A host of factors affect a practice’s revenue cycle, but none more important perhaps than the adjusted (or net) collection rate. Barbie Hays, coding and compliance strategist for the American Academy of Family Physicians (AAFP), said knowing this number is crucial to understanding a practice’s income and how the practice can bring in more money.
“The net collection rate is what you need to pay attention to,” she said. “It tells you the health of your practice, and if you are making any money.”
The adjusted collection rate is the percent of total reimbursement collected out of the total a practice could have collected. Tallying this number is a way to find out where and why the practice is losing potential revenue.
To figure the adjusted collection rate, divide charges from payments and multiply by 100 to get the percentage. The following is an example from the AAFP showing how to calculate these numbers.
(Payments – Credits) / (Charges – Contractual Agreements) x 100
- Total payments: $500,000
- Refunds/credits: $14,000
- Total charges: $850,000
- Total write-offs: $350,000
- ($500,000–$14,000) / ($850,000–$350,000)
- $486,000 / $500,000
- 0.972 x 100
- Adjusted collection rate: 97.2%
A practice can strive for numbers like a rate of 99%, but Hays said in the real world, somewhere around 95% is optimal. An adjusted collection rate at or below 90% is an indicator the practice has problems in some areas that need to be resolved.
If the collection rate is in the low 90s, the best way to identify the issues is to break up collections by payer. The same calculations should be performed for each payer to identify outliers. “If only one of your payers is at 90%, it will knock down your total, and you won’t know why it is happening without looking at individual payers,” Hays said.
A few common issues may explain a lower collection rate. The first is denial codes. Many vendors can work with a practice to create reports that track the reasons for denials. By checking these, practices can look for patterns, which can be something as simple as submitting incorrect policy numbers. Hays used to work at a practice when Cigna came out with new identification numbers that used both zeros and the letter “o.” The staff was inputting them incorrectly. When she began pulling claims, she found that a large number were denied because of incorrect policy numbers.
Another area in which medical offices can trip up is not obtaining prior authorization, Hays said. Practice management systems should have a way to identify which claims prior authorization denials were attached to, what information the practice office should be submitting but is not, and the process for obtaining prior authorization for each scenario. Practices may be able to create a process that flags claims that need prior authorization before the claims are submitted to ensure the appropriate information is attached.
“This is something that isn’t just always up to the front desk, it’s a team effort,” Hays said. “It’s not just billing, but nurses and physicians all need to know that just because they do a procedure, it doesn’t mean they are going to get paid for it.”
Hays also recommends a report that checks for high write-offs. Creating this report can inform practices of payers that have write-offs higher than 50%, which Hays said should throw up red flags. In these cases, these payers’ fee schedules can be pulled to see where the discrepancies lie. For instance, if the negotiated rate is $80 for every $100 charged, and they are using a write-off of $40 for each $100, the payer should be contacted to find a resolution. “Twenty dollars out of $100 is a big chunk of change,” Hays said.
Fee schedules are something that most practices do not take the time to enter into their system, but practices would benefit from doing so, Hays said. For example, if a contract with a payer says it is supposed to pay a practice $140 for a specific code, most electronic medical records (EMR) systems issue an alert and create an exception report if payments are less than the expected amount.
Hays also recommends keeping abreast of the costs of medications and supplies. Prices can fluctuate, and if reimbursement rates do not at least cover these costs, a practice can end up losing money.