We live and breathe by this ONE metric. Does your practice?

If I had to pick one benchmark that matters the most for a practice, it would be collection ratios.

And that’s not just a cop-out to get me the two-for-one special (net and gross collection ratios.)  

At IPS, we live and breathe by these numbers! They are absolutely vital to the health of your practice. Knowing these numbers gives you the basics of how your practice is performing.

Collections ratios are easy to calculate if you’re looking at your reports and properly using your software. But they’re not always easy to understand.

Here are my answers to the most common questions about collection ratios, so you can understand these numbers inside and out and track them with confidence.

What numbers should I aim for with each ratio?

To give you a general rule of thumb, you want your net collection ratio to be 90% or higher. At IPS, we aim for a 95% net collection ratio and we go into freak-out mode if we drop below 90%. But that’s because we’re ambitious little overachievers!

Your gross collection ratio depends on a few factors (which I’ll discuss below) and will likely hover around 40-50%.

There are three places you can get numbers more tailored to your practice type: the MGMA (Medical Group Management Association), HBMA (Healthcare Billing and Management Association), and AAFP (American Academy of Family Practice).

They periodically release metrics and benchmarks for collection ratios to give you a baseline to compare your practice against. If you’re a member of these associations, percent-99376_1280you can get lots of resources on this information. And if you’re not a member, you can always use trusty old Google to search for the metrics!

Why isn’t my net collection ratio 100%? Where does the extra % go?

Remember, your net collection ratio = (total collections + write-offs) / total charges

In a perfect world, your net collection ratio would be 100% each month, right? Because the amount you charged should equal the amount you collect plus the write-offs.

But unfortunately for us, we don’t live in a perfect world. Things happen that prevent us from collecting everything we’re owed in a timely fashion. Net collection ratios take into account outstanding claims that for whatever reason, haven’t been resolved yet.

If your net collection ratio is 95%, where is that extra 5% hiding? It’s in your aging buckets. So while you’re not collecting it now, you will hopefully be collecting it someday soon.

Should I aim for the highest gross collection ratio possible?

Your gross collection ratio = total collections / total charges. So you would think that you want the highest ratio possible.dollar-1362244_1280

Not necessarily. Here are two examples to show why:

  1. Say your allowable for a visit is $75. You charge $100 for that visit so your gross collection ratio would be 75%. If you raised your price to $125 per visit, your ratio would drop to 60% because the allowable would stay the same at $75.

In reality, you made the same amount of money for each visit ($75,) despite the decrease in gross collection ratios. The higher ratio produced no financial benefit whatsoever.

Here’s another example, where you would actually make less money with a higher gross collection ratio.

Let’s say Insurance Company A will reimburse you $75 for a $100 appointment and Insurance Company B only reimburses you $25. For two appointments (one patient with Insurance A and one with Insurance B,) you would charge a total of $200 and be paid $100 ($75 from A and $25 from B). That gives you a 50% gross collection ratio.

If you reduced your fees to $50 per appointment, you would now bill a total of $100 for two appointments. You’d be paid $75 ($50 from A and $25 from B), with a gross collection ratio of 75%.

Although the gross collection ratio is 25% higher in the second scenario, you would actually be operating at a loss. You would miss out on $25 of potential revenue…and that’s just with two appointments! Imagine how that effect would compound over a month or year’s worth of appointments.

The bottom line here is that a higher gross collection ratio is not necessarily better. Instead of trying to increase your gross collection ratio, you want to adjust your fees to have the highest possible reimbursement from carriers. If this is something you’re struggling with, click here to contact me and we’ll talk about how IPS can help you do this.

My net collection ratio was over 100% last month. What happened?

If you collected more than you billed, it doesn’t mean you’re a claims magician. (I’m sorry to say!)

This often happens when you’re paid settlements from outside of your current time frame. You may have been waiting months for a payment, and that payment trickles into your current month’s revenue and skews the results.

That’s why it’s so important to keep an eye on averages, to spot these rare occasions where an overdue payment makes your numbers spike.

One final piece of advice to deciphering your gross and net collection ratios is to make sure to look at these numbers after everything is closed for the month (or quarter, or year.) If you’re two weeks behind on entering insurance payments into your system, you’re going to have a very inaccurate picture. Always make sure you’re working with the correct numbers!

What other questions do you have about gross and net collection ratios? I know they can be confusing, so ask away in the comments! I’ll make sure to answer your questions.

One of the many benefits to working with a billing company like IPS is that we take the guesswork out of gross and net collection ratios. We handle the nitty gritty to bring you net collection ratio up to 90%+ and can help you decide on the optimal price point to maximize revenue. Plus, we calculate the ratios each month so it’s simple to spot big-picture trends. Click here to learn more about how we can help.


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