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Today, we’re going to talk about the number one fake metric in revenue cycle management. That number one fake metric, drum roll please…net collection.
Net collection rate, to be clear, is not in and of itself a fake metric. There are entities out there that calculate a real net collection rate.
We mean that that’s the number one fake metric. It is the number one metric that is entirely made-up and fabricated by revenue cycle management companies, software companies, by a ton of different organizations. It is the number one most absurd, fake, completely made-up bogus metric out there. Increasingly, it’s becoming popular as a metric.
We recently got some analysis from a billing company that listed, among other metrics, that they calculated a net collection rate. The way that they calculated the net collection rate. I will tell you that this is the most absurd we’ve ever seen for a net collection rate, but it’s generally under the same principles of why they’re always made-up or almost always made-up. The way they calculated net collections was to take net payments and divide it by what you would call, in their words, what you should have gotten paid. The specific calculation was net payments, divided by charges, minus all the write-offs, adjustments, bad debt, and everything else that you would take out.
I want everybody to think about that for a moment. Net payments, divided by charges, minus everything that they took out. It makes your jaw drop. Its impressive how manufactured that is. It means that they get to calculate and have their net collection rate be 100% on every claim, all day, and every day. 100% net collection rate all the time.
Now, first of all, metrics only matter if they’re actionable. Suppose there’s something that you can do with that data, with that metric. It guides you in some direction. It tells you that you should make some change. There is some particular area to focus on, but this is completely a joke. The only purpose this serves is to pat yourself on the back. Maybe, that’s the goal of this billing company to say, “Look how great we are!”
We’ve seen that much more often recently. When people are touting their performance, they say we have some made-up net collection rate. The worst thing about this is you believe everything the payer says, which is entirely absurd.
What is Net Collection Rate?
If you should have gotten $100 on a patient encounter and only got $50, this will show 100%. It’s their net collection rate. If you got $0 when you should have gotten $100, it’ll still show 100%. If you send the claim to the wrong insurance company and got a denial back, saying “Wrong insurance company,” and you never got it to the right insurance company because you couldn’t get updated information from the referring ordering physician, something like that. You wrote it off because one of those categories was write-offs; that claim would have been written off, it would have been subtracted out of the denominator, and you would still be at a perfect 100%.
Holy mackerel! I mean, it’s insane! I can’t believe how egregious this is, but this is generally what we see when we see a net collection rate, which is you have this concept of what you should have been paid.
The problem with most net collection rate calculations is it assumes that what the payers are telling you is true. If they deny something and they give you a reason for it, and they don’t pay you, then you believe that that’s true. It doesn’t hurt your net collection rate when, in fact, more often than not, it’s not true what the insurance company says, or it’s something that’s solvable, and you could have gotten paid.
Even in that example where you sent it to the wrong insurance company, if you had gotten that information right away, or maybe you checked eligibility as soon as you got it before you did the study or processed sample or whatever it was. You got the corrected insurance information, and you could have gotten paid. Or if you knew the pay rule, such that you submitted it correctly with the proper diagnosis, you could have gotten paid.
The net collection doesn’t tell you much when you calculate it that way. Almost all of them that we’ve ever seen calculate this in a way to make whoever it is look better.
How often have you ever seen the net collection rate that’s 76% or 83%? It’s pretty much always 93%, 95%, 98% depending upon how self-aggrandizing they are. Number one fake metric in revenue cycle management – net collection rate, baby.