Formula

• Gross collection can be derived by dividing the total amount collected by the total amount billed for any given time frame. Billed charges include noncapitated ones or those paid by a health maintenance organizations (HMOs). Write-offs are not to be considered such, which means that they are still part of the charges taken as gross.
  
  Net collection is derived by dividing the total amount collected by the total amount billed within a given time frame, but this time, the total amount billed considers write-offs which are deducted accordingly. This ratio is called the adjusted collection ratio.
  
  

Good Ratios

• When the gross collection rate is too low, the collection process itself may need to be reviewed. Having a high gross collection rate may also indicate that the practitioner is undercharging; conversely, it may indicate that the collecting process is efficient, whether collections come directly from patients or from third-party entities. It is to be noted, however, that a low gross collection ratio doesn't necessarily signify that the practitioner is making little money.
  
  Net collection rate should ideally be around 90-100 percent after all write-offs have been taken out of the equation. Low net collection ratios indicate the necessity of appraising the quality of practice.
  
  

Write-offs

• The gross collection ratio does not reflect charges written off because of government or third-party contracts. It also does not indicate charges written off as professional courtesy discounts, bad debts, charity care, coding, eligibility, filing, registration errors and contractual charges. It considers all procedures performed by the practitioner as equal in all aspects.
  
  Net collection ratio, being an adjusted collection figure, promptly takes such charges as not constituting the collection rate. It also depends on the practitioner's field of specialty, with stable practices having more repeat patients and fewer new ones. New patients include transient ones that only seek the practice for specialized procedures, i.e., surgery and out-patient.
  
  

Image Accuracy

• Since gross collection does not reflect contractual allowance effects, it merely shows an artificial figure. It is readily adjustable by maneuvering the charges without creating significant changes in revenue. Setting fee schedules higher than reimbursable allowances can create a low gross collection ratio. Too many third-party and other adjustment elements results in the same. Net percentage, however, shows how well the billing process is being handled. It shows an accurate picture of how well the practice is actually collecting money it is entitled to get.