How do you find underpayments by comparing remits to your contract?
You find underpayments by computing what the contract says each claim should allow, then comparing that figure with the allowed amount the remittance shows. The gap, grouped by payer and by reason code, is your underpayment list. This post gives the build, the formula, the adjustment codes that explain most short pays and a worked example.
Written by Salman Saeed, CEO and Co-Founder · Reviewed by a Certified Medical Coder · 
In short: a payer cannot underpay you on paper if nobody calculates the expected amount. Put the contract rates in a table, compute the expected allowed amount for every paid line, and review the lines where the remittance allows less.
What is a contract variance analysis?
A contract variance analysis compares what the payer agreed to pay with what it did pay, claim by claim. The "agreed" side is your contract: fee schedule rates, percent-of-Medicare terms, case rates or per diems, plus carve-outs. The "paid" side is the 835 electronic remittance, the HIPAA-standard payment transaction named in 45 CFR 162.1602.
Most hospitals watch denials closely and watch short pays loosely. A denied claim triggers a work item. A paid claim that pays $900 under contract does not, because the remittance posts, the account zeroes out and the write-off looks routine. The denial management playbook covers the first problem. This post covers the second.
How do you set up the comparison?
Which adjustment codes explain a short pay?
On the remittance, every reduction carries a group code and a claim adjustment reason code (CARC). A short pay almost always sits inside one of these.
| CARC | X12 wording | What to test |
|---|---|---|
| 45 | Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement. Use only with group codes PR or CO. | Does the 45 amount equal charge minus your contract rate? A larger adjustment is the underpayment. |
| 59 | Processed based on multiple or concurrent procedure rules. | Does your contract contain a multiple-procedure reduction, and does it match the percentage applied? |
| 97 | The benefit for this service is included in the payment/allowance for another service/procedure that has already been adjudicated. | Is the line really packaged or bundled under the contract, or only under the payer's own edit? |
| 253 | Sequestration: reduction in federal payment. | Does the contract or program allow this reduction, and is it applied once? |
CARC 45 is the central one. The CO-45 denial code page explains how it works. Under the X12 usage note, a CARC 45 amount cannot equal the total charge and must not duplicate adjustments from a prior payer.
What does a variance look like on one claim?
The contract pays a case rate of $4,200 for the procedure, and the plan's coinsurance is 10 percent. All figures are invented.
The payer owes $810, and the patient's coinsurance was understated by $90, which is 10 percent of the $900 gap. The patient balance should be corrected only after the payer reprocesses, so hold the patient statement until the dispute resolves.
Which contract terms cause the most variances?
The variance report is only as good as the rate table, so check the table against these terms before blaming the payer. Each one is a place where the payer's system and your spreadsheet can disagree.
- Effective dates and annual escalators: a rate that changed on a date inside the stay or the quarter.
- Carve-outs: implants, high-cost drugs, trauma or observation paid separately from the case rate.
- Stop-loss or outlier language: the charge threshold, and whether it applies to total billed charges or to allowed charges.
- Lesser-of language: payment at the lower of billed charges or the contract rate.
- Plan type: the same payer often has different rate schedules for its commercial, exchange and Medicare Advantage products.
- Multiple-procedure and bundling terms: what the contract says, as opposed to what the payer's edit says.
When the table and the payer disagree, the contract wins. Log each disagreement that turns out to be a table error and fix the table, or the same false variance returns every month.
What do you send when you dispute an underpayment?
- The contract page and rate that apply, with the effective date.
- The claim as submitted and the 835 line, showing the CARC and the amount.
- Your calculation of the expected allowed amount in one line.
- The amount requested and, if the contract or state law gives it, the interest you are claiming.
The contract sets how long you have to dispute and where to send it. Read that clause before you start, because it can be shorter than the claim's filing limit. Interest on late or short payments comes from the contract or state law, and the prompt-pay laws by state page lists state rules.
What about Medicare, Medicare Advantage and out-of-network claims?
- Original Medicare has no negotiated contract. A rate error is a clerical-error reopening, and Medicare lists misapplication of a fee schedule as a clerical error. A party may request a reopening within 1 year of the initial determination for any reason under 42 CFR 405.980.
- A Medicare Advantage plan with no contract with you must pay at least what Original Medicare would. Under 42 CFR 422.214, a non-contract provider must accept, as payment in full, the amounts it could collect if the beneficiary were enrolled in Original Medicare.
- Out-of-network commercial claims have no contract rate to compare against. Different rules apply, and the No Surprises Act hub covers them.
How does Nucleus Align work underpayments?
Our hospital and facility billing includes payment reconciliation, and denials are worked within 48 hours. Practices such as internal medicine see the same short-pay patterns on professional claims. See payer contracting or book a call. More explainers are on the blog.
- X12 Claim Adjustment Reason Codes · X12
- 45 CFR 162.1602, Standards for health care claim payment/advice · eCFR
- 42 CFR 405.980, Reopening of initial determinations and redeterminations · eCFR
- 42 CFR 422.214, Special rules for services furnished by noncontract providers · eCFR
- Medicare Claims Processing Manual, Chapter 34, Reopening and Revision of Claim Determinations and Decisions · CMS
We check every rule, code and deadline against the official source. See our editorial policy.
Common questions
Straight answers from the team that does the work.
Ask a billing lead directly. A 20-minute call, Monday to Friday, 9am to 5pm Eastern.
01How do you find underpayments by comparing remits to your contract?
Build a rate table from each contract, compute the expected allowed amount for every paid line, and compare it with the allowed amount on the 835. Allowed amount is payer payment plus patient responsibility. Review lines where the expected figure is higher, grouped by payer and adjustment reason code.
02What does CARC 45 mean when a claim is underpaid?
CARC 45 means the charge exceeds the fee schedule, maximum allowable or contracted arrangement, and the amount is a contractual write-off. If the 45 amount is larger than charge minus your contract rate, the payer applied a lower rate than you agreed to, and the difference is the underpayment.
03How long do I have to dispute an underpayment?
It depends on the payer and the contract. Read the dispute clause in your agreement, because it can be shorter than the claim filing limit. For Original Medicare, 42 CFR 405.980 allows a reopening request within 1 year of the initial determination for any reason.
04Should I check every claim or a sample?
Check every paid line you can automate, because the rate table does the work once it is built. If you must sample, sample by payer and service category rather than by account number, and include every claim above a high-dollar threshold, since one contract term can affect a whole category.
Talk to a billing lead.
A 20-minute call about your payers, volume and setup. Monday to Friday, 9am to 5pm Eastern.