Net collection rate
The percentage of contractually allowed revenue that a practice actually collects. Unlike gross collection rate (which compares collections to billed charges), net collection rate accounts for contracted write-offs and measures only the money you were actually entitled to receive. It is the most accurate measure of collection performance in an insurance-based practice.
What is a good net collection rate?
HFMA puts the minimum net collection rate at 95%, with 97% to 99% optimal. The further below 95% a practice sits, the more of the gap is usually unworked denials, patient balances written off and underpayments nobody appealed.
Why this matters for your clinic
Net collection rate is the number that tells you whether you are getting paid what your contracts guarantee. Gross collection rate is misleading because it depends on how high you set your fee schedule. Two practices can have the same net collection rate but dramatically different gross collection rates simply because one bills at a higher multiple of Medicare. Net collection rate strips that distortion away.
A 3-percentage-point gap in net collection rate on a $5M practice means $150,000 per year in revenue that was contractually owed but not collected. That money was earned. Services were delivered. The contracts were in place. It was lost somewhere in denials, underpayments, and premature write-offs. Improving net collection rate is one of the highest-return activities in revenue cycle management.
How to calculate
Net collection rate = (Total payments received) / (Total charges - Contractual adjustments) x 100. Use a trailing 90-day or 6-month period to capture claims that take time to fully adjudicate.
What good looks like
HFMA puts the minimum net collection rate at 95%, with 97% to 99% optimal. The further under that 95% floor you are, the more of it is unworked denials, patient balance write-offs, and underpayments nobody appealed. Track net collection rate separately from gross collection rate and separately from each major payer to identify where collections break down.
From Sorso
Gross collection rate flatters almost every practice. Net collection rate is the one that tells the truth about what is quietly being written off. Getting that calculation right is the kind of groundwork a good accounting engagement starts with.
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Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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