What does 'allowed charge' refer to in medical billing?

'Allowed charge' refers to the specific amount that a health insurance payer agrees to pay for a particular medical procedure or service, as outlined in the provider's contract with the insurer. This amount is determined based on various factors, including the typical cost of the service in the geographic area, the provider’s billed charges, and the particular plan’s fee schedule.

It is distinct from the total amount billed to the patient, which may include amounts beyond what the insurer covers—such as deductibles or coinsurance that the patient is responsible for. Additionally, it does not represent the initial amount charged before any insurance adjustments, which often means the billed amount could be higher than what is ultimately accepted as the allowed charge. It is also different from fees set by government agencies, as 'allowed charge' pertains to negotiated agreements between providers and insurance companies. Understanding the concept of 'allowed charge' is important in medical billing, as it affects both the reimbursement the provider receives and the financial responsibilities of the patient.