What's a Good Collection Rate? Benchmarks for Dental Practices
Everyone talks about collection rate, but what number should you actually be hitting? The answer is more nuanced than a single benchmark.
The Collection Rate Question
Collection rate is the metric dental consultants mention most often and practice owners understand least precisely. You know a higher number is better. You have probably heard targets like 95% or 98%. But what exactly are you measuring, how do you calculate it correctly, and what should your specific practice be achieving?
These questions matter because collection rate directly reflects revenue performance. A practice producing $1.2 million annually with a 92% collection rate captures $1,104,000. The same practice at 97% collects $1,164,000. That five-percentage-point difference represents $60,000 annually, probably more than enough to justify significant investment in improvement.
Understanding collection rate benchmarks requires clarity about definitions, awareness of what influences the metric, and realistic expectations based on your practice's specific circumstances.
Defining Collection Rate Correctly
Collection rate compares what you collect to what you produce. But both "collect" and "produce" have multiple possible definitions that significantly affect the calculated percentage.
Gross collection rate divides total collections by total production at full fee. If you produce $100,000 at your standard fees and collect $93,000, your gross collection rate is 93%.
Net collection rate divides collections by adjusted production, accounting for contractual write-offs with insurance plans. If you produce $100,000, write off $12,000 in contractual adjustments, and collect $86,000, your net collection rate is $86,000 divided by $88,000, or approximately 97.7%.
The difference matters significantly. A practice participating heavily in PPO plans might have a gross collection rate of 85% but a net collection rate of 97%. Both numbers describe the same reality, but they answer different questions.
Gross collection rate tells you what percentage of your standard fees you actually receive. It reflects pricing power, payer mix, and collection efficiency combined.
Net collection rate tells you what percentage of your collectible fees you actually receive. It isolates collection efficiency from contractual pricing decisions.
Most industry benchmarks reference net collection rate. When consultants cite 98% as a target, they typically mean net collection rate. Comparing your gross rate to a net benchmark creates false concern.
Industry Benchmarks
With definitions clarified, what do benchmarks actually show?
High-performing practices typically achieve net collection rates of 98% or higher. They collect nearly everything they are entitled to collect after accounting for contractual adjustments.
Average practices typically fall between 95% and 97%. They leave some collectible revenue on the table but maintain generally effective collection processes.
Practices below 95% net collection rate have significant opportunity for improvement. Each percentage point below benchmark represents real revenue not being captured.
Gross collection rates vary more widely based on payer mix. A fee-for-service practice with minimal insurance participation might achieve 90-95% gross collection. A heavily PPO-dependent practice might see 75-85% gross collection. These differences reflect business model choices rather than collection efficiency.
The benchmark that matters most is your own history. A practice consistently at 96% that drops to 93% has a problem, even though 93% exceeds many practices. Conversely, a practice that improves from 91% to 94% is making real progress, even though 94% is below theoretical ideal.
Factors That Influence Collection Rate
Understanding what drives collection rate helps you identify improvement opportunities.
Insurance mix significantly affects both gross and net collection rates. Practices with more fee-for-service patients typically show higher gross rates. Practices with strong relationships with well-paying insurers often show higher net rates. Payer mix is a strategic choice with collection implications.
Patient demographics influence payment behavior. Patient populations with stable incomes and good insurance coverage tend to pay more reliably than populations facing financial stress. These realities shape what collection rates are achievable.
Procedure mix affects gross collection rate. High-value procedures like implants or cosmetic work often have larger differences between standard fees and insurance reimbursement, lowering gross rates. The same production in lower-value procedures might show higher gross collection.
Billing accuracy determines whether you bill correctly for services rendered. Unbilled production never has a chance to be collected. Incorrectly billed production may be denied or underpaid. Clean billing is foundational to strong collection rates.
Follow-up intensity affects collection of amounts not paid immediately. Practices that actively pursue unpaid claims and patient balances achieve higher collection rates than those relying on passive collection.
Patient payment policies shape patient portion collection. Clear financial policies communicated effectively, payment options that match patient needs, and appropriate collection efforts when patients do not pay all influence patient portion collection rate.
Calculating Your Rate Correctly
Accurate calculation requires consistent methodology.
Define your production number. Are you using scheduled production, completed production, or adjusted production? Most meaningful collection rate calculations use completed production, representing work actually done.
Define your adjustment categories. Which write-offs represent contractual adjustments versus collection failures? Contractual adjustments (insurance plan fee reductions) should reduce the denominator for net collection rate calculation. Bad debt write-offs and other collection failures should not reduce the denominator because they represent collectible amounts not collected.
