Allowed Amount

The maximum amount a health plan will pay for a covered service, as determined by the provider's contract or the plan's fee schedule.

The allowed amount is what the payer considers the appropriate payment for a service. It is not necessarily what you billed. If you bill $300 for an office visit and the payer's allowed amount is $180, you get $180 (minus the patient's cost sharing). The remaining $120 is a contractual write-off that you agreed to when you signed your participation agreement. Allowed amounts come from the fee schedule in your contract with the payer. For Medicare, the allowed amount is published in the Medicare Physician Fee Schedule and is calculated using the Resource-Based Relative Value Scale (RBRVS), which factors in physician work, practice expense, and malpractice cost, adjusted for geographic location. Commercial payers typically set their allowed amounts as a percentage of Medicare rates. You might hear "we pay 120% of Medicare" or "110% of Medicare." This means they take the Medicare allowed amount for each CPT code and multiply it by 1.2 or 1.1. The allowed amount is divided between the payer's payment and the patient's cost sharing. If the allowed amount is $180 and the patient has 20% coinsurance, the payer pays $144 and the patient owes $36. As a participating provider, the allowed amount is the total you can collect. You cannot balance bill the patient for the difference between your billed charge and the allowed amount. Monitoring your actual payments against the allowed amounts in your contract is essential. Payers sometimes update fee schedules without adequate notice, or claims processing errors result in payments below the contracted rate. Run a quarterly comparison of payments received versus contracted rates for your top codes. Any discrepancies should be raised with the payer's provider relations department.