Your Anesthesia Net Collection Ratio – Can it be 100%?

 By Joe Laden, Vice President of Client Management

The short answer:  “Yes, but probably not.”

Typically, the Net Collection Ratio (NCR) is calculated as Payments / (Charges – Contractual Adjustments). If contracted payers paid all your charges with nothing left to patients or secondary payers, the Net Collection ratio would be 100%, assuming that all charges had been resolved.

However, the reality is that payers -including government payers- leave deductibles, coinsurance, and copays for patients to pay, and when patients do not pay, the result is bad debt.  The medical practice may also have non-contracted payers and patients with no insurance and when charges are not paid in full, bad debt results.

If at the end of the period over which the Net Collection Ratio is measured, there are accounts not paid, the unpaid accounts receivable amount will reduce the Net Collection Ratio.

There is another formula that can be used to calculate the Net Collection Ratio.  Here is how it is derived:

The formula for calculation of Accounts Receivable is Accounts Receivable = Charges – Payments – Contractual Adjustments – Bad Debt Adjustments.  Algebraically rearranged, the formula can be rewritten as Charges – Contractual Adjustments = Account Receivable + Payments + Bad Debt Adjustments.   If we substitute (Accounts Receivable + Payments + Bad Debt) for (Charges – Contractual Adjustments) in the standard formula for the Net Collection Ratio (above), the result is:

Net Collection Ratio = Payments / (Account Receivable + Payments + Bad Debt Adjustments).  Note that with this formula, Charges and Contractual Adjustments are not a factor.

We can now easily see that if Accounts Receivable and Bad Debt Adjustments are both zero, we have

Net Collection Ratio = Payments / Payments = 1, or 100%.

If the Net Collection Ratio (NCR) is measured over a prior period for which accounts receivable (A/R) is zero, the calculation will be:

NCR = Payments / (Payments + Bad Debt)

As an example, if $1,000,000 were collected during the measurement period with $50,000 in bad debt written off, and the A/R is zero, NCR would be $1,000,000/($1,000,000+$50,000) = 95.3%.

When calculating NCR, is it essential to take the length of the time period over which A/R, Charges, Payments, Contractual Adjustments, and Bad Debt Adjustments are measured and whether these quantities are taken into account by the date of entry or date of service. This will be a topic for future consideration.

 Joe Laden is the Vice President of Client Management, AdvantEdge Healthcare Solutions, and a nationally recognized anesthesia expert and speaker, working with anesthesia practices across the country to improve their billing and coding operations.

Stop by The AdvantEdge Healthcare Solutions booth #417 at PGA73 and meet with Brice Voithofer, Vice President Anesthesia, and Kevin McDonald, Senior Vice President Sales and Marketing about your Anesthesia group practice billing and coding needs.

AdvantEdge Healthcare Solutions is a national top 10 medical billing company that provides billing, coding, and revenue cycle management solutions for anesthesia practices since 1989.   If you have questions about how AdvantEdge can improve your anesthesia billing and coding so that you are collecting every dollar that you’re legally and ethically entitled, please call us at 877-501-1611 or email info@ahsrcm.com

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