Measuring Collections

January 1, 2007

We would like to know what the average collections ratio of a practice’s total billed charges should be. For example, in January 2006, we billed $250,000. After insurance payments, adjustments, and patient payments, a balance of $23,000 remained uncollected. The physician thinks this is outrageous. Where do I find the average percentage that should be collected? The physician is even thinking that maybe we should outsource our billing.

Question: We would like to know what the average collections ratio of a practice’s total billed charges should be. For example, in January 2006, we billed $250,000. After insurance payments, adjustments, and patient payments, a balance of $23,000 remained uncollected. The physician thinks this is outrageous. Where do I find the average percentage that should be collected? The physician is even thinking that maybe we should outsource our billing.

Answer: The trouble is that it’s hard 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’re owed from the payer and the patient, you aren’t going to get anything close to that. It would obviously be crazy for your physician to expect you to collect it. On the flip side, 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 judge their collections success based on adjusted collections. What did you collect out of what you were actually owed (not out of what you charged)?

As for data, the following is from the MGMA’s “Cost Survey: 2005 Report Based on 2004 Data,” and it is relevant to just general surgery:

  • Gross FFS collection: 41.61 percent median (This is the amount of the total charges that you collect.) My math says your ratio is 91 percent.

  • Adjusted FFS collection: 93.98 percent (This is the amount that you collect out of what you’re owed.)

It’s important to identify where mistakes are happening before outsourcing. If processes outside the billing office are the hang-up (like verification), outsourcing your billing won’t change things at all. Your problems will still be in-house.