For physician practices and their medical billing firms, the net collection rate has always been a metric with huge implications for financial success. But in today’s healthcare environment, it’s more important than ever before. With patients paying more for their own care and insurers looking for practically any reason to deny claims (and save themselves money), monitoring collections closely is the only way to spot troubling trends and minimize undue losses.
Understanding your net collection rate is the first step towards optimizing your medical practice’s processes for financial success. Once you know how to calculate this ratio - as well as other invaluable collections metrics, your practice can take actionable steps for improving your net collection rate and your practice’s overall revenue.
What is Net Collection Rate?
A practice’s net collection rate is essentially a performance metric. It measures how effective the practice is at collecting all legitimate forms of reimbursement for services, which are typically the amount owed after all-payer contract adjustments are made. The net collection rate will reveal deficiencies in this process. If a practice is struggling to collect revenue due to bad debt, late filings, coding errors, or claim underpayments, it will have a low net collection rate.
Since net collection rate is directly tied to a practice’s revenue stream, it’s one of the most important performance metrics to monitor. Typically calculated quarterly, the rate represents a snapshot of financial health and efficiency. A low net collection rate should be treated as an urgent priority because it indicates that the practice has a persistent problem when it comes to gathering revenue, which could indicate an organizational inefficiency or an issue with patient relations and communication.
What Should Your Medical Practice's Net Collection Rate Be?
A 96% net collection rate is considered ideal across the industry. Anything lower than a 95% clean claims ratio means your medical practice is losing revenue, which also indicates your medical practice is wasting further money and time reworking rejected claims. In reality, most medical practices have a rate that varies between 75% and 85%, which means that somewhere around 15–25% of claims submitted each month have to be worked on twice, at minimum.
Once you determine how your baseline collection rate stacks up to that goal, use information from your medical association or HHS to compare it to industry averages. From there, set a collections metric objective based on how much you would like to see it go up and how this could affect your revenue stream.
The Importance of a Strong Net Collection Ratio
A medical practice’s net collection ratio is one of its most significant collections metrics as it provides visibility into what is actually being collected and what your medical practice is actually allowed to collect after factoring in any refunds, write-offs, or any other contractual and non-contractual amounts. As a result, your net collection rate is one of the most important collections metrics as it gives a clear picture of how your practice’s benchmark performance.
Optimizing your net collection rate can indicate areas where your medical practice is losing revenue. This is especially important as many insurance providers are increasing their denial rates and have been more demanding in terms of documentation. If your net collection ratio is indicating your medical practice is underperforming, your practice must investigate what processes need to be optimized for success. The reasons for a major gap between the score you have and the score you want can range from a variety of reasons, but they all have the same outcome: a negative effect on your medical practice’s financial health.
To realize your practice’s true revenue potential, investigate what is causing your net collections rate to be lower than your goal rate. For instance, Is there a particular insurer dragging you down with denials? A strong proportion of non-paying patients in a given specialty? An overlong delay in claims submission and reimbursement? Pinpoint the source of your problems, and set up actionable steps to address them.
How to Calculate Your Net Collection Rate
Understanding your net collection rate is critical to gain a clear view of your medical practice’s overall revenue cycle. Still, your medical practice must do more than just check the net collection rate once per quarter and circulate the information to your organization’s higher-ups. You need to monitor the rate regularly and evaluate it over a period of time to identify fluctuations and then investigate where and why any problematic changes take place.
Optimizing your net collection rate starts with understanding how to assess your net collection rate. Calculating net collection rate involves several important steps:
- Identify the time period that you want to monitor (e.g., 90 or 120 days). Assess data from an earlier period in which the majority of claims would be closed and cleared; ~6 months back is advisable.
- Calculate total payments (from payers and patients) for the designated time period.
- Calculate total charges minus approved write-offs (e.g., due to contractual reasons, bad debt, professional courtesy discounts, etc.) for the designated time period.
- Divide your calculation in step 2 by your calculation in step 3. Then multiply by 100.
Do this consistently (e.g., every 90 days) for a period of at least one year to get the most accurate average rate.
Tips for Improving Your Medical Practice's Net Collection Rate
Your strategy to help improve net collection rates will differ depending on your issues and your goals for improvement. Once you have the basics of improvement covered – by ensuring your front desk staff is on top of co-pays and that your patients understand your payment policies – you can take a more tactical approach. Auditing claims, coordinating more closely with payer reps, and tasking staff with follow-ups can help ensure you collect every single dollar owed and that your net collection rate gets as close to 100% as possible.
Some strategies for improving your net collection rate include:
1. Implementing front-end point-of-service collections
One of the easiest steps to take is to collect 100% of copayments and deductibles from patients at the initial point-of-service. A basic point of service collections definition is essentially any and all collections posted by Patient Access prior to and including discharge date. This ensures that no one walks out of the office with an outstanding bill and avoids the resulting hassle of collecting payments afterward, which can be just as inconvenient for the patient as it is for the practice. Setting up appointment reminders that inform patients they must pay for medical services up-front is essential for making this strategy effective. If a patient is unable to cover the cost at that time, the appointment can be rescheduled or other payment options can be discussed.
