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Underpayments vs. Denials: Which One Is Draining Your Practice More?

July 1, 2026 Marcus D. Holloway 9 mins read

The Qualigenix Editorial Team consists of certified billing and coding experts with over 40 years of experience across 38+ medical specialties. Our content is rigorously researched against CMS, AMA, and payer-specific guidelines to ensure total compliance and accuracy. We apply the same elite standards to our resources as we do our client work, consistently delivering high claim accuracy and significant reductions in AR days.

Marcus D. Holloway Senior RCM Strategist, Qualigenix Healthcare

Denials get attention because they stop cash flow outright. Underpayments don’t stop anything, they just quietly shrink it. Underpayments usually cost more in raw dollars than denials over a full year, because nobody’s watching for them. The fix isn’t picking one to fight. It’s building a workflow that catches both.

Most practices treat claim denials as the emergency and underpayments as background noise. That’s backwards. A denied claim gets flagged, worked, and resubmitted. An underpaid claim gets paid and closed, and nobody looks at it again. Underpayments hide inside your accepted claims, and that’s what makes them the more dangerous of the two for most practices.

This post breaks down which one actually costs you more, and how to build a workflow that catches both before the revenue is gone for good.

Underpayments typically drain more revenue than denials over a full year, because underpaid claims are marked “paid” and rarely reviewed again. Denials average 5-11% of submitted claims and get worked because they’re visible. Underpayments can affect 7-11% of paid claims and often go undetected without a payer contract audit.

Denial and Underpayment Benchmarks: The Numbers Side by Side

Metric	Benchmark	Source
Average claim denial rate across specialties	5-11%	MGMA benchmarking data
Denials never resubmitted at all	~65%	HFMA revenue cycle reports
Average cost to rework one denied claim	$25-$118	AAFP practice management estimates
Paid claims affected by payer underpayment	7-11%	Change Healthcare revenue integrity studies
Average shortfall per underpaid claim	3-8% below contracted rate	Payer-contract audit findings
Practices running regular payer contract audits	Under 30%	HFMA survey data
Revenue recovered through systematic underpayment audits	1-5% of net patient revenue	Advisory Board research
Average days to first denial follow-up	15-30 days	MGMA operations benchmarks
First-pass acceptance rate, high-performing practices	95%+	Qualigenix client data
First-pass acceptance rate, industry average	75-85%	MGMA benchmarking data
Denial appeal success rate, when appealed	50-60%	HFMA data
Denials unworked due to staffing gaps	35%+	Advisory Board research
Typical time to detect an underpayment pattern without an audit	12+ months	Industry observation
Underpayment recovery rate once flagged	60-75% of the shortfall	Payer-contract audit findings
Average AR days, well-managed practice	30-40 days	MGMA benchmarking data

What a Denial Actually Costs Your Practice

A denial is loud. The payer sends a reason code, the claim shows as unpaid, and your billing team knows within days that something needs fixing. That visibility is exactly why denials get worked, most of the time.

But “most of the time” isn’t all the time. Roughly two-thirds of denials never get resubmitted at all, not because they’re unappealable, but because staff run out of hours before they run out of denials. Each rework cycle costs somewhere between $25 and $118 in labor, depending on the payer and the reason code. Multiply that across a few hundred denials a month and the labor cost alone starts to rival the lost reimbursement.

Denials also stall your days in AR. A claim stuck in a denial queue for three weeks before anyone touches it is a claim that’s not counted as collected, which drags your whole AR aging report backward even if you eventually get paid.

What an Underpayment Actually Costs Your Practice

Underpayments don’t send a reason code. The payer processes the claim, issues a remittance, and the claim closes as paid. Nothing in that process tells your billing team the amount was wrong unless someone manually checks it against the contracted fee schedule, line by line.

That’s the core problem. Underpayments hit 7-11% of paid claims on average, and the shortfall per claim is usually small, often just 3-8% below the contracted rate. Small enough that no single claim raises a flag. Large enough that across a year of volume, it adds up to more lost revenue than most practices lose to denials.

Underpayments also compound. If a payer underpays one CPT code, it’s usually underpaying that code on every claim, not just one. Without a contract audit, that pattern can run for a year or more before anyone notices, and payers rarely correct it on their own.

Underpayments vs. Denials: The Real Difference

Denials are a workflow problem. Underpayments are a visibility problem. You can throw more staff at denials and see the number move. You can’t throw staff at underpayments unless they’re specifically looking for them, because the claims don’t look broken.

Factor	Denials	Underpayments
Visibility	High — flagged immediately	Low — closes as “paid”
Detection method	Automatic, via reason codes	Manual, via contract audit
Typical fix	Correct and resubmit	Dispute with payer, cite contract terms
Volume affected	5-11% of submitted claims	7-11% of paid claims
Total annual revenue impact	Significant, but usually caught	Often larger, rarely caught

How to Build a Workflow That Catches Both

You don’t have to choose between fighting denials and auditing underpayments. You need two separate processes running at the same time, because they need different tools and different triggers.

