How are your collections? This question is posed to doctors repeatedly by their accountants, coaches, students, partners, prospective billing companies, spouses, and everyone else with an interest in the success of the practice. Most doctors respond with a ratio, say 90%. The higher the number, the better the collection rate. But, what does this number mean, and does it really determine how successful the practice is at collecting? Posted Collection RatioUsually, the posted collection ratio is simply the total amount of money posted in a given month divided by the total amount of charges posted by the practice in that month. For example, a practice bills $100,000 in January. They collect $75,000 in January. The collection rate is 75%. Easy to understand and simple to compute.The problem with this approach is that on average (according to the MGMA), medical practices can wait up to 73 days to receive payments on services rendered. The $75,000 collected in January was actually billed out in November and December, and the services may have been rendered in October and November. So what happens if the practice had been generating $200,000 per month until Jan 1, and suddenly dropped to $100,000 per month? The $75,000 collected in January looks poor. On the other hand, if the practice was billing $75,000 per month until Jan 1, then the $75,000 collected in January looks like 100% of the billed amount.But there are more complications. What if the practice had an NPI issue in December, or EOBs were being mailed to the wrong address? In that case, part of the $75,000 that was posted in January was actually paid in the previous months. This means the actual collections ratio is quite a bit lower than 75%.So with all these problems, why do practices measure their billing performance using the collections ratio? The answer, all too often, is that they do not have a choice. Many practice management systems readily supply monthly reports that show posted charges and posted collections in a given month, but few alternative ways of viewing the collections performance data. The posted amounts are important because practices need to know how much money came in during a certain month. They must reconcile this with their bank accounts to make sure all the money is accounted for. From there, it’s easy to divide the two numbers and get the collections ratio. Unfortunately, as we’ve seen above, this number is meaningless if the practice wants to measure their billing performance.The Alternative: Tie Everything Back to Service DatesFor billing performance monitoring, we need to compare apples to apples. We would like to see how much of the services rendered in a given month were actually paid. For example, if the office saw 500 patients in October and generated $100,000 worth of charges for those visits, we would like to know how much of the $100,000 was paid so far, regardless of when the money was posted.The key is to compare the charges to the payments according to the service date on the claims, and not to the dates in which they were posted. It’s not so easy to do. While practices can add up checks that were received in a month or look at their bank statements to see how much money came in during a given month, it’s very time-consuming to look through each EOB and compare the service dates so you can see how much was paid on October’s services.To do this effectively, a practice needs to invest in software that has this functionality built in. For example, in Vericle, you can use the $-Stats report. This report can show you a breakdown of charges vs collections for a given service date range across providers, treatment codes, insurance companies, and other criteria.Slice, Dice, and Drill-inOnce you have a high-level view of the data, you need to make sense of it. To do this, it is helpful if the software allows you to sort and filter the report dynamically. For example, if we’re looking at a breakdown by CPT code, you should be able to sort by the percentage paid and filter out anything with a total billed amount less than $1,000. This eliminates the “noise” and allows you to focus in on problem areas.Once you have the problem area in sight, it’s time to look at individual examples. This is called “Drilling In”, and the software should make it easy to do this. In Vericle, you can click on any line to drill into that line and view the claims that make up that particular bucket. The list of claims also includes pertinent information about the status of the claim, the total amount billed and paid, and an excerpt of the audit log so you can easily see how the follow-up team handled the claim.Effect on Practice ProfitabilityReviewing a service-date collections report as described above can have a significant positive impact on your practice. By comparing apples to apples, you can more accurately gauge your billing team’s performance, then quickly pin-point collection problem areas and easily see example claims. Then, take action to rectify the problem and increase collections.