Collection ratios can show how much you’re owed
October 1, 1999 4 minutes read
Collection ratios can show how much you’re owed
Simple arithmetic doesn’t work anymore
It used to be pretty straightforward and easy for practices to measure how well they were collecting on the monies owed them. The basic collection ratio of dividing payments by gross charges was good enough for most physicians’ needs.
However, with the growth of managed care and complex payment agreements, the good old days of using simple arithmetic to determine how efficiently you are collecting on payments due are over, says Jack Valancy, a Cleveland Heights, OH-based reimbursement expert consultant to the American Association of Family Physicians.
To improve the accuracy of collection calculations, Valancy has developed a simple process for calculating individual plan collection ratios:
• Create a separate plan code (also called payer category, financial class, or insurance type) for each plan covering many patients. "I suggest giving the plan codes descriptive names so you can distinguish among different plans offered by the same company," says Valancy.
For the plans that include only a few of your patients, you may want to categorize these by a generic type of heading — Medicare HMOs, miscellaneous HMOs, capitated HMOs, and miscellaneous indemnity plans, for instance.
• Attach payment codes corresponding to each plan. For each plan category, list the appropriate payment codes reflecting how much you received from the patient, plan, or other sources for services covered by each plan.
• Enter adjustments. For each plan code, set up another code to reflect any contractual adjustments, voluntary adjustments (professional courtesy, discounts, and charity care), or bad debt write-offs.
• Enter plan code for each patient record. In each patient record, enter the code for the patient’s insurance plan. For patients who have more than one plan, use the code representing the primary plan.
To ensure this information stays current, have your staff verify the patient’s insurance information each time the patient comes in for a visit.
Tracking charges
Once this basic information has been gathered and entered into your computer system, you can start tracking charges, payments, and various types of adjustments by plan.
To track charges, post your usual charges (not your discounted charges) for all patients. For those in capitated plans, immediately post a counterbalancing adjustment. This way, you’ll know the full value of the services you’ve provided to patients in each plan and you won’t send bills to patients in capitated plans that don’t owe you money, says Valancy.
Next, post payments according to the plan code the patient had at the time of the charge, not according to the source of the payment. This will permit you to find out how much you are receiving for patients covered by each plan, regardless of whether some of the payments come from patients or secondary insurers.
Capitation payments and other non-charge-related receipts from plans (such as withhold payments and bonuses) can present a special challenge. "Although some patient accounting programs have transactions for recording these properly, most don’t," Valancy notes. "If your accounting system can’t easily record these payments, keep track of them under separate payment codes in your general ledger system."
Valancy says the reports from your patient accounting system showing charges, payments, and adjustments by plan code, combined with your general ledger system’s revenue reports of all other payments, should give you enough data to calculate how much each plan is really paying you.
Because the figures in these reports can fluctuate widely from month to month, he says combining data to produce three-month, six-month, or even 12-month profiles is the best way to use this information.
To perform the payment analysis:
1. Calculate total receipts. For each plan, add all payments you received from the insurer, patients, and any secondary insurance plans, including capitation payments, refunded withholds, bonuses, and other payments.
2. Determine collection ratio. Divide the sum by your gross charges (i.e., the full value of your services) for patients in that plan to give you a collection ratio. An added advantage is that after comparing the collection ratios for all your plans, you can spot where you should focus your efforts when you renegotiate contracts with insurers.
3. Make adjustments. Determine the following three adjustment ratios for each plan code: contractual adjustments, voluntary adjustments (professional courtesy, discounts and charity care), and bad-debt write-offs.
4. Calculate ratios. For each plan, divide the sum of each of the three above adjustments by your gross charges for the period. Once this has been done, the contractual adjustment ratio will show how much the plan is discounting your fees; the voluntary adjustment ratio will show how much you’re discounting your fees; and the bad-debt ratio will show how much of what patients and plans owe you is being written off as uncollectible.
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