Allowable amounts. If you work in medical billing, you've probably battled this beast more times than you'd like to admit. But what exactly are allowable amounts? And how do payers calculate them? Let’s break it down.
The Basics of Allowable Amounts
Allowable amounts are the maximum a payer will reimburse for a given procedure or service. This includes both the payer’s portion and the amount the patient might owe (like deductibles or copays). If you're hoping to get paid more than the allowable, you're out of luck—unless you've got a patient who loves overpaying.
Understanding the components that determine these amounts is critical for managing a healthcare practice effectively. Let's look at how payers decide these figures.
RBRVS: The Foundation
Many payers use the Resource-Based Relative Value Scale (RBRVS) to set allowable amounts. This system, primarily used by Medicare, assigns a relative value to every service based on work effort, practice expense, and malpractice costs. These relative values are then adjusted by a Geographic Practice Cost Index (GPCI)—because yes, costs in San Francisco are not the same as in Des Moines.
Once you have the relative value, it gets multiplied by a conversion factor that Medicare updates annually. Voila, you've got your allowable amount. But remember, RBRVS is just one piece of the puzzle.
Fee Schedules: The Payer’s Playbook
Commercial payers often base their allowable amounts on fee schedules similar to Medicare’s but customized to their own parameters. These schedules dictate exactly what they’ll pay for each CPT code—no more, no less. But don’t think for a second these are purely altruistic numbers. Payers negotiate these fee schedules with the anticipation of keeping their own costs down.
And they’re not static. Fee schedules might change yearly, quarterly, or even monthly. They're pulled from complex actuarial calculations that anticipate everything from current medical trends to future financial recessions (and maybe even a crystal ball or two).
Contracted Rates: The Negotiation Game
If you're dealing with a commercial payer, the allowable amount is likely rooted in your contracted rates. These are the rates you've negotiated with the payer when you first signed your contract. If negotiating felt like a game, it's because it is. Every dollar you squeezed out of them might feel like a victory—until you realize how much you've left on the table.
Contracted rates can vary widely, even for the same service. Provider A might get $100 for an office visit, while Provider B gets only $80 for the same work. Why? Because Provider A drove a harder bargain—or perhaps the payer valued their network participation more highly.
How Payers Reimburse: Real-World Examples
To put it in perspective, consider a common procedure like a Level 3 office visit (CPT 99213). Let's say Medicare’s allowable amount is set at $75. You'd think you'd get the same from all payers, right? Think again.
A commercial payer might offer $85 if they've negotiated a higher rate with your practice. Another might cap it at $70, especially if they have more leverage in negotiations, like being the area's dominant insurer. These variations affect not just your reimbursement but also your revenue projections.
Avoiding Surprises: Keeping Up with Changes
Payer policies and allowable amounts are far from static. Practices need to be proactive in keeping track of changes. Quarterly payer updates, revised contracts, and new Medicare rules can all lead to shifts in allowable amounts. Ignoring these updates is like playing a game of telephone—by the time you realize something's changed, it's often too late.
Regularly update your billing system with the latest fee schedules and ensure your billing teams are trained to spot discrepancies. A routine audit of your EOBs against expected allowances can be eye-opening—and potentially profit-saving.
Know Your Rights: Fight for Fairness
If you believe a payer isn’t reimbursing correctly according to your contracted rates, don’t just accept it. Appeal. Provide documentation proving the error and escalate if necessary. Billers too often let incorrect payments slide because they assume the payer knows best. Trust, but verify.
The Bottom Line
Understanding allowable amounts and how they're calculated isn't just an academic exercise. It's a tactical necessity for anyone in medical billing or practice management. Know your RBRVS from your fee schedules, and don't underestimate the power of a good contract negotiation.
The next time you’re fighting a payer over a seemingly arbitrary reimbursement, remember these principles. And maybe—just maybe—you'll win that battle.
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