The exchange of payment for services or products is the basis of industry. Companies charge a price per unit in return for making products or delivering services. This price typically reflects the production cost, market demand, competition, and profit margins. That’s how it works for most business lines. However, ambulance billing operates differently. In this blog, we will delve into the gross charge, contractual allowance, and the contractual allowance adjustment.
Gross Charge
In addition to the investment necessary for being ready to deliver services, EMS agencies also deal with the utilization costs. While readiness means having an ambulance prepared to operate, utilization reflects the costs of maintaining staff and supplies to provide the necessary attention to different medical conditions.
Every ambulance run requires an investment. Suppose an ambulance crew responds to a 911 call for patient X with Y condition. The team drives to the patient’s location and, once there, treats the patient with a BLS Level of Service. After that, the crew transports the patient to the nearest hospital located 15 miles away.
To cover expenses, this EMS agency uses a fee bundling system that averages the cost for services furnished in different scenarios. Considering the observed gas, equipment, and personnel costs, the provider priced ground mileage at $20 and BLS treatment at $1,500. That would result in a gross charge of $1,800 for this emergency call.
Yet, there is no guarantee of the reimbursement amount that the provider will receive.
A contractual allowance refers to the difference between the amount healthcare providers bill for services rendered and the agreed-upon payment negotiated with insurance companies or other third-party payers such as Medicare and Medicaid.
Contractual Allowance
During the billing process, it was found that patient X is a Medicare beneficiary. And the Federal Government has set Medicare’s fee schedule allowance for this level of service at $500. So, Medicare pays the set allowance to the EMS agency and determines that the patient has a co-pay of $50.
When patient X pays his $50 co-pay, the remaining amount of the $1,800 gross charge cannot be collected. The EMS provider ends up with $1,250 less than their full pricing on the emergency response. In ambulance billing, this happens due to “Contractual Allowances.”
Contractual Allowance is a type of write-off indicating that a payer has a contract stating the amount they will pay for a service. Governmental payers such as Medicare and Medicaid reimburse EMS agencies at fixed rates. Neither of them reimburses at rates that cover the actual cost of transporting a patient in an emergency.
If you have questions about gross charges, contractual allowance, or the contractual allowance adjustment, contact EMERGICON’s teams through our EMS & Client Hotline: 866-839-3671 | support@emergicon.com.
Related
EMS Finance Explained: Bad Debt Allowance
Opportunities Facing EMS: Reimbursement for True Cost of Service
EMS Finance Explained: Write-off Policies