Use net collection rate to gauge financial health

Q: I’ve heard that the net collection rate is a good benchmark for measuring a practice’s financial health. What is it, and how do I calculate it?

A: The adjusted (or net) collection rate is a measure of a practice’s effectiveness in collecting reimbursement. It represents the percent of reimbursement achieved out of the reimbursement allowed based on contractual obligations. Practices calculate their net collection rate to see how much revenue is lost due to factors such as uncollectable 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.

To calculate your practice’s 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. Payments will need to match up with their originating charges for the most accurate calculations, so you might want to number these by “date of service” instead of “date of post.”

Keep your reporting consistent by basing your time period on a period of at least 1 year-in other words, consider using a rolling 12-month schedule to calculate these figures.

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 author is a healthcare accountant and business adviser in Houston, Texas. Send your money management questions to medec@advanstar.com. Also engage at: www.twitter.com/MedEconomics and www.facebook.com/MedicalEconomics.