One of the key elements in hospital revenue cycle management success is getting a handle on cost to collect. Organizations that have realized their costs are too high have implemented many different approaches, ranging from new software to bringing on hospital billing services.
From working with our extensive list of hospital revenue cycle outsourcing clients, we know that you have a lot of options and want to go over a few of those today – this way, as you work to reduce your cost to collect, you can make sure you’re making choices that align with your goals and organizational needs.
Why Focus on Cost To Collect?
This metric has always been important, but recent trends mean that now is an excellent time to increase your focus.
For example, recent predictions are leaning toward the idea that health system finances are likely going to continue to be unstable through the rest of the year. This is because, even though patient volumes have been on the rise, the increase hasn’t been enough to counter the negative margins. The August National Hospital Flash Report analyzed data from over 900 hospitals and found that while financial performance improved, the median operating margin was -0.3% through August, a 4.2 percentage point jump from July. However, compared to August of 2021 operating margins had fallen by 2.1 percentage points .
How to Calculate Cost to Collect in the Hospital Revenue Cycle
Cost-to-collect is a relatively simple calculation. It is the total revenue cycle costs divided by the total cash you’re collecting.
Cash collected is straightforward, but where it gets tricky is determining the cost side of the equation. You should include core expenses, such as wages and salaries, benefits, etc. in patient access, HIT, and patient accounting, as well as costs for hospital billing services or hospital revenue cycle outsourcing. Beyond this, you have to make decisions to include or exclude other elements such as:
- Off-site record management and retention fees
- IT overhead costs
- Subscription and transaction fees for your hospital revenue cycle management software and solutions
- Costs for office space, utilities, and remote work costs for your core revenue cycle departments
How to Improve Your Cost to Collect
How you first decide to improve your cost to collect will be highly specific to your needs, but here are a few options you should consider.
Automation has started to stand out as a highly effective way of reducing cost to collect. A survey from the Healthcare Financial Management Association (HFMA) of 556 CFOs at hospitals and health systems found that leaders who were using automation for their revenue cycle operations reported an average cost to collect of 3.51%. Almost half of them reported an average cost to collect of 2.9% or under. This compared to leaders who didn’t use automation reporting an average cost to collect of 3.74%, with half of them reporting an average of 4% or more .
What makes automation stand out is the options you have. Automation solutions can be applied anywhere along the revenue cycle, from front-end to back-end. It includes technologies like patient self-service platforms and automation for self-pay accounts that take on tasks like confirming insurance eligibility at the point of service. Front-end solutions especially can align with patient experience goals at your organization by giving them more options and control over their healthcare payment choices .
Analyze Your Trends
While cost to collect is a question all hospital revenue cycle leaders should ask, it’s ultimately specific to individual organizations. This is where the question of trend analysis comes in.
Most revenue cycle departments will find value in beginning their trend analysis efforts in reducing cost to collect in the spaces of billing errors and denials. Consider that HFMA reports that 90% of denials are preventable, and that two out of three of these preventable denials can be appealed with some level of success . That leaves another third, which at the denial level can’t be recovered – but these denials can give you insight into upstream issues on the front-end of your revenue cycle processes. This can include issues like billing errors and other challenges in case management or even HIM.
Focus on Efficiency
One factor that might quickly be driving up your cost to collect is the efficiency of your processes. Since hospital revenue cycle management is a complex process, you likely have a lot of opportunity here. Your use of automation can play a key role at this level, but you will also likely see benefits from elements like taking an end-to-end perspective and deciding whether you want to look for improvements on the front end or possibly tackling pain points on the back end.
The beauty of improving frontend efficiency is that it flows downstream, translating into reduced denials and underpayments – ultimately bumping up the cash side of your cost to collect equation. Other options include examining price transparency and patient billing. By focusing on the patient-facing side, you can align workflows with new trends in patient consumerization that reward estimates before the point of service, payment convenience, and more in-depth patient collection discussions before you pass patients over to bad debt .
Rethink Remote Work
At the beginning of the COVID-19 pandemic, hospital revenue cycle management departments were some of the first to step out into remote work, taking advantage of reduced costs along with increased flexibility and personal safety.
Now, many hospital revenue cycle leaders are left facing a future in which they can use remote work to do more than just manage the effects of COVID-19 – remote work can also help improve your cost to collect. But this was proven even before the pandemic. Hospital leaders were ahead of the curve in allowing employees to work from home, reaping the benefits of freeing up office space and reducing costs, but it also improved job retention, reducing costly employee turnover. Both Mayo Clinic and Moffitt Cancer Center in Florida saw cost savings just in reducing the time needed to train new employees .
Work with a Vendor in Hospital Billing Services
You can likely make significant improvement in reducing your cost to collect by making internal changes but be aware that some of your biggest wins might involve working with a vendor partner. You’ll easily find stories of providers working with health IT services vendors to create strategies to reduce cost to collect – and seeing results as significant as a 25% reduction.
Keep in mind that your options to partner with a vendor are broad and should include considering hospital revenue cycle outsourcing. To learn more about next steps you can take in that direction, start here.
 M. Hagland, “Kaufman Hall Report: Hospitals Remain in Financial Trouble,” Endeavor Business Media, LLC, 6 October 2022. Available: https://www.hcinnovationgroup.com/finance-revenue-cycle/article/21282967/kaufman-hall-report-hospitals-remain-in-financial-trouble.
 V. Bailey, “Automating Revenue Cycle Operations Can Reduce Cost-to-Collect,” RevCycleIntelligence, 15 September 2022. Available: https://revcycleintelligence.com/news/automating-revenue-cycle-operations-can-reduce-cost-to-collect.
 J. LaPointe, “As Revenue Cycle Management Expands, Automation Is Key,” RevCycleIntelligence, 27 September 2021. Available: https://revcycleintelligence.com/news/as-revenue-cycle-management-expands-automation-is-key.
 G. Reiner, “Success in Proactive Denials Management and Prevention,” Healthcare Financial Management Association, 18 May 2021. Available: https://www.hfma.org/topics/hfm/2018/september/61778.html.
 RevCycleIntelligence, “3 Key Strategies to Increase Healthcare Revenue Cycle Efficiency,” 18 February 2019. Available: https://revcycleintelligence.com/news/3-key-strategies-to-increase-healthcare-revenue-cycle-efficiency.
 J. Lagasse, “Revenue cycle teams add work-from-home options, improving productivity,” Healthcare Finance, 13 February 2017. Available: https://www.healthcarefinancenews.com/news/revenue-cycle-teams-add-work-home-options-improving-productivity.