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    Allowables: How They Affect EOBS & Medical Billing Reports

    Posted by Carl Mays on Sat, Jun 27, 2009 @ 01:34 AM

    medical billing allowables In my last article I discussed some of the principles and best practices to consider when setting a practice's fee schedules. This Article focuses on how your allowables and fee schedules shape the EOBs and reports you will see every day.

    Impact on the Explanation of Benefits (EOB):

    The main impact that you will see on your EOB is from contractual adjustments. Here is how this works on an EOB:

    Let's say you bill $150 for a certain CPT and that your UHC contract allowable for this CPT is $100 and your patient has an insurance plan with a 20% co-insurance. Your UHC EOB will look like this:

    • Charges: $150
    • Allowed: $100
    • Contractual Adjustments: $50 (difference between your fee schedule and your UHC contracted rate)
    • Patient portion: $20 ($100 contract allowable times 20% patient co-insurance)
    • Payment from UHC: $80

    So, the $150 charge leads to an $80 payment from UHC and a $20 balance transferred to the patient. The amount you charge for this CPT has absolutely no impact on the $80 payment. If you charged $300 instead of $150, all that would happen is that the EOB would show a Contractual Adjustment of $200 (Your $300 charge minus the $100 contractual allowable) instead of $50. This is a critical point. Many new physicians think that a higher fee schedule will generate more income - this is not the case from payers with whom you have a contract. In addition, many new physicians do not understand why they see these contractual adjustments each month. As you can see the combination of your fee schedule and payer contracts lead to these contractual adjustments.

    A final point here, payers make mistakes. Just because they say the contract allows a certain fee for a CPT does not mean they are correct. This is why it is critical to compare your allowables to your contracted rates.

    Impact on your billing reports

    Your will see two main impacts on your reports due to the interaction of your fee schedule and your allowable:

    1. Contractual Adjustment Entries: As outlined above, all of your EOBs will show contractual adjustments. This means that all of your collections reports will show some of your Accounts Receivable (AR) was moved off the report due to payments (cash in the bank) and some will move off your report due to contractual adjustments (no cash in the bank). This is normal. It is critical, however, that your billing system is set up to differentiate between write-offs due to denials, timely filing issues, etc and contractual allowables adjustments. Assuming you are comparing allowables to your contracts then the contractual allowable adjustments are not a source of concern. Other types of adjustments/write-offs are likely costing you money.
    2. Value of your AR: Because of contractual allowables, $1 of AR does not represent $1 of potential payments. This means that when you see $300,000 in AR you need to keep in mind that this is not $300,000 in potential payments. In the EOB example above, the initial $150 in AR only represented $100 in expected collections. Understanding this is critical to financial planning for your practice.

    In the next article in this series I will go into more detail on how to get a realistic understanding of your AR using what you know about your allowables and fee schedules.

    Copyright 2009, Carl Mays II and the ClaimCare Medical Billing Company

    Tags: medical billing school, medical billing education, medical allowables, theoretical medical billing yield

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