The write-off in medical billing refers to an amount written off from an account by a medical practice because the practice does not believe it will be collected. When posting payment for accounts receivable, the biller records the payment from the payer and patient amount, documenting the difference as an adjustment.
But what’s more important is that not all write-offs mean the same thing. A contractual write-off is normally anticipated since the payer contract dictates the amount of payment that can be charged.
An avoidable write-off, on the other hand, can occur due to filing a claim past the deadline and could mean money that could have been collected.
This is why every write-off includes an appropriate adjustment code and reason. Having everything in one account makes the distinction unclear.
Types of Write-Offs in Medical Billing
The types of write-offs in medical billing are generally categorized into several groups, and this group dictates whether the amount written off was avoidable or uncollectible. The following table covers the categories:
| Category | What It Represents | Expected or Avoidable | Patient Billable? |
|---|---|---|---|
| Contractual | Charge variance from billed to payer-allowed charge. | Expected | Generally no, if the provider is in-network. |
| Timely Filing | Late submission or correction of a claim after the payer deadline. | Avoidable | Generally no, depends on the contract and payer policy. |
| Denial Related | Denied claim that was not appealed or corrected. | Avoidable | Depends on the denial reason and contractual policy. |
| Small Balance | Balance waived as part of a policy to eliminate low balances. | Policy decision | No, after the write-off. |
| Bad Debt | Balance waived after reasonable efforts to collect. | Partially avoidable | Yes, but collection efforts must be completed. |
| Charity Care / Financial Assistance | Waiving or reducing a balance due to financial hardship | Policy decision | Depends on the applicable policy. |
| Billing Error | Duplicate charge, erroneous CPT code or charge, or incorrect patient information. | Avoidable | No, correct the account. |
There are two points that must be considered when dealing with contractual write-offs. First, when applying small-balance write-offs and hardship write-offs in medical billing, the write-off should be done according to a written policy. The policy used should be consistently implemented by the medical practice.
After all, waiving patient copayments and deductibles creates liability issues, especially under laws at both the federal and state levels, as explained by the Department of Health and Human Services, Office of Inspector General (HHS OIG).
Second, there is a difference between bad debt and contractual write-off. Bad debts are amounts that patients should pay, but the practice no longer pursues them.
What is a Contractual Write-Off?
The contractual write-off represents a discrepancy between the charge billed and the payer’s allowed amount (payable reimbursement) under the terms of the contract.
Typically, the charge master of the practice tends to be higher than the allowed charge under the contractual arrangements.
Signing of the agreement means that the healthcare provider has agreed to receive the payer’s allowed amounts. We understand if the descriptions do not make complete sense. To understand it better, let’s consider the following example where:
| Description | Adjustment |
|---|---|
| Charge Billed | $600 |
| Allowed Charge | $380 |
| Patient Responsibility (20% coinsurance; deductible satisfied) | $76 |
| Payment by the Payer (80% of allowed charge) | $304 |
| Contractual Write-off ($600 − $380) | $220 |
| Total accounted for | $600 |
For in-network healthcare providers, the write-off in medical billing cannot be charged to the patient. Instead, it depends on contractual agreements and applicable state laws.
Additional federal regulations apply if out-of-network healthcare is also a part of care in certain instances, e.g., emergencies, under the No Surprises Act.
Establishing It on the ERA or EOB
If the electronic remittance advice (ERA) indicates a contractual write-off or a deduction, group codes on the ERA establish who must pay.
The “CO” (Contractual Obligation) establishes that the provider is responsible for payment under the contract. “PR” (Patient Responsibility) makes the amount the patient’s responsibility.
The Code Sets
Claim Adjustment Reason Codes (CARCs) indicate the reason for a write-off in medical billing. For instance, code 45 applies if the billed charges are greater than those on the fee schedule or contracted arrangement.
Similarly, codes 1, 2, and 3 indicate the amounts of the deductible, coinsurance, and copayment, respectively.
What’s more, the Remittance Advice Remark Codes (RARCs) provide details about the deduction made. However, the code sets are updated from time to time. So, staff members must verify findings with the current X12 CARC set.
Underpayment
Most facilities tend to record a lower payment as a contractual write-off. This might seem like a small error but can be a major mistake.
If the amount paid is below the contracted arrangement, the difference is eligible for collection. Thus, the underpayment cannot be written off and may end up as the provider’s loss if left unappealed.
Adjustment vs. Write-Off in Medical Billing
In practice, adjustments and write-offs in medical billing are used interchangeably. However, the term “adjustment” is considered a general accounting transaction term. It refers to any modification to the account balance that is neither payment nor a charge.
The term write-off in medical billing indicates a balance is written off as uncollectible. Similarly, the term “contractual write-off” is also an adjustment. Simply put:
Contractual adjustment means reduction of the billed charge to the allowed amount. Correction of an erroneous charge means correcting charges that should not have been charged in the first place. Write-off of an uncollectible balance means writing off a valid balance (which is no longer pursued).
