Medical Practice Management
Nov 14

Get back to basics – analyze your medical practice’s net collection rate

As you probably know, collecting reimbursements is a critical component of your physician practice’s revenue cycle, and in order to ensure peak financial performance, your practice will need to know how to calculate your adjusted collection rate. This benchmark, along with – Days in Accounts Receivable,  A/R>120 days, and Denial Rates — are key to developing a clear understanding of your overall revenue cycle.
 
The adjusted (or net) collection rate is a measure of a practice’s effectiveness in collecting reimbursement. This number represents the percent of reimbursement achieved out of the reimbursement allowed based on contractual obligations. Practices can calculate their adjusted collection rate to see how much revenue is lost due to factors such as uncollectable bad debt, untimely filing and other non-contractual adjustments.
 
To calculate your practice’s adjusted collection rate (see example below), first, divide the payments (net of credits) by the charges (net of approved contractual adjustments), for a particular time period that you want to monitor. Payments will need to match up with their originating charges for the most accurate calculations, so you might want to numbers by "date of service" instead of "date of post." Keep your reporting consistent by basing your time period to one year at least – in other words, consider using a rolling 12 month to calculate these figures.

Make sure your adjusted collection rates is higher than 95 percent. If it's below 95%, you've got a problem with your revenue cycle process that needs to be reviewed.
 
Like all billing indicators, performance as measured by the adjusted collection rate is also influenced by your payer mix and specialty, as well as the level of automation in your practice’s billing and collection cycles.
 
As with all financial calculations, there are some things to be aware of as you calculate your adjusted collection rate, including applying inappropriate write-offs to charges when calculating the adjusted collection rate and not having access to your fee schedules for each payer. To ensure an accurate calculation of your adjusted collection rate, it is important to account for these factors.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →