What is an allowed amount in medical billing?

Medical billing that seems a straightforward process inculcates various intricate procedures, policies, and terms.  One such term is the allowed amount that a medical professional encounters very often in EOBs.  

Standard Definition Of The Allowed Amount 

The maximum dollar amount allowed for covered services rendered by participating providers and facilities or by  nonparticipating providers and facilities. Deductibles and coinsurance amounts are calculated from eligible  charges. Participating providers and facilities accept this allowed amount as payment in full for covered services.  Nonparticipating providers and facilities may not accept this amount as payment in full for covered services. 

In an ideal situation, the medical billing process should happen in this order: A medical professional provides  services to a patient, generates a medical bill, and submits the insurance claim with appropriate documents. In  return for the claim, the insurance companies are supposed to reimburse the amount paid for the service rendered  by the patients. However, these ideal situations occur rarely. The insurance companies reimburse the amount  based on the allowed amount. The allowed amount is the appropriate cost, decided by the insurance company, for  the service provided by the medical professional. This allowed amount can be much lesser than the actual amount  claimed by the medical service provider. 

The insurance companies use the Current Procedural Terminology (CPT) coding system to distinguish the services  provided. There is a standard amount (allowed amount) set by the insurance company against each code. This  allowed amount is the maximum amount that the insurance companies are liable to reimburse. There are various  factors on which the allowed amount varies: 

  1. Insurance Company
  2. Type of Policy
  3. Location of Medical Professional
  4. Type of License, etc.

In most cases, the insurance policy does not disclose the allowed amount in advance. The patients are generally  unaware of the same. In such situations, the patients are caught by surprise and hesitate to pay the remaining  amount of the services. This further restricts the cash flow of the organization. Therefore, it is the responsibility of  the healthcare provider to demand the allowed amount and make patients aware of the same prior to the  treatment. 

Furthermore, these allowed amounts are managed differently for in-network and out-of-network medical  professionals. 

Allowed Amount: In Case Of In-Network Doctors 

If an in-network healthcare provider decides to charge more than the allowed amount, their patients are not liable  to pay any extra amount. This service is provided under consumer protection by the insurance companies. The  patient’s in this situation are only liable to pay for co-payments, deductibles, and co-insurance. 

If an in-network medical professional charge more than the allowed amount and submits the claim against that  amount, they will still be reimbursed the allowed amount. Additionally, they’ll receive an EOB with an explanation  of reimbursement with a column of “amount not allowed.” 

Allowed Amount: In Case Of Out-Of-Network Doctors 

If the out-network healthcare provider decides to charge more than the allowed amount, their patients are liable  to pay the extra amount. It is the responsibility of the out-of-network healthcare provider to make patients aware  of the extra costs well in advance. The patient’s in this situation are also liable to pay for co-payments,  deductibles, and co-insurance. Moreover, in such cases, the insurance companies apply the allowed amount to the  patient’s deductibles.

However, if the out-of-network medical professional charges more than the allowed amount and submits the claim  against that amount, they will also be reimbursed only the allowed amount. Similar to the in-network scenario,  they’ll also receive an EOB with an explanation of reimbursement, along with a column of “amount not allowed.”  The insurance companies are not liable to pay any extra amount for the provided services in any such situation.  

Take Away 

  • The allowed amount is the maximum amount that insurance companies are liable to pay to medical  service providers for service. 
  • The factor of the allowed amount is only applied to the services that have been defined in the insurance  policies or/and government healthcare programs. 
  • An in-network professional is liable to charge only the allowed amount from the payer. The patients are  not liable to pay any extra amount if charged. 
  • An in-network professional is liable to charge an extra amount from their patient’s. The payer is liable to  reimburse only the allowed amount. 


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