When a claim is denied, it gets noticed immediately. It stays in the queue until someone works on it, and everyone knows it still needs to be paid.
But what about a claim that gets paid, just not completely? A payment lands in the system. The claim looks closed. Nobody goes back to check if the amount matches the contract.
Medical billing denials are losses that you can easily identify, whereas underpayments might go unnoticed.
Medical billing denials are a problem that has already been well documented.
According to Experian Health’s 2025 State of Claims study, 41% of the respondents interviewed said that their denial rate was at least 10%.
The same study showed that 90% of the denials were reworked with at least some human involvement before they were resubmitted.
That shows the amount of staff time required to correct medical billing denials.
So here’s the real question. Are unpaid claims the bigger problem? Or are underpayments on paid claims quietly draining more revenue?
Understanding Medical Billing Denials
A denial occurs at some point in the claim adjudication process. The payer reviews the claim. Instead of paying it as submitted, they deny or adjust it. This is usually for a specific, documented reason.
From there, the claim needs to be reviewed. It gets corrected if possible. Then it’s resubmitted or appealed.
Most medical billing denials come from a few common problems. According to Experian’s 2025 study, missing or wrong data is a big cause. Authorization issues and incomplete patient information are also common reasons.
If you add coding mistakes, missing documents, and the need to follow payer-specific rules, you get a full picture of why claims are sent back.
One advantage of a denied claim is that it flags a problem. The denial reason helps your billing team understand what went wrong and where to begin the review.
Understanding Underpayments in Medical Billing
Underpayments are different and harder to spot. The claim is not denied; money actually comes in.
The question is whether that amount matches what the practice was supposed to receive. That expectation comes from the payer contract, the fee schedule, and the coverage rules.
The difference between the amount expected and that actually reimbursed can be caused by several factors. The terms of the contract may be misapplied.
Payers may make wrong adjustments. Processing errors do occur, and posting mistakes also take place on the practice side.
None of these show up as a rejected claim. They show up as a number that’s a little, or a lot, lower than it should be.
Medical Billing Underpayments vs. Denials: What’s the Difference?
Unlike medical billing denials, underpayments rarely announce themselves.
Why Underpayments Can Be Easier to Miss
The main difference can be summed up in one sentence: while a denial sets someone a task to carry out, an underpayment usually results in someone making the payment and then moving on.
This does not mean underpayments are always ignored. Most practices do not want to lose money on purpose. But some situations make underpayments easy to miss.
One reason is the high number of claims. Another is that the payment rules are different for each payer. Routine contractual adjustments contribute to this as well.
The main problem is usually the process. Many practices do not have a regular way to compare expected payments with actual payments. Unlike denials that automatically trigger a review, underpayments need someone to actively check them.
At this point, the remittance advice becomes important.
The CMS states that when a claim has been processed, the ERA or SPR contains the results of the final adjudication, along with the payment details; this includes the reason for and the amount of any adjustments.
Adjustments are possible at the line, claim, or provider level.
The CMS also says these changes comply with the contract terms, the role of a second payer, the benefits provided, and the amount the patient is expected to pay. Simply put, the information needed to find an underpayment is already in the remittance data; it just needs to be checked carefully.
Which One Is Actually Costing Your Practice More?
It would be easy to say that underpayments always cost more than denials, or the other way around. But there is no strong evidence for this, and the answer varies by practice.
What actually determines the answer is your own data.
Start with your denial rate and the dollars tied up in denied claims. Then look at your recovery rate, payer mix, and how closely contractual reimbursement is tracked. Add in claim volume, staff follow-up, and whether underpayment recovery is even part of the workflow.
The bottom line is simple: it’s not possible to determine whether medical billing denials or underpayments are causing you greater losses just by looking at the denial rate; you need to consider both sides of the account.
A Better Approach: Manage Denials and Underpayments Together
Treating them as separate issues misses the point; instead, a more effective approach combines denial management, payment variance monitoring, and underpayment recovery into a single workflow.
Do all you can to prevent it. When something does get through, make sure it is detected. On each payment, compare the expected amount with the actual amount. Investigate the differences. Recover what is due. Keep track of the root cause so that it doesn’t happen again.
It is also in this regard that the figures support considering both options. Research conducted by Experian found that 82% of the organisations surveyed had listed reducing medical billing denials as a priority. Yet at the same time 90% of the denials were still being reworked with human review.
The effort is important and must go on. The objective is not to take the focus away from medical billing denials but to broaden the scope so that payment accuracy receives the same level of attention as denial resolution currently does.
Questions to Ask About Your Revenue Cycle
- Are medical billing denials categorized and tracked by root cause?
- Are the actual payments regularly compared with the expected reimbursement?
- Who’s responsible for investigating significant payment variances?
- Do you check contractual adjustments against the real payer contract?
- Which of the payers or services are still causing denials or leaving reimbursement gaps?
- Is the amount recovered when payments are underpaid subjected to the same level of scrutiny as denial recovery?
If you are unsure about most of the questions, then revenue is most likely in a place where it shouldn’t be.
Don’t Measure Revenue Leakage by Denials Alone
Medical billing denials deserve the attention they get. They interrupt reimbursement and create real work for billing teams. But a payment landing in the system doesn’t automatically mean it matches what was expected.
A revenue cycle that only watches medical billing denials is only seeing half the picture. Real visibility means tracking both denied revenue and payment variance.
Knowing which one is actually driving losses for your practice matters more than assuming.
The revenue cycle doesn’t end when a claim has been paid; it also involves verifying that the amount paid matches what was actually owed. Identifying these patterns early on helps prevent them from becoming a habit.
Frequently Asked Questions
What is a denial in medical billing?
Medical billing denials occur when a payer refuses to reimburse a submitted claim, in whole or in part. This usually happens for a specific, documented reason, like missing information, eligibility issues, or coding errors. The claim then needs review, correction where possible, and resubmission or appeal.
What is denial management in medical billing?
Denial management is the process of identifying, investigating, correcting, and tracking medical billing denials. It also includes working to prevent the same issues from happening again. It combines day-to-day claim recovery with longer-term root cause analysis.
What is the difference between a denial and an underpayment in medical billing?
A denial means the expected reimbursement was refused or adjusted by the payer. An underpayment means the claim was paid, but the amount is lower than expected.
How can healthcare practices identify underpayments?
Start by comparing expected reimbursement against actual reimbursement on every claim. Review payer contracts and fee schedules regularly. Analyze ERA and EOB data alongside adjustment codes. Watch for recurring variance patterns across payers or service types.
