Quick answer: Cost to collect is the total cost of your revenue cycle divided by the cash it brings in. HFMA has cited 2% as a best-practice standard for hospitals, but a critical access hospital (CAH) rarely fits that comparison. Low claim volume, a difficult payer mix and cost-based Medicare reimbursement all change the math. The right target for a CAH is one measured consistently against its own history and against similar rural facilities, not against a large health system.
Most revenue cycle KPIs tell you whether money is coming in. Cost to collect tells you what you spent to get it. For a 25-bed hospital on thin margins, every dollar spent on registration, coding, billing and follow-up is a dollar not spent on care. Yet many CAHs don’t track the metric at all, or track it with a definition that doesn’t match the benchmark they compare against.
What Is Cost to Collect?
Cost to collect is one of HFMA’s MAP Keys, the industry-standard set of 29 revenue cycle KPIs organized into five groups: Patient Access, Pre-Billing, Claims, Account Resolution and Financial Management.[^1]
Cost to collect = total revenue cycle expenses ÷ total patient service cash collected
HFMA guidance describes the calculation as adding the total expenses of the patient access and patient financial services departments, then dividing by cash collections for the same period.[^2]
What belongs in the numerator
Capture the full cost of the revenue cycle, not just business office payroll:
- Patient access and registration staff, including eligibility verification and financial counseling
- Billing, follow-up and denial management staff
- Coding staff or contracted coding services
- Clearinghouse fees, billing software and revenue cycle technology
- Outsourced billing, collection agency and early-out vendor fees
- Allocated benefits, training and supervision
The most common error is leaving out staff who report to other departments, such as coders in health information management or registrars under nursing.
Which denominator to use
HFMA’s definition uses cash collected, not gross charges or net revenue. If your facility reports against net patient revenue instead, label it clearly and don’t compare it to cash-based benchmarks.
Why the National Benchmark Misleads at a CAH
HFMA guidance notes that the best-practice standard for cost to collect dropped from 3% to 2% over several years, largely because of productivity gains from revenue cycle software.[^2] That figure comes mostly from larger hospitals, and it has three blind spots when applied to a CAH.
Fixed costs spread over a small denominator
A revenue cycle has a floor. Even the smallest hospital needs around-the-clock emergency department registration coverage, a billing system, a clearinghouse, and staff who understand Medicare, Medicaid, and commercial payer rules. CAHs are limited to 25 inpatient beds and are typically located more than 35 miles from another hospital,[^3] so that fixed cost is spread across far fewer claims.
Consider a hypothetical example. A large health system spends $20 million on its revenue cycle and collects $1 billion, for a 2% cost to collect. A CAH spends $1.6 million on a lean team and its technology stack and collects $40 million. Its collection cost is 4%, even if its staff are just as productive per claim. The gap reflects scale, not inefficiency.
A payer mix that costs more to work
Rural hospitals collect from payers that are more expensive to bill. A 2016 to 2022 JAMA study of financial data found that CAHs consistently had negative Medicaid operating margins, averaging about -18%.[^7] Medicaid claims often require more eligibility checks, more resubmissions and longer follow-up. Medicare Advantage adds its own burden: in a Kaufman Hall 2023 survey reported by Fierce Healthcare, 73% of hospital leaders said denials had increased over the past year, with the problem particularly acute in markets with high Medicare Advantage penetration.[^10]
Two billing streams under Method II
Many CAHs bill both facility and professional services. Under Method II, practitioners reassign their billing rights to the CAH, which then bills their professional services alongside facility claims. Since 2026, CMS has denied CAH Method II professional claims when a reassignment is not on file in PECOS.[^8] Maintaining reassignments and two billing workflows adds cost a facility-only biller never carries.
The Cost Report Twist: Your Billing Office Is Partly Reimbursed
A CAH’s cost-to-collect has a feature almost no other provider type shares. Medicare pays CAHs 101% of reasonable cost for most inpatient and outpatient facility services rather than a fixed prospective rate.[^3] Under federal regulations, reasonable cost includes all necessary and proper costs incurred in furnishing services.[^4]
Revenue cycle expenses are administrative costs. On the Medicare cost report, they flow into administrative and general cost centers and are allocated across the hospital’s patient care departments. Medicare reimburses 101% of the share of those allocated costs.
