Most practices know exactly how much money they collected last year. Far fewer know what they spent to collect it.
That second number is your cost to collect. Divide your total revenue cycle operating cost by your total collections for the same period. Best practice runs 3 to 5%. It tells you whether your billing operation is running efficiently or quietly chewing through the margin your providers worked to create.
I met a billing company owner in San Antonio at a state billing association meeting. Her company handled behavioral health, mostly ABA therapy for children with autism, and she got into it because her nephew received ABA and she knew what it meant for families. She told me she was working sixty hours a week, her team was burning out, and she was barely making payroll. Her clients were happy and her billers knew what they were doing. When I asked what it cost her to collect a dollar, she didn’t know.
That blind spot is expensive. A practice collecting $2 million a year at a 9% cost to collect spends $80,000 more than the same practice at 5%. Same patients. Same providers. Eighty thousand dollars gone to overhead.
The formula
Cost to collect = total revenue cycle operating cost ÷ total collections
Take a practice that collected $1.5 million last year. Everything it spent to bill and collect that money came to $90,000. Divide $90,000 by $1.5 million and you get 6%.
That means six cents of every dollar collected went right back into the machinery required to collect it. It sits above the 3 to 5% range, which tells you there is room to cut cost without touching revenue.
Run it for a full year if you can. A single month can swing with seasonal volume or a one time software bill.
What belongs in the cost side
This is where practices make the number look smaller than it is.
They count the billing staff and the software, then forget the office manager spending Friday afternoon in A/R, the provider answering coding questions, and the front desk chasing eligibility. The office manager who spends Friday afternoons on A/R counts. So does the provider who answers coding queries. So does the front desk staff member who spends twenty minutes on hold with a payer before the first patient arrives.
Here is what goes in:
Billing staff wages and benefits, including the share of front desk time spent on registration, eligibility, and payment collection.
Software subscriptions for practice management, billing, eligibility, statements, and reporting.
Clearinghouse fees, which add up fast at volume.
Statement printing and postage on every paper statement cycle.
Outsourcing fees, if a billing company handles any part of the revenue cycle.
Rework time. Every denied claim someone researches, corrects, and resubmits is labor with no new revenue behind it. Practices leave this out more than anything else, and it is frequently the biggest number on the list.
What pushes the number up
When I see a practice with a high cost to collect, the same problems tend to show up.
Denials come first. Denials are expensive twice. First, you did the work and did not get paid. Then you pay someone to work the claim again. Each rework runs $25 to $118, and complex appeals can reach $181. At the industry average denial rate of 11.8%, more than one claim in nine needs a second touch.
When I visited her office, there was a whiteboard on the wall covered in 214 color coded magnets, one for each patient whose therapy authorization was close to expiring. Her ABA denial rate was close to 19 percent, about three quarters of it tied to authorizations, and each of those denials took around forty minutes to sort out. I spent a morning sitting with one of her billers, Diego, who tracked every authorization in a spreadsheet he updated by hand after each batch of claims. When Diego was out sick, nobody else knew how to read it.
Disconnected systems come next. They add cost quickly because every handoff creates another place for staff to reenter data, reconcile reports, or fix mistakes. Nobody gets an invoice for that time. It disappears into the week.
Manual eligibility checks drain hours. If your staff is still logging into payer portals one patient at a time, you are paying people to do work software should already be doing.
Paper statements cost money on every cycle, and slow patient payment means each balance takes more of them.
Benchmarks
If you are somewhere around 3% to 5%, you are running an efficient operation. Keep watching it, because cost to collect tends to creep up as volume grows and processes strain.
If you are sitting at 7%, 8%, or 9%, do not start by cutting staff. Find out what work your staff is being forced to do twice.
Look at your denial rate first. A high denial rate almost always sits behind a high cost to collect. Then track the number every quarter. A rising trend is an early warning that the operation is not keeping pace with growth.
How to lower it
The fastest way to lower cost to collect is to stop creating work.
We moved her authorization tracking into the billing workflow so units came off automatically as claims were created, and alerts went to her team and the clinic when a patient got within fourteen days or 20 percent of their remaining units. Authorization denials fell 81 percent, and time per authorization went from forty minutes to under ten. The whiteboard came down three months later. Diego kept one red magnet. The next year she added eleven clients without hiring anyone, her margin went from 7 percent to 19 percent, and she got her own week down to about forty five hours.
Every denial prevented is one less claim somebody has to research, correct, resubmit, track, and explain. Half of all denials start with missing or inaccurate claim data, most of it captured at the front desk. Fix registration and eligibility, and the rework never gets created.
Automate the checks people should not be doing by hand. Batch eligibility verification runs electronic checks across the schedule in seconds and shows staff only the patients with a problem. Automated claim scrubbing catches coding and data errors before submission, while they are still cheap to fix.
Cut the handoffs. Every time data moves from one system to another, someone reenters it, checks it, or fixes it. Fewer systems means fewer of those moments.
Move patients to electronic statements and collect at check in. A balance collected at the front desk costs nothing to mail.
Where HARRIS CareTracker fits
This is exactly the kind of problem HARRIS CareTracker is designed to reduce. Eligibility, claims, denials, and payment posting sit in the same workflow, so staff are not bouncing between systems or rebuilding the same information in spreadsheets.
Eligibility checks run in batches before the visit, and claims get checked against coding and payer rules before they go out. Fewer denials come back, and fewer claims need a second touch.
Consistent workflows also matter. A new employee should not need six months of tribal knowledge to process a claim the same way your most experienced biller does. When the workflow is the same for everyone, the new hire stops generating rework the veteran never would.
Run the number. If you are spending eight or nine cents to collect every dollar, do not accept that as the cost of doing business. Find out where the work is being created.
Follow for more on revenue cycle management, cloud billing software, and claim denial management for small practices.
Frequently Asked Questions
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About the Author
Thomas Koehl is a 30 year health technology veteran and currently Director of Marketing at Harris CareTracker. Prior leadership roles at QRS Healthcare Solutions focused on supporting revenue cycle management partners. Following Hurricane Katrina, he served as Director of a large New Orleans medical clinic that delivered care to over 32,000 patients. Koehl has testified before the U.S. House Committee on Energy and Commerce as an expert witness on disaster healthcare delivery. He also volunteers as COO of International Medical Alliance, a nonprofit providing free medical care to impoverished communities in developing countries. He writes about the business, strategy, and human side of health technology for the practitioners and leaders living it day to day.
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