In October 2017, we began our review of Measuring Practice Billing Performance, and explained that there is no “silver bullet”, or single measure, that assesses overall performance, but rather a series of key measures to understand and monitor monthly. These measures include, but are not limited to: Accounts Receivable (A/R) balance, A/R Days Outstanding, Net Collection Percentage, and % of A/R greater than 120 days old. In this issue, we will review the calculation and meaning of Net Collection Percentage.

What is Net Collection Percentage? 

A measure of how much your practice collected versus how much was collectable, in a specific time frame.

How is Net Collection Percentage calculated? 

Several amounts from your billing reports go into the formula for Net Collection Percentage.  The numerator represents the net amount of payments the practice collected from billed charges, and the denominator represents the total expected collectable amount.

What are the components of the Net Collections Percentage formula?

  • Numerator = Total Payments Received, less Refunds mailed.
  • Denominator = Total Charges Less Contractual, Denial and Un-billable Receivables Adjustments.

Net Collection Percentage Formula:

[(Payments less Refunds) divided by (Charges less (Contractual, Denial and Un-billable Adjustments))] x 100

What are Contractual adjustments?  

Charge deductions that are pre-negotiated and determined by the Managed Care Contract between the practice and the insurance company.  These include, but are not limited to, contractual fee schedule adjustments, capitation reductions and sequestration reductions.

What are Denial Adjustments?  

These receivables adjustments are Contractual in nature, yet are often separated from Contractual Adjustments for better tracking.

What are Un-billable Adjustments? 

These include bank and collection agency fees, charity write-offs, special program discounts and small balance write-offs.

Why aren’t Bad Debt Write-Offs included? 

These are excluded since the formula assumes these balances are collectable. The greater the Bad Debt Write-Offs, the lower the Net Collection Percentage.

What effect does the outstanding A/R Balance have on the formula? 

The larger the remaining A/R Balance, the lower the Net Collection Percentage, because those remaining balances count as collectable charges that were billed but not yet adjudicated or collected.

Is it possible to achieve a 100% Net Collection Percentage?  

In considering the variables in the Net Collection Percentage formula, it’s important to understand that achieving 100% is possible, but highly unlikely.  This is because it is highly unlikely to measure a time frame when all charges are adjudicated, all patients have paid their portion of the claims, and therefore there are no bad debt write-offs, and the outstanding A/R Balance is zero.

What is a good Net Collection Percentage? 

While there is no “good” benchmark Net Collection Percentage that can be used for all practices, it is recommended that each practice monitor its percentage over time, scrutinizing adjustments, bad debt write-offs, and open Accounts Receivable balances carefully.  The MGMA periodically publishes median ranges of Net Collection Percentages for primary care and other groupings of specialties based on survey responses.

How do I find my Net Collection Percentage in my StreamlineMD monthly report package?

For StreamlineMD clients, the first page of your report package contains your practice’s Net Collection Percentage based on the latest period of data, as well as many other critical billing performance benchmarks.  If you have questions, please contact your StreamlineMD client representative.