More about the Net Collection Rate
Understanding the net collection rate gives practices a better grasp on how effective they are in collecting money that’s owed. This easy-to-calculate metric provides useful insights into how your practice is truly performing. Read on on to understand how to calculate your own net collection rate and how it impacts your revenue cycle.
Net collection rate represents the percentage of reimbursement achieved out of the reimbursement allowed based on payers contractual obligation. High performing practices use this metric to measure their effectiveness in collecting reimbursable dollars.
This metric can also be used to limit revenue loss based on factors like uncollectible debt, untimely filing, and other non-contractual adjustments.
Along with days in accounts receivable and denial rates, the net collection rate is key to developing a clear understanding of your overall revenue cycle.
Calculate Your Net Collection Rate
Start by dividing payments (net of credits) by charges (net of approved contractual adjustments) for the time period that you want to monitor. Then multiply by 100 to get the percentage value. Payments need to match with their originating charges for the most accurate calculations. A best practices is to sort payments by “date of service” instead of “date of post.”
If your practice management system can’t match payments with their originating charges, the practice should calculate this using aged data. Calculate using data that is at least 6 months old to ensure most of the claims have had time to clear.
Measure Your Performance
Keep your reporting consistent by basing your calculation on a time period of at least 1 year. Consider using a rolling 12-month schedule to calculate your net collection rate. As with all billing indicators, performance will be influenced by payer mix and specialty. The level of automation in your practice’s billing and collections process also plays a factor.
The Medical Group Management Association (MGMA) recommends a net collection of 95% or higher. A net collection below 95% shows room for improvement and is often an indicator of poor performance. It is possible to score higher than 95% with expert management of medical billing and by determining charge value.
Charge value is calculated as charges minus your contractual adjustments. This metric reveals how much revenue is lost due to factors such as uncollectible bad debt, untimely filing, and other non-contractual adjustments.
Additional Factors to Consider
As with all billing indicators, performance as measured by the adjusted collection rate also will be influenced by your practice’s particular payer mix and specialty, as well as the level of automation in your practice’s billing and collection cycles. Other considerations to be aware of include applying inappropriate write-offs to charges and not having access to all fee schedules for your payers.
The net collection rate can be measured monthly, quarterly, semi-annually, or annually. The longer the time frame, the more data you’ll have to provide an accurate assessment of your practice’s performance.