How it works
Gross charges include amounts no one will ever pay, because contracts set lower allowed amounts. The net collection rate removes those contractual adjustments: payments for a period divided by (charges − contractual adjustments) for the same period. What is left uncollected represents denials not recovered, balances written off and patient balances not collected.
Why it matters
It shows how much of what you are owed you actually receive, which a gross collection rate cannot, because gross rates depend on how high your fee schedule is set. Calculations differ — particularly in whether bad debt and small-balance write-offs are treated as contractual — so use one definition consistently.
Example
A practice bills $100,000, has $40,000 in contractual adjustments and collects $57,000. Its net collection rate is $57,000 ÷ $60,000, or 95%. The remaining $3,000 is what to investigate.