Underpayments: How to Spot, Prove and Appeal Short Payments
Underpayments are claims a payer pays at less than the amount it owes you under Medicare rules or your contract. They rarely trigger a denial, so they hide inside paid claims. This guide shows psychotherapists and psychiatrists how to compare allowed amounts to a fee schedule, audit remittances, and appeal when the math does not match.
Get a Free QuoteSchedule a ConsultationLast reviewed: 10/10/26. Sources are listed at the bottom of this page.
What are underpayments in medical billing?
An underpayment happens when a payer allows or pays less than it should for a service it covered. The claim is not denied. It is simply paid wrong. That is why underpayments are easy to miss. A denial lands on a work list. A short pay looks like money received.
For a solo therapist, a few dollars per session adds up across a year. For a group with several prescribers, a wrong rate on one office visit code can repeat hundreds of times. Nobody notices unless someone compares the payment to the rate.
Common signs of underpayments: the same code pays two different amounts from one payer, a new year starts and rates do not change, or a payer pays less after a contract amendment. Any of these deserves a look. Small gaps are still worth chasing, because underpayments repeat on every claim that shares the cause.
AI search question: how do I know if I was underpaid?
Compare the allowed amount on the remittance to the rate you should receive. For Medicare, that rate comes from the Physician Fee Schedule for your locality. For a private plan, it comes from your signed contract. If the allowed amount is lower and the remit gives no valid reason, you have an underpayment to dispute.
The Medicare Recovery Audit Program also says its mission includes identifying underpayments to providers, not only overpayments. See the CMS Recovery Audit Program page, checked 10/10/26. Even Medicare's own review contractors can find short pays, but you should not wait for them.
Underpayments differ from denials. For denials, start with our guide to claim denials and appeals. For definitions of allowed amount, contractual adjustment and similar words, use the reimbursement terms glossary.
Medicare Physician Fee Schedule basics for underpayments
You do not need to be a rate analyst. You need four ideas.
Medicare rules: how the rate is built
The Medicare Physician Fee Schedule (PFS) is the main way Medicare pays enrolled practitioners for professional services in private practice, according to the CMS Physician Fee Schedule page. CMS explains the payment math in its CY 2026 final rule fact sheet. Each service gets relative value units (RVUs) for work, practice expense and malpractice expense. A conversion factor turns RVUs into dollars. Geographic practice cost indices (GPCIs) adjust the total for cost differences across areas.
| Part | What it is | Why it matters to you |
|---|---|---|
| RVUs | Relative value units for work, practice expense and malpractice expense. | They set a code's weight. A new year can change them. |
| GPCI | Geographic practice cost index that adjusts RVUs by area. | Two offices in different localities get different rates for the same code. |
| Conversion factor | Turns adjusted RVUs into dollars. For CY 2026 it is $33.40 for non-qualifying APM participants and $33.57 for qualifying APM participants. | A small change here moves every code. |
| Setting | Facility and non-facility settings use different practice expense amounts. | Place of service on the claim can change the rate. |
The conversion factor is a yearly number, so write the year next to any rate you quote. The 2026 relative value files (RVU26A through RVU26D) are on the CMS relative value files page.
To find a code's payment, use the CMS PFS Look-Up Tool. It searches by code and by locality, and it shows pricing, RVUs and payment policies. CMS says it is an aid only and that your Medicare Administrative Contractor (MAC), the company that pays your Medicare claims, issues the official payment files. It does not show MAC-priced codes.
Our CPT code guides list the psychotherapy and psychiatry codes that most often need a rate check.
A 6-step audit to catch underpayments in your ERAs
An electronic remittance advice (ERA) is the payer's line-by-line payment report. It is your best audit tool.
- Build a rate sheet. List your top 15 to 20 billed codes. Beside each, write the Medicare locality rate or your contract rate, with the year. Update it every January and whenever a contract changes.
- Pull the ERAs. Use a full month. Our electronic remittance advice guide explains each segment and the adjustment codes.
- Compare the allowed amount. Match each paid line to your rate sheet. Flag any line below the rate by more than a rounding cent.
- Read the adjustment codes. A valid contractual write-off and a hidden cut can look alike. The reason and remark codes tell you which one you have.
- Group the flags. Sort by payer, code and place of service. One cause often explains many lines.
