Tracking Underpayments

I am not a proponent of measuring the impact of clinical documentation integrity (CDI) departments by case mix index (CMI) or complication/comorbidity capture rates (CCs/MCCs). Reliance on these metrics may cause a hospital to miss the impact of a growing trend, underpayment.

The March 2026 Cost of Caring report by the American Hospital Association (AHA), states,

“An aging population and the increasing prevalence of chronic disease continue to raise the level of complexity and intensity of hospital care. At the same time, advances in medicine have enabled more routine and lower-acuity care to move to outpatient settings, leaving hospitals to care for an inpatient population with greater clinical and resource needs. Together, these shifts have created a new normal in which many hospitals are treating a greater share of patients requiring intensive services, specialized staffing, and around-the-clock capacity.”

It is not sufficient to track expected reimbursement through case mix index or what proportion of claims include a CC or MCC when hospital expenses exceed payer reimbursement rates. The AHA report includes 2025 data from Strata Decision Technology, LLC that indicate “total hospital expenses grew 7.5 percent – more than twice the rate of growth in hospital prices over the same period.” The conclusion, “hospitals are delivering more care to patients who are increasingly medically complex” while corresponding expenses become even more expensive.

When CDI success is defined primarily by CMI movement or CC/MCC capture, it fails to account for the growing gap between clinical complexity, hospital expense, and what payers are willing to reimburse. As we learned from the COVID pandemic, a high CMI does not guarantee profitability. The bottom line is hospitals need to improve their operating margins, which can be tight even with a high or increasing CMI in today’s healthcare environment.

AHA annual survey data from 2019 to 2024 found the following factors contributed to overall hospital expenses:

• Thirty-six percent was attributed to treating more patients in both the inpatient and outpatient setting.
• Nineteen percent was attributed to caring for “sicker, more complex patients.”
• Forty-five percent was attributed to “higher costs per patient per stay.”

The primary payer of healthcare for the aged population in the United States is Medicare, of which, a majority of those eligible for Medicare (55percent) chose to enroll in a Medicare Advantage (MA) Plan. Medicare eligible beneficiaries’ default into Medicare Part A and Part B coverage and must choose to enroll in a Medicare Advantage plan. However, some outlets have reported that the current administration is considering making MA the default for Medicare beneficiaries.

This proposal is occurring while we are seeing an increase in health systems ending their contracts with MA plans due to “frustrations” including Aetna’s new Level of Severity reimbursement policy.

Becker’s Hospital Review reports nineteen health systems are dropping MA plans in 2026. Perhaps one of the most consequential health systems to drop Aetna MA plans is Spartanburg Regional hospital. Why? Because Spartanburg Regional Hospital made this decision due to Aetna’s “sharp departure from standard Medicare payment policies.”

The AHA reports that, “In 2024, Medicare reimbursed hospitals at just 83 cents on the dollar resulting in over $100 billion in underpayments.” At one time, hospitals could look to other payers to cover this shortfall, but that is becoming increasingly less likely as the U.S. population becomes older and many commercial payers are also experiencing increased financial pressure leading to higher denial rates and slower payments.

One of the greatest contributors to higher hospitals costs per patient stay is “rising administrative costs tied to commercial insurer requirements that add complexity to delivery and paying for care. In 2025 hospitals spent nearly $18 billion overturning denials and $43 billion trying to collect payments from insurance companies. Although MA plans serve Medicare beneficiaries, they increasingly function like commercial payers—introducing proprietary payment policies, medical necessity criteria, and post-payment reductions that are not governed by traditional Medicare rules.

A Health Affairs analysis cited by the AHA found MA plans denied about 17percent of initial claims. Many of these claims were eventually overturned (57percent) but hospitals cannot recoup the expense associated with payer friction.

Kodiak reports in their March 2026 benchmarking report that, “Across all payor categories, the RFI (Request for Information) initial denial rate for inpatient care rose more than 10 percent the clinical initial denial rate for inpatient care rose more than 12percent, and the final denial rate for inpatient care rose more than 14percent.”

An increasing tactic being leveraged by payers is developing policies that reduce payments rather than denying payments. Most hospitals only track denial rates associated with unpaid claims, not underpayments. Asperion released a white paper that found, “underpayments caused by the complexity of payer contracts can account for up to 10 percent of claims, with providers losing anywhere from 1–to-7percent of net revenue annually depending on payer mix and contract oversight.

According to the Healthcare Financial Management Association, some estimates place underpayment losses within payer contracts as high as 11percent of net patient revenue.” These losses are significant as hospital operating margins remain under 3percent.

Unlike denials, underpayments often go untracked, without appeal, and uncorrected making them a silent but significant source of revenue leakage.

The risk of underpayments underscores the importance of a collaborative clinical revenue cycle—one that integrates clinical, CDI, coding, and revenue integrity functions. If CDI programs continue to be measured primarily by CMI movement or CC/MCC capture, they will be misaligned with the financial risks hospitals now face.

CDI leaders are uniquely positioned to help organizations identify documentation-driven payment vulnerabilities, support underpayment recovery, and mitigate payer-driven revenue erosion.

That work deserves metrics—and executive recognition—commensurate with its impact.