Is your practice struggling with a high contractual adjustment rate (CAR), affecting your payment cycle and revenue health? If yes, then this guide is for you!
We will discuss what this adjustment means, its rate, industry benchmark, group codes, and allowable rate. Some effective strategies have also been shared to help you improve the contractual rate, leading to higher reimbursements.
Struggling with Contract Adjustments? Speak to an Expert!
What is Contractual Adjustment in Medical Billing?
A contractual adjustment in medical billing can be defined as a binding agreement between the payer, the patient, and the healthcare provider, where the physician agrees to write off payment on behalf of the patient.
These adjustments often occur due to inconsistencies or discrepancies between physician charges and what the payer agreed to pay for a specific service or procedure.
What contractual adjustment is NOT?
- It is not a discounted rate.
- It is not a reduction in charges.
- It is not necessarily an error from the provider’s end while billing the rendered services.
What Is An Allowable Amount?
Most of the times the healthcare provider bill an amount for the rendered care services that is higher than what the insurance company agrees to pay. The amount payable by the payer is called the allowable amount.
Defining Contractual Adjustment Rate
Contractual Adjustment Rate (CAR) is a revenue cycle management (RCM) metric. It is used to measure the difference between the billed amount for the provided services and the actual amount paid by the insurance payer.
Contractual Adjustment Rate Benchmark
According to industry standards, the CAR is between 60-70%, which means that physicians should strive to collect at least 30-40% of the total billed amount.
If your healthcare practice has a higher rate, it indicates an inefficient negotiation process. However, note that this rate varies depending on your insurance payer mix and the type of services your healthcare organization offers.
For instance, a facility serving commercial payers’ patients will have a higher contractual rate than the one serving primarily Medicare patients.
Contractual Adjustment Group Codes
Discussed below are some applicable group codes for contractual adjustment in medical billing:
- Patient Responsibility (PR) – It is applicable where the financial responsibility for the copay falls on the patient.
- Contractual Obligation (CO) – It refers to a joint contractual agreement between the payer and the payee, leading to an adjustment.
- Payer Initiated Reductions (PIR) – It is applicable when the patient is not financially eligible for the adjustment as per the insurance company, and there is no supporting contract between the payer and the physician.
- Other Adjustments (OA) – This group code may apply when all other codes are irrelevant to a particular situation.
Examples of Contractual Adjustments in Medical Billing
One example of contractual adjustments is when a physician charges $250 for a particular service or procedure while the agreed rate is $225 between the payer and the provider. The payer pays 80% of the amount, and 20% falls under the patient copay. That $25 difference in the payment requested by the provider and what is agreed with the payer is the contractual adjustment amount.
Difference Between Write-off & Adjustment in Medical Billing
Adjustments and write-offs are often used interchangeably, but they have their differences. Contractual adjustment in medical billing is a modification in adherence to payer policies, while write-offs are charge reductions that healthcare practitioners decide not to collect from patients.
Key Strategies to Improve Contractual Adjustment Rates
Here, we will discuss effective strategies that will help you optimize the contractual rates for your practice:
Contract Negotiation
The first strategy to implement to improve your contractual adjustment rates is to negotiate with the payer. It may involve understanding the payer’s contract terms and conditions, such as billing requirements, reimbursement criteria, and payment rates.
Accurate and Timely Claim Submission
Another best practice is to ensure accurate and timely claim submission, as missing filing deadlines or inaccurate information in the billing report can lead to reduced payments or even denials.
Revenue Cycle Analytics
The next key strategy to reduce the CAR is leveraging revenue cycle analytics to identify payment trends and insurance payer performance. This information will help you devise effective strategies to enhance your practice’s overall financial health.
Denial Management
Implementing a robust denial management strategy is integral to ensure a low contractual adjustment rate. It may include analyzing issues that result in denials, utilizing industry best practices to avoid them, and promptly reworking and resubmitting claims to resolve the denial and get reimbursed for your rendered care services.
Invest In Staff Training
Most practices often overlook the importance of training and educating their staff on contractual adjustment. However, it is a powerful technique to limit the rate and avoid straining your practice’s financial performance.
Thus, we recommend keeping a budget aside to train your staff on the latest billing and coding guidelines, payer policies, and RCM best practices. When your staff is well-versed in the latest industry changes, it will become easier for them to optimize the contractual adjustment rate, resulting in higher reimbursements.
Optimize Contractual Adjustment Rate with MediBill MD
Are you tired of struggling to optimize your contractural adjustment rate? Maybe it is time to get professional help.
MediBill MD has experienced medical billing specialists and certified professional coders (CPCs) who ensure accurate coding, clean claim submission, and meet filing deadlines. This leads to a higher first-pass rate, reduced denial, and optimized contractual rate, ensuring your practice’s financial health.
Bottom Line
Contractual adjustment in medical billing is the difference between the billed amount and the maximum agreed-upon payment. A low allowable amount and a high contractual adjustment rate are indications that the healthcare provider is not negotiating better contracts with the insurance payers. To keep the CAR in check and collect higher reimbursements, providers must negotiate, leverage revenue cycle analytics, submit claims on time, train staff, and invest in professional denial management services.
