> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Underpayments, fee schedules, and payer contracts
> Allowed amount versus billed charges, how fee schedules are built around Medicare RBRVS, detecting systematic underpayment, and the contract terms that quietly cost you money.
An **underpayment** is a claim the payer processed and paid, for less than your contract requires. Unlike a denial, nothing announces it. The money arrives, the claim closes, and the shortfall is invisible unless you compare what you were paid against what you contracted for.
## Allowed amount is the only number that matters
| Term | What it is |
| -------------------------- | ----------------------------------------------------------------------- |
| **Billed charge** | Your chargemaster rate. Largely fictional, no contracted payer pays it. |
| **Allowed amount** | What your contract says the service is worth. **The real number.** |
| **Contractual adjustment** | Billed minus allowed. A write-off, arriving as CO-45. |
| **Payer payment** | Allowed minus patient responsibility. |
| **Patient responsibility** | Deductible, copay, coinsurance. |
Your chargemaster should sit comfortably above every payer's allowed amount, because you generally cannot be paid more than you billed. Beyond that, raising charges does not raise revenue from contracted payers — it only inflates the write-off column.
## How fee schedules are built
Nearly all commercial fee schedules are expressed as **a percentage of Medicare**, which makes the Medicare Physician Fee Schedule the reference frame for the whole market.
**Medicare's RBRVS.** Each CPT code carries **relative value units** in three components — work, practice expense, and malpractice — each adjusted by a **geographic practice cost index**, summed, and multiplied by an annual **conversion factor** to produce a dollar amount.1
```text theme={null}
Payment = [ (Work RVU × Work GPCI)
+ (Practice RVU × Practice GPCI)
+ (Malpractice RVU × Malpractice GPCI) ] × Conversion Factor
```
Two practical consequences:
* **Facility vs non-facility rates differ** because the practice expense RVU differs depending on where the service is delivered. This is why place of service codes affect payment.
* **The conversion factor changes annually**, so "110% of Medicare" is a moving number. A contract that seemed adequate can degrade without anyone renegotiating.
**Commercial contracting** then references it: "115% of the current year Medicare Physician Fee Schedule for the locality." Some contracts reference a specific year's schedule, which quietly erodes over time.
🦷 **Dental**, dental fee schedules are not Medicare-based. They are typically the payer's own schedule by CDT code, often expressed as a percentile of regional charges.
🦴 **PT/Chiro**, Medicare therapy services carry their own rules including the multiple procedure payment reduction, which reduces payment for additional units in the same session.
## Detecting underpayment
Nothing tells you. You have to look.
Per payer, per code. This is called **contract loading** or **expected reimbursement** setup. Most PM systems support it and most practices never configure it, which is exactly why underpayment persists.
The system flags variances automatically once loaded.
Distinguish real underpayments from legitimate reductions — multiple procedure reductions, bundling, and modifier-driven adjustments are contractual, not errors.
One $12 shortfall isn't worth a phone call. Two hundred instances of the same $12 shortfall across a code is a systematic configuration error on the payer's side, and it is worth a formal dispute.
Reference the specific fee schedule provision and provide the claim list. Payers correct systematic loading errors when shown the pattern.
**Underpayment is usually systematic, not random.** A payer that loaded your contract incorrectly underpays *every* instance of the affected codes. That makes it both a large aggregate number and a fixable one, and it means the fix is retroactive across every affected claim, not just future ones.
## Contract terms that quietly cost you
Read these before signing. Every one of them has cost real practices real money.
| Clause | What to look for |
| ----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- |
| **Fee schedule reference** | Is it *current year* Medicare or a frozen prior year? A frozen reference erodes annually. |
| **Unilateral amendment** | Can the payer change rates or policies with notice and no consent? Extremely common. Know your notice period and your termination right. |
| **Timely filing limit** | Ranges widely, some commercial contracts run 90 days. Record it and build to it. |
| **Appeal deadline** | Separate from timely filing, and often shorter than you'd expect. |
| **Takeback / recoupment window** | How far back can the payer recover overpayments? Some contracts allow multi-year lookbacks with automatic offset. |
| **Network access / assignment** | This is how **silent PPOs** and rental networks reach your rates. See below. |
| **All-products clause** | Participating in one product may obligate you to all of the payer's products, including Medicaid MCO or MA at much lower rates. |
| **Termination** | With and without cause; notice periods; whether termination is by product or across the board. |
| **Escalation / dispute resolution** | Arbitration clauses, venue, and whether you can aggregate claims. |
| **Downcoding and edit policy** | Whether the payer may apply its own editing software and what recourse you have. |
### Silent PPOs and rental networks
A **rental network** aggregates provider contracts and rents access to payers who have no direct relationship with you. A **silent PPO** is the term for what it feels like from your side: a discount taken by a payer you have never contracted with.
The mechanism is a network access or assignment clause in a contract you signed, sometimes years ago. When an unfamiliar payer takes a contracted discount, trace it back through your agreements rather than assuming it is an error, and negotiate those clauses in future contracts.
## Renegotiation
Most practices never renegotiate. Payers count on that.
**When you have leverage:** you're the only provider of your specialty in the area; a payer's network adequacy depends on you; you deliver measurable quality or cost outcomes; you have scale; your current rate is demonstrably below market.
**What to bring:** your actual volume for that payer, your case mix, your top codes by volume, comparable rates where you can substantiate them, and a specific ask by code rather than a general request for "better rates."
**When to ask:** at renewal, when adding locations or clinicians, when the payer needs network adequacy, or after any material change in your scope.
**MSO-PC note:** contracting support is squarely an MSO function, analysis, preparation, negotiation. But the **PC signs the contract**, because the PC is the contracting party. Keep that boundary clean. See [What an MSO can and can't do](/concepts/model/what-msos-can-and-cant-do).
## Multi-entity complications
A group with several PCs holds several separate contracts with the same payer, often at different rates negotiated at different times.
Practical implications:
* **Rate variance across your own entities** is normal and worth measuring — the same service can pay differently in two states for reasons that have nothing to do with cost.
* **Renegotiating one entity's contract** doesn't move the others.
* **Payers may offer group-level contracting** once you reach scale, which is worth asking about.
* **Your fee schedule loading is per entity**, so contract-loading discipline multiplies with entity count.
## Sources
1. CMS, [Physician Fee Schedule](https://www.cms.gov/medicare/payment/fee-schedules/physician) and [PFS Federal Regulation Notices](https://www.cms.gov/medicare/payment/fee-schedules/physician/federal-regulation-notices) for the annual conversion factor.
## Related topics
- [Enroll and contract with commercial payers](/guides/enrollment/enroll-with-commercial-payers.md)
- [Post payments from 835s](/guides/billing/post-payments-from-835s.md)
- [File appeals](/guides/billing/file-appeals.md)
- [The 835: how payers answer](/concepts/payments/understanding-835s.md)
- [Claim denials, explained](/concepts/payments/claim-denials.md)
- [Payers vs insurance companies (they're not synonyms)](/concepts/payments/payers-vs-insurance-companies.md)
- [Timely filing limits by payer](/reference/payers/timely-filing-limits.md)
- [How to use the payer reference](/reference/payers/overview.md)