What’s your health center’s net collection rate? Prompt collections keep your practice thriving. Every payment or reimbursement helps cover your costs to ensure you can keep your doors open another day.
Federally qualified health centers (FQHCs) face an unfortunate truth: When an account is more than 60 days overdue, it has just a 70% chance of recovery. As it reaches the six-month mark, the odds of full payment are slim without strong revenue cycle management (RCM).
How to Calculate Net Collection Rate
Let’s look at how you can keep the money flowing by increasing the focus on your net collection rate. This vital measure of your overall financial performance shows why net collections can make or break an FQHC’s financial stability.
1. Calculate the Net Collection Rate Accurately
It’s essential to capture your collection rate accurately by calculating it using the right set of numbers. To calculate your net collection rate, divide your payments (the net of your credits) by your net charges. Multiply by 100 to get the percentage value or rate.
The charges should be the net of your approved contractual adjustments and should include all Medicaid/Medicare reimbursements and revenue from other sources. Always match payments to originating charges for accuracy in your calculations. Hint: Sort your payments by “service date,” not by the date they were posted.
Another helpful tip is to calculate based on payments that are at least 90 days old and up to 6 months old. Most FQHCs have slow revenue cycles where full payments are not received for 90-plus days after the date of service, so it’s best not to calculate based on your freshest set of charges.
Your net margin represents the total payments for a certain representative period divided by the total charges after all write-offs and adjustments. Here’s an example using $1 million in total payments received for the observed period. For clarity, we’re using a nice round number.
Your total payments received are $1 million.
Your charges after adjustments are $1.1 million.
Divide $1 million by $1.1 million.
Multiply by 100.
Your net collection rate is 91%.
2. Set a New Goal for Net Collections
While a net collection rate of 95% to 96% is ideal, Altruis’ experience shows that the rate should be at least 90% to 91% for a busy and successful FQHC. If your practice isn’t hitting that mark — or if you’re having trouble identifying what’s going wrong with your collections — Altruis can help.
Here’s something you might not realize: The collection rate is much more telling than other metrics, like the gross margin. Although gross margin is a popular metric in healthcare, it merely reflects a ratio of what you charge to what the payer allows.
Net collections are a much better reflection of your healthcare practice’s overall financial performance. See how successfully you’re collecting all possible revenue — particularly if you’re following our tip about calculating net collections around the six-month mark when claims are finally aging out of collectability.
A net collection rate of around 6% is almost always untenable. An FQHC simply can’t operate with this little revenue coming in. If your rate is this low, urgently examine the following issues.
- Mistake: Making a simple math mistake due to being busy or not having RCM staff available to address your metrics.
- Mistake: Calculating your net collection rate based on the current month or previous month, which is too recent for accuracy.
- Mistake: Not including the full range of your revenue from all sources.
- Mistake: Not following up on denied and rejected claims in your AR.
If your rate is around 75% to 80%, there’s still plenty of hope for your healthcare practice, but you’ll have to act fast. Many hospitals found that their self-pay rates dropped from about 75% in 2020 to 55% in 2021 due to the lasting impact of the COVID-19 pandemic and other factors.
Implement RCM best practices immediately to increase payments and reimbursements while minimizing unpaid bills. Move your net collection rate steadily upward and don’t allow your focus to falter until the rate is much stronger.
3. Raise Your Net Collection Rate
Improve your net collection rate by implementing RCM best practices at every stage in the process, from verification to collections. Here are our tips for raising your net collection rate.
- Implement stronger pre-verification and credentialing standards for patients and providers.
- Track reimbursement claims carefully and intervene when they are stalled or denied.
- Ensure your associates understand the difference between rejected claims, which can be corrected or completed, and denied claims, which can be appealed.
- Appeal denied claims consistently and follow them through the process until reimbursement or final denial is confirmed.
- Double-check your coding standards and ensure every associate is coding every service correctly.
- Take a more proactive approach to collections by working with an RCM partner and implementing revenue optimization strategies.
Ask for Help From Altruis
Asking for help is the best approach when you’re not able to maintain a high net collection rate. Maybe you don’t even have time to measure it!
We get it. You’re overloaded, your staff is stressed, and your patients need you more than ever. It’s hard to focus on the numbers when you’re already focusing on what’s most important: your patients.
Altruis refines medical billing techniques while improving cash flow and minimizing the factors that inhibit revenue generation. In fact, Altruis was selected by the California Primary Care Association (CPCA) as its strategic partner for RCM services for its members.
We’d like to show you that it’s possible to increase your net collections while providing outstanding patient care. We’ve already accomplished this feat for many CPCA members, driving strong net collection rates.
We’ll take care of the margin. You take care of the mission. Schedule a call with us to learn more.
