Gross Collection Ratio
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, $500,000 (your payments) divided by $1000,000 (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 can do if the practice has a high payor mix consisting of Medicaid, and Medicare. This is obviously dependent upon how the charges are set as a percentage of current Medicare.
Net Collection Ratio
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 or adjustments have been made. For example, you would divide your total payments received 500k by your charges after adjustments $550,000 which 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 lower than this then an audit of billing productivity may be necessary. Again, the first step in obtaining an accurate evaluation is to set your charges at a percentage of Medicare. You should also know what your payor mix is and how each managed care company is paying you as a percentage of Medicare. This may be more work than you want but it is worth it if you want a thorough evaluation.
This post is courtesy of Andrew Eriksen, CEO of Physicians World Online. Mr. Eriksen has also supplied Dermatology Medical Billing with the custom spreadsheet they use for calculating the GCR and NCR.
Please email us at CollectionRate@dermatologymedicalbilling.com
