Questions Regarding Collections-Based Compensation

[IHawkDO]

Hi all,

I'm a fellow currently going through the job search process and had some questions regarding a collections based model for compensation. I've recently spoken with a Midwestern surgical based practice that is offering 350K base + 20% of collections for over 700K and 30% of collections for over 900K. They also mentioned that their percentage of successful collections is 32-33%, which they said is "good," but they are considering looking for a different company to do their billing. They do not currently do their billing in house. I would also be on the hook for overhead expenses, including a portion of the rent, supplies, MA, scribe if wanted, etc. If I am understanding this correctly, I would effectively need to bill for 2.1 million in order to hit the 700K for collections (by using the 33% successful collection rate) before the bonus section would even start to kick in. On first blush, it seems that their percentage of successful collections and the percentage of collections that they are offering as a bonus are both low, though my practical knowledge of this is nowhere near as robust as those of you who have been in practice.

What do you all think is a good number for the percentage of successful collections when evaluating a practice? Additionally, what general percentage of collection numbers do you think is reasonable to expect as a new grad? Thanks for your insight!

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[bedrock]

You need to find out
1- do they pay the same overhead as you, if so what is that? They should be able to tell you if your overhead is 50% of collections etc.
2- are you doing procedures in office or ASC?
3- does practice own an ASC, MRI, PT?
4- can you buy into those?
5- the % bonus is bad. If they have 50% overhead, then you’re getting screwed with only 30% bonus. It is certainly fair for them to make some money as the practice is already there, but your bonus shouldn’t be less than 10% below your overhead percentage

 

[willabeast]

Hi all,

I'm a fellow currently going through the job search process and had some questions regarding a collections based model for compensation. I've recently spoken with a Midwestern surgical based practice that is offering 350K base + 20% of collections for over 700K and 30% of collections for over 900K. They also mentioned that their percentage of successful collections is 32-33%, which they said is "good," but they are considering looking for a different company to do their billing. They do not currently do their billing in house. I would also be on the hook for overhead expenses, including a portion of the rent, supplies, MA, scribe if wanted, etc. If I am understanding this correctly, I would effectively need to bill for 2.1 million in order to hit the 700K for collections (by using the 33% successful collection rate) before the bonus section would even start to kick in. On first blush, it seems that their percentage of successful collections and the percentage of collections that they are offering as a bonus are both low, though my practical knowledge of this is nowhere near as robust as those of you who have been in practice.

What do you all think is a good number for the percentage of successful collections when evaluating a practice? Additionally, what general percentage of collection numbers do you think is reasonable to expect as a new grad? Thanks for your insight!

When I was in private practice (California) our collection rate was 90%. I knew that was high so I was pretty happy about it. 33% would have had me looking for another place to practice although I am retired and have no idea how things are now.

 

[IHawkDO]

You need to find out
1- do they pay the same overhead as you, if so what is that? They should be able to tell you if your overhead is 50% of collections etc.
2- are you doing procedures in office or ASC?
3- does practice own an ASC, MRI, PT?
4- can you buy into those?
5- the % bonus is bad. If they have 50% overhead, then you’re getting screwed with only 30% bonus. It is certainly fair for them to make some money as the practice is already there, but your bonus shouldn’t be less than 10% below your overhead percentage

1 - it's a great question and something I was planning to ask next time I spoke with them.
2 - Currently in office for most procedures with the opportunity for ASC for the advanced procedures.
3 and 4 - The practice is currently involved in an ASC, but is in the process of building their own, which I would have the ability to buy into at the market rate.
5 - that's what I was thinking as well

 

[IHawkDO]

When I was in private practice (California) our collection rate was 90%. I knew that was high so I was pretty happy about it. 33% would have had me looking for another place to practice although I am retired and have no idea how things are now.

I was thinking 33% seemed pretty awful, but I know that this is an area where I don't know what I don't know. I had a hard time of finding rates of what I should be looking for, so having some perspective is definitely helpful. Thanks!

