Allowed amount

The allowed amount is the number the rest of the remittance is built on. HealthCare.gov defines it as the maximum amount a plan will pay for a covered health care service, and notes it may also be called an eligible expense, payment allowance or negotiated rate. For a participating provider it comes from the contract fee schedule; for Medicare it comes from the fee schedule for the locality; for an out-of-network claim the plan sets it by its own method. Whatever the practice charged above that figure is not owed by the plan.

Everything on the line divides from it. The payer pays the allowed amount minus whatever the patient owes in deductible, coinsurance or copay; the difference between the charge and the allowed amount posts as a contractual adjustment. HealthCare.gov also notes the exception: a provider who charges more than the allowed amount may bill the patient for the difference, but a preferred (in-network) provider cannot balance bill for covered services. So for in-network claims the allowed amount is the ceiling on what the practice collects from everyone combined.

The mistake is never checking it. Billers post what the ERA says and assume the payer applied the contract. Payers load fee schedules wrong, apply the wrong year, or take a multiple-procedure reduction the contract does not call for, and each of those shows up as an allowed amount that is lower than the contracted rate. Load the contracted rates into the billing system and have posting flag every line where the allowed amount is below them.