What is 'Net Collections'

Net collections is a term used in medical accounting to describe the amount of money collected on the agreed-upon fees charged. Net collections are usually lower than net charges (the total amount the provider agrees to accept as payment) and it is certainly lower than gross charges (the provider’s total invoice amounts before insurance adjustments and other adjustments).

BREAKING DOWN 'Net Collections'

The net collections rate is calculated by dividing payments received from insurers and patients by payments agreed-upon with insurers and patients. A medical practice reports its net collections on the income statement along with gross charges, net charges and the gross collection rate.

Many factors affect how much a medical practice actually collects compared to how much it would like to collect in an ideal world. To start with, several factors lower gross collections. For example, insurance companies may not pay the doctor’s full fee; doctors typically agree to limit their fees to scheduled amounts under their agreements with health insurance companies. In addition, some patients will not pay their bills in full or at all, so the practice will never receive the total amounts owed from those patients. Also, a provider’s billing staff might cause the practice to lose money by not filing claims by the deadline, and insurers may deny some claims that aren’t covered.

Suppose a medical practice’s annual invoices totaled $1 million. That sum would represent its gross charges. The amount the practice actually receives after sending the invoices to its patients and their insurance companies might be $800,000; this is the practice’s net collections.

The adjusted (or net) collection rate is a measure of a medical practice’s effectiveness in collecting reimbursement dollars. As an effective benchmark of your practice’s financial health, it represents the percentage of reimbursement achieved out of the reimbursement allowed based on contractual obligations with payers. Practices calculate their net collection rate to see how much revenue is lost due to factors such as uncollectible debt, untimely filing, and other non-contractual adjustments. Along with days in accounts receivable and denial rates, the net collection rate is key to developing a clear understanding of your overall revenue cycle.

Another way medical practices can analyze their performance is to look at their net collections by payer. Typical payers include Medicare, Medicaid, private health insurance and individual patients. If a medical practice saw that its net collections were unacceptably low for one of these categories, it might stop accepting those patients or start requiring those patients to pay up front before seeing a doctor or having any tests or procedures performed.

RELATED TERMS
  1. Net Receivables

    Net receivables is the total money owed to a company by its customers ...
  2. Collection Commission

    Collection commission refers to the percentage of premiums that ...
  3. Medical Identity Theft

    Medical identity theft involves the use of another person's health ...
  4. Health Insurance

    Health insurance is a type of insurance coverage that pays for ...
  5. Capitated Contract

    A captitated contract is a healthcare plan that provides payment ...
  6. Net Profit Margin

    Net profit margin, or net margin, is equal to net income or profits ...
Related Articles
  1. Managing Wealth

    Should You Insure Your Collectibles?

    Insuring your valuable collectibles is just as important as insuring the rest of your home's contents.
  2. Investing

    Watch for trends in average collection period

    Discover why average collection period can be a particularly important accounting ratio to watch for a company that relies heavily on credit sales.
  3. Financial Advisor

    How Collectibles Are Taxed

    The sale of collectibles can lead to a cash windfall, however, they are taxed pretty heavily because collectibles are not considered economic drivers.
  4. Financial Advisor

    The Advantages of Investing in Art & Collectibles

    Investing in collectibles can be profitable and fun, and can offer tax benefits for some.
  5. Insurance

    When Health Insurance Doesn’t Cover the Bills

    Health insurance doesn't pay enough to help the millions of consumers who are drowning in medical debt. Find other options to soften the blow.
  6. Financial Advisor

    Why Do Businesses Benefit From Life Insurance on Employees?

    Companies can buy life insurance on their employees and collect the benefit proceeds. Find out why companies want to benefit from the death of their employees.
  7. Insurance

    20 Ways To Save On Medical Bills

    Handy tips to cut the cost of hospital bills, co-pays, prescription drugs and more.
  8. Managing Wealth

    What to do when your doctor doesn't take medicare

    Here are 5 options to consider when your doctor does not accept Medicare.
  9. Small Business

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
  10. Personal Finance

    Why People with Good Health Insurance Go into Medical Debt

    A significant – but little-discussed – problem is that people are going into serious medical debt even with good health insurance. Here's why.
RELATED FAQS
  1. Debt and collection agency

    Find out what happens when your debt account is sold from one collection agency to another and the impact on your balance ... Read Answer >>
Trading Center