PracticeForces Explains the Difference Between Gross Collections vs. Net Collections
Regardless of the type of clinic, every medical practice relies on having a consistent source of income. Without sufficient revenue, medical professionals will struggle to care for their patients, and clinics won't be able to pay their staff. Anyone who has run a clinic or been in charge of finances knows that measuring revenue can often be confusing, especially when figuring out gross collections vs. net collections.
Understanding the difference between these two types of collections is essential for any clinic that wants to thrive and provide the best patient care possible. When it comes to financial measurement in healthcare, medical practices need to do their due diligence in understanding the different types of revenue and how each one impacts its operations. PracticeForces, a medical billing management company, explains what practice owners need to know about collections.
Defining Gross and Net Collections
Before exploring their differences, it's important to define gross and net collections.
Gross collection refers to the clinic's gross income and profit margin. It's the simplest way to measure profit as it includes the cost of providing services. However, it does not include taxes, administrative costs, or other business-related expenses.
Meanwhile, net collection (also known as adjusted or cash collection) refers to the amount of money a clinic collects through agreed-upon charges. More often than not, gross charges are higher than net charges.
So what are gross and net charges? To put this into simpler terms:
- Gross charges are the total payments or invoice amounts before adjustments like insurance
- Net charges are the total charge amount that a medical provider accepts
The Net Collection Rate
When defining gross collections vs. net collections, it's essential to mention the net collection rate. The net collection rate measures how effective a practice is at collecting reimbursement money. It shows how much revenue a practice loses due to revenue cycle factors like debt, untimely filing, unpaid bills, etc.
How to Correctly Calculate Net and Gross Collections
Proper billing and collection start with accurate net and gross collection calculations. Fortunately, each one has a pretty simple formula:
- Net collection rate = (payments received / (charges - contractual adjustments)) x 100%
- Percent gross collection rate = total payments / charges x 100% (for specific time period)
Improving insurance claims approval rates is essential for any medical practice's financial health. In order to do this, clinics must understand the differences between gross collections vs. net collections and how to calculate each one accurately.
PracticeForces provides strategic medical billing solutions to help medical professionals and their clinics manage revenue. To learn more about other medical billing benchmarks, call (727) 202-5429.
