What is the allowed amount, and what is a write-off?

Doctors and payers agree on prices ahead of time. The allowed amount is that contract price: the most the payer will recognize for a service, no matter what you billed.

The difference between what you billed and what the contract allows is a write-off.

Say the practice bills 150 dollars for an office visit and the contract price is 110 dollars. The 40 dollar difference is written off. Nobody owes it. It simply goes away, by agreement, and it is never billed to the patient.

That write-off is not lost money and it is not a mistake. It arrives with a code, usually CO-45, meaning the charge was over the allowed amount. CO stands for contractual obligation, which is the payer’s way of saying “your contract with us covers this difference.”

Two write-offs that look similar are worth telling apart:

• A contractual write-off is automatic and expected. It follows from the contract.
• A decision to write off a balance is you choosing to stop chasing money. That is a business decision, and the claim reads “written off” on your list.

If the payer pays less than the allowed amount with no reason at all, that is not a write-off. That is a shortfall. See How do I know if a payer underpaid me?.