The pilot made his usual announcements on the flight from Spokane this morning, including a warning that he expects a bumpy ride on the way to Boise. That got me thinking. I like bumpy rides. They provide a heightened sense of awareness. And that’s why I like the Net Collection Ratio. People are quick to point out the mismatch created by measuring the current month’s payments against current month’s charges. Some advocate the we should measure this classic performance measure by dividing the payments by the payments plus contractual adjustments for the month. Doing so tends to smooth the trend line – taking out some of the month to month fluctuations. Others will advocate for a rolling 12-month average – another tactic to smooth the trend line. Why is that a problem for me?
I like the bumps – the fluctuations from month to month. Bumps creates heightened sense of awareness. Let’s say your gross collection ratio moves from a perfect 98% to a puzzling 89% from one month to the next. Bang - A sense of accountability kicks in, and you move toward a heightened sense of awareness. You probe to see if cash declined – did a major payer just not pay us or was posting delayed? Should that probe fail to turn up an explanation for the drop in the ratio, you will probe further to see if there was a spike in gross charges, and if so was the spike from increased RVU production, and if so, did that represent true growth, or another posting situation. Still not satisfied, you will look to the pesky contractual adjustments.
You will find the reason and you will understand your business better because of the bumps.