Insights : Article

Are You Looking at Net and Gross Collection Percentage?

By   Michele Olivier

November 14, 2017

Monthly financial reporting can be a simple as a one page Excel document to as complicated as a large packet of information. With either option, it can be hard to know which numbers are really important and what the metrics are telling you about the health of your practice.

It’s important to note that one metric is not enough to judge the effectiveness of the revenue cycle process. Because of the intricacies of the billing and collection process, it often takes several metrics to alert you to issues within the cycle. Combined, those metrics can tell you where to dig deeper and how to track the problem to resolution.

The three metrics we recommend looking at monthly are: net collection percentage and gross collection percentage; days in accounts receivable; accounts receivable charges, payments and adjustments. In this article, we are going to focus on net collection percentage and gross collection percentage.

Monthly Metric 1
Net collection percentage represents the amount collected out of the total dollars expected to be collected. This formula works well if you are confident that the payment posting process also takes into account the allowable or contracted amounts from insurance companies. If so, this will also tell you how much revenue is lost due to factors such as collection accounts, untimely filing and other non-contractual adjustments

The formula for net collection percentage is:

Net Collection        =           Payments

                                      Percentage             (Charges – Contractual Adjustments)

The Medical Group Management Association (MGMA) recommends a net collection ratio of 95% or higher. If your percentage over a 6 or 12 month period is below 95%, it could mean that there is room for improvement in your revenue cycle. This metric can be influenced by timing of charges and payment posting so it’s not as telling on a month by month basis but, over a 3, 6 and 12 month basis, it helps to identify collection or payment issues.

Gross collection percentage tells you the payments you are collecting vs. your charges for services that month. This metric does not include contractual adjustments. Gross collection percentage can be a valuable metric if you are looking for an understanding of your charges and how they compare to your contracted rates. It is highly influenced by payer mix and the timing of charges so it’s important to also review this metric over a 3, 6 and 12 month time frame.

The formula for net collection percentage is:

Gross Collection       =           Payments

     Percentage                        Charges

Because of the wide variety of methodologies for setting fee schedules or chargemasters and payer mix, there is no “recommendation” by the MGMA on this metric. However, if your chargemaster is set to 200% of Medicare allowable, then an acceptable range for gross collection percentage would be between 40% and 60%. If you are higher than that, it means that your payer mix if good (less Medicare and Medicaid) or your charges are set closer to the contracted rates of the payers. If you are lower than that, it may mean that your fee schedule is set higher than the allowed amount or that you have a charge lag.

Lower than average collection percentages over a 6 or 12 month period along with a 90% to 100% net collection percentage could mean that there are unusual or unnecessary write offs/adjustments being taken.