Allowed Amount in Therapy Billing: 5 Easy, Essential Checks
The allowed amount in therapy billing is the most a health plan will count as payment for a covered service. It is not your billed charge, and it is the number your client’s deductible, coinsurance and copay come out of. HealthCare.gov defines it as the maximum amount a plan will pay for a covered service.
What is the allowed amount in therapy billing?
It is the payer’s price for a service, set by your contract or the plan’s own rules. Your billed charge is the fee on your fee schedule. The allowed amount is what the payer says that same service is worth. You will also hear “allowed rate,” “contracted rate,” “eligible expense” and “negotiated rate.” In practice they point to the same cap. Our glossary lists the allowed amount with its related terms.
Say your fee for a 53-minute psychotherapy visit is $200 and the payer’s allowed amount is $140. The payer will never count more than $140, no matter what you billed. Knowing the allowed amount in therapy billing before you collect is what keeps your client estimates accurate.
Contracted rate vs out-of-network allowed amount
In network, the allowed amount is the rate in your contract. Out of network, the plan sets it by its own method, and you read it from the plan’s benefit details. That is the biggest practical difference in allowed amount in therapy billing between being credentialed and not.
Private payers
If you are credentialed, the allowed amount is the contracted rate for each code. You agree to accept it, and you write off the rest. If you are not credentialed, the plan applies its out-of-network benefit. The allowed amount can land well below your fee, and the client’s share is calculated on that lower number, not on your fee. Our comparison of in-network and out-of-network credentialing shows how the two paths differ.
Psychiatrists and other prescribers should expect this on every line. An evaluation and management (E/M) visit and a psychotherapy add-on code each get their own allowed amount.
Medicare and Medicaid
Medicare pays from a published fee schedule. The Medicare Physician Fee Schedule is, per CMS, the main method of payment for professional services of physicians and other providers in private practice. After the Part B deductible, the client pays 20% of the Medicare-approved amount for outpatient mental health visits, according to Medicare.gov. For next year, CMS released a proposed 2027 fee schedule rule on July 14, 2026. It proposes conversion factors of $33.17 for qualifying alternative payment model participants and $32.84 for everyone else. These are proposals, not final rates.
Medicaid is set state by state. Each state Medicaid program publishes its own fee schedule, so your allowed amount is that state’s rate. Federal rules require state Medicaid plans to limit participation to providers who accept the state’s payment, plus any required cost-sharing, as payment in full (42 CFR 447.15).
How the deductible, coinsurance and copay come out of the allowed amount
The client’s share is always calculated on the allowed amount, never on your billed charge. That holds for every payer type, and it is the core of allowed amount in therapy billing. The deductible comes out first, then coinsurance or the copay applies. The plan pays what is left. Whatever sits between your fee and the allowed amount is the contractual write-off.
Here is a round-number example. These figures are illustrative only, not real rates.
| Example (in network) | Deductible met, 20% coinsurance | Flat $30 copay | $100 deductible left, then 20% |
|---|---|---|---|
| Billed charge | $200 | $200 | $200 |
| Allowed amount | $140 | $140 | $140 |
| Client share to collect | $28 | $30 | $108 |
| Plan pays | $112 | $110 | $32 |
| Contractual write-off | $60 | $60 | $60 |
In the last column, the first $100 of the $140 goes to the deductible. The client pays 20% of the remaining $40, which is $8, for a total of $108. For a plain-language comparison of the three terms, use the related reading below.
How the remittance shows the allowed amount
The electronic remittance advice (ERA) splits every claim into payment and adjustments, each with a group code. Per the CMS Blue Button data dictionary, CO means contractual obligation, usually a write-off you do not bill to the client. PR means patient responsibility, such as the deductible and copay, which you do bill. Read the group code first, then the reason code. Our guides on reading an ERA and on CARC and RARC codes walk through each field.
How to check each payment against the allowed amount
Compare the allowed amount on every remittance with the rate you expect. A payment that looks fine can still be an underpayment if the allowed amount is below your contract rate. Catching it early is part of good allowed amount in therapy billing habits.
Doing this weekly keeps allowed amount in therapy billing mistakes from piling up.
What to do Monday morning:
- Keep your contract fee schedule for each payer in one place, by code.
- Pull last week’s remittances and find the allowed amount on each line.
- Compare it with the contracted rate for that code. Out of network, compare it with the allowed amount from the plan’s benefit check.
- Check the math: allowed amount minus the PR amounts should equal what the plan paid.
- Flag any gap and follow the steps in our guide to underpayments.
The short version: allowed amount in therapy billing
The allowed amount is the payer’s price, not your fee. Every client share comes out of it, and the CO adjustment is the gap you write off when you are in network. Check each remittance against your expected rate, because that is how you find underpayments.
How MCM South helps
MCM South Medical Billing Service, LLC bills mental and behavioral health claims for psychotherapists and psychiatrists, including out-of-network claims. If you would rather not check every remittance line yourself, we can talk through your practice.
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Related reading
Ready to hand off the billing side? We can talk through your practice.
FAQ
What is the difference between the allowed amount and my billed charge?
Your billed charge is the fee you set. The allowed amount is the most the payer will count for that service under your contract or its out-of-network rules. The client’s share is calculated on the allowed amount.
Is the allowed amount the same as the allowed rate?
In everyday billing talk, yes. People also say contracted rate, negotiated rate or eligible expense. HealthCare.gov lists several of these names for the same idea.
Who gets the contractual write-off?
In network, the difference between your fee and the allowed amount is a write-off shown with group code CO on the remittance. You do not bill it to the client.
How do I know if a payment is an underpayment?
Compare the allowed amount on the remittance with your contracted rate for that code. If it is lower, or the plan payment plus the client’s share does not add up to the allowed amount, flag the claim for follow-up.
Does the allowed amount change if I am not credentialed with a plan?
Often, yes. Out of network, the plan applies its own method to set the allowed amount, and the client’s share is based on it. Read the plan’s out-of-network benefit details when you verify coverage.
Where MCM South works
MCM South Medical Billing Service, LLC works with psychotherapists and psychiatrists in our ten currently served states: Georgia, Massachusetts, Connecticut, Texas, Florida, New York, Colorado, Tennessee, North Carolina and Illinois. We serve solo and medium-size practices that bill mental and behavioral health. Founder Michael Williams has worked with insurance payers in all 50 states. Browse the state and regional billing guides for rules that vary by state, or see our billing services.
This post is operational guidance for billing, not legal advice. Rules change, so confirm with the payer or your counsel.