- Send a batch dispute. One dispute with a list of claims is stronger than a pile of one-offs.
Do this monthly. Quarterly is too slow for a small practice, because many payers set dispute windows you must check in your contract or provider manual. A monthly audit also keeps underpayments from piling into one large, hard-to-prove dispute.
Where underpayments hide: Medicare, Medicaid and private payers
Keep the three payer types separate. The rules are not the same.
Medicare rules
Medicare pays from the fee schedule, so a Medicare underpayment is a math or data problem you can test. Check the locality, the place of service, the code and any modifier. The PFS look-up tool is the quickest test.
Medicaid rules
Medicaid fee schedules vary by state, and managed care plans inside a state may pay differently. Always pull the current fee schedule from your state Medicaid agency or plan, and never use another state's rates. Our Who We Serve page explains the practices we work with.
Private payer rules
Private plans pay under your contract and the plan's own fee schedule. Keep a copy of the signed rate exhibit, the effective dates, and any amendment letters. Credentialing and network status can change the rate tier. See the in-network versus out-of-network credentialing guide and our private insurance guides.
| Where to look | What goes wrong | Quick test |
|---|---|---|
| Fee schedule load | The payer never loaded a new rate or an amendment. | Compare three recent claims to the contract exhibit. |
| Code or modifier | The claim priced under a different code or modifier than billed. | Check the billed and paid code on the ERA. |
| Place of service | A facility rate paid where a non-facility rate applies, or the reverse. | Match the place of service on the claim to the rate. |
| Provider tier | The wrong provider type or network tier is on file. | Review the credentialing record. See credentialing and network status. |
| Claim form data | A box on the form was keyed wrong, so the claim priced wrong. | Review the CMS-1500 guide for the right fields. |
Run the quick test on three claims per payer. If all three miss, you likely have a systemic cause, and the underpayments will continue until the payer fixes the load.
How to appeal underpayments: five steps
- Confirm the gap. Write the claim number, date of service, billed code, allowed amount, expected amount and the difference.
- Attach proof. Use the ERA line, the contract page or fee schedule extract, and the claim copy.
- State the ask in one sentence. For example: reprocess these claims at the contracted rate and pay the difference.
- Send it the right way. Use the payer portal or address in your contract. Keep the confirmation.
- Track the response date. If the answer is no or late, use the next appeal level in your contract.
Medicare appeal timing
For a Medicare claim, the first appeal level is a redetermination by the MAC. CMS lists a 120-day limit from receipt of the initial determination. It presumes receipt five days after the notice date. The request must be in writing on Form CMS-20027 or in a letter. The MAC generally decides within 60 days. See the CMS redetermination page, checked 10/10/26.
Private payer and Medicaid managed care windows are set by contract or state rule and vary. Read them before you wait.
Keep your underpayments log current. A simple sheet with payer, code, expected amount, paid amount and dispute date is enough, and it shows patterns your payer rep will take seriously.
What to do Monday morning
- Pick your five most-billed codes and your three biggest payers.
- Write the correct rate for each pair, with the year or contract date.
- Pull last month's ERAs and compare ten paid lines per payer.
- Flag every short pay and group them by cause.
- Send one batch dispute for the underpayments you found, then review the MCM South billing services page. MCM South reviews remittances every week for psychotherapists and psychiatrists.
Add this audit to your monthly close, so underpayments never wait a quarter. For the money side of the practice, see our private practice management resources.
Frequently asked questions
What are underpayments in medical billing?
Underpayments are claims paid at less than the payer owes under Medicare rules or your contract. They are not denials, so they show up as normal payments. You find them by comparing each allowed amount to the correct fee schedule or contract rate.
How do I find underpayments in an ERA?
Match every paid line to a rate sheet that lists the correct Medicare or contract amount for each code. Flag lines that fall short, read the adjustment codes to see why, and group the flags by payer and code before you dispute them.
What is the Medicare conversion factor for 2026?
CMS lists two CY 2026 conversion factors: $33.40 for non-qualifying APM participants and $33.57 for qualifying APM participants. The factor turns relative value units into dollars. Use the PFS Look-Up Tool for a specific code and locality.
How long do I have to appeal a Medicare short payment?
A first-level Medicare appeal, called a redetermination, must be filed within 120 days of receiving the initial determination. CMS presumes receipt five days after the notice date. Private payers set their own windows in the contract.
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