(1) Contractual Allowances

Contractual allowances represent the difference between the full established rate and the agreed-upon contractual rate that will be paid. An example was given in the text of Chapter 4 by which the hospitals full established rate for a certain procedure is $100, but Giant Health Plan has negotiated a managed care contract whereby the plan pays only $90 for that procedure. The contractual allowance is $10 ($100 less $90 = $10). Assume instead that Near-By Health Plan has negotiated its own managed care contract whereby this plan pays $95 for that procedure. In this case the contractual allowance is $5 ($100 less $95 = $5).

Physician Office Revenue for Visit Code 99214 has a full established rate of $72.00. Of ten different payers, there are nine different contracted rates, as follows:

Payer Contracted Rate

FHP $35.70

HPHP 58.85

MC 54.90

UND 60.40

CCN 70.20

MO 70.75

CGN 10.00

PRU 54.90

PHCS 50.00

ANA 45.00

Example

The first payer has been computed below:

Full Contracted Contractual Payer Rate (less) Rate = Allowance FHP $72.00 $35.70 $36.30