Determining Collection Ratios

March 1, 2007

We would like to know what the average collection ratio of a practice’s total billed charges should be. For example, in September 2006, we billed $250,000. After insurance payments and adjustments and patient payments, $23,000 remains uncollected. The physician thinks this is outrageous. What is the average expected loss or uncollectible amount for most practices? The physician is even thinking that maybe we should outsource our billing.

Question: We would like to know what the average collection ratio of a practice’s total billed charges should be. For example, in September 2006, we billed $250,000. After insurance payments and adjustments and patient payments, $23,000 remains uncollected. The physician thinks this is outrageous. What is the average expected loss or uncollectible amount for most practices? The physician is even thinking that maybe we should outsource our billing.

Answer: The challenge in answering your question directly is that it is difficult to evaluate collections based on billed charges.

Look at it this way: You can bill $2 million for an appendectomy, but even if you collect everything you are owed from the payer and the patient, you aren’t going to get anything close to that amount. So it would obviously be unrealistic for your physician to expect you to collect it.

On the other hand, you could charge $5 for an appendectomy, and your physician would be just tickled pink to see collections at 100 percent - even though he’d be losing money like crazy.

So I generally encourage folks to gauge their success based on adjusted collections. That is, what did you collect out of what you were actually owed (not out of what you charged)?

To obtain some hard data, you can purchase the Medical Group Management Association’s “Cost Survey: 2006 Report Based on 2005 Data.”

According to the MGMA, the gross fee-for-service (FFS) collection median rate is 41.6 percent (what you collect of what you charge). The adjusted FFS collection median rate is 93.98 percent (what you collect of what you are owed).

If the physician feels a problem persists, it is important to identify where mistakes are happening before outsourcing. If processes outside the billing office are the hang-up (like verification or late documentation), outsourcing your billing won’t change things. Your problems will still be in-house.