Question

Explain how to calculate the allowance for contractual adjustments in a hospital.

Answer 1

Contractual adjustments are the part of the patient bill which has been written off(no need to pay)by the doctor or hospital as per the agreement of billing made with the insurance company.,

Which is basically meant for reducing the service charge of doctors or hospitals, thus reducing the amount owed on claims.

Computation of allowances for contractual adjustments and other payments (adjusted collection rate) as follows;

#deviding payments (net of refunds or credits)by charges(net of approved contractual adjustments) for selected time frame.

For example;

Total payments:$100000

Refunds:$20000

Total charges:$90000

Written off amount:$5000

Net allowance collection rate=

($100000-$20000)/($90000-$5000)

=(80000/85000)*100

=94.11%

Thank you:_)

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