What is a Recoupment Payment in Medical Billing?

Imagine receiving a recoupment request from an insurance payer in your mailbox or on your electronic health record (EHR) system, notifying you that $2,500 will be deducted from your next reimbursement. How would you feel? Shocked and appalled, right? Most probably, the first question on your mind will be, BUT WHY? 

We are here to explain that. Recoupment payment letters are issued to balance the overpayment insurance payers made to the healthcare provider for an earlier claim. It is a way to recover their losses. So, recoupment in medical billing is the process of recovering overpayments from the healthcare provider due to billing errors like duplicate claim submissions, coding mistakes, and documentation inconsistencies.

Understanding Overpayment in Medical Billing

To understand recoupment and its ramifications on the practice’s revenue cycle, first, we must comprehend what overpayment is in medical billing and the factors leading up to it. 

An overpayment occurs when the insurance payer releases a higher reimbursement amount compared to what they were supposed to pay to the healthcare provider for the services rendered to their beneficiary. There can be several reasons why this overpayment is triggered. Let’s explore them one by one. 

Common Reasons for Overpayment

The following are the most common reasons insurance payers release a higher reimbursement. 

Billing & Coding Errors  

Mistakenly adding procedural, diagnosis, or product codes for services that are more expensive than the actual service rendered leads to overpayments. However, when the insurance payers find out that the service rendered to their beneficiary costs less than the reimbursement amount, they issue an advance payment recoupment to deduct the extra payment from the next reimbursement and recover their loss. 

Duplicate Claim Submission

Sometimes, providers file the same claim twice due to miscommunication, or it can also happen when the modifiers are missing to indicate separate and distinct encounters on the same day for the same patient. Insurance providers may approve both the claims and release separate payments, only to realize later that they paid twice for the same service. In this case, a recouped payment request letter will be sent to the provider, notifying them that the second payment will be re-collected. 

Changes in Payer Policies

This is one of the most unfair reasons to trigger a recoupment in medical billing. Insurance payers can sometimes change their policy and ask the provider to pay back the extra amount. For example, suppose the insurance payer revises the allowed amount for the service rendered to their beneficiary (the amount was reduced). In that case, they will send the provider a recoupment payment letter to explain that and recover the balance.  

Documentation Errors

Incomplete or incorrect documentation can also lead to overpayments. For example, the payer will transfer the complete reimbursement for the procedure if the service was reduced or terminated midway, but the billing team failed to document that and alert the payer. However, after discovering the truth, they will issue a recoupment payment letter to re-collect the overpaid amount. 

How Does Recoupment Work in Medical Billing?

We have already discussed what the process of recoupment means in medical billing and some of the factors that necessitate it. Now, let’s break down this process of funds recovery into comprehensible steps to wisely gauge your role in it. 

Identifying the Overpayment

The first step is when the healthcare insurance payer detects an overpayment. This happens when they conduct audits and claim reviews and identify payment discrepancies. For example, the documentation does not support the need for an extensive procedure, or coding errors are picked up. 

Notifying the Provider 

Next, based on the evidence gathered, the payer sends a letter to the healthcare provider, either by post or electronically, to notify them of an advance payment recoupment. The letter states that the balance the provider owes to the payer will be adjusted in the incoming reimbursement. Simply put, the payer will deduct the amount they overpaid from the future reimbursement. 

Comprehending Provider’s Response

Now, this is where you step in. As a healthcare provider, your job is to carefully review the recoupment request, agree or disagree with the reasons stated for recoupment payment, and appeal the request if you feel the payer’s decision to recover the balance payment is unfair. That’s when a dispute resolution process is initiated with the insurance payer. 

Recovering the Balance 

However, if the provider agrees with the advance payment recoupment request, the payer makes a note of it and informs the provider how they intend to recover the overpaid amount. Usually, the amount is deducted from future reimbursements that the payer sends to the provider for another claim. It could be for the same beneficiary or another one. 

Preventing Future Overpayments 

The last step in the recoupment process is when the payer and the provider maintain open and effective communication to prevent overpayments and resulting recoupments. While overpayments are a financial setback for the insurance payer, recoupments have the same effect on healthcare practices. 

Adverse Effects of Recoupment on Healthcare Practices

Recoupments in medical billing are one of the reasons healthcare practices experience revenue downturns. Let’s explore some of the adverse effects of recoupment on healthcare practices in detail. 

Decreased Cash Flow

Frequent recoupments can negatively impact the healthcare practice’s revenue cycle. As the insurance payers continue to reduce the reimbursement amount to balance the overpayments, the practice’s cash inflow reduces significantly, jeopardizing the practice’s financial stability. 

Administrative Burden 

The healthcare practice has to dedicate extra resources (people, time, and money) to respond to the recoupment request and appeal it if necessary. 

Reputational Damage 

Frequent recoupments also do not paint a rosy picture of the healthcare provider. It can give payers and patients the impression that the healthcare provider is involved in fraudulent billing activities like overbilling, upcoding, and unbundling to receive higher reimbursements.  

