US hospitals spent an estimated $43 billion in 2025 on billing and collections — costs tied to prior authorization requirements, claim denials, documentation requests, and the large billing and coding teams required to manage them. AHA 2025 Private payers deny roughly 15% of all claims on initial submission, and each denied claim triggers a rework cycle that strains already stretched AR teams. AHA
When cost-to-collect goes untracked, these inefficiencies accumulate silently. By the time the number surfaces in a financial report, the revenue damage is already embedded in your operations.
Knowing your CTC, where it stands against industry benchmarks, and which workflows are inflating it gives you a concrete roadmap for intervention. This guide covers everything: what cost-to-collect means, how to calculate and track it accurately, what the benchmark tiers signal in practice, and how AI-powered denial management is helping organizations hit targets that were historically difficult to reach.
What is Cost-to-Collect in Healthcare Revenue Cycle?
Cost-to-Collect (CTC) is the foundational revenue cycle efficiency metric that measures the total operational cost a healthcare organization incurs to collect one dollar of net patient revenue. It captures every expense tied to the revenue cycle and expresses the sum as a percentage of net collections. HFMA
The costs included in a complete CTC calculation span:
- Staff salaries and benefits across patient access, HIM, coding, billing, cash posting, and AR teams
- Technology subscriptions, clearinghouse fees, and vendor costs
- Denial management and appeals labor
- Outsourced billing and RCM services
- Legal fees related to payer disputes
- Record storage, office overhead, and administrative support
Practical illustration: A mid-sized hospital collecting $150 million in net patient revenue annually spends $4.5 million a year at a 3% CTC — just to collect what it is already owed. Bringing that same organization to the 2% benchmark recovers $1.5 million in operational cost without seeing a single additional patient. That recovery comes directly from fewer denied claims, less manual rework, and cleaner billing workflows from submission onward.
To understand where those rework costs come from, it helps to look at the denial side of the equation. In 2025, US hospitals spent nearly $18 billion overturning claims denials alone — a figure that excludes the staff time, technology costs, and administrative overhead absorbed upstream before a claim ever reaches the denial queue. AHA 2025 The administrative cost per denied claim rose from $43.84 in 2022 to $57.23 in 2023, and reworking a single denied claim is estimated to cost between $25 and $181 depending on complexity. Denial Stats 2026
Why Knowing Your Cost-to-Collect Benchmark Matters
Think of CTC as a diagnostic instrument rather than just a performance metric. A rising cost-to-collect number is always telling you something specific: a process is generating unnecessary cost. The benchmark gives you a reference point to surface that bottleneck before it compounds into a larger financial problem.
Administrative costs now account for more than 40% of total expenses hospitals incur in delivering care, according to Strata Decision Technology data cited by the AHA. AHA 2024 In that environment, the difference between a 3% and a 2% cost-to-collect is not a rounding error — it is millions in recoverable operational cost that belongs in your margin, not in your billing workflows.
RCM leaders who track CTC consistently gain the ability to do three things most of their peers cannot:
Identify Revenue Cycle Inefficiencies
A CTC trending above benchmark almost always points to an identifiable bottleneck: elevated denial rates, slow AR follow-up, or coding errors compounding before anyone catches them. See also: How to Analyze Denial Root Causes.
Evaluate Technology ROI Accurately
If an RCM tool is not moving your CTC in the right direction, it is not delivering real value. CTC is one of the clearest measures of whether a technology investment is actually working. Related: Denial Management Software Buyer's Guide.
Set Defensible Performance Targets
CTC benchmark data gives finance teams and RCM leadership a shared, measurable goal grounded in what high-performing organizations are actually achieving. See: RCM KPI Benchmarking Framework.
Build Financial Resilience
Organizations that manage CTC proactively are better positioned to absorb payer rate changes, staffing pressures, and regulatory shifts. Related: Days in AR Benchmarks for Health Systems.
What is the Industry Benchmark for Cost-to-Collect?
