Determining your practice’s collection ratios is imperative when it comes to managing the revenue cycle. Practice managers should regularly track collection ratios in order to measure how quickly and effectively the practice is collecting on patient encounters. The two main ratios we will look at in this post are Gross Collections and Net Collections.
Gross Collections
Gross collections are represented by the total number of payments (less refunds and patient adjustments) collected against a set amount of charges.
Gross Collection Ratio = (Payments – Refunds – Patient Adjustments) / Gross Charges
It’s not that useful to compare gross collection ratios (GCR) across various practices. This is because each organization sets its own fee schedule, which will vary greatly among practices. However, gross collection ratios do have value and are definitely worth monitoring.
First, trending your GCR over time is a good way to monitor how consistently your practice is collecting. Whenever you come across a dip or sudden change in the ratio, it might be worth investigating.
GCRs are also useful for comparing the reimbursement from your payers. All other things equal, you could assume that payers with higher ratios have better fee schedules. Comparing these ratios can be very helpful when you are trying to renegotiate insurance contracts. In a later post, we will discuss how to bring data like this to the table when negotiating with payers.
Net Collections
Remember that gross collection ratios deal with gross charges (i.e., charges before contractual write-offs). Net collection ratios (NCR), on the other hand, deal with net charges (i.e., charges less contractual write-offs). The NCR represents how effective your practice is at collecting the actual collectible portion of the claim.
Net Collection Ratio = (Payments – Refunds – Patient Adjustments) / (Gross Charges – Contractual write-offs)
Unlike the gross collection ratio, the net collection ratio can be compared across practices. After you remove contractual write-offs from the equation, you are focusing on the portion that is actually collectible. Ideally, you would want the ratio to be 1.0 (or 100%), but we all know that bad debt is inevitable.
Collection Ratios and Timing
It’s important to remember that collection ratios are affected by time. For example, if you look at your collection ratios one month after the claims have been billed, the ratios will likely be much lower than if you waited 3 months. Obviously, the more time you allow, the higher the collection ratio will be – to a certain point.
For this reason, it’s helpful to look at your collection ratios against a set amount of charges at various points in time – such as 3 months, 6 months, 9 months, or even 12 months out. The main thing is that your are consistent when you are trending these ratios.
Charge-Based Reporting
Keep in mind that collection ratios are charge-based metrics. For example, if you are evaluating your collections for the first quarter of 2020, make sure you only look at payments, adjustments, and refunds that are associated with those charges.
Monitoring Collection Ratios
Now that we have gotten through how to calculate collection ratios, the next step is determining the most effective way to track them. As you can imagine, trying to obtain all the data necessary to come up with collection ratios using your PM system’s canned reports would require several reports. Apart from pulling charges from your system, you would need the associated payments, adjustments (don’t forget that you would need to separate patient adjustments from insurance adjustments), and refunds. You would then need to export that data to Excel or another spreadsheet program so that you could perform the calculations.
This is both cumbersome and time consuming.
Monitoring Collection Ratios with BI Tools
Using a business intelligence tool like Microsoft Power BI or Microsoft Excel with PowerPivot, you can easily create collection ratio reports and dashboards. These tools allow you to easily view the data from various perspectives (payer, financial class, location, etc.). The great thing is that you can build the collection ratio calculations into the system, thereby making it very easy to use these measures in your reports without having to recalculate.
The screenshots below show an example of how I use Power BI to evaluate collection ratios.
This first screenshot shows a trend of the collection ratios for each quarter. In this example, we can compare the collection ratios at 3 months out, 6 months out, and 9 months out. As you can see, it’s very easy to filter by month/year, payer, financial class, location, etc. You can even look at the collection ratios by department. For example, you could focus just on office visits to see how well the collections are for those services.
The next screenshot is another way to approach collection ratios. It basically looks at a set of charges (e.g., January, 2019) and evaluates the collection ratios each month. You can look down the rows and see how much was collected each month, which ultimately gives you the total gross collection ratio at the bottom. As you can see, the majority was collected in the first three months.
There are countless other examples of how you can evaluate collection ratios once you have them built in a BI application. Think about how you could evaluate your practice’s collections with these types of tools.
I’ll be posting other collection-related ideas in the future. In the meantime, check out some prior posts related to the collection of outstanding balances and deductibles. Feel free to email me at medicalpracticeintel@outlook.com if you have any questions, comments, or suggestions.