Contractual adjustment
The difference between what you bill (your fee schedule) and what the payer has contracted to pay you. If you bill $200 for a visit and your contract says $140, the $60 difference is a contractual adjustment. It is an expected, agreed-upon write-off.
Why this matters for your clinic
Contractual adjustments are normal and expected. The problem is when they are applied incorrectly. If a payer underpays a claim and your billing team writes it off as a contractual adjustment instead of appealing, you just accepted less money than your contract guarantees. This happens more often than most owners realize.
The other common problem: fee schedules that have not been updated in years. If your billed charges are too close to your contracted rates, there is no room for rate increases when you renegotiate. Your fee schedule should always be significantly above your highest payer contract.
What good looks like
HFMA MAP Keys track contractual allowance percentages as part of a healthy revenue cycle. The relevant watch metric is not the absolute adjustment percentage (which depends on your fee schedule) but whether adjustments trend unexpectedly — sudden movement almost always means a payer changed fee-schedule logic without notifying you.
Example
You bill $200 for a visit. Your contract with Aetna says they pay $140. The $60 difference is a contractual adjustment — normal. But if Aetna only pays $120 and your billing team writes off the full $80 as a contractual adjustment, you just lost $20 you were contractually owed. Across thousands of claims, that adds up to real money. Crowe RCA's annual hospital and physician benchmarking work has repeatedly shown underpayments as a consistent, recoverable category of lost revenue.
From Sorso
When we reconcile adjustments in a new engagement, roughly 1–3% of net revenue is usually sitting in miscoded write-offs that should have been appealed — and it's often concentrated in one payer where the EOB-loading rules are wrong.
Founder of Sorso. 18 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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