According to HFMA — the most widely referenced authority on revenue cycle benchmarking — the best-practice cost-to-collect for hospitals has fallen from approximately 3% to 2% over the prior five to seven years. This reduction is documented in the Hospital Accounts Receivable Analysis (HARA) Report and is primarily attributed to the productivity gains from deploying bolt-on software, which has significantly increased employee throughput. HFMA
Potential reduction in cost-to-collect from AI-enabled revenue cycle management, according to McKinsey analysis. For a health system with $6 billion in patient revenue, reducing CTC by just one to two percentage points translates to $60M–$120M in annual savings. McKinsey 2026
| CTC Range | Performance Signal | Annual Cost ($100M org) | Status |
|---|---|---|---|
| ≤ 2% | Best-practice performance; automation-enabled efficiency at scale | $2M | Best Practice |
| 2–3% | Solid performance but measurable room to reduce administrative costs | $2M – $3M | Solid |
| 3–4% | Below benchmark; likely facing elevated denials or heavy manual workload | $3M – $4M | Below Benchmark |
| > 4% | Significant operational inefficiency; requires urgent leadership review | $4M+ | Critical |
The urgency behind that "Critical" tier is real. Experian Health's 2025 State of Claims survey found that 41% of revenue cycle leaders say at least one in ten of their claims is denied. Experian 2025 And across MDaudit's network of more than 1.2 million providers, denied inpatient and outpatient claim amounts rose 12% and 14% respectively in the first three quarters of 2025 compared to the year prior. MDaudit / Fierce Healthcare Organizations already above 4% CTC are absorbing more denial pressure than at any point in the past decade.
How to Calculate Cost-to-Collect
HFMA defines the formula as follows, based on guidelines developed with more than 50 healthcare finance leaders and benchmarking stakeholders: HFMA Guide
What counts as Total Revenue Cycle Cost?
- Salaries and fringe benefits for patient access, HIM, coding, billing, cash posting, collections, and denial review staff
- Management vendor and outsourcing fees
- Software subscriptions and clearinghouse fees
- Transaction and contingency fees paid to third parties
- Legal fees related to billing and payer disputes
- Record storage, office overhead, and administrative support costs
What counts as Total Patient Service Cash Collected?
- All payments posted to patient accounts from insurance payers and patients
- Undistributed payments and bad debt recoveries
- Medicare DSH and IME payments
Watch for bad debt creep: The AHA found that bad debt among hospitals was up 10% in 2025. AHA 2025 Organizations that exclude bad debt recoveries from their denominator will systematically understate their net collections and report an artificially inflated CTC. Include all cash posted — including recovered amounts — to get a defensible number.
How to Track Cost-to-Collect Across Your Organization
Calculating CTC once tells you where you stand. Tracking it consistently across three dimensions — by payer, by service line, and by workflow stage — tells you whether you are moving in the right direction and where specific gains are being made or lost. For deeper coverage of payer-level analytics, see our guide on Denial Trend Analysis: Spotting Payer Patterns Before They Hurt Revenue.
of hospitals and health systems reported more than $100 million in accounts receivable for claims older than six months in a recent AHA survey. AHA 2024 Segmenting CTC by workflow stage is often the fastest way to find the AR aging bottleneck driving that backlog.
By Payer
Some payers generate disproportionate administrative costs through denial rates, prior authorization complexity, and portal friction. Medicare Advantage plans alone made nearly 53 million prior authorization determinations in 2024. AHA 2025
By Department or Service Line
Outpatient coding denials rose 26% from 2024 to 2025, making specialty-level CTC tracking especially valuable for organizations with complex, high-volume outpatient services. MDaudit
By Workflow Stage
Costs behave differently across coding, billing, AR follow-up, and appeals. Identifying which stage generates the most rework tells you precisely where to intervene first. Related: AR Follow-Up Best Practices for RCM Teams.