 

[willabeast]

What is Net Collection Rate in Medical Billing?

Of all the collections metrics your medical practice needs to monitor, understanding your net collection rate is one of the most important.

education.ncgmedical.com

 

[unchockey21]

I think the way they’re calculating net collections must differ from how it’s done in the article. My guess would be that they’re calculating total collections divided by total charges without reducing the total charges by the contractual adjustments.

You need to figure out what they’re charging for overhead and if it’s the same before you can fairly judge the deal. It also depends on if this is your comp formula for as long as you’re there or if there’s a partnership opportunity in it that would presumably have a more favorable formula after a few years. For example, I had a base of $270k + 25% of collections over $600k as an employed doc. My overhead was factored into those numbers and I didn’t pay anything extra. As a partner, I get 40% of collections below $800k, 50% 800k-1M, and 70% over $1M. Those numbers again are meant to cover overhead with the idea that as your collections go up, you’ve covered your fixed expenses and your take home percentage should be more as you’re only needing to cover your variable expenses.

 

[GoBeers]

I thought " good collections" is 60% and great collections is >75%.

That said, we have in house billing and supposedly 3rd party as well. According to our in house, we collect nearly everything on medicare and 100% of hmo. Ppo I haven't heard any complaints from management and billing so I'm assuming I haven't done anything repeatedly wrong.

 

[MD87]

Percent collected is tricky. If you are collecting 100%, it sounds great, but it could mean your practice is under billing. Collecting 30% of a $100 bill is better than 100% of a $20 bill.

 

[runfastnow]

Multiple ways to count collections:
- I collect 38-40% of charges. This calculation is equivalent to the 33% they likely quoted you. Regardless they quoted pretty low and should be 35-42% IMO.
- Net collections should be 97+%. This is not what they quoted to you. This is basically your billing dept collecting what has been agreed to be paid by insurance company and patient co-pays.

Another red/yellow flag for me is the lower end bonus structure. Why only 20-30%? My structure with a primary ortho surgical group coming out of fellowship:
- Year 1: $300k base + $24k insurance free + $3-5k pro. dev. stuff
- Year 2 & 3: $325k base + $24k insurance free + $3-5k pro. dev. stuff + $10k 401k free (no match unfortunately) + 52% of collections >$170k/quarter (= 52% of collections >$680k/year, but we bonus per quarter) + opportunity to buy into new ASC we are building.
- Year 4: Currently negotiating - pretty happy with where I'm at, most would be chewing around the edges. If I want more money I just need to be busier.

Echo:
- Any money flow to you through in office XR (we read/bill our own which is nice), MRI, PT, DME, etc.?
- Any profit sharing?
- Overhead for non-surgeon should be no more than 50%. You may get screwed first 1-2 years as you ramp up, but that overhead/bonus needs to be WAY better.

 

[Proforma]

Can anyone help me understand and/or do math better? If you do 250-300 injections per month at medicare rates of say ~$150-250 per procedure, plus throw in some 99214's or an SCS trial, etc.. how is anyone getting close to $2M in charges?

Is it wholly dependent on those practices' contracts with private insurance? Can people get there on >60% medicare population?

 

[BobBarker]

Most people charge 3x Medicare. Charges really don’t matter.

 

[callmeanesthesia]

Can anyone help me understand and/or do math better? If you do 250-300 injections per month at medicare rates of say ~$150-250 per procedure, plus throw in some 99214's or an SCS trial, etc.. how is anyone getting close to $2M in charges?

Is it wholly dependent on those practices' contracts with private insurance? Can people get there on >60% medicare population?

Because the Medicare rates are much more than $150-$250 per injection in office. A 2 level bilateral lumbar MBB is over $400. 2 level bilateral RFA, about $1000. And that’s payment, not charges. Maybe if you do a lot of caudals and joint injections it would drag your average down.

 

[Proforma]

Most people charge 3x Medicare. Charges really don’t matter.

