Simple Formula To Calculate How Much Of What You Can Collect, Do You Collect

Today’s post by guest blogger Mary Pat Whaley – Managemypractice.com. Mary clarifies a few misunderstandings managers often have regarding the term collection percentage. She also defines the term “funny money.” Read to find out what she is talking about.


 

COLLECTION PERCENTAGE

Screen Shot 2015-11-20 at 12.10.44 PMOne of the most talked about and least understood metrics is the collection %. There are two reasons it is misunderstood. One is because most people talk about a monthly collection percentage, as if the money you collect this month relates to the charges you billed this month.

Some of it does – the co-pays, deductibles, and co-insurance definitely applies to this month’s services, but the insurance payments most often do not.

This is how you can collect more than 100% in a month – by having lower charges and higher collections, you can achieve more than 100% collections! Not a real metric!

THE PROPER WAY TO MEASURE

Over the course of 12 months, it tends to even out, so you can use your annual collection % with a degree of confidence, but the very best way to know what you are collecting is to use a report that applies the payments (regardless of when they arrive) to the services in the month they were rendered. If your PM system doesn’t have this report, ask for it.

GROSS CHARGES, REAL OR NOT?

The second is because gross charges are not necessarily “real” numbers. Most practices set a retail fee schedule at a point to capture the most any payer will reimburse them. So, a practice could set its fees anywhere and never really expect to charge or to collect what I call “funny money.”

How to calculate:

Collection % = Net collections / Net charges.


Net Collections = Gross Collections – (Refunds).


Net Charges = Charges – (Contractually Obligated Write-offs).


 

Contractual write-offs are the difference between the practice fee schedule and the fee schedule you’ve agreed to accept.

PROPER COLLECTION RATE

A 98% or better collection rate is considered excellent, depending on what, if any, other write-offs you include with your contractual adjustments.

If you have only one category of write-offs (sometimes called adjustments) in your PM system, you are going to find it hard to calculate this percentage.

You may want to introduce new write-off categories and have your staff post-contractual adjustments to one category and other types of adjustments to several other new categories.

See my article here for in-depth information on creating write-off categories and managing write-offs.

If you have your contracted adjustments separated, follow the formula above to get your collection percentage.

Some practices will use a rolling 12-month figure for their collection percentage (i.e. ignoring the most recent month, use the last 12 month’s cumulative total net collections divided by the total net charges.)

 


If you found this article helpful, so will somebody else. Consider sharing it. Remember, sharing is caring.
Also, Make sure to check out Mary Pat’s blog for a treasure trove of practice management related articles.

 

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  1. Collection calculations

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