Against Prior Periods
Trending CTC quarterly and annually reveals whether process changes or technology investments are producing meaningful improvements. In 2023, commercial payer processing times increased 19.7% from date of submission — a shift that shows up directly in monthly CTC comparisons. AHA 2024 Costs of Caring
Recommended Tracking Cadence
How to Reduce Cost-to-Collect with AI and Automation
Automation is the primary reason HFMA's best-practice benchmark has moved from 3% to 2% over the past five to seven years. The next reduction — from 2% to below — will be driven by agentic AI. HFMA
McKinsey's January 2026 analysis of agentic AI in the revenue cycle projects that enabling the revenue cycle with AI could lead to a 30 to 60% reduction in cost-to-collect, with faster cash realization and a workforce refocused on patient value rather than administrative tasks. More than 30% of providers in 2025 prioritized AI and automation for denial management and appeals — up from four to five use cases just two years prior. McKinsey 2026
of denied claims are never appealed, according to McKinsey research — because the manual cost to investigate and appeal the denial often exceeds the recovered value. McKinsey 2026 This is precisely the category of revenue that AI-powered denial prioritization is designed to recover. See how Denials 360 addresses this in our Appeals Management Automation Guide.
The pathways to CTC reduction are consistent across organizations regardless of size or system type:
- Cleaner claim submission: Every coding error or documentation gap that escapes to submission creates a denial and a rework cycle. Preventing those errors before the claim leaves your system is the highest-yield intervention available.
- Faster denial resolution: Time in the denial queue directly compounds AR costs. Automated root cause analysis and prioritized follow-up compress the time and labor cost per denial. Learn more: Denial Root Cause Analysis: A Practical Framework.
- Proactive payer compliance: Claims denied for payer policy mismatches are among the most preventable and most expensive drivers of elevated CTC. Pre-submission validation eliminates an entire class of avoidable denials.
- End-to-end visibility: You cannot reduce a cost you cannot measure. Real-time analytics across claim submission, AR aging, denial trends, and payer performance surfaces bottlenecks before they compound into larger losses.
How DataRovers Denials 360 Reduces Your Cost-to-Collect
For RCM teams working toward and below the HFMA benchmark, Denials 360 by DataRovers provides an end-to-end denial management platform designed around the workflows that inflate CTC and the analytics that bring it back down. Every feature in Denials 360 maps directly to a documented driver of elevated cost-to-collect.
Denial Root Cause Intelligence
Denials 360 automatically maps every denied claim to its root cause — coding, eligibility, authorization, documentation, or payer policy pattern — so your team resolves the right problem the first time and prevents recurrence downstream.
Automated AR Prioritization
High-yield claims surface automatically. Denials 360 scores each denied claim by recovery probability, payer timelines, and dollar value — so your denial team recovers the most revenue per hour worked rather than working through queues by submission date.
Payer Pattern Detection
When a payer begins denying a category of claims at elevated rates, Denials 360 surfaces the pattern before it becomes a revenue trend — giving your team early-warning intelligence rather than a surprise in the quarterly financial report.
Evidence-Based Appeals Drafting
Denials 360 generates payer-specific appeal letters with clinical documentation pulled directly from the patient record — reducing appeal preparation time and improving overturn rates on submitted appeals.
Real-Time CTC Analytics
Dashboards in Denials 360 track your cost-to-collect trend in real time, segmented by payer, department, and denial category — giving finance and RCM leadership a shared view of the metrics that matter most. Related: Denial Analytics: Building a Real-Time Dashboard.
Workflow Automation for AR Teams
Routine denial follow-up tasks — status checks, deadline tracking, resubmission workflows — run automatically. Your billing staff spends time on decisions rather than administrative queues. Labor accounts for roughly 90% of claims processing expense, making this the highest-impact efficiency lever available. Denial Stats 2026
See Denials 360 in Action
Our team will walk you through exactly how Denials 360 reduces your denial rate, compresses AR follow-up time, and moves your cost-to-collect toward and below the HFMA benchmark.
No commitment required · Personalized to your health system