Why are our payer contracts underperforming?

Most practices compare payer performance by volume or denial rate. The metric that actually matters is reimbursement as a percentage of billed charges, broken down by procedure category. A payer that pays 80% on office visits but 55% on procedures is costing you far more than the headline number suggests.

Payer contract underperformance typically develops gradually and invisibly. When a contract is negotiated, rates are set relative to a fee schedule in effect at the time. As CMS updates RVU-based fee schedules annually and practices update their own UCR (Usual, Customary, and Reasonable) charge masters, the contracted rate becomes an increasingly smaller percentage of billed charges—without any explicit rate reduction occurring. A contract signed at 80% of charges in 2020 may now represent 68% of current charges if the practice's fee schedule was updated but contracted rates were not renegotiated.

Procedure-category variation is the mechanism that creates the most significant underpayment. Most commercial contracts contain separate fee schedules for different procedure categories: evaluation and management, office procedures, surgical procedures, lab, and imaging. A payer may have negotiated aggressively on office visit rates (where practices track performance closely) while obtaining very low rates on surgical procedures (where the complexity of benchmarking makes underperformance harder to detect). The practice sees reasonable overall reimbursement but loses significant margin on every surgical case.

Contract language drift is the third mechanism. Payers update their medical policies and billing edits quarterly. When a payer changes a bundling rule—requiring that a procedure be billed as part of an E&M visit rather than separately—the effective reimbursement rate drops even though the contracted rate on paper hasn't changed. Practices without systematic expected-versus-allowed reconciliation at the CPT level cannot detect these edits until they have accumulated months of systematic underpayment.

Aggregate reimbursement percentages hide procedure-level variation. A payer showing 74% overall reimbursement may be paying 88% on office visits (which have high volume and good visibility) and 54% on orthopedic procedures (which have lower volume but much higher per-claim value). The aggregate hides the underperformance on the high-dollar claims where contract leverage matters most.

Standard denial rate reporting hides a different problem: underpayment on claims that were paid. A claim can be accepted and paid at a rate that is systematically below the contracted rate, and this will not appear as a denial. The practice receives a payment, considers the claim closed, and never identifies that it was paid at 78% of the contracted amount instead of 100%. Expected-versus- allowed analysis at the CPT level is the only way to surface systematic underpayment on adjudicated claims.

Build a contract matrix that maps every payer's contracted rate for your top 50 CPT codes by volume. Load this into your practice management system as expected payment benchmarks. When adjudication comes back below expected, flag it for secondary review rather than posting as-is. This converts from a retrospective audit process (reviewing underpayments you already received) to a real-time identification process that catches systematic underpayment within each remittance cycle.

Use procedure-level reimbursement data as leverage in renegotiation. Showing a payer that their surgical procedure rates are 22 percentage points below their office visit rates—and 18 points below the next-best commercial payer for the same codes—creates a specific, documentable negotiating position. Vague requests for "better rates" rarely succeed. Requests backed by CPT-level variance data force contract managers to respond to specific numbers.

Set a calendar reminder to audit contracted rates against your current fee schedule annually. Any payer whose effective reimbursement percentage has declined more than 3 points year-over-year is a renegotiation priority. State prompt pay laws in most states also require payers to respond to underpayment disputes within 30–45 days—use this legal framework when escalating systematic underpayment issues beyond the payer relations team.