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Medical Billing Process: Gross vs. Net Collections Rate Explained

January 23, 2018

Medical BIlling Process: Gross vs. Net Collections Rate Explained

There remains some confusion among practitioners about how much importance to assign gross collections and net collections rates, and their usefulness as reliable indicators in determining performance. Too often, a provider reads a report showing a drop in gross collections rates, and worry about what they might be doing wrong. Here’s why they should not worry:

The differences between gross and net collection rates:

The reason is that gross collection rates fail to give a true picture of what is actually being collected and what the provider is allowed to collect after factoring in any write-offs, refunds and other contractual and non-contractual amounts. For example, if a physician normally charges $200 for a procedure but accepts $150 (below the gross rate) per contract from an insurance payer, it is the net collection rate that shows how much of contractually adjusted rates are collected.

To calculate net collection rate, divide payments (net of all payments) by charges (net after contractual adjustments) for the time period being monitored. Then multiply that figure by 100 for the actual percentage value. It is recommended that you match payments with originating charges for better accuracy as “date of service” instead of “date payment posted.” (Alternatively, the practice could use the aged data method, with data calculated from claims from the past six months onward that have cleared.)

Payment ÷ Charges × 100 = Net Collection Rate

The result, after subtracting the above, is the net (or adjusted) collection rate. This gives a truer picture of a practice’s benchmark performance, as it measures the effectiveness of collecting reimbursable dollars, and should be in the 90-98 percent range once write-offs are factored in. (Of course, those figures may vary depending on your specialty, payer mix and the level of billing and collection)

Additional Key Performance Indicators (KPI)
Net collection is only one indicator of performance; a recent survey found that better-performing medical groups relied on reports that included these additional performance indicators:

  • Days in Receivables Outstanding (DRO)

Considered by many managers to be the best indicator of performance, DRO is calculated by adding the current total outstanding receivables with the sum of the practice’s credit balances, then divide the total figure by your average daily charge. (Don’t forget to adjust for credits!) Another way to calculate this is to divide the previous three months’ charges by 90, which will be a better reflection of growth, seasonality and other business factors.

Related Article: 5 Ways Medical Billing Services Can Help a Practice Grow

The Medical Group Management Association (MGMA) recommends that DROs be in a 40-45-day range. Improving DRO can be done through collecting co-payments, pre-service deposits, unmet deductibles and other charges as well as insurance verification at time of service. Automating those tasks, as well as the rest of your billing and collections process, is the best way to ensure that nothing is overlooked.

  • Age of accounts

Accounts over 120 days old are historically almost impossible to collect; therefore, ideally, no more than 12 percent of your accounts should be over 120 days. Factors such as having too many patients with varying payment plans or challenging Workman’s Compensation cases are bound to affect your ability to stay within the 12 percent range. As with all DRO calculations, be sure to exclude any applicable credits.

Using a medical billing service in managing accounts

Medical Practices which partner with an experienced billing and practice management service should find that they have fewer obstacles to meeting benchmarks as cleaner claims are sent on time, with fewer denials to delay payment. We customize medical billing process and procedures based on medical practices specialties and specific needs.Contact us at 770-666-0470 or email for a free analysis of your billing and revenue cycle management needs.


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