However, the differences among these terms extend a bit further than this. The following table covers the differences:
| Category | Adjustment | Charge Correction | Write-off |
|---|---|---|---|
| Purpose | Synchronizes charges with the contractual rate. | Corrects errors involving an incorrectly entered or billed charge. | Removes a legitimate charge that will never be paid. |
| Causes | Restrictions imposed by the fee schedule. | Duplicate charges, improper use of CPT codes, or charges for inappropriate patients. | Unsuccessful collection efforts, declared bankruptcy, or documented financial hardship. |
| Effect | Expected reduction in gross charges, bringing them closer to net revenue. | Corrects overstated charges without resulting in lost revenue. | Results in lost revenue in the form of net dollars. |
| Example | Reducing a $400 claim by $125. | Deleting a duplicate charge of $90. | Writing off a legitimate $140 balance after collection efforts. |
| Reversible | Can be reversed through payer action or identification of a posting error. | Can be reversed if an incorrect charge correction is identified. | Can be reversed through payer action or identification of an incorrect write-off. |
| Patient Billing | The patient is not required to pay this in-network charge. | The patient owes the amount that was charged, subject to applicable billing rules. | The patient is liable for the balance and should be billed, subject to applicable policies and regulations. |
Quick Example of Write-Off in Medical Billing
Consider a provider billing at $400 with an allowed amount of $275. The excess of $125 is a contractual write-off and is not a mandatory avoidable revenue loss.
On the other hand, if the provider was paid $240 instead of the allowed $275, the $35 reduction is not contractual; it is an underpayment which must be contested.
Coding groups and reason codes on the ERA allow the billing departments to identify amount changes. It also helps determine who needs to pay off the remaining balance. For more information, please refer to CMS’s guide on healthcare payments and remittance advice.
How Do Write-Offs Affect Healthcare Practice Revenue?
Contractual write-offs do not decrease the amount a provider is entitled to receive according to its payer contracts. This is part of the process from charges to net income and should never be considered a failure.
However, preventable losses are different and are usually caused by four factors, which are as follows:
- Missing Filing Deadlines
Medicare filing deadlines are normally one year from the date of service, based on 42 CFR 424.44. But other commercial payers may establish deadlines per their contracts. Typically, their deadlines are less than one year.
When providers fail to submit a claim before the deadline, the payer outright denies it, and the amount needs to be written off.
- Expired Denials
Expired denials refer to the claim denials that expire without an appeal process being initiated against them. Such denials are typically considered a loss for the practice or provider and are written off.
- Payment Posting Errors
Payment amounts that are underpayments or become posting errors, but are mistaken for normal adjustments. These usually remain unrecoverable.
- Incomplete Patient Collections
Incomplete patient collections generally occur due to aged balances with no further collection attempts.
Takeaway
Multiple write-offs impact revenue and accounting because they reduce net income. Sometimes, billing gaps may be covered by overreliance on an adjustment account. However, these gaps will reflect in the long run.
Write-offs in medical billing must therefore be tracked using payer name, specialty, rendering provider, CPT code, and reason codes.
An unusual rise in one specific payer and CPT combination generally has a unique cause. For example, an error in the fee schedule.
Checking the true reimbursement against the contract’s fee schedule is equally crucial. It helps identify payment errors and adjustments that do not show as denials.
The total amount of a write-off in medical billing is not an appropriate revenue cycle management (RCM) metric to track. A high total in contractual write-offs may be great, but in avoidables, it may indicate a problem. It depends on why the dollar amounts are written off.
How to Manage and Reduce Write-Offs in Medical Billing?
Reducing write-offs requires improving your system and not collecting more from patients. The following are some of the best strategies to reduce write-offs in medical billing.
Verify Patient Eligibility Before Services
Double-check patient eligibility, insurance type, and benefits at scheduling and upon arrival to avoid up-front denials.
Submit Clean Claims
Scrub claims and review coding regularly to detect any gaps in charge capture. What’s more, you should track the filing deadlines for each insurance payer to ensure that claims are submitted on time.
Sort Denials by Root Cause
Categorize each denial, appeal worthwhile denials, and report rejection causes back to the front desk, coders, and providers.
Post Payments Correctly
Link each group code and reason code to an adjustment category, and obtain approval prior to write-offs.
Audits Based on Contracts
Add the latest fee schedule into the billing system and match each payment to the allowable payment amount.
Collect Early From Patients
Provide patients with an estimated cost of services, collect the copayment during the visit, give them statements, and arrange payments. This ensures your practice has the patient responsibility collected early.
Follow a Write-off Policy
Set thresholds, approval requirements, and documentation requirements, and audit the write-offs. Unfortunately, some newer practices may not have a dedicated write-off policy.
In that case, they should contact a professional revenue cycle management services provider to handle the task for them.
How Does MediBillMD Help Reduce Write-Offs in Medical Billing?
Some write-offs in medical billing cannot be fixed or avoided. Contractual write-offs are a part of billing, and practices will always face uncollectible accounts receivable.
However, many write-offs occur as a result of procedural flaws that practices can identify and correct. Fortunately, MediBillMD offers professional support, helping practices identify and minimize write-offs and recover lost revenue.
