Your Revenue Cycle: Adjusted Collection Rate

In just six minutes, you can learn how to calculate your practice’s net adjusted collection rate. After watching this presentation, you will know how to:

  • Obtain a better understanding of the net adjusted collection rate and why it's important for your practice.
  • Learn how to calculate the net adjusted collection rate.
  • Discover problems to avoid, such as including appropriate write-offs in the calculation.

The adjusted collection rate represents the percentage of reimbursement collected from the total amount allowed based on contractual agreements and other payments, i.e., what you collected versus what you could have/should have collected. This metric shows how much revenue is lost due to factors in the revenue cycle such as uncollectible bad debt, untimely filing, and other noncontractual adjustments.

Best Practice Tips

  • The adjusted collection rate should be 95%, at minimum; the average collection rate is 95% to 99%. The highest performers achieve a minimum of 99%.
  • Use a 12-month time frame when calculating the adjusted collection rate.
  • Keep fee schedules and reimbursement schedules on hand to get an accurate picture of what you should have been paid and avoid inappropriate write-offs.

Calculating Adjusted Collection Rate

To calculate the adjusted collection rate, divide payments (net of credits) by charges (net of approved contractual agreements) for the selected time frame and multiply by 100.

Sample Calculation

  • (Payments – Credits) / (Charges – Contractual Agreements) x 100
  • Total payments: $500,000 
  • Refunds/credits: $14,000 
  • Total charges: $850,000  
  • Total write-offs: $350,000
  • ($500,000 – $14,000) / ($850,000 – $350,000)
  • $486,000 / $500,000
  • 0.972 x 100
  • Adjusted collection rate: 97.2%

Other Considerations

Inappropriate write-offs.
One of the most common mistakes when posting payments is applying inappropriate adjustments to charges.

  • For example, failing to distinguish between noncontractual adjustments and contractual adjustments results in a misleading view of how well your practice collects the money it has earned.
  • Categorizing noncontractual adjustments (e.g., “untimely claims filing” or “failure to obtain prior authorizations,”) will help reveal sources of errors and identify opportunities to improve revenue cycle performance.