Allowed amount
The allowed amount is the maximum a plan will recognize for a service — the number every other number on the remittance is derived from.
Updated
The allowed amount is the maximum a payer recognizes for a service under its contract or fee schedule. It is not what the provider billed, and it is not what the plan paid: it is the figure the plan treats as the legitimate price, and everything else on the remittance follows from it. Note the word maximum — payers generally allow the lesser of the billed charge or the contracted rate, so a charge billed below the rate is allowed at the charge rather than lifted up to it.
Once the allowed amount is set, the rest is division. The difference between the billed charge and the allowed amount is a contractual adjustment. The allowed amount itself is then split between the plan and the patient according to the benefits — deductible, copay, coinsurance.
In practice
It is the number worth finding first when reading a remittance, because it explains the two figures that are easiest to misread. A large gap between billed and allowed is not a shortfall — it is the contract working as agreed. And a plan paying far less than the allowed amount is not generosity withheld; it usually means the balance went to the patient.
It is also the denominator that matters. Comparing collections to billed charges measures a number the provider chose; comparing them to allowed amounts measures what was actually collectible, which is why the net collection rate is built on allowed amounts rather than charges.
Commonly confused with
- Billed charge: The billed charge is what the provider asked for. The allowed amount is what the plan recognizes — normally the contracted rate, but capped at the billed charge where the charge is lower.
- Paid amount: The paid amount is the plan's share of the allowed amount. The rest of the allowed amount is usually the patient's, not a shortfall.