Underpayments vs. Denials in Healthcare: What’s the Difference and Why Both Matter
November 19, 2025
Underpayments and denials are often discussed together in healthcare revenue cycle management—but they are fundamentally different problems.
While both result in lost revenue, they behave differently, require different workflows, and demand different recovery strategies. Understanding the distinction is critical for hospitals looking to fully protect their revenue.
What Is a Claim Denial?
A denied claim is one a payer has declined to pay, either in full or in part, with a formal reason code explaining the refusal. The clinical team billed for a service. The payer said no. The account shows an open balance. That open balance triggers a workflow, and someone works the account.
Denials are imperfect and often preventable, but they're visible. The hospital knows money is owed. The payer has taken a documented position. The response path, whether reconsideration, appeal, or peer-to-peer review, is defined by contract and often by regulation.
What Is a Healthcare Underpayment?
An underpayment is a different problem. The payer pays the claim, but at less than the contracted or clinically justified amount and without a formal denial code to trigger a workflow. And critically, the account usually closes.
The payment posts. A contractual adjustment is applied. The insurance balance reaches zero. The account ages out of active review. The shortfall, sometimes a few hundred dollars and sometimes tens of thousands, disappears.
That invisibility is the defining feature of underpayments, and it's why detection requires a fundamentally different approach than denial management. You can't catch an underpayment by monitoring for open balances. You catch it by evaluating every paid claim against what should have been paid, a process that requires contract intelligence, coding expertise, and the ability to analyze enormous claim populations.
This type of analysis is typically performed through a structured healthcare underpayment audit.
The Overlap Is Real, but Limited
There is some overlap between the two categories. A denied claim that gets adjusted to zero balance without formal recoupment may technically function as an underpayment. A claim appealed as an underpayment may turn out to have been a misclassified denial. And both categories contribute to net revenue leakage — the $48.4 billion in combined losses documented by Kodiak Solutions for 2025.
But the overlap doesn't mean the problems should be managed the same way. The source of the error, the detection method, and the documentation required to support a dispute all differ. And the dynamics of how each payer typically responds to underpayment disputes versus denial appeals can vary substantially.
Why Hospitals Need Separate Strategies
Running a denial management program and calling it underpayment coverage is a common mistake with real financial consequences. Standard denial management tools look for specific exception codes, open balances, and accounts that haven't resolved. None of that logic applies to a claim that has already paid at a rate 15% below what the contract requires.
Effective underpayment management requires:
- Technology that evaluates entire claim populations after adjudication, not just flagged exceptions
- Contract intelligence loaded at the payer, plan, and claim-type level
- Coding and clinical review capability to identify DRG discrepancies and policy misapplications
- Dedicated workflows for zero-balance accounts that most revenue cycle systems stop touching
- Payer-specific appeal and escalation strategies that differ from standard denial appeal processes
This is why healthcare underpayments often go undetected in traditional workflows.
The AMA's National Health Insurer Report Card has documented a 19.3% error rate in commercial payer claims processing. Applying that figure to a large health system's annual commercial claim volume suggests the underpayment population is enormous, and almost entirely invisible to denial management tools.
How Each Is Tracked — and Why It Matters
The metrics used to manage denials don't translate directly to underpayments, either. Denial rate, denial overturn rate, and days in AR are standard denial management benchmarks. For underpayments, the relevant measures are different: identification rate (what percentage of the claim population is reviewed), recovery yield (what percentage of identified underpayments is successfully recovered), and revenue returned as a percentage of net patient revenue.
Organizations that blend underpayment recovery into their denial management reporting often can't distinguish genuine improvement in either area from noise in the combined data. Keeping them separate isn't a matter of organizational preference; it's what allows you to measure progress and hold vendors or internal teams accountable for results in each domain.
How Underpayments and Denials Work Together
Although they are different, underpayments and denials are often connected.
For example:
- a denied claim may later be underpaid after resubmission
- a misclassified denial may be adjusted to zero balance
- payer policies may impact both denial rates and underpayment frequency
Understanding both together provides a more complete view of revenue cycle performance.
The Combined Picture
Denials and underpayments both represent revenue that hospitals have earned and haven't fully received. Together, they constitute one of the largest controllable sources of revenue leakage in healthcare. A 2025 report from Kodiak Solutions found combined denial and bad-debt losses grew by roughly 25% in a single year, reflecting both increasing payer complexity and the limits of current recovery approaches.
The hospitals that manage both problems well tend to have something in common: they've recognized that each requires its own strategy, its own tools, and its own performance framework. Without separate strategies, tracking, and workflows, both problems tend to be managed poorly.
Purpose-built underpayment recovery programs, like those offered by Revecore, are designed specifically to address what denial management leaves behind, with detection logic, workflows, and expertise calibrated for the post-adjudication environment where underpayments actually live.
How Revecore Helps Address Both
Revecore helps hospitals identify and recover revenue from both underpayments and denials through specialized analytics, contract expertise, and dedicated recovery workflows.
By addressing both issues together—but with the right strategies for each—health systems can significantly improve overall revenue recovery.
Learn how Revecore helps hospitals recover underpayments and denials.