Two practical consequences follow:
- A dollar of billing expense does not cost a CAH a full dollar. The Medicare-apportioned share comes back through cost settlement. The commercial, Medicaid and self-pay shares generally do not.
- A dollar of savings is not a full dollar saved. Cutting revenue cycle spending also reduces allowable cost, which lowers Medicare reimbursement by the Medicare share.
Costs must still be reasonable and documented, and Medicare covers only its own share. But a CAH comparing staffing models, technology or outsourcing should look at two numbers:
- Gross cost to collect, calculated to HFMA’s definition, for benchmarking against peers
- Net cost to collect after cost-based reimbursement, for internal decisions about where to invest
Your cost report preparer can estimate how revenue cycle costs move through the allocation and apportionment process at your facility.
What Drives Cost to Collect Up at Rural Hospitals
When a CAH’s cost to collect rises, it’s usually due to one of four things.
Rework
Denials, rejections and resubmissions are the largest controllable driver, since each denied claim is worked at least twice. Clean claim rate is the leading indicator to watch alongside cost to collect.
Prior authorization
Authorization work is labor-intensive and growing. The AMA’s 2025 physician survey found that practices complete an average of 40 prior authorizations per physician each week, consuming 13 hours of physician and staff time, and that 40% of physicians employ staff dedicated exclusively to prior authorization.[^9] For CAHs with employed providers and outpatient imaging or infusion services, that workload lands directly in the revenue cycle budget.
Staffing turnover
Hospital leaders continue to report labor shortages as a long-term challenge.[^10] In a small business office, losing one biller who understands swing-bed or Method II claims creates backlogs and errors that move the KPI noticeably.
Technology gaps
Automation is the main reason the national benchmark fell, yet many rural hospitals can’t afford increasingly costly technology upgrades, according to an HFMA analysis.[^6] Manual eligibility checks and paper remittance posting add labor to every claim.
How to Measure Cost to Collect Consistently
A KPI is only useful if it means the same thing every month. A simple discipline for CAHs:
- Adopt HFMA’s definition and document it. Write down exactly which departments, contracts and allocated costs are included.
- Use a rolling 12-month view. Settlements, interim payments and seasonal volume make monthly figures noisy.
- Separate facility and professional billing. Under Method II, calculating each stream separately shows where cost is concentrated.
- Pair it with outcome KPIs. Falling collection costs alongside a rising denial rate or days in A/R usually signal understaffing rather than efficiency.
- Compare against peers of similar size. HRSA’s Flex Program supports 1,360 CAHs through State Offices of Rural Health,[^5] and state Flex networks and hospital associations make better comparison groups than national averages.
How to Bring Cost to Collect Down Without Starving the Revenue Cycle
The goal is not the lowest possible number. A revenue cycle cut too deeply collects less, which pushes the ratio back up.
McKinsey research estimated that administrative simplification could save US healthcare $265 billion a year, about 28% of administrative spending,[^11] and its authors noted that individual organizations could capture roughly two-thirds of the opportunity without industry-wide change.[^12] For a CAH, the most practical levers are:
- Fix the front end first. Real-time eligibility checks and accurate registration prevent the denials that drive rework.
- Automate repetitive tasks. Electronic remittance posting, claim status checks, and eligibility verification free staff to focus on judgment-based work.
- Track denials by root cause. A denial log organized by payer and reason shows which upstream fixes will save the most labor.
- Build redundancy. Cross-training reduces turnover costs in a small office.
- Evaluate support models on net cost. Whether you add staff, buy technology or partner with an outside team, compare options using the net figure after cost-based reimbursement, alongside expected changes in collections.
The median rural hospital operating margin rose to 2.0% in 2025, yet 41.2% still operated in the red.[^6] At margins that narrow, knowing what it costs to collect each dollar is basic stewardship.
