What is allowed amount in medical billing?

Payers and coverage

What is Allowed Amount?

Also called: allowable · contracted rate

The allowed amount is the maximum a payer recognizes for a covered service under its contract with the provider. It sets the ceiling on total payment — payer portion plus patient responsibility — and the difference between billed charge and allowed amount becomes a contractual adjustment.

Most commercial contracts express the allowed amount as a percentage of the Medicare Physician Fee Schedule for the relevant locality, which makes the CMS fee schedule lookup a practical negotiating tool.

Out-of-network is where this breaks down: with no contract there is no agreed allowed amount, and the payer applies its own methodology — which is the mechanic underneath most surprise billing disputes.

Primary sources

Where "Allowed Amount" is defined by the bodies that set the rules, rather than by us.

Medicare Physician Fee Schedule lookup (opens in a new tab)
Centers for Medicare & Medicaid Services — Official allowed amounts by CPT/HCPCS code and locality. The reference point most commercial contracts are written against as a percentage.
Medicare Claims Processing Manual (opens in a new tab)
Centers for Medicare & Medicaid Services — The operative manual for how Medicare claims must be coded, submitted, adjusted and appealed. When a payer policy and a vendor's advice disagree, this settles it.

Last reviewed August 20, 2026

Related terms

Contractual Adjustment

A contractual adjustment is the difference between a provider's billed charge and the contracted allowed amount with that payer. It is not a loss and not collectible from the patient — it is the discount agreed to in the contract, and it must be recorded separately from write-offs.

Out-of-Network

Out-of-network describes a provider with no contract with a patient's payer. Without a contracted allowed amount the payer applies its own reimbursement methodology, patient cost-sharing is higher, and federal No Surprises Act protections restrict what may be balance-billed in emergency and certain facility-based situations.

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