The Cost Story: Why Cost-to-Collect Is Killing Your Bottom Line
In our July article, Thin Margins & Rising Bad Debt: Should You Outsource Early-Out?, we discussed the pressures surrounding early-out recovery: razor-thin margins, rising bad debt, and increasingly difficult patient repayment.
For many healthcare organizations, the question “Should we outsource?” is really a cost question in disguise.
And three words can change the conversation: Cost-to-Collect (CTC).
But understanding CTC requires looking beyond the expenses that are easiest to see. Labor matters. Technology matters. So do statements, payment processing, data enhancement, and dozens of other operational expenses.
Then there is the cost that may never appear neatly on an expense report at all: revenue you had the opportunity to collect—but didn’t.
What CTC Actually Measures
Cost-to-Collect (CTC) is a revenue cycle efficiency metric that compares total revenue cycle cost with total patient service cash collected. HFMA’s current cost-to-collect guidance emphasizes consistent methodology and transparency around what expenses are included, because peer comparisons are only meaningful when the numerator and denominator are defined in the same way.
A strong CTC isn’t simply about spending less. It’s about understanding what you spend—and what that investment actually returns.
An older HFMA Ask-the-Expert article citing the Hospital Accounts Receivable Analysis (HARA) Report described 2% as a best-practice target after a decline from 3%; however, more recent public sources point to typical hospital and health-system cost-to-collect closer to the 3%–4% range, with top performers using automation, denial prevention, patient access discipline, and workflow redesign to push the metric lower without sacrificing collection yield.
That last piece matters.
A lower operating expense means very little if the organization is also leaving more collectible revenue behind.
The Costs Hiding Behind Your CTC
When healthcare leaders evaluate the cost of an in-house revenue cycle operation, labor is naturally one of the first expenses considered. Salaries and benefits are visible, predictable, and easy to assign to a department. But they are only part of the equation.
Recruiting, onboarding, compliance training, quality assurance, management oversight, technology licensing, reporting, and vacancy coverage all contribute to the true cost of maintaining an internal operation.
Then come the expenses attached to actually engaging patients and moving accounts toward resolution.
- Statements. Printing, postage, and digital statement delivery carry a cost with every communication cycle.
- Data enhancement. Address verification, insurance discovery, demographic enrichment, propensity-to-pay information, and other data services may be necessary to locate consumers, prioritize inventory, and determine the appropriate path to resolution.
- Payment solutions. Giving patients convenient ways to pay requires infrastructure. Patient payment portals, payment-plan technology, IVR solutions, text-to-pay capabilities, and other digital tools can carry implementation, licensing, portal, or transaction fees.
- Merchant processing. Every card payment carries processing costs that become increasingly significant at scale.
Individually, these expenses may look relatively small compared with payroll. Collectively, they tell a much different cost story. And even this still doesn’t capture the entire picture.
The Most Expensive Cost May Be the One You Never See
There is another side of CTC that is harder to find on a financial statement: missed opportunity cost.
Imagine an organization successfully reduces its revenue cycle operating expenses. On paper, efficiency appears to improve.
But what happens if fewer accounts receive meaningful outreach? What if staff only have enough capacity to work the accounts immediately in front of them? What if aging balances sit untouched while teams manage today’s priorities?
The organization may be spending less…It may also be collecting less.
That lost revenue can surface throughout the revenue cycle:
- Lack of prioritization: Staff spend valuable time working accounts in queue order rather than focusing resources where they have the greatest likelihood of producing a return.
- Insufficient outreach: Limited staffing or technology can reduce call attempts, digital engagement, follow-up, and the number of meaningful patient contacts.
- Payment-plan management: Establishing a payment plan is only the beginning. Failed payments, expired cards, missed installments, and broken arrangements require continued monitoring and follow-up.
- Aged inventory: As teams focus on new placements and immediate priorities, older accounts can fall further down the work queue and become increasingly difficult to resolve.
- Denials management: Delayed or insufficient follow-up on denied claims can turn recoverable revenue into avoidable write-offs.
These aren’t always captured as clean expense lines. But they absolutely carry a cost.
The true cost of collecting isn’t only what you spend. It’s also what your operation allows to go uncollected.
Staffing Still Changes the Equation
The workforce behind all of these processes remains a major part of the equation.
Healthcare revenue-cycle leaders continue to report workforce pressure, payer friction, denial complexity, and rising administrative burden. Guidehouse and HFMA found that 90% of executives said labor challenges further exacerbated revenue-cycle operations in 2024, and its 2026 survey again identified workforce as a top-five stressor. MGMA‘s practice-operations data also shows high turnover in front-office and business-operations support roles, reinforcing that patient-access and revenue-cycle staffing models can be difficult to stabilize.
A vacant position, therefore, doesn’t only create recruiting and onboarding costs.
It can also mean fewer accounts worked, fewer outbound contacts made, less payment-plan follow-up, aging inventory, delayed denial resolution, and ultimately fewer dollars collected.
That is why evaluating an internal operation solely on its payroll can create an incomplete picture of performance.
The Proof Is in the Performance
Outsourcing doesn’t automatically make an operation more efficient, nor is an in-house model inherently more expensive.
The better question is: Which model produces the strongest financial performance for the total resources invested?
Established revenue cycle partners can provide staffing, training, quality assurance, compliance infrastructure, technology, analytics, payment solutions, data enhancement, and workflow management across a larger operational platform. Organizations can gain access to those resources without independently building, licensing, staffing, and maintaining every component themselves.
Scale can also change how inventory is managed.
Technology and analytics can help prioritize accounts based on collectability and patient behavior. Automated and digital outreach can supplement live representatives. Dedicated workflows can identify aging inventory requiring intervention. Payment arrangements can be monitored after they are established rather than disappearing into a queue until something goes wrong.
The goal isn’t simply to replace internal labor with external labor.
It’s to create an operating model capable of consistently moving more accounts toward resolution without allowing the cost of doing so to outpace the revenue being recovered.
That distinction is critical when comparing models. A lower CTC paired with declining liquidation isn’t necessarily a win. Neither is a highly productive operation whose technology, transaction, staffing, and administrative costs consume too much of the incremental revenue it generates.
Leadership needs both sides of the equation.
Look Beyond the Percentage
If your CTC is trending upward (or isn’t telling the story you expected) don’t stop at the percentage.
Start asking what is actually inside it:
- What are you spending on staffing, recruiting, training, and management?
- What does it cost to generate and deliver statements?
- How much are you investing in data enhancement, payment technology, merchant processing, portal access, and transaction fees?
- How much inventory isn’t receiving adequate outreach?
- Are payment arrangements being actively managed?
- Are aging accounts receiving continued attention?
- Are denials being resolved before recoverable revenue becomes a write-off?
And perhaps most importantly:
How much revenue could your organization be leaving on the table because the resources simply aren’t there to pursue it?
Cost-to-Collect should tell more than a cost story. It should tell you whether the infrastructure, people, technology, and processes you’ve invested in are producing the financial return your organization needs.
Because in today’s healthcare environment, the cheapest dollar to collect isn’t necessarily the goal. The goal is making sure collectible dollars aren’t being lost in the pursuit of cutting costs.
In the next installment of this series, we’ll explore why these pressures can be even more pronounced for rural hospitals and community health systems.
Want a clearer understanding of what’s really driving your Cost-to-Collect? Let’s talk.
