Ask-A-Consultant: Collections and overhead
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Medical Management Asssociates ("MMA") Ask-A-Consultant: Collections and overhead |
The collection statistic that you refer to is typically known as a “gross collection ratio” or an ”unadjusted collection ratio”. This ratio indicates the yield of your practice or what you collect for every dollar charged. It is typically calculated for successive periods of time (e.g. 6 or 12 months) since one month’s ratio is too volatile. This ratio is significantly affected by the fee schedule used by the practice and its payor mix. What kind of private insurance do your patient’s have? Traditional indemnity, PPO, HMO? Do you participate in any capitated contracts? What is your percentage of indigent care?
The higher your fees, relative to the allowable fees of your contractual payors, the lower your gross collection ratio. The lower your fees, or the fewer contractual payors, the higher your ratio. In terms of averages, the Medical Group Management Association’s (MGMA) 1999 Cost Survey reports average “Gross Fee for Service Collection Ratio” for OB/GYN practices of 68.81%
A better statistic to evaluate your collection
performance is the Adjusted Collection Ratio (ARC). This statistic is calculated
by dividing net payments (gross payments less refunds, returned checks
and other payment bookkeeping adjustments) by net charges (gross charges
less contractual adjustments). Again, this statistic should be calculated
for periods of time not just monthly. The results of this calculation will
tell you the percentage of fees you are collecting from what is available
for you to collect. It measures the staff’s performance in their accounts
receivable management duties. The only difference in the long term ACR
and 100% adjusted collections is bad debt and other uncollectible accounts.
Therefore, the optimal ACR percentage is 100% less your bad debt. For office
based practices, this usually in the mid to high 90 percent range (95%-99%).
If your ACR is lower, it is a strong indication that your AR management
techniques or business procedures need to be revised.
OVERHEAD
In our experience, operating overhead rates
for OB/GYN practices typically range from the mid 40% to the mid 50% as
a percentage of collections. This statistic is impacted by the number of
physicians in the group, their production, collection rate and payor mix,
and the types of services provided. According to MGMA’s 1999 Cost Survey,
average operating overhead for OB/GYN practices is 50.68%. However, the
survey indicates 8.88% of the surveyed practices’ charge volume is for
Medicare and Medicaid. If your volume of these payors is higher, and therefore
your overall collections are lower, you would expect a higher overhead
rate even with comparable costs.
The Operating Overhead statistic is based
on the operating expenses of the practice excluding any physician related
costs such as physician salaries, payroll taxes, fringe benefits including
health dental or life insurance, pension plan contributions, education,
travel and related expenses. The operating overhead is calculated by dividing
these non-physician expenses by the net collections of the practice.
Russell B. Still (bio..)
Vice President
MMA does not provide
legal, accounting, or tax advice. If you need assistance in these
areas, we recommend that you consult a qualified professional. In
addition, please note that a client relationship with MMA is not established
by the submission of a question to this forum or by the publishing of MMA's
response.
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