Increased Risk of Audits 

The recurring advance payment recoupments will force the insurance payers to initiate an inquiry on the healthcare provider’s billing practices. It could be in the form of third-party audits or compliance checks by regulatory bodies. Such audits and reviews can impede the practice’s clinical operations for days. 

Best Practices to Handle Recoupment Requests

Now that you are familiar with the negative impact of recoupments on your healthcare practice, including its financial performance and operational efficiency, let’s explore the steps you should take to respond to recoupment requests wisely. 

Thoroughly Review the Recoupment Request Letter

First and foremost, healthcare providers must thoroughly read the advance payment recoupment letter they have received. It will help them identify why an overpayment was made and how the payer plans on recovering it. 

Confirm if the Stated Reasoning Holds True 

Next, the provider must verify if the reason for recoupment is valid. The staff can do this by reviewing the payment postings in their practice management software to see if the payer overpaid. They can also trace the billed amount on the claim and compare it with the actual cost of service to identify if a billing error had occurred on their part. 

Establish Open Communication Lines

Another best practice is to maintain honest and effective communication with the insurance payer. A phone call can help the payer and provider understand each other’s perspectives, eliminate chances of miscommunication, and reach a mutually agreeable decision. 

Perform Internal Audits 

If the insurance payer remains determined on their decision to recoup the overpayment, the provider should request an internal inquiry to examine the billing process. The staff might identify a billing error that justifies the recoupment payment. In this case, the payer should be informed that the provider agrees to the recoupment request.

Appeal if Necessary 

However, the provider can appeal the decision if he is 100% sure that the advance payment recoupment request is unjust and that he deserves the reimbursement amount paid. It will initiate the dispute resolution process. The provider must submit supporting documentation and evidence to retain the entire reimbursement amount and prevent future deductions.

Best Practices to Minimize Recoupment Requests

Remember that receiving a recoupment request and responding to it will cost you time and money. You will have to allocate resources to conduct an internal inquiry, justify the payer’s request, or appeal it if you think they are mistaken. A better way is to be proactive and prevent billing errors that increase the chances of recoupment in medical billing. 

Use Medical Billing Software 

Advanced medical billing software is known to decrease billing errors through automated coding and billing. According to the AKASA report, 46% of healthcare organizations use some form of artificial intelligence (AI) software to improve their revenue cycles. AI-driven Natural Language Processing (NLP) systems automate coding and claim scrubbing, increasing the chances of clean claim submissions. 

Review Claims Before Submission

The next best practice to minimize recoupments in medical billing is to review the claims before submission. While automated coding and billing software improves accuracy, an experienced staff member should always be available to quality check (QC) and ensure clean and compliant claim filing. Therefore, check the claim to avoid upcoding, unbundling (overbilling), and duplication. 

Implement Compliance Checks 

Ensure that your claims and the overall billing process are compliant with federal/state regulations and payer policies. Non-compliance with HIPAA, Stark Law, No Surprises Act, and Healthcare Price Transparency Act can lead to heavy fines, exclusions, and jail time. 

Train the Billing Staff 

You must train your billing staff regularly to keep them up-to-date with the latest billing and reimbursement guidelines set out by government and private insurance payers. It will help them avoid common mistakes that lead to overbilling, overpayment, and resulting recouped payments. 

Outsource Billing to Professionals 

The best idea is to outsource medical billing services to renowned companies. Third-party medical billing companies have a team of experienced billers and certified coders who are apt at filing clean claims and ensuring regulatory compliance. Moreover, their rapport with insurance payers keeps recoupment request letters at bay. 

Difference Between Recoupment, Refunds & Offset 

Recoupments, refunds, and offsets are methods of payment adjustment that insurance payers employ when they have overpaid a healthcare provider. While it is common for healthcare providers to get confused and use them interchangeably, the three are entirely different processes and should be handled uniquely. 

Refer to the table below to understand the difference between offset, refund, and recoupment in medical billing. 

Understanding the Difference
Recoupment	Refund	Offset
Recoupment is the process of recovering overpayments from the healthcare provider. This method is used when the insurance payer has already overpaid the provider and plans on recovering the extra amount through deductions from future reimbursements.	The payer sends the provider a refund request as a reminder to return the excess money. The provider is asked to resubmit the claim with the updated amount and send the bank check to the payer for the returned amount at the appropriate address.	An offset occurs when one financial obligation is adjusted against the other. The payer subtracts the overpaid amount from the new reimbursement amount to gain the net balance. It happens within the organization without a formal request.

Successfully Handle Recoupment Requests with MediBillMD 

Recoupment in medical billing is the practice of payment recovery and is employed by an insurance payer when they have overpaid a healthcare provider. The excess reimbursement amount could be the result of claim duplication, erroneous billing like upcoding or unbundling, or old payer policies. To recover the overpayment, the insurance payer sends the provider an advance payment recoupment notice, alerting them that their future reimbursement will be reduced to balance the excess amount released the first time. 
Recoupments can hurt the healthcare practice’s revenue cycle, reducing its cash inflow. If you want to maintain financial stability, consider partnering with MediBillMD. Our experienced team of expert medical billers and revenue cycle managers can help you respond successfully to recoupment requests, safeguarding your revenue.