Like the old saying goes: “you’ve got to spend money to make money.” 

No where is that more true than with addiction treatment billing and collections. 

Whether your organization handles billing and collections in-house or whether you hire the work out to a team of billing specialists like the one here at BehaveHealth, budgeting for revenue cycle management in the addiction treatment industry is a major consideration for all providers. Too many addiction treatment providers suffer from chaotic revenue cycles and poor cash flow.

How much is your organization spending on collections? Do you know how to figure out that number? What’s the industry average? What factors play into increased collections costs? How much is too much?

Today we’ll explore the collections side of addiction treatment revenue cycle management and learn how to minimize your organization’s cost to collect.

What does “Cost to Collect” mean for Addiction Treatment?

“Cost to Collect '' is a standard Key Performance Indicator (KPI) commonly used in the healthcare field to evaluate how much an organization is spending to collect each dollar that it receives in payment. Your cost to collect reveals the efficiency and productivity of your organization’s revenue cycle. 

Cost to collect is typically expressed as a percentage of your total patient services cash collected. 

To figure your cost to collect follow this formula:

Total Revenue Cycle Cost / Total Patient Services Cash Collected = Cost to Collect 

First, figure out your total revenue cycle cost. Arriving at this number means adding up all of the money you’ve spent in the collections process. Every organization does this a little differently but the general process is the same across the board. Try to include all the expenses associated with your billing and collections process. Collections follow-up, collections posting, third-party vendor contract fees, the cost of clinical documentation, and time spent completing VOBs and utilization reviews are all fair game here. Also remember to include the costs of any software you’re using to manage the process. 

It’s less common for organizations to include things like the cost of employee benefits associated with keeping billing in-house and other tangential costs like depreciation and administrative overhead, although this can be significant depending on the scale of your operation. Decide what makes the most sense for your organization and be sure that you’re using an identical metric when trying to draw a comparison between organizations. 

Once you have this number, dividing it by your total patient services cash collected is easy. When you’re done, you have your cost to collect, expressed as a percentage of your total patient services cash collected. 

It’s useful to do this calculation on a yearly basis, although some organizations do it more frequently. Watch to see if it goes up or down based on the revenue cycle optimization actions your team takes throughout the year.

What Causes High Collections Costs for Addiction Treatment Providers?

There are a lot of factors that affect cost to collect for addiction treatment providers. 

Here’s some big ones:

• Inefficient or inexperienced billing and/or collections teams. This is a big time-waster we see in a lot of in-house addiction treatment billing departments.

• Failing to build relationships with insurance companies and leveraging those relationships during the claims process. Insurers go for the low hanging fruit of claims that are easy to pick apart. Having strong relationships with insurance providers and knowing how they typically operate when picking apart claims makes it easier to build bullet-proof claims.

• Being Out Of Network (OON), resulting in insurance reimbursements that go directly to the patient instead of the provider. This tactic is used by insurance companies to bully providers into joining their network and accepting lower reimbursement rates. This is illegal in a handful of states now, but common practice in many places in the United States. In states where it’s still legal, addiction treatment providers are left holding the bag, trying to chase down payment from the patient instead of the insurance company. Oftentimes, patients—especially those who are at risk of relapse—have already spent the money. The cost to collect in these cases is very high. 

• Accepting self-pay patients without securing pre-payments. One study found that it costs four times more to collect from a patient than it does from an insurance provider.

• Patient responsibility payments that are greater than $1,200. Studies have shown that payment rates drop dramatically when a patient’s bill grows beyond this number.

What’s the Average “Cost to Collect” for Behavioral Health?

There isn’t a lot of data on the average cost to collect for behavioral health care providers. The information we do have is based on hospitals in general, though we can assume that the cost to collect for behavioral health providers—especially those with some of the issues listed above—will be significantly higher than that of a general hospital. 

One study found that the median cost to collect for hospitals in 2017 was 3%, with low performing organizations clocking in closer to a median of 3.7% cost to collect.  

You can use our revenue estimator to estimate the amount of money your organization is losing to inefficient billing. 

Your Organization Needs a Lean, Nimble Billing Solution 

If your cost to collect is too high and your current billing solution is losing you money, it’s time to make a switch. At BehaveHealth, we specialize in billing and collections for addiction treatment providers. We have a track record of maximizing our clients’ cash flow and collecting both patient and insurance payments quickly and painlessly. Check out our free trial and see why more addiction treatment providers are switching to BehaveHealth today.