Difference between underpayment and overpayment in medical billing

What is Underpayment and overpayment in medical billing

The exact answer is if the claim paid more than the expected Contracted allowed amount then it is called Overpayment. Similarly, If the claim amount is below the expected contracted allowed amount then we can consider it as Underpayment. If you are still not sure read the below article to clear your doubts.

Example of underpayment in medical billing

Similarly, the same above applies to underpayment. Let’s say the total charge is $500.00  and the expected allowed as per the contract is  $300.00. unfortunately, Insurance paid only $200.00 without patient responsibility, So the claim is not paid as expected. In this scenario, it is called underpayment.

Example of Overpayment in medical billing

Let us assume the billed amount as  $500.00 and the contracted rate allowed is $300.00 without the patient’s responsibility. But, the insurance allowed  $400.00.Where they have to pay only $300.00. Since there is an excess of $100.00.Then it is called Overpayment or Over recompense payment. Importantly this is the reason you have to send the Refund to the insurance.

What is a refund request in medical billing

When insurance pays in excess of the expected contracted rate it is called excessive payment or Overpayment, This is the place where a refund request is needed. The provider has to fill out the Refund Request form with all the details and needs to refund the excess money that was paid by the insurance. whenever refunding the money make sure to get the Correct pay to address or the beneficiary account details to avoid incorrect payment. On the safer side provider can prefer offset payment.

How does Offset payment work

Considering the Overpayment, the provider either can refund the amount or opt for Offset. In simple terms, excess payment would be deducted on future processing claims on a different date of service.

Example-  Consider a claim with a Charge of $500 and the Allowed rate per contract is $300, but insurance paid $400.00. So $100 excess payment would be deducted from the charge amount of the next date of service. 


Necessary steps that have to be followed when a claim is denied as underpayment/overpayment

  • Need to check the Allowed contract rate of the insurance.
  • When a claim is underpaid and if the insurance contract rate is not equal to the paid amount, Either make a call to the insurance and send the claim back for review or you can file an appeal.
  • Likewise if the claim is overpaid refund has to be initiated and be careful when getting the refund account number or the address of the beneficiary.
  • Providers can opt for the offset payment, Please make sure that offset is processed correctly to the respective date of service on the next billing cycle.

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