{"id":13675,"date":"2021-06-14T19:01:00","date_gmt":"2021-06-14T19:01:00","guid":{"rendered":"https:\/\/www.medicalbillersandcoders.com\/blog\/?p=13675"},"modified":"2025-05-28T14:48:26","modified_gmt":"2025-05-28T14:48:26","slug":"important-metrics-for-physician-practice-net-collection-rate-and-gross-collection-rate","status":"publish","type":"post","link":"https:\/\/www.medicalbillersandcoders.com\/blog\/important-metrics-for-physician-practice-net-collection-rate-and-gross-collection-rate\/","title":{"rendered":"Important metrics for every physician practice – Net and Gross Collection Rate"},"content":{"rendered":"

There is more than evaluating cash flow to assess the financial health of any physician\u2019s<\/a> practice. However, cash flow is just one factor. You don’t have to be a finance expert to understand the other important metrics like Gross Collection Rate (GCR) and Net Collection Rate (NCR) that should be calculated and reviewed when evaluating the revenue cycle<\/a>.<\/p>\n

It is widely observed that the gross collection and net collection rates tend to create a lot of confusion when it comes to the calculation of a practice\u2019s income.\u00a0Hence this article is dedicated to understanding these metrics and their importance for your practice.<\/p>\n

Gross collection rate<\/h2>\n

The gross collection is the provider’s gross income or gross profit margin, and it is a measure of a firm’s profitability. The gross income metric is comprised of the direct cost of producing or providing goods and services however it does not include costs related to running an overall business, selling activities, administration, taxes.<\/p>\n

Let’s look at an example, if you charge $90 for services provided and you receive a payment of $55, you have a 62 percent gross collection rate.<\/p>\n

Now you are amazed by thinking how your center will survive with such an abysmal number. Well, if you know that the payer\u2019s rate is set at $55 and you only charge $55, theoretically you just achieved a gross collection rate of 100%.<\/p>\n

Gross Collections Ratio = Total Collections \/ Total Gross Charges<\/h3>\n

So, you are neither making more money nor gross collection rate matter but then what matters is what percentage of what you are owed have you collected.<\/p>\n

Net collection rate<\/h2>\n

Net collection rates indicate effectiveness in collecting the money you are allowed to collect. You can calculate the net collection rate by dividing <\/em>total payments for a period by the total charges for that same period minus write-offs (contractual allowances, fewer refunds\/ overpayments).<\/p>\n

For example, if you received $600,000 in total payments on charges of $1,000,000 and had write-offs for $300,000, your net collection rate is 86 percent.<\/p>\n

Net Collection Ratio = Total Collections \/ Total Gross Charges<\/h3>\n

Now you are asking \u201chow should one decide to audit the bill based on net collection rate?\u201d, Yes. When your net collection rates are between 90 and 100 percent after write-offs are taken, you don\u2019t need an audit while lower than this, you should consider an audit of billing practices.<\/p>\n

Let’s look at NCR grades below:<\/h3>\n

NCR Grades<\/h4>\n

Interpret your net collection rate based on the following:<\/p>\n