Frequently Asked Questions
What is a good cost-to-collect for a critical access hospital?
There is no single published CAH benchmark. HFMA has cited 2% as a best-practice standard for hospitals generally, but CAHs typically run higher because fixed revenue cycle costs are spread over lower collections. The most useful target is steady improvement against your own 12-month trend and comparison with rural hospitals of similar size.
How do you calculate cost to collect?
Add the total expenses of patient access and patient financial services, including staff, technology, coding and vendor fees, then divide by total patient service cash collected for the same period. Multiply by 100 to express it as a percentage.
Does Medicare cost-based reimbursement cover billing department costs?
Partly. Revenue cycle costs are administrative costs that are allocated across patient care cost centers on the Medicare cost report. The portion apportioned to Medicare is reimbursed at 101% of reasonable cost. Costs attributable to other payers are not covered by Medicare.
Why is cost to collect higher at small rural hospitals?
Small hospitals carry fixed costs for registration, billing systems and payer expertise regardless of volume, and their Medicaid and Medicare Advantage claims often need more follow-up.
Should a CAH outsource billing to lower its collection costs?
It can, when it reduces rework and improves collections. Evaluate it on net cost after cost-based reimbursement and its effect on denial rate and days in A/R, not on vendor fees alone.
How CPa Medical Billing Supports Critical Access Hospitals
CPa Medical Billing, a GeBBS Healthcare Solutions company, supports critical access hospitals, rural health clinics, FQHCs, and other safety-net providers with revenue cycle management. Our teams understand cost-based reimbursement and Method II billing, and we help facilities consistently measure KPIs like cost to collect.
Sources
- Healthcare Financial Management Association. “HFMA MAP Keys.” https://www.hfma.org/revenue-cycle/map-keys/
- Healthcare Financial Management Association. “Ask the Experts Answer: Cost-to-Collect Calculations.” https://www.hfma.org/revenue-cycle/kpis/7295/
- Centers for Medicare & Medicaid Services. “Information for Critical Access Hospitals” (MLN006400). https://www.cms.gov/files/document/mln006400-information-critical-access-hospitals.pdf
- Electronic Code of Federal Regulations. “42 CFR § 413.9: Cost Related to Patient Care.” https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-413/subpart-A/section-413.9
- Health Resources and Services Administration. “Medicare Rural Hospital Flexibility Program (Flex).” https://www.hrsa.gov/rural-health/grants/rural-hospitals/flex
- Healthcare Financial Management Association. “Why Rural Hospital Finances Improved in 2025.” February 2026. https://www.hfma.org/fast-finance/rural-hospital-operating-margins-2025/
- Becker’s Hospital Review. “Critical Access Hospitals Face Uphill Battle: 6 Things to Know.” https://www.beckershospitalreview.com/finance/critical-access-hospitals-face-uphill-battle-6-things-to-know.html
- Centers for Medicare & Medicaid Services. “MLN Connects Newsletter: August 21, 2025.” https://www.cms.gov/training-education/medicare-learning-network/newsletter/mln-connects-newsletter-august-21-2025
- American Medical Association. “AMA Survey: Prior Authorization Reform Pledge Falls Short With Physicians.” https://www.ama-assn.org/press-center/ama-press-releases/ama-survey-prior-authorization-reform-pledge-falls-short-physicians
- Fierce Healthcare. “Labor Shortages, Claims Denials, Supply Chain Still Hamstring Hospital Margins, Survey Shows.” https://www.fiercehealthcare.com/providers/labor-shortages-claims-denials-supply-chain-still-hamstring-hospital-margins-survey-shows
- Healthcare Financial Management Association. “Research Highlights Ways to Save More Than $250 Billion per Year Through Healthcare Administrative Simplification.” https://www.hfma.org/finance-and-business-strategy/administrative-simplification/research-highlights-ways-to-save-more-than-250-billion-per-year/
- Becker’s Hospital Review. “Interventions to Save $265B in Healthcare Administration.” https://www.beckershospitalreview.com/strategy/interventions-to-save-265-billion-in-healthcare-administration/