As you probably know, collecting reimbursements is a critical component of your practice’s revenue cycle, and in order to ensure peak financial performance, your practice will need to know how to calculate your adjusted collection rate. This benchmark, along with the others we’ve recently discussed – Days in Accounts Receivable, A/R>120 days, and Denial Rates — are key to developing a clear understanding of your overall revenue cycle.
The adjusted (or net) collection rate is a measure of a practice’s effectiveness in collecting reimbursement. This number represents the percent of reimbursement achieved out of the reimbursement allowed based on contractual obligations. Practices can calculate their adjusted collection rate to see how much revenue is lost due to factors such as uncollectable bad debt, untimely filing and other non-contractual adjustments.
To calculate your practice’s adjusted collection rate (see example below), first, divide the payments (net of credits) by the charges (net of approved contractual adjustments), for a particular time period that you want to monitor. Next, multiply this number by 100 to get the total adjusted collection rate. Payments will need to match up with their originating charges for the most accurate calculations. Keep your reporting consistent by basing your time period to one year, six months, 3 months or whatever works best for your office.
The best performers have adjusted collection rates higher than 99 percent. Average performers have rates that fall between 95 and 99 percent. The poorest performers have adjusted collection rates below 95 percent.
Like all billing indicators, performance as measured by the adjusted collection rate is also influenced by your payer mix and specialty, as well as the level of automation in your practice’s billing and collection cycles.
As with all financial calculations, there are some things to be aware of as you calculate your adjusted collection rate, including applying inappropriate write-offs to charges when calculating the adjusted collection rate and not having access to your fee schedules for each payer. To ensure an accurate calculation of your adjusted collection rate, it is important to account for these factors.
You can learn more about avoiding these common mistakes with calculating your adjusted collection rate and measuring other key revenue cycle metrics by downloading this free resource guide, Key Metrics in Revenue Cycle Management: Measurements that Ensure Peak Financial Performance.