A Contractual Adjustment is a part of a patient’s bill that a doctor or hospital must write-off (not charge for) because of billing agreements with the insurance company. Adjustments, or write-off’s, are the dollars that are adjusted off a patient account for any reason.
Contractual adjustment is a phrase commonly used in health insurance when an insured person is covered by an individual or group health plan that involves a network of providers contracted by the insurer. Contractual adjustments generally reduce the amount of the service charge, thus reducing the amount owed on the claim.
Accounting for Health Care Organizations Chapter 13. Learning Objectives ... Contractual adjustments –third-party payments that are lower than standard rates by contract
Contractual allowances, also known as contractual adjustments, are the difference between what a healthcare provider bills for the service rendered versus what it will contractually be paid (or should be paid) based on the terms of its contracts with third-party insurers and/or government programs.
Health insurance organizations (payors) negotiate discounts that are referred to as “contractual adjustments.” The size of the discount and how it is determined varies by payer. Let’s look at three (3) examples:
Contractual adjustment: $5,000 Accounting : If contractual adjustments are recorded at time of billing, allowance for contractual adjustments at September 30 is $0 If contractual adjustments are recorded at receipt of payment, allowance for contractual adjustments at September 30 is $5,000
See adjustments or contractual adjustments to learn more. Adjustments or Contractual Adjustment — This refers to the portion of a bill which is not charged. A healthcare facility can choose not to charge a patient the remaining balance on a bill after insurance has been paid.
Contractual adjustments are a contra account deducted from patient service revenues in deriving net patient service revenues, which is the first line in the statement of operations for a health care organization.
A contractual adjustment shows up on a billing statement as an adjustment required, and it decreases the balance. When a medical provider accepts an insurance plan, the contract includes details such as the amount the insurance company pays the provider for certain procedures.
An adjustment amount identified by an ARC not included in this list is not considered a contractual adjustment. Reporting Contractual Adjustments MDCH strongly encourages submission of electronic claims, as the UB-92 claim form does not accommodate reporting contractual adjustment amounts.