Difference Between Billed Amount and Allowed Amount

Healthcare organizations need timely reimbursements to streamline the revenue cycle. Before charging a patient for medical services, a provider must know the difference between billed amount and allowed amount. A billed amount is the total amount a provider charges for the services. Conversely, the payer negotiates with the provider for the allowed amount. An in-network provider agrees to accept the allowed amount as reimbursement. After the allowed amount is paid, the remaining payment of the billed amount is canceled per the payer-provider agreement. Outsourcing a third party for medical billing audit services can also help providers track the record of the reimbursements. In this blog, let’s explore the two types of billing amounts (billed and allowed).

Understanding Billed Amount and Allowed Amount

The billed amount is the total amount a provider charges for the medical procedure. The procedure may include multiple visits, consultations, examinations, minor or major operations, and medicines. This amount is free of any insurance adjustments. For example, when generating the bill, a provider charges $600 as the billed amount. This billed amount doesn’t include discounts because insurance adjustments have not yet been applied. Moving forward, the allowed amount is a negotiated amount between the payer and the provider. It is the maximum amount a payer decides to pay the provider for the services rendered. For example, the billed amount is $600. The payer negotiates with the provider to pay only $400 per health insurance coverage. This discounted rate is the allowed amount.

What is Balance Billing?

Balance billing refers to the difference between the billed amount and the allowed amount. It is the amount left after the payer pays the allowed amount. In some cases, the patient has to pay the remaining bill. This occurs when the provider is out-of-network or lacks a contractual agreement with the payer. For example, a doctor charges $300 for the medical care. The insurance healthcare plan includes $250 of insurance coverage. The patient has to pay the remaining $50. This remaining amount of $50 is a balance billing. It applies to out-of-network providers only.

Billed Amount and Allowed Amount for Different Providers

In-Network Provider

In-Network Provider agrees to accept the allowed amount as the full payment for the service provided. This happens due to the contract guidelines between the payer and provider. The provider cannot charge the patient beyond the allowed amount. For example, the medical bill is $500 for the rendered services. The provider accepts $300 as per the agreement with the payer. Due to this agreement, the payer cancels the remaining $200 from the total amount. Now, the total charged amount is $300. Therefore, it is advisable for the patient to visit an in-network provider to avoid paying the balance billing.

Out-of-Network Provider

A patient receiving medical care from an out-of-network provider has to pay the difference between the billed amount and the allowed amount. The out-of-network provider is not obliged to agree to the payer’s terms and policies. The payer cannot negotiate with the out-of-network provider to accept the allowed amount as the full payment for the service. It can charge the patient for balance billing. In addition, patients with insurance can still pay through a payer. In this case, the payer will cover the small amount, leaving the patient to pay higher out-of-pocket costs. Similarly, the provider may demand full payment if the patient’s deductibles are still pending. The patient has to pay the entire bill out of pocket.

Conclusion

The billed amount and allowed amount are two crucial aspects of revenue in medical billing. A patient must consult an in-network provider to avoid paying full payments. Furthermore, a provider can also keep up with the claim processing status. For this, a provider needs to follow payer-specific guidelines to receive rightful reimbursements.

Frequently Asked Questions

Can an out-of-network provider reject the allowed amount?

Yes, an out-of-network provider is not required to accept the allowed amount set by the payer. If they find it insufficient, they may bill the patient for the difference (balance billing). In contrast, in-network providers must accept the allowed amount as full payment, but can appeal underpaid claims.

Is the allowed amount a contract between the payer and provider?

nt is not precisely the contract itself. It is the term within the contract between the payer and provider. The payer and provider mutually agree on the allowed amount.

What happens if the out-of-network provider doesn’t write off the remaining amount?

If an out-of-network provider does not write off the remaining balance, the patient is responsible for paying the difference between the billed amount and the allowed amount (balance billing).