January 25, 2006
Most healthcare finance managers can rattle off their organization's cost to collect as a percentage of operating costs and rate of return, but those numbers require context if they are to have any value. A new educational report prepared by HFMA with sponsorship from ARC Group Associates delves into the question of how to do that.
Context is Everything
"When you see an organization's collection numbers, it's important to know what they put into that," says Aaron Crane, CFO of Salem Hospital, Salem, Ore. "One organization might be collecting a lot but spending a lot to get that, while another might collect less but be getting a better return for what they spend."
While experts typically recommend that organizations maintain a cost to collect of no more than 2 percent or 3 percent, a 2 percent cost to collect may not necessarily indicate a greater level of efficiency than that of an organization with even a 5 percent or higher cost to collect. The reason is that most organizations only include the departmental budget of the business office in their cost to collect, but after that, items counted in this figure can vary widely.
The Ideal Cost to Collect
For greatest accuracy when calculating cost to collect, financial executives would need to examine all costs related to revenue capture across their hospital and entire revenue cycle, including:
Staff
- Salaries, overtime, temporary staff
- Consultants
- Benefits (medical, social security, unemployment), bonuses or incentive pay
- Turnover cost
- Staff training and benefits
Human Resources
Recruiting and advertising expense
Other department costs on the budget
Technology
- Hardware, maintenance
- Software (even if paid through the capital budget or some other funding source outside the revenue cycle departments)
- Programming support
- Support personnel assigned to the revenue cycle to assist with the revenue capture process
- Other IT costs as they relate to the collection process
Telecommunications
- Hardware, maintenance
- Software
- Programming support
Telecommunications services
- Local and long distance service
- Call center number for patients
Overhead
- Office space, general building operations
- Utilities (allocated by department)
- Human resources support
- Occupancy/real estate tax
Other department costs
- Supplies (minor equipment and maintenance, postage, copier and printer costs, furniture)
- Education (travel, dues, and subscriptions)
- Professional fees for outsourced billing, printing, or collections
- Other bolt-on technologies that help improve collections
Regardless of where costs are allocated in the organization, if those costs are a function in the collection process within the revenue cycle or outside of the revenue cycle they need to be counted into the fully loaded cost to collect. Many of these costs today are not truly accounted for in terms of a departmental budget. Instead, they often are wrapped into overhead or a capital budget process. It is important to understand where costs are being allocated to accurately calculate fully loaded cost to collect.
Easier Said than Done
Whether and to what extent these items are included can vary widely not only from organization to organization, but even from facility to facility within a single organization. The General Accounting Office discovered such a situation when it conducted a July 2004 study of collection costs at Veterans Administration facilities. Facilities were so inconsistent with one another that the GAO tasked the secretary of the VA with issuing guidance for a standard and consistent method of accounting for costs associated with collecting payments from veterans and private health insurers. The Veterans Health Administration responded with a directive listing those processes fundamental to billing and collections, stating that the decision support system would be used to provide the base cost information in developing the cost to collect. To date, however, it has not issued any guidelines more specific than that.
SOURCE : Understanding Your True Cost to Collect , an educational report by HFMA with sponsorship from ARC Group Associates.
Additional Information
- HFMA's 2006 Spring Seminar Series: Key Performance Indicators: Creating Strategic Scorecards, Ft. Lauderdale, FL, February 6-7 and Savannah, GA, May 24-25
- Revenue Cycle Self-Assessment Tools
- HFMA Executive Roundtable: Issues in Up-Front Collections
- "Performance Is Reality. How Is Your Revenue Cycle Holding Up?" July 2005 Healthcare Financial Management (On-line access available to HFMA members only. Not a member? Join now!)
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble at lnoble@hfma.org.
HFMA Wants You to Know ISSN: 1540-0697. Volume V, Issue 2. Copyright 2006, Healthcare Financial Management Association. All rights reserved.