, the remittance learning layer within Aptarro’s Prism platform, analyzes claims and remittances alongside payer policy and broader network context to identify recurring reimbursement patterns. Aptarro’s experts validate findings and develop evidence-backed recommendations for your team to review.

Your team can approve, monitor or reject a recommendation. When approved logic belongs before submission, Aptarro implements it in RCx for pre-claim charge review or ClaimStaker for claim scrubbing.

Contract-rate validation remains a separate requirement. The expected payment still needs to come from the organization’s applicable agreements and payment methodologies. Remittance learning helps establish recurring behavior and an appropriate response; it does not make a disputed difference automatically recoverable.

For a multi-site group, that distinction helps keep a payer-specific finding from turning into blanket retraining or an unnecessary coding change across the organization.

Underpayment and downcoding questions

Is downcoding always an underpayment?

No. If the original code was unsupported and the payer correctly applied the governing payment terms, a lower payment may be appropriate. Downcoding becomes a potential underpayment when the documentation supports the submitted service level and the applicable contract and payment methodology support a higher allowed amount than the payer applied.

Can a paid claim still be underpaid?

Yes. A claim can receive payment below the amount owed. Review needs to account for the correct allowed amount, patient responsibility and legitimate reductions. Neither a paid status nor a zero account balance establishes that the organization received the correct reimbursement.

Should a practice change its code after a payer downcodes it?

Only if review establishes that the submitted code needs correction. Do not change a supported code solely to match a payer’s payment. Preserve the original submission and adjudication history so the team can explain what changed and pursue the appropriate reconsideration or appeal.

Give the payment difference an owner

Add paid claims with unexplained reductions to the review process. Establish the amount owed, validate the reason for the difference and assign the next action. When the same condition recurs, carry the evidence into the workflow or payer discussion that can address it.

See how RemitIntel connects payment outcomes to better reimbursement decisions.