"Lesser Of" Clause
A "lesser of" clause is a provision in a payer contract stating that the healthcare provider will be reimbursed the lower amount between the billed charge and the contracted rate for a service.
What is a "Lesser Of" Clause?
A "lesser of" clause is a provision commonly found in healthcare contracts, particularly between providers and insurance companies, which states that the payment for a service will be the lower amount between the provider's billed charge and the allowed amount determined by the payer. This clause is a mechanism used by payers to control costs and prevent providers from charging excessively for services. It ensures that the reimbursement to the provider will not exceed the amount the payer has deemed appropriate for that specific service, regardless of the provider's usual and customary charges.
The practical implication of a "lesser of" clause is that if a provider bills $100 for a service, but the insurance company's allowed amount for that service is $80, the provider will only be reimbursed $80. Conversely, if the provider bills $70 and the allowed amount is $80, the provider will be reimbursed $70. This clause essentially places a cap on the maximum reimbursement for a service based on the lower of two figures, directly impacting a healthcare provider's revenue and requiring them to carefully consider their billing practices in conjunction with their contracted rates.
What is the difference between a "Lesser Of" Clause and Billed Charge?
The Billed Charge is the amount a provider submits for a service, whereas the Allowed Amount is the maximum amount the insurance company determines is appropriate for that service. In healthcare contracts with a 'lesser of' clause, the reimbursement is the lower of the two amounts.
Billed Charge is the price set by the healthcare provider for a specific service.
Allowed Amount is the negotiated rate or maximum payment set by the payer (insurance company) for a specific service.
The Billed Charge is determined by the provider, while the Allowed Amount is determined by the payer.
What are examples of a "Lesser Of" Clause?
If a provider bills $100 for a service, but the insurance company's allowed amount is $80, the provider will only be reimbursed $80.
If a provider bills $70 for a service and the allowed amount is $80, the provider will be reimbursed $70.
A healthcare provider must carefully consider their billing practices in conjunction with their contracted rates, as the 'lesser of' clause directly impacts their revenue by capping reimbursement at the lower of their billed charge or the payer's allowed amount.
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