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Every business wants to know how it is doing compared to its competition. When it comes to reporting and collecting for your professional services, it should be no different. Within the healthcare delivery system, there have always been standards for claim collection rates; however, old standards have been significantly affected by all of the changes that have occurred in payment for healthcare services.
Presently, there are more contracts holding physicians to maximum allowable fees, more capitation contracts not only for general podiatrists, but also for podiatric surgery specialists, more denials as a result of advanced insurance computer edits, increasing practice overhead, and more mergers. All of these factors have made it difficult for doctors to determine how a practice is doing and whether the employees are doing the best they can. Both the gross and the net collection ratios are still valuable in determining how efficiently your practice is collecting payments for services. They cannot be evaluated monthly, but definitely should always be carefully reviewed quarterly and annually.
The gross collection ratio includes the total payments received by a practice for a specific period without any write-offs. The gross collection ratio is the total payments for the period divided by the total charges without write-offs. For example, $400,000 (your payments) divided by $800,000 (your charges), equals a gross collection rate of 50 percent. This means that for every dollar charged, the practice is collecting 50 cents. This is not a good ratio; however, it may be the best the office staff can do if the practice has a high payer mix consisting of managed care contracts, Medicaid, and Medicare.
The net collection ratio, also known as the adjusted collection ratio, excludes write-offs from the total payments received by a practice in a specific period. The net collection ratio is the total payments for the period divided by the total charges after the write-offs have been deducted. For example, $400,000 (your payments), divided by $450,000 (your charges minus the write-offs), equals a net collection rate of 88 percent.
Each different type of write-off should be identified--for example, contractual, bad debt, professional courtesy discounts, etc. It is recommended that all services be posted at the practice’s regular fee schedule amounts. Professional courtesy discounts and other discounts are credited using special codes created by your practice. Each code is specific for each type of write-off. This allows your practice to track the categories in which most of the write-offs have occurred. The physicians in the practice should remain involved in monitoring the write-off activities for the group on an ongoing basis to ensure that inappropriate insurance denials are not routinely being written off in error.
Collection rates should be between 90 and 100 percent after write-offs are taken. If net collection rates are low, a more in-depth evaluation of your business practices may indeed be warranted.
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