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Medical Billing Process: Gross vs. Net Collection Rate Explained

March 1, 2021

Gross vs. Net Collections RateBuilding a strong financial future for your medical practice involves being familiar with your financial numbers, utilizing the data you collect to improve practice revenue. Two of the common terms you’ll hear are ‘gross collections rate’ and ‘net collections rate.’ Unfortunately, there’s a lot of confusion surrounding these terms, how they’re defined, and how useful they are for determining practice performance.Gross vs. Net Collection Rate Defined

The gross collection rate refers to the percentage of collections you receive of the total amount you’re allowed to collect. That means that if you’re normally charging $200 for a visit, but you’ll take $150, you’re only pulling in 75% of the amount you could have collected.

The net performance rate measures how your practice is doing at collecting legitimate forms of reimbursement for your services, which is normally the amount that’s owed after any payer contract adjustments have been made.

Gross Collection Rates – Do They Matter?

Gross collection rates aren’t worth worrying about. Why? Your practice is never going to be paid what you actually charge. Since rates of reimbursement vary greatly among payers, it’s critical to keep your fees above the highest paying reimbursement if you’re to maximize your collections. This ensures you’re not leaving money on the table.

Your gross collection rate has very little to do with the actual payments that are made, so that ration doesn’t really help you get a good idea of the amount you’ve collected compared to what you’re owed.

How to Calculate Your Net Collection Rate

Calculating your net collection rate is fairly easy. Steps to follow include:

  • Decide on the time period you’ll monitor. Usually it’s best to go at least six months back so most claims are closed and cleared.
  • Calculate the total payments from your patients and payers for that time period.
  • Come up with total charges minus any approved write-ups, such as bad debt, discounts as a professional courtesy, contractual reasons.
  • Divide the step 2 calculation by the step 3 calculation. Once you have that number, multiply it by 100 to get your net collection rate.

It’s a good idea to check your net collection rate regularly, monitoring and evaluating it over a period of time to find any fluctuations and potential problems.

What’s the Ideal Net Collection Rate?

Ideally, you want your net collection rate to be around 96%, although this can vary a bit from specialty to specialty. If your net collection rate is under 90%, you’ve got problems that need to be addressed. Investigate why your numbers are lower than you’d like. Do you have an insurer that’s sending back more than average denials? Are there a lot of non-paying patients within your specialty? Do you have big delays between claims submission and receiving reimbursements?

Improving Your Net Collection Rate

Think about how much you’d like to see your ideal net collection rate go up from where it stands currently. The next step is to implement a plan for improvement that’ll help you accomplish this. You should already be covering the basics like taking time to ensure patients understand payment policies and that front desk staff collects co-pays up front. Additional strategies you can use to improve your practice’s net collection rate include:

  • Strategy #1 – Educate Your Payments on Their Financial Obligations – Many patients don’t have a good understanding of how practices collect payments from payers, which means they may not be clear on their financial obligations. Educating patients with a reference sheet or brochure that clearly outlines their responsibilities can reduce confusion. It’s also critical to ensure you have someone on staff who can answer any patient questions.
  • Strategy #2 – Use Point-of-Service Collections – Ensuring that you collect 100% of deductibles and copayments goes a long way towards improving your net collection rate, and you can do this by collecting up front at the point-of-service. This way no one walks away with outstanding amounts due, reducing the hassle of trying to collect payments after service.
  • Strategy #3 – Offer More Payment Options – While offering payments more payment options can take some investment on your part, it has a significant impact on your net collection rate in the long-term. Asking patients to mail in a check is very inefficient since most patients are accustomed to having a variety of methods to pay for services, whether that includes mobile apps, online portals, or via debit or credit card. Installment plans may also prove helpful to patients who cannot realistically pay off medical bills all at one time.
  • Strategy #4 – Assess How Your Practice Handles Medical Billing – Don’t put all the blame for a poor net collections rate on your patients. Assess how your practice is handling medical billing. Is it taking too long to submit claims? Are there errors in electronic health records? Are coding errors leading to denied claims? Looking at your end-to-end billing processes should be the number one step to finding ways to boost your net collection rate.

How M-Scribe Can Help

One of the best ways to turn around a poor net collection rate is to work with a reputable, experienced medical billing service. At M-Scribe Medical Billing, we can work with your practice to speed up claims submissions and reduce claims denials to improve net collections while freeing up time for your staff to offer patients the best care and service. Contact M-Scribe today by calling 770-666-0470 for more information on how we can help your practice.


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