Basics of Contractual Adjustment

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. The Contractual Adjustment is the most common type of adjustment.

The term Adjustment in Contractual Adjustment indicates:

• denied
• zero payment
• partial payment
• reduced payment
• penalty applied
• additional payment
• supplemental payment

In simple language, it is a amount which is reduced from the medical bill just because the patient has a contract with the insurance company. Let us take a proper example an understand about this contractual adjustment.

Providers charge more for services than what the insurance company agrees to pay and the amount that is paid by the insurance is known as an allowable amount. The extra amount which provider charges is taken care from insurance company and is reduced from the final amount. This happened because the patient has a contract or billing agreement with the insurance company which has reduced the extra amount charged by the provider.

So if a provider charges 80$ for his service and the insurance company’s allowance for that particular service is only 70$, then if a patient has a contract with that insurance company, then the 10$ will be write-off or (not charged for) from the final payment.

If the patient has no contract with the insurance company?

If the patient has no contract with the insurance company, then it is obvious that the full fee should be paid. So, as per the above example, the physician will be paid full 80$ for his service to the patient from the payer.

Group Codes for the Claim Adjusment

Provider’s charge either exceeds the contracted or negotiated agreement (rate, maximum exceeds number of hours, days or units) with the payer or exceeds the reasonable and customary amount for the rendered service(s). Use the below category codes, when a joint payer/payee agreement or a regulatory requirement has resulted in an adjustment that the member is not responsible for, or when the provider’s charge exceeds the reasonable and customary amount for which the patient is responsible.

• CO – Contractual Obligations
  This group code should be used when a joint contractual agreement between the payer and payee, or a regulatory requirement, resulted in an adjustment. Generally, these adjustments are considered a write off for the provider and are not billed to the patient.
• OA – Other Adjustments
  This group code should be used when no other group code applies to the adjustment. 
• PI – Payer Initiated Reductions
  This group code should be used when, in the opinion of the payer, the adjustment is not the responsibility of the patient, but there is no supporting contract between the provider and the payer (i.e., medical review or professional review organization adjustments).
• PR – Patient Responsibility
  This group should be used when the adjustment represents an amount that should be billed to the patient or insured. This group code would typically be used for deductible and copay adjustments.