What is Health Care Payment Variance?

By Gina Stinson, Vice President, Managed Care Services | Posted: 10/09/2017

What is Health Care Payment Variance?

Payment variance in health care is the difference between the expected payor value of a claim and the actual payment received. Often, this “payment variance” is referred to as an underpayment. But underpayments are only one type of payment variance. The term payment variance defines all payment scenarios that result when a payment received differs from the payment expected. Regardless of variance type, minimizing payment variance is crucial in the face of shrinking margins and increased costs.

Best Practice Tools

One best practice for managing payment variance is to use a contract management system. These technologies are designed to rate model and monitor complex payor contracts for the purpose of applying contractual adjustments at time of bill (i.e., net down). This is to ensure accurate identification of all contracted revenue. Knowing and understanding payment variance positions an organization to accurately reflect and predict financial performance.

Knowing why a payment varies from the expected amount is crucial. A payor may pay less than expected due to number of reasons, such as a claim denial or updated billing codes. Whatever the reason, understanding the source of the variance is the first step to remedying it and obtaining full reimbursement. Contract management systems can help ensure this is done as efficiently as possible.

Contract management systems also help organizations perform what-if scenarios during contract negotiations – a huge help to those who manage multiple payor contracts and payor rate change information. By having a tool that enables net down of patient receivables, health care organizations are better also positioned to forecast patient revenue and prepare and set annual budgets.

Outsourcing Options

In some cases, a services engagement may be what is needed to help identify the cause of payment variances and put stopgaps in place to prevent them in the future. Data mining tools and predictive analytics help specialized teams audit claims and categorize payment variances, concentrating on those with the highest likelihood of additional yield, and those of strategic priority to your organization. Historic payor behavior is another factor to take into account when assessing yield likelihood. Look for a partner experienced in working with different payors and variance types to ensure the best outcomes for your organization.