Medical bills often contain complex terms, with “adjustment” being one of the most misunderstood line items. An adjustment is a change to the original gross charge of a service. These are internal accounting modifications that occur before your personal financial responsibility is calculated. Adjustments typically represent a reduction in the initial amount billed by a healthcare provider. Understanding them is fundamental to decoding your statement.
Defining “Adjustment” vs. Payment
An adjustment is a non-cash transaction that alters the total amount owed for a medical service. These modifications are typically write-offs, meaning the healthcare provider agrees to forgive a portion of the original charge. The adjustment is an internal bookkeeping entry, not a transfer of money.
This differs from a payment, which is an actual transfer of funds from the insurance company or the patient to the provider. Payments reduce the outstanding balance with physical money, whereas adjustments reduce the balance with an agreement not to collect. Adjustments occur first in the billing process, establishing the accepted price before any payments are applied.
Contractual Write-Offs and Other Common Adjustments
The most common and largest type of adjustment is the contractual write-off. Healthcare providers and insurance companies (payers) negotiate specific rates for services in advance. When a provider is considered “in-network,” they contractually agree to accept a predetermined “allowed amount” for a service.
The contractual adjustment is the difference between the provider’s standard billed charge and this lower, negotiated allowed amount. The provider must write off this difference and cannot legally bill the patient for it. For example, if a provider bills $1,000 but the contract dictates an allowed amount of $600, the $400 difference is recorded as a contractual adjustment.
Other types of adjustments also appear on medical bills. These may include:
- A prompt-pay discount offered to a patient who pays their out-of-pocket balance quickly.
- Adjustments stemming from services deemed “not covered” or “not medically necessary” by the payer, shifting the charge to the patient.
- Corrections for a billing error made by the provider’s office.
- Corrections for a coding mistake made by the provider’s office.
How Adjustments Determine Your Final Bill
Adjustments play a central role in calculating the patient’s true financial obligation. The process begins with the Gross Charge, which is the provider’s full list price for the service rendered. The adjustment, particularly the contractual write-off, is subtracted directly from this gross charge. The result of this subtraction is the Allowed Amount, the total dollar amount the insurer and provider agree will be paid for the service. The patient’s responsibility (deductible, copayment, and coinsurance) is calculated only from this allowed amount, not the initial gross charge.
For example, if a $5,000 gross charge receives a $2,000 contractual adjustment, the allowed amount is $3,000. If the patient has a 20% coinsurance, their responsibility is $600, calculated from the $3,000 allowed amount. This mechanism ensures patients benefit from the negotiated rates their plan has secured.
Reviewing Your Adjustments and Addressing Mistakes
Patients must cross-reference the provider’s bill with the Explanation of Benefits (EOB) sent by the insurance company. The EOB details how the claim was processed, including the contractual adjustment applied. This is a separate document from the bill and should be checked for accuracy.
If the adjustment amount on the provider’s bill does not match the write-off amount on the EOB, a discrepancy exists. This mismatch suggests the provider failed to apply the full contractual discount, potentially overbilling the patient. Patients should contact the provider’s billing department, referencing the EOB to ensure the correct contractual adjustment is applied before making any payment.