Make Your Medical Practice Thrive By Improving Your Collection Rates

Medical groups may need to address such issues as claims denials and failure to obtain prior authorization.
Medical groups may need to address such issues as claims denials and failure to obtain prior authorization.

A host of factors affect a practice's revenue cycle, but none more important perhaps than the adjusted (or net) collection rate.

Barbie Hays, coding and compliance strategist for the American Academy of Family Physicians (AAFP), said knowing this number is crucial to understanding a practice's income and how the practice can bring in more money.

“The net collection rate is what you need to pay attention to,” she said. “It tells you the health of your practice, and if you are making any money.”

The adjusted collection rate is the percent of total reimbursement collected out of the total a practice could have collected. Tallying this number is a way to find out where and why the practice is losing potential revenue.

To figure the adjusted collection rate, divide charges from payments and multiply by 100 to get the percentage. The following is an example from the AAFP showing how to calculate these numbers.

(Payments – Credits) / (Charges – Contractual Agreements) x 100

  • Total payments: $500,000 
  • Refunds/credits: $14,000 
  • Total charges: $850,000  
  • Total write-offs: $350,000
  • ($500,000–$14,000) / ($850,000–$350,000)
  • $486,000 / $500,000
  • 0.972 x 100
  • Adjusted collection rate: 97.2%

A practice can strive for numbers like a rate of 99%, but Hays said in the real world, somewhere around 95% is optimal.  An adjusted collection rate at or below 90% is an indicator the practice has problems in some areas that need to be resolved.

If the collection rate is in the low 90s, the best way to identify the issues is to break up collections by payer. The same calculations should be performed for each payer to identify outliers.  “If only one of your payers is at 90%, it will knock down your total, and you won't know why it is happening without looking at individual payers,” Hays said.

Denials

A few common issues may explain a lower collection rate.  The first is denial codes. Many vendors can work with a practice to create reports that track the reasons for denials. By checking these, practices can look for patterns, which can be something as simple as submitting incorrect policy numbers. 

Hays used to work at a practice when Cigna came out with new identification numbers that used both zeros and the letter “o.” The staff was inputting them incorrectly. When she began pulling claims, she found that a large number were denied because of incorrect policy numbers.

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