What Is Cost-to-Collect?
Cost-to-Collect is the total cost of revenue cycle operations (labor, software, vendor fees, clearinghouse, payment processing) divided by total cash collected, expressed as a percentage; it measures the efficiency of converting billed services into cash.
- Cost-to-Collect should be evaluated alongside Net Collection Rate — a billing operation costing 4% but collecting 88% NCR is more expensive in real dollars than one costing 6% but collecting 95% NCR.
- Always run total economics, not just CTC.
Cost-to-Collect
Also known as: CTC; Collection Cost Ratio; Cost-to-Collections
Cost-to-Collect is the total cost of revenue cycle operations (labor, software, vendor fees, clearinghouse, payment processing) divided by total cash collected, expressed as a percentage; it measures the efficiency of converting billed services into cash.
Definition
Cost-to-Collect = Total Revenue Cycle Costs ÷ Net Patient Revenue Collected × 100. HFMA's industry benchmark for hospital systems is around 3.0-4.5%, with median best-in-class around 2.7%. Physician practice and small-group benchmarks vary more widely — outsourced billing typically runs 4-7% of collections (the billing company's percentage fee), while in-house billing typically runs 6-12% when fully loaded with labor, benefits, software, training, and overhead. Cost-to-Collect must capture all-in costs including supervision, software (PM/EHR/clearinghouse), education, and overhead to be comparable.
Example
A practice collecting $2.4M/year with $192K in fully-loaded billing costs (1.5 FTE staff at $65K + benefits, $20K software, $15K clearinghouse, $5K training) has a Cost-to-Collect of 8.0%. The same volume outsourced at 5.5% would cost $132K — a $60K annual delta, often offset by performance gains in NCR and Days in A/R.
Common Misconceptions
Comparing in-house vs outsourced cost-to-collect requires capturing all in-house costs, including: management time, software subscriptions (PM, clearinghouse, scrubber, denial tools), training, turnover and hiring, vacation coverage, and overhead. Many practices undercount in-house costs by 30-50% in informal comparisons.
Practical Application
Cost-to-Collect should be evaluated alongside Net Collection Rate — a billing operation costing 4% but collecting 88% NCR is more expensive in real dollars than one costing 6% but collecting 95% NCR. Always run total economics, not just CTC.
Related Terms
Net Collection Rate
Net Collection Rate is the percentage of allowed (contracted) revenue actually collected, calculated as Payments ÷ (Charges − Contractual Adjustments) over a rolling period; it measures how effectively a practice collects what it is contractually entitled to receive.
Read definition arrow_forwardDays in A/R
Days in A/R is a KPI calculated as Total Accounts Receivable divided by Average Daily Charges (typically 90-day rolling average), representing the average number of days it takes a practice to collect on a billed charge.
Read definition arrow_forwardDenial Rate
Denial Rate is the percentage of claims (or claim dollars) denied by payers on initial adjudication, calculated as Denied Claims ÷ Total Claims Adjudicated × 100, typically tracked monthly and segmented by payer and denial reason category.
Read definition arrow_forwardWhere This Applies on MedPrecision
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