Allowed Amount

What is an allowed amount?

The allowed amount is the maximum a payer will pay for a covered service under its contract with the practice. It is the starting point for everything that follows: the payer pays its portion of the allowed amount, the patient owes the remainder as copay, coinsurance, or deductible, and the difference between your charge and the allowed amount is written off as a contractual adjustment. Your fee schedule does not determine what you earn; the allowed amount does.

Where the money splits after the allowance

Say you bill $400 and the allowed amount is $260. If the patient's plan covers 80% after deductible, the payer sends $208 and the patient owes $52. The remaining $140 disappears as a contractual adjustment. Collecting that $52 is often harder than collecting the $208, which is why patient receivables age differently from insurance receivables. Posting all three pieces correctly is what makes the books reflect reality.

Checking that you are paid what you contracted for

Payers underpay, and practices rarely catch it. Load your contracted fee schedules into your practice management system and compare every remittance against the expected allowed amount. Variances point to loaded rates being wrong, the payer applying the wrong fee schedule, or a contract that quietly renewed at lower rates. A monthly underpayment report is one of the highest-return reports a small practice can run.