Contractual adjustment
A contractual adjustment is the difference between a provider’s billed charge and the amount the payer’s contract allows — an agreed write-down, not a patient balance.
Updated
A contractual adjustment is the portion of a billed charge a provider agrees to write down because the payer contract sets a lower allowed amount. It is expected and legitimate: the provider bills a standard charge, and the contract reduces it to the negotiated rate.
The adjustment is not billed to the patient — it is the difference between the charge and the contracted allowed amount.
In practice
Contractual adjustments are why billed charges rarely equal collected dollars. Net collection rate measures how much of the allowed amount (after these adjustments) is actually collected — so separating legitimate contractual adjustments from avoidable write-offs is essential to reading revenue-cycle performance honestly.
Commonly confused with
- Write-off: A write-off removes a balance judged uncollectible (for example, bad debt); a contractual adjustment is the agreed reduction to the contracted rate on a paid claim.
- Denial: A denial is a payer’s refusal to pay a claim; a contractual adjustment is the expected reduction applied when a claim is paid.