So when people say that, they mean charging 3x Medicare applies to both private insurance AND Medicare itself?

Because the Medicare rates are much more than $150-$250 per injection in office. A 2 level bilateral lumbar MBB is over $400. 2 level bilateral RFA, about $1000. And that’s payment, not charges. Maybe if you do a lot of caudals and joint injections it would drag your average down.

Thanks for clarifying this. I’ve tried to pull some of the CMS data and just trying to make sense of it.

And sorry, again to clarify, when people say their practices are collecting on average 38-42%, is that their billing:collections ratio? Meaning “I bill $1000 and only expect to get $400 in return?”

 

[callmeanesthesia]

So when people say that, they mean charging 3x Medicare applies to both private insurance AND Medicare itself?


Thanks for clarifying this. I’ve tried to pull some of the CMS data and just trying to make sense of it.

And sorry, again to clarify, when people say their practices are collecting on average 38-42%, is that their billing:collections ratio? Meaning “I bill $1000 and only expect to get $400 in return?”

Yes, because the insurance companies don’t allow you to bill different amounts to different parties for the same service, but some pay wildly different amounts. They each have a max amount they’ll pay for a given CPT code, but won’t pay more than you bill, so you bill an amount that’s higher than any of them pay to make sure you aren’t leaving money on the table.

 

[BobBarker]

Correct. Some people that do a lot of personal injury bill 10x Medicare to everyone. They might hit on those and get $3000 for a ESI. But they get the contractural rate with Medicare and normal insurance.

 

[Proforma]

Awesome okay starting to clear up.

So if everyone is billing 3x Medicare, for example, why does the payer mix matter so much? Are the private insurers more likely to reimburse for a higher amount? I’m sure this depends on what state you’re in and how much competition there is between the insurance companies?

 

[runfastnow]

Yes - private (ex: BCBS) generally pay higher than Medicare although some states that is not the case.

Ex:
All you do in your practice is Generic Procedure X which equals $3000 charge (3x Medicare rate).
Medicare Pays = $1000 ($3000/3)
BCBS Pays = $1800 (based on local contract with your office/ASC/health system)

The more BCBS you get the better payment you will get charging same amount for the same procedure.
The larger the health system the better pay rates you will get from privates that the C-suite will negotiate.
If you are in small/medium private practice the private insurances will not negotiate rates with you and you get what you get, but generally higher than Medicare.

Different private insurances will have different rates - some pay 1.5x Medicare, some pay certain percentage of charges (which is why legacy 3x Medicare is still around), others have their own fee schedules. It is all based on your local private and Obamacare insurance products. Our local Obamacare products pay outstanding for in office proedures (~$400 per ESI), but pay like **** for ASC.

 

[Ducttape]

if in a system, the various insurers will set up payment amounts based on the CPT code, at a set limit.

payor mix is important because if you have high medicare rates, you are getting less overall.

if you have higher medicaid rates, you are getting even worse with much more denials.

 

[Proforma]

So how many patients per day are people seeing in order to hit $1M+ of collections (assuming collections ratio of 30-40%, average payor mix, etc). I feel like wRVU's are easier to convert to clinic volume than collections, which makes evaluating job opportunities difficult.

 

[dpmd]

I'm not I'm your specialty but I am having trouble understanding why if you are paying overhead separately would you not keep 100% of your collections. Are they doing something else to earn your money besides overhead?

 

[Ducttape]

its called profit.

 

[runfastnow]

So how many patients per day are people seeing in order to hit $1M+ of collections (assuming collections ratio of 30-40%, average payor mix, etc). I feel like wRVU's are easier to convert to clinic volume than collections, which makes evaluating job opportunities difficult.

I have average collection of ~$200 per patient encounter with 38% collection rate (averaging all office visits, US and fluoro procedures, and EMGs together). I don't currently do SCS, PNS, kyphos.

Based on my procedure to office visit ratio that would be 5000 encounters/year or averaging 96 encounters/week to hit your $1M.