Pay based on collections

[drwifey]

Can someone explain how this works? Like say you produce $150,000 but collect $80,000. And you get paid 25% of what’s collected. Will you ever get paid again for other money being collected from that $150,000 or will you just be paid what’s collected within that period, and be paid next on a different production/collection period? I hope this makes sense and please help. Thank you.

[8arclay]

Collections are continually rolling. If billing collects payment from a charge done two quarters ago, you (should) still receive compensation for that collection. If youre paid on collections, what you "produce/charge" doesnt mean much if you dont collect it. This is where payer mix can come into play significantly

[notanotherusername]

You need to clarify what you mean by "produce $150,000." The amount billed often has little to do with what is actually allowed or contracted by insurance.

[HandFellow]

when my monthly statements come in, it will talk about what I billed (what I wished I could be paid) and what I collected (what the business got from patients and insurance companies). the difference is the "adjustment," which is what the payors have decided that I should get paid, even if I don't agree. They will give me my collection percentage and my adjustment percentage. These don't always make a lot of sense because what I bill one month often has nothing to do with what I collect in that month. Patients and insurance companies don't pay the day of their services. So that 80k collected was probably from another month's 150kish billing.

The real question is what the overhead percentage really is and where the collected money goes.

[Hank]

Over the long term, you necessarily get paid out of collections.

Production feeds the ego, collections feed the family.

[ENT Doc]

Can someone explain how this works? Like say you produce $150,000 but collect $80,000. And you get paid 25% of what’s collected. Will you ever get paid again for other money being collected from that $150,000 or will you just be paid what’s collected within that period, and be paid next on a different production/collection period? I hope this makes sense and please help. Thank you.

You need to clarify what you mean here and what you’re getting at. Is this a contract/job with a bonus based on collections? Is production gross or contracted obligation? As others have pointed out, collections are rolling. And I would think about patients vs payers very differently in that regard if an owner. If you want to think about it from an accounting perspective:

Bill/Gross $500
Contracted $300

$300 goes to A/R, starts aging typically in 30 day increments

Insurance owes $250, patient owes $50
Insurance pays on day 25, patient pays on day 62

Collections:
Month 1 - $250
Month 2 - $0
Month 3 - $50

Rinse and repeat across multiple encounters with different contractual rates with different deductibles/copays/etc. Collections are on a cash basis.

[Hank]

If you can calculate the patient’s share of the cost of treatment, you should collect it prior to rendering treatment.

[ACN]

Our rule of thumb is that you collect about 30% of your AR. So if I have $100k AR and retired. I'd expect to collect 30k over the next several months.

[pitt1166]

You need to clarify what you mean here and what you’re getting at. Is this a contract/job with a bonus based on collections? Is production gross or contracted obligation? As others have pointed out, collections are rolling. And I would think about patients vs payers very differently in that regard if an owner. If you want to think about it from an accounting perspective:

Bill/Gross $500
Contracted $300

$300 goes to A/R, starts aging typically in 30 day increments

Insurance owes $250, patient owes $50
Insurance pays on day 25, patient pays on day 62

Collections:
Month 1 - $250
Month 2 - $0
Month 3 - $50

Rinse and repeat across multiple encounters with different contractual rates with different deductibles/copays/etc. Collections are on a cash basis.

this is a great explanation.

collections (real dollars collected by the practice) are what matters. billings/charges don't really matter to individual physicians, unless there is some kind of practice model that i'm not familiar with.

[ENT Doc]

Our rule of thumb is that you collect about 30% of your AR. So if I have $100k AR and retired. I'd expect to collect 30k over the next several months.

Are you sure? That’s an awful net collections rate if true.

[ENT Doc]

this is a great explanation.

collections (real dollars collected by the practice) are what matters. billings/charges don't really matter to individual physicians, unless there is some kind of practice model that i'm not familiar with.

I would disagree. In a typical hospital model of base + RVU (billed) bonus you don't care about either. The hospital worries about it. Some private practices have contracts with hospital billing whereby they are compensated quickly for their (allowable) charges and don't deal with A/R at all. If you are in private practice and do your own billing then you care about both contractually appropriate billed amounts AND your collections. You need to know what the denominator is (contractually appropriate charges) as well as the numerator (collections) to know how your revenue cycle management is functioning. Because of the time disconnect between work/what is owed and what is paid you need to perform a net collections assessment on a rolling basis for a fixed time period (90 or 120 days, for example). Many practices/physicians get onto the treadmill/grind of throughput when they could simply try to be more efficient about their revenue cycle management, which necessitates caring about the numerator and denominator for linked billing. Those who look at this closely will see where the biggest deficiency lies - patient collections.

[drwifey]

Thanks for the replies, how pay based on collections works has been clarified. For those asking for further clarification as to what I was asking, I wanted to know other doctor’s experiences with compensation based on collections. I know there are different contract structures and my husband and I are trying to choose the best structure for pay at the present moment. The books showed a low collections number for month one (post residency) which makes sense since it’s rolling. The assumption is that month two would include some from month one and some from month two. The best choice based on that information would be set salary with bonus based on percentage of collections past a certain production number past a certain amount of time. Thanks again for the help.

[Tim]

Our rule of thumb is that you collect about 30% of your AR. So if I have $100k AR and retired. I'd expect to collect 30k over the next several months.

Rule of thumb is "helpful" but can be vastly different.
Do any medical practices consistently bill the actual contracted amount they expect to receive payment?
Businesses have a price list but typically try to invoice at an actual expected amount (PO, discount, or whatever). It is administratively costly to clean up garbage.
Universities, hospitals, groups, solo? Or does everyone tend to over bill?

There is a reason I ask, a contract with incentives for billings would actually place the cost of collections on the entity, not the physician comp.

[Lordosis]

Maybe it differs by specialty but 25% seems very low. We keep 55%

[ENT Doc]

Maybe it differs by specialty but 25% seems very low. We keep 55%

55% of gross maybe.