Net Collection Rate in Medical Billing: Understanding Your Practice’s Most Important Metric

March 24, 2020 by Antonio Arias, MBA, CHBME

Topics: Meaningful Use Stage 2, Practice Management, Medical Billing Company

For physician practices and their medical billing firms, 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.

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 on a quarterly basis, 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.

Calculating and Monitoring Your Net Collection Rate

But practices must do more than just check the net collection rate once per quarter and circulate the information to the organization’s higher-ups. They 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. 

It starts with understanding how to assess your net collection rate, which involves several important steps:

  1. 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.
  2. Calculate total payments (from payers and patients) for the designated time period.
  3. Calculate total charges minus approved write-offs (e.g., due to contractual reasons, bad debt, professional courtesy discounts, etc.) for the designated time period.
  4. Divide your calculation in step 2 by your calculation in step 3. Then multiply by 100.
  5. Do this consistently (e.g., every 90 days) for a period of at least one year to get the most accurate average rate.

What Should Your Net Collection Rate Be?

A 96% net collection rate is considered ideal across the industry. Once you know 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 an objective: How much would you like to see it go up? How significantly would that affect your revenue stream?

If there’s a major gap between the score you have and the score you want, investigate why. 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 an attack plan.

How to Improve Your Net Collection Rate

That plan 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. 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 own 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.

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. An experienced billing service can overhaul the way a practice codes its services and how it submits claims to payers to minimize the rate of denials. Turning the 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, they 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 solution that meets 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.

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