“Understanding and reducing True Cost-to-Collect (TCC) will increase the profitability of your healthcare practice.”
TCC is a crucial performance metric that tells the actual expense of rendering medical services and collecting reimbursement. It is important for healthcare providers, medical organizations, and billing companies.
In a literal sense, TCC is the amount spent by healthcare providers to collect every dollar of revenue!
In the current scenario, the healthcare industry is witnessing increasing reimbursement rates. While this may sound like good news, higher reimbursement rates come with various challenges for healthcare providers. Higher rates mean more regulations, stricter payer contracts, and rising operational costs. These are the things that healthcare providers have no control over.
However, TCC is something that healthcare providers can control and streamline expenses to achieve an efficient bottom line. In essence, True Cost-to-Collect is important for your revenue cycle, and in this blog, we will decode everything about TCC.
Here’s what we’ll cover:
- What True Cost-to-Collect really means
- How to calculate it accurately
- Industry benchmarks
- Proven strategies to reduce it
Understanding the Term: True Cost-to-Collect
Like we discussed early in the blog, TCC is the expense paid by the healthcare provider or practice to collect every dollar of revenue.
There is a formula used to calculate TCC and find out the percentage:
True Cost-to-Collect = (Total Revenue Cycle Costs ÷ Total Collections) × 100
Let’s understand the formula with the help of an example. For instance, if your practice collects $4,000,000 annually and spends $320,000 on billing and revenue cycle operations, then:
(320,000÷4,000,000) ×100=8
That means it costs your practice 8 cents to collect every dollar earned.
This percentage expressed the financial efficiency of your healthcare practice. So, the lower it is, the better it is.
The Role of True Cost-to-Collect for Healthcare Practices
There are various performance metrics that healthcare providers use, such as AR days, clean claims rate, rate of denials, net collection rate, and more. While those metrics are important, they don’t give an absolute answer about your healthcare practices’ financial position.
Whereas, TCC gives you a direct insight into how much revenue you earn in comparison to the cost invested.
For example, if there are two healthcare practices (Practice X and Practice Y) and both of them earn $5M as revenue, but their TCC rates are different. Practice X has 5% TCC, and Practice Y has 9% TCC. Then, Practice Y is losing $200,000 in profit annually compared to Practice X.
This proves that cost-to-collect is one of the most vital performance metrics for healthcare providers and practices. It is not just an indicator, but it also measures efficiency and gives you a starting point for working on operational costs.
Type of Expenses Must be Included in Calculation
In order to ensure accurate TCC calculation, you have to include certain types of expenses in your calculation. Only when you include all necessary expenses will you get an accurate number:
1. Billing Staff Costs
If you have a billing staff that takes care of your medical billing process, then you have to include their salaries, payroll taxes, benefits offered, overtime, and expenses done on their training.
2. Technology Costs
You also have to include the money spent on technology, such as the cost of practice management software, clearinghouse fees, claim scrubbing tools, payment posting automation systems, and IT support.
3. Administrative Overhead
The calculation must include the expense of arranging office staff to billing staff, utilities, compliance management, and credentialing services.
4. Denial and Rework Costs
Time spent correcting claims, appeals, and resubmissions; follow-up calls to payers; and patient statement processing. All the expenses made for denials must also be included.
Denials and rework usually are the biggest cause of a higher cost-to-collect rate.
Industry Benchmarks Related to True Cost-to-Collect
Industry benchmarks are not rigid, as there are lots of factors that contribute to the TCC rate. However, knowing the standards will help you.
- Higher-performing RCMs have around 3%-6% TCC.
- Average healthcare practices have TCC between 6% and 9%.
- Inefficient healthcare practices have 10%+ TCC.
A cost-to-collect rate above 9% is a sign of inefficient operational management and a faulty revenue cycle.
Common Reasons Behind Higher Cost-to-Collect
The true cost to collect rate can be affected by different factors such as:
Increasing Denial Rates
Claim denials lead to denial resolution, which includes identifying the issue, refiling the claims, and submitting them again. All this increases the operational cost of the medical billing process.
Manual Billing
If you are still using a manual billing strategy, then eligibility checks, documentation preparation, and manual collections will increase the labor cost.
Errors in Billing
Errors during billing steps such as recording patient information, lack of prior authorization, coding mistakes, submission delays, and more. All these lead to disrupting revenue cycle management.
Revenue Gaps
Revenue gaps, like not tracking underpayments and not collecting complete revenue, will increase the overheads and affect TCC and make the rate higher.
Ways to Reduce True Cost-to-Collect – Must Read for Healthcare Providers
If you take some measures, you can effortlessly bring down the TCC, limit your expenses, and upgrade your revenue cycle.
Achieve a Higher Clean Claims Rate
A higher clean claims rate means your revenue cycle management is accurate and efficient. You must aim to ensure accurate claims on the first submission. This prevents the denial resolution process and reduces operational costs, leading to less cost-to-collect.
For this, you have to focus on enhancing the accuracy of insurance eligibility verification, documentation, and coding. You should also implement claim scrubbing and analyze the reasons behind denials.
Work on Preventing Claim Denials
The second thing is that you have to prevent claim denials. Because even if you have effective denial resolution, the process is going to result in operational costs. That’s why the best option is to prevent denials. For this, you have to ensure that every medical billing step is done with precision and there are no mistakes in coding while claims are submitted on time.
If you reduce your denial rate by 3-5%, you will see an impactful change in the TCC.
Avoid the Manual Patient Collections Process
Manual collection leads to a higher labor cost, and this increases the cost to collect. In order to avoid the manual process, you have to adopt technological methods such as online portals to make patient payments faster and improve the cash flow. This will also reduce your AR days and overheads.
Keep a Check on Other Performance Metrics
You cannot ignore other performance metrics in your healthcare practice. As long as the rest of the metrics are on point, your TCC will decrease. All you have to do is track and monitor denial rate, clean claims rate, AR days, net collection rate, and cost per claim processed.
When you review these metrics regularly, you will identify minor inefficiencies in the process that you can correct and lower TCC.
Consider Medical Billing Outsourcing
There is a huge investment involved in managing an in-house billing staff for the administrative process. Infrastructure, salaries, training, and much more—all these are expenses for your healthcare practice.
However, outsourcing your medical billing process will save you all these expenses and help you bring your TCC down. Expert billing partners will also improve your entire revenue cycle management, optimize the workflow, and prevent denials.
A medical billing company can help you in terms of maximizing revenue and lowering overall cost-to-collect.
Bottom Line
There are long-term benefits of lowering your cost to collect. There will be an increase in profitability, your cash flow will become stronger, and you will be able to scale your practice. It’s time you improve your strategy and work on reducing your true cost to collect every dollar of revenue.
It is simpler with an outsourcing partner like Eminence RCM by your side. As a well-known billing services company USA, we are here to help you optimize your administrative process, help you with clean claim submission, and elevate your practice profitability. We will work on your TCC and make sure you never see a higher rate in your practice.
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