Match time periods appropriately. Comparing January collections to January production overstates collection rate in growing practices (collecting on prior months' production) and understates it in declining practices. Longer measurement periods smooth timing effects.
Consider using a trailing calculation. Many practices track collection rate based on production from two or three months prior, allowing time for normal collection cycles. Comparing current collections to current production penalizes slow-paying insurers artificially.
Pull data from consistent sources. Your PMS production reports, adjustment reports, and collection reports should align in definitions and methodology. Mixing data sources with different definitions creates unreliable metrics.
Why Your Rate Might Be Low
If your collection rate falls below benchmarks, several culprits commonly apply.
Insurance claim problems reduce collection rate when claims are denied, underpaid, or never submitted. Review denial rates, average days to payment, and claim submission accuracy. A meaningful percentage of production lost to claim issues significantly impacts collection rate.
Patient balance collection failures leave copays, deductibles, and patient portions uncollected. If patients owe amounts and do not pay, collection rate suffers. Review your patient payment policies, collection procedures, and balance aging.
Incorrect adjustments can artificially lower calculated collection rate. If staff write off amounts that should be pursued, the write-off hides a collection failure. Audit adjustment activity for appropriateness.
Billing lag creates timing mismatches. If production occurs but billing takes days or weeks, collection cycle extends. Same-day charge entry and claim submission accelerate collections.
Poor insurance verification leads to unexpected patient portions or claim denials. If you perform procedures expecting insurance payment that does not materialize, collection rate drops.
Fee schedule problems occur when contracted fees are incorrectly entered in your PMS, leading to calculation errors in production and expected insurance payment. Regular fee schedule audits catch these issues.
Improving Collection Rate
Systematic improvement addresses root causes rather than symptoms.
Start with measurement. Calculate your current rate accurately using consistent methodology. Establish a baseline before attempting improvement.
Identify the largest gaps. Is the shortfall primarily in insurance collection, patient collection, or both? Within insurance, is it claim denials, underpayments, or delayed payments? Diagnosis guides treatment.
Address insurance collection issues through better verification, cleaner claims, faster follow-up, and appeals of inappropriate denials. Each improvement in the insurance revenue cycle supports higher collection rates.
Address patient collection issues through clear financial policies, payment collection at time of service, appropriate payment options, and systematic follow-up for unpaid balances. Patient portion often offers the largest improvement opportunity.
Review adjustment practices. Ensure staff understand appropriate versus inappropriate adjustments. Implement approval requirements for adjustments above thresholds. Audit adjustment patterns regularly.
Reduce billing cycle time. Faster charge entry, same-day claim submission, and prompt statement generation accelerate cash flow and improve collection rate by reducing opportunities for claims or balances to go unpursued.
Setting Your Target
Your target collection rate should reflect your circumstances and ambitions.
If you are below 95% net collection rate, achieving 95% is a reasonable initial target. This represents moving from problematic to acceptable performance.
If you are between 95% and 97%, targeting 98% is appropriate. This represents moving from acceptable to strong performance.
If you are at or above 98%, maintaining that level while watching for deterioration is the goal. Marginal improvements beyond 98% require significant effort for small returns.
Consider gross collection rate targets based on your payer mix strategy. If you intentionally participate in lower-reimbursing plans for volume reasons, accept the gross rate implications while maintaining strong net collection rate.
Set intermediate milestones. Jumping from 92% to 98% requires sustained effort over months or years. Celebrating progress at 94%, then 96%, maintains momentum.
Monitoring Over Time
Collection rate is not a set-and-forget metric.
Track collection rate monthly at minimum. More frequent tracking catches problems faster but requires reliable real-time data.
Watch trends alongside absolute levels. A rate that declines three months consecutively signals a developing problem even if current level is acceptable.
Investigate significant changes. When collection rate moves more than a point or two without explanation, dig into causes. The metric is a signal; investigation reveals meaning.
Compare to historical patterns. Some practices have seasonal collection variations. Knowing your patterns prevents false alarms while still catching genuine changes.
Review calculation methodology periodically. Ensure your definitions remain consistent and appropriate as your practice evolves.
Collection rate provides a window into revenue cycle health. Understanding what the metric means, how to calculate it correctly, and what benchmarks apply to your situation transforms a vague concept into an actionable management tool.
Zeldent helps practices identify exactly where collection gaps occur by comparing expected payments to actual deposits. Our reconciliation catches discrepancies that erode collection rate before they accumulate. Schedule a demo to see how Zeldent supports collection rate improvement.
