To be able to better understand what contractual adjustment is and how it is billed to the patient, you must know about other terms as well.
Following are the important terms and their meanings:
A billing amount means the total bill which a hospital charges a patient against the services and care that they have received there. This amount is always more than the maximum allowable charges.
This amount is fixed and usually paid by the insurance company. They reimburse the maximum allowable charge as compensation to the insured patient for the services they have availed at the hospital. In the case of an insurance company, the maximum allowable is lower than the billing amount charged to the patient because it is already set beforehand.
A contractual adjustment is a difference between the billing amount and the maximum allowable charge. The hospital faces certain restrictions in the form of a contractual agreement. They are prohibited from charging the remaining amount from the patient.
However, this will only happen in case the patient has an insurance policy with an insurance company. Here, the EOB also comes into play. It gives a prior heads up to the patient regarding the maximum allowable charge that is listed in their insurance policy. This helps in preventing fraud from occurring in the total amount of the bill. For instance, if the total medical bill is $60 and the maximum allowable charge amounted to the patient by the insurance company is $45, the hospital will have to let go of $15.
It is important that patients and hospitals, especially their billing office, understand the role of contractual adjustment and how it works to avoid any legal or ethical issues later. The hospital, under no circumstances, should charge the patient the remaining amount. This, however, should only be the case if the patient already has an existing insurance policy. A lot of times, hospitals do add the remaining amount in the total medical bill of the patient. This can also be an honest mistake on their part due to their limited understanding of the situation and what role the contractual adjustment play in a medical bill. Patients can always seek professional help and get a medical company to outsource their medical bills and check for any loopholes that they might not be able to catch on their own.
It is the job of a good medical billing company to help and assist the billing office in a hospital. Their trained staff helps the hospital’s billing office in having a better understanding of the terms, ethical problems, and updated compliance policies to avoid any legal issues.