What is net collection rate?
Net collection rate is the percentage of payments received out of of the total amount you're contractually owed from insurers. The higher your net collection rate, the better you are at collecting reimbursement for services.
If you struggle to collect revenue due to coding errors, untimely filings, claim underpayments, and denials, you will have a low net collection rate. On the other hand, you will have a high net collection rate if you send bills promptly, collect patient balances, and adjudicate claims.
For healthcare providers, the net collection has a significant impact on financial success. A high net collection rate means improved financial health and cash flow. You should monitor it regularly. Consider calculating it every quarter.
How to calculate net collection rate
If your net collection rate is always low, you should analyze the root cause. Most of the time, practices have low net collection rates due to organizational inefficiencies and patient communication issues.
You can calculate your net collection rate by:
- Choosing the time frame you want to monitor — for instance, 60 to 90 days.
- Calculating the cash collections dividend for the timeframe. Your cash collections dividend is the total payment from patients and payers.
- Calculating the net charges for the time period. You can calculate your net charges by subtracting required third-party and government adjustments from your total or gross charges.
- Dividing your cash collections dividend by net charges.
- Multiplying the result by 100.
Do this regularly for at least a year to get an accurate net collection rate. When calculating, remember to keep reimbursement and fee schedules on hand. This will give you a clearer picture of what you should have received. It will also help you avoid inappropriate write-offs.
Net collection rate benchmark in healthcare
According to the Medical Group Management Association (MGMA), the benchmark net collection rate is over 95%. Similarly, the American Academy of Family Physicians (AAFP) lists the average net collection rate range as 95% to 99%. The highest-performing providers achieve a minimum of 99%.
Ways to increase net collection for your medical practice
Now that you know what a net collection rate is and how to calculate it, here are some ways to increase net collection for your medical practice.
Educate patients about the payment process
Most patients don't understand their financial obligations when consuming medical services.
Accordingly, you should create educational materials to explain the payment process to patients. Consider creating blogs, videos, brochures, and reference sheets that outline patients' duties and roles in the payment process. You should also get a staff member to answer questions and concerns about payments and claims.
Start or increase upfront collection
According to research by Healthcare Dive, healthcare practices only collect outstanding balances at service time 12% of the time. Yet 67% of the time, providers collect nothing at service time.
When you don't accept deductibles, copayments, and other charges at service time, your employees will have to follow up. This can lead to a slowdown in efficiency, especially when calls and mail start piling up.
Fortunately, there's a way to improve your office's efficiency — by encouraging patients to pay upfront. You can do this by:
- Sending patients reminders that they must pay for medical services upfront
- Discussing other payment options if the patient cannot cover the cost at the time
Make it convenient for patients to pay
The more payment options you have, the more likely patients will pay their bills promptly. At a minimum, you should:
Offer payment plans
The high cost of medical bills may make it difficult for patients to pay bills in full. Provide patients with no or low-interest payment plans so they can pay parts of their bills every month.
Accept digital forms of payment
You should also offer various forms of digital payment through your patient portal, including:
- Credit/debit card payments
- Mobile app payments
- Online portals
Make net collection rate a key performance indicator (KPI) and track it
A key performance indicator (KPI) is a quantifiable value that demonstrates how effectively a practice is achieving key business goals.
If you make your net collection rate a KPI, you will have an easier time tracking it and keeping it high. Just remember to keep the following in mind when setting your net collection rate as a KPI:
- Keep your net collection rate actionable. After setting the net collection rate as your KPI, you must outline actionable steps for reaching it. You also need to pinpoint the metrics you'll measure along the way.
- Start small. Start with small changes. The bigger your KPI, the harder it will be to meet.
- Use the right tools. KPIs shine when shared with your whole practice. Consider getting a KPI dashboard or tool to share, manage, and export your net collection rates. KPI dashboards also empower you to:
- Compare and analyze different KPIs
- Perform complex analyses of your data sources via databases, such as MS SQL, MySQL, and Oracle
- Segment and filter KPIs
- Set recurring and threshold goals
- Receive data change notifications via app or email
- Use artificial intelligence and predictive analysis to make future-proof decisions
Address or avoid denied insurance claims
Denied insurance claims can add up over time. Accordingly, if your organization doesn't have adequate resources for addressing denied claims, you should consider establishing a minimum amount for writing off claims rather than fixing and resubmitting them.
Alternatively, you can follow these steps to avoid denied insurance claims:
- Check that all of the information is correct. Look at all of the patient information, including the spelling of the patient's name, their subscriber insurance policy number, their date of birth, and the guarantor's name. Small errors such as spelling errors can trigger denials.
- Establish processes that can notify you of important deadlines and milestones. Your system should also be able to inform you about claim submissions, essential claim requirements, and claim status follow-up.
- Regularly assess your status in the network. As soon as a patient contacts you, you must ascertain your status in the network. Inform the patient if you are out of network and list the benefits they can still receive from you.
Detect and appeal underpayments and denials from insurers
Once an insurer handles your claim, you have already spent hours on the billing process. As a result, you must minimize denials and underpayments from insurers. Otherwise, your net collection rate will continue to drop.
Underpayment happens when the insurer's payment is less than the costs of providing care. Here's what you should look at to detect and appeal underpayments and denials from insurers:
Coding errors will lead to underpayments and denials. Some of the most common coding errors in medical claims include:
- Missed information from hurried intake: Entering incorrect data for insurance providers, providers, and patients is a common mistake. This mistake usually happens during emergencies, when intake takes a back seat to medical care.
- Inconsistent and sloppy documentation: If healthcare providers submit inconsistent and sloppy paperwork, medical billing experts will have difficulties assigning the correct codes and billing consumers properly.
- Upcoding: This happens when your team uses a billing code for a more expensive or complicated service than what was actually done.
- Undercoding: Undercoding happens when consumers are not billed for all of the services or treatments rendered.
- Improper hydration and infusion codes recording: These services require accurate start and stop times.
- Overusing the modifier 22-increased procedural services: You should only use modifier 22 when a patient's procedure requires more work than usual.
Sometimes, insurers make mistakes, leading to incorrect denials. There are two ways to dispute an incorrect denial:
- Internal appeal: Ask the insurer to conduct a fair and full review of its decision. If the case is urgent, ask the insurer to accelerate the process.
- External review: You can also take your appeal to an independent third party. If you choose this route, the third party will determine how much the insurer pays.
Pricing mistakes often lead to underpayment and denials. You can eliminate pricing mistakes by adopting the following best practices:
- Checking for errors in patient information
- Knowing provider fees and contracts for top-paying codes
- Regularly training your staff
- Avoiding duplicate claims
- Documenting underpayment appeals properly by citing contract terms and calculations
- Tracking KPIs to track cash flows and identify negative payment trends
- Checking for opportunities to negotiate reimbursement rates
- Submitting claims with reliable billing software
The importance of maintaining a high net collection rate
Regularly calculating a high net collection rate offers many advantages. If your net collection rate is high, your practice effectively collects all legitimate types of reimbursement.
On the other hand, if your net collection rate is low, your medical practice is losing revenue. A low net collection rate also indicates that your medical practice is wasting time and money on reworking rejected claims.
Unfortunately, maintaining a high net collection requires a lot of work. At minimum, you must start or increase upfront collection, make it convenient for patients to pay upfront, turn the net collection rate into a KPI, address or avoid denied insurance claims, and detect and appeal underpayment and denials. Consider getting a medical billing or KPI dashboard or platform like MD Clarity to simplify the process. Schedule a complimentary consultation to see how our software can help you identify and appeal underpayments from payers.