Separate the two workflows. Assign denial management and payment variance review to different tracking processes, even if the same staff handle both.
Load current payer fee schedules. Keep an up-to-date, CPT-level fee schedule for every contracted payer as your comparison baseline.
Run a monthly payment variance report. Compare a sample of paid claims against the fee schedule every month, not just at renewal time.
Work denials within 15 days. Route every denial to a biller fast. Delayed follow-up is the biggest reason appealable denials go unworked.
Escalate confirmed underpayment patterns. Once a report confirms a repeated underpayment, escalate it as a contract dispute, not a one-off correction.

Which should you fix first? Fix denials first if your AR days are climbing fast, since that’s an immediate cash flow issue. Run an underpayment audit within the same quarter regardless, since every month you wait is a month of the same shortfall repeating.

Does a low denial rate mean your revenue cycle is healthy? Not necessarily. A practice can have an excellent 4% denial rate and still be losing more revenue to undetected underpayments than a practice with a 9% denial rate that actively appeals everything.

Where Qualigenix Fits In

Qualigenix runs denial management and payer contract audits as two distinct services, not one bundled task. Our medical billing team tracks denials against a 15-day follow-up standard, while our audit team runs payment variance checks against your actual signed contracts every month. Practices working with us see a 95% first-pass acceptance rate and typically recover 1-5% of net revenue in the first underpayment audit alone.

If your practice hasn’t run a contract audit in the last year, that’s usually the bigger gap. Denials get chased because they’re visible. Underpayments need someone to go looking.

What practice managers say about working with Qualigenix

“Qualigenix ran a payer contract audit and found we had been underpaid on secondary insurance claims for over a year. We recovered $42,000 in the first quarter alone.”

Denise Coleman
Practice Manager, Multi-Specialty Group, Ohio

“Our denial rate dropped from 9.8% to 4.1% in five months once Qualigenix rebuilt our front-end eligibility checks and put a real follow-up schedule in place.”

Marcus Ihejirika
Billing Director, Orthopedic Practice, Texas

“We assumed our accepted claims were fine. Qualigenix’s underpayment audit showed we were losing about 4% on every contracted rate with two major payers.”

Priya Anand
Office Administrator, Family Practice, New Jersey

“Days in AR dropped from 52 to 33 after Qualigenix separated our denial team from our payment variance team. Both problems finally got dedicated attention.”

Robert Vance
CFO, Behavioral Health Group, Florida

10-Point Checklist: Are You Losing Revenue to Both?

☐ You know your exact denial rate for the last 90 days
☐ Denials are routed to a biller within 15 days
☐ You track denial reasons by category, not just totals
☐ You have current, CPT-level fee schedules for every payer on file
☐ You’ve run a payment variance report in the last 90 days
☐ Underpayment review is a separate task from denial follow-up
☐ You re-check fee schedules after every payer contract renewal
☐ Someone owns underpayment escalation, not just claim correction
☐ Your first-pass acceptance rate is above 90%
☐ Your days in AR are under 40

Frequently Asked Questions

What is the difference between a claim denial and an underpayment?

A denial is a claim the payer refuses to pay at all. An underpayment is a claim the payer pays, but at less than the contracted rate. Denials trigger a workflow because the claim shows as unpaid. Underpayments often close out silently.

Which costs a practice more, denials or underpayments?

Underpayments usually cost more in total dollars over a year because they touch a larger share of paid claims and rarely get reviewed after the fact. Denials cost more per claim to fix, but practices tend to catch them since the gap is obvious.

How do I know if a payer is underpaying my practice?

Compare a sample of paid claims against your actual payer fee schedules, line by line. A payer contract audit checking CPT-level allowed amounts is the only reliable way to catch a pattern.

How often should a practice audit payer contracts for underpayments?

Quarterly at minimum, and immediately after any fee schedule update or contract renewal. Underpayment patterns often start right after a contract change.

What is a good denial rate for a medical practice?

Under 5% is considered strong performance. The industry average sits closer to 5-11% depending on specialty and payer mix. Consistently above 10% points to a front-end problem.

Can outsourcing billing fix both denials and underpayments?

Yes, if the vendor runs separate workflows for each. A single team chasing both tends to prioritize denials because they’re more visible, leaving underpayment recovery underfunded.

What is a payer contract audit?

A payer contract audit compares what a payer actually paid against what the signed contract’s fee schedule specifies. It flags line-item gaps that standard AR review misses.

Related Resources

Stop Losing Revenue to What You Can’t See

Denials are easy to spot. Underpayments aren’t, and that’s exactly why most practices lose more to them. Qualigenix runs both as dedicated workflows, not one combined task.

Our team delivers 99% claim accuracy, a 95% first-pass acceptance rate, an average 36-day collection cycle, and a 30% reduction in AR days. We onboard in as few as 6 days.

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