Allowed amount
The maximum dollar amount a payer has agreed to pay for a specific service under a negotiated contract. When a claim is adjudicated, the payer applies the allowed amount for each CPT code to determine how much it will pay. The difference between your billed charge and the allowed amount becomes a contractual adjustment. The allowed amount is your effective price for each service under each payer.
Why this matters for your clinic
The allowed amount sets your revenue ceiling on every service you bill to an insured patient. You cannot collect more than the allowed amount from the combination of payer payment and patient cost-sharing (copay, deductible, coinsurance). Understanding your allowed amount by CPT code and by payer tells you which payers are paying well and which ones are worth renegotiating.
Most clinic owners know their billed charges but do not have a clear picture of their allowed amounts by payer. Without that visibility, you cannot identify underpayments (where a payer paid less than the contracted allowed amount), and you cannot make informed decisions about which contracts to renegotiate or which new payer panels to join.
Allowed amounts are the foundation of payer contract analysis. If you are considering a contract with a new plan, comparing their offered fee schedule to your current best and worst allowed amounts per code gives you a clear basis for negotiation. Accepting a new contract without this analysis means flying blind on what the relationship will actually pay you.
What good looks like
CMS publishes Medicare allowed amounts annually in the Physician Fee Schedule, which is the most transparent reference point for understanding how allowed amounts are structured. Commercial payer rates are negotiated privately and vary widely. Practices can use Medicare rates as a baseline: commercial contracts typically range from 100% to 180%+ of Medicare depending on specialty, geography, and practice size.
Example
A practice bills $250 for a level 4 established office visit (CPT 99214). The allowed amount under their largest commercial contract is $165. The payer pays $132 (80%) and the patient owes $33 (20% coinsurance). The $85 difference between billed and allowed is the contractual adjustment. If the payer only remits $140 on a specific claim, there is a $25 underpayment that should be appealed rather than written off. Tracking allowed amounts by CPT and payer is what makes underpayment detection possible.
From Sorso
Allowed amount analysis by CPT code and payer is one of the first things we build in a new engagement. It almost always reveals at least one payer where rates have not been renegotiated in years and have fallen materially behind the practice's top contracts.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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