What describes the difference between what is charged and what is actually paid?

The difference between what is charged and what is actually paid is referred to as a contractual allowance. This term describes the reduction in the amount billed to a patient or insurance payer due to negotiated rates or agreements that healthcare providers have with insurers. Essentially, when a provider submits a bill, the total charge may be higher than what they ultimately receive as payment. The discrepancy between these two amounts often stems from contractual agreements that specify the prices that will be accepted for services, thereby leading to the allowance being deducted from the billed amount.

This distinction is important in healthcare finance as it affects revenue reporting and overall financial performance of healthcare organizations. Understanding contractual allowances helps organizations manage their finances better and navigate payer contracts effectively, ensuring that they are aligning their billing practices with the realities of reimbursement.

Other terms such as costs, customary pricing, and reimbursement do not specifically capture this nuanced relationship between charges and payments in the context of negotiated agreements with insurers. Each of these terms has its own implications in healthcare finance that differ from the concept of a contractual allowance.