2. Educate patients more effectively
Most patients have only a vague understanding of how healthcare practices collect payments from insurance providers and may not have a clear sense of their financial obligations when they consume medical services. Providing a brochure or reference sheet to all patients that outlines their role and responsibilities in the payment process can clear up a lot of confusion. It’s also important to have someone on staff who has the financial expertise to answer any questions patients may have about how the claims and payment process works.
3. Provide patients with payment options
Expanding payment options requires some investment on the front-end, but it can have a major impact on net collections over time. Mailing out a billing statement and asking patients to write a check was an inefficient collection strategy 30 years ago, and it’s even less efficient today. As consumers, patients are accustomed to being able to pay for services in a variety of ways, whether it’s by credit/debit card, through an online portal, or via a mobile app. For some patients, an installment plan might be the only way they can realistically pay off their medical bills. By providing a variety of payment options, patients are far more likely to find one that suits their needs and pay their bills promptly.
4. Don’t assume it’s your patients’ fault
When evaluating the reasons for a low net collection rate, it’s easy to assume that the problem stems from patients not paying their medical bills. In many cases, however, the issue has as much to do with the way the practice is handling its medical billing. Taking too much time to submit claims, glitches in electronic health records, and consistent errors in coding can all contribute to denied claims and lost revenue. Assessing the practice’s end-to-end billing process should be the first step in any effort to improve a lackluster net collection rate.
5. Calculate Your Net Collection Ratio Consistently
For the most accurate net collection rate, your medical practice needs to be calculated regularly. While the net collection rate can be measured monthly, quarterly, semi-annually, or annually, the longer the time frame, the more data you will have to provide an accurate performance assessment of your practice. Calculating net collection rate every 90 days for a period of at least one year will help provide the most accurate average rate.
6.Track Other Medical Billing Rates
Although the net collection rate is one of the most valuable collections metrics of your practice, other medical billing rates are important to track to receive the best understanding of your overall efficiency and success. Tracking other metrics can also prepare your medical practice to stay ahead of any revenue challenges.
6 Additional Medical Billing Rates Your Medical Practice Should be Tracking
There are certain medical billing rates that every medical practice - regardless of its practice areas - should monitor to provide an accurate picture of performance. Some of these include:
Days in Accounts Receivable (A/R)
A practice’s accounts receivable (A/R) indicates how many payments have not yet been collected, whether for insurance reimbursements or out-of-pocket services. In a healthy medical practice, the average time a bill spends in A/R should be about 30-40 days. The goal is to streamline your operations to get your practice paid faster, which could involve eliminating billing and coding errors or doing a better job of following up on claims. Tracking the amount of time claims spend in A/R can help practices identify which payers are behind and understand why.
Percentage of A/R Over 90 Days
After 90 days, outstanding bills and claims become much more challenging to collect, and anything over 120 days is likely never going to be collected. If more than 15% of claims are spending over 90 days in A/R, there are likely some severe inefficiencies in your processes that need to be addressed.
Non-Contractual Write-Off Percentage
Whether classified as a write-off or “bad debt,” this metric tracks any bill that goes uncollected. It’s usually a result of denied insurance claims and could be indicative of an inability of your office staff to follow up on denials. For specialty practices, there is a higher risk of patients allowing bills to go unpaid as they may not need to seek medical services again. In general, your total percentage of uncollected payments should not exceed 5%.
New Patient Ratio
The new patient ratio tracks what percentage of your patients are first-time visitors compared to established patients. Measured over time, the ratio can help you determine whether your practice offers a good balance of services. For primary care practices, new patients make up about 25% of visits, while specialty care practices could see up to 50% new patients each month.
The referral mix segmentation shows you what type of patients you are receiving and who is referring them to you. It can help provide clarity of where patients are coming from and whether they are a good fit for your practice.
This performance metric tracks your overall balance of payers. It indicates how much revenue you’re taking in from each payer source, such as individual insurance providers or self-pay patients. As a rule, no more than 30% of your revenue should be coming from one payer (unless you’re working with an underserved population funded by a single source such as Medicaid and Medicare).
Improve Your Net Collection Rate with a Medical Billing Service
Whatever the causes of a low net collection rate, partnering with a reputable medical billing service is one of the fastest and easiest ways to turn this key revenue metric around. Experienced medical billing services can overhaul the way a practice codes its services and how it submits claims to payers to minimize the rate of denials. Outsourcing your medical billing process over to a third party also frees up time for office staff to focus on providing the best service and care possible. Instead of spending hours on the phones trying to collect outstanding payments, a medical billing company can focus on expanding the practice’s patient base and improving the practice’s healthcare experience to better retain the patients it already has.
NCG Medical has four decades of experience with handling coding and billing issues for a variety of healthcare practices. We understand that each practice is unique and requires a customized solution that aligns with its long-term goals. That’s why we work closely with our clients to help them set up the medical billing services and solutions that meet their specific needs and allows them to deliver the best care possible. To find out what we can do for your practice, contact our team today for a consultation.