3 Golden Rules for Medical Accounting
January 18, 2023
Medical accounting, Medical practice accounting
If you enjoyed tracking numbers, you would have opted for a career in finance or mathematics. Nonetheless, most experienced physicians who become practice owners are immersed in trying to make sense of how to do their medical accounting instead of focusing on patient care and managing their physician team. Healthcare entrepreneurs devote more than their fair share of daily productive hours to medical accounting (along with other administrative responsibilities).
Medical practice accounting is difficult because the recipient of service (the patient) is not always the payer. Tracking claims submitted to multiple insurance companies is part of the complicated third-party payor model. Unsurprisingly, as a result, most medical practice and group practice owners devote a significant amount of time to managing the accounting systems, processes, and staff. Here are three tips for improving medical accounting processes and revenue management to help you get started.
Establish the right medical accounting basics from the start
As a solo or group practice, you can use one of two medical accounting methods – accrual accounting or cash basis accounting.
The disadvantage of accrual accounting is that revenue is accounted for the moment the medical service is provided (before it is collected from the patient or the insurance company). As a result, the majority of healthcare providers prefer the cash basis accounting in order to obtain an accurate picture of business cash flow and avoid paying income tax on amounts not yet collected.
The other fundamental accounting question that must be addressed as a group medical practice is how profits are distributed amongst the partners. While an equal split is a simpler method, it does not account for the fact that each partner’s revenue generation is different. As a result, group practices frequently prefer to split the profits in proportion to each physician partner’s revenue contribution; this is known as the pro-rata method. A ‘corporate split’ is a third option for profit sharing in which each physician partner receives a salary based on their clinical work, then after all expenses and liabilities have been paid, the remaining profits are divided equally.
Not having separate accounts and credit cards for personal and professional expenses is a common mistake in medical practice management. The co-mingling of business and personal expenses will put a strain on relationships with business partners. It also puts the company at risk of an IRS audit which makes obtaining a business loan or line of credit difficult.
Choose the right automation tools
Choose an EHR system for your medical practice that has an interoperability with your existing practice management system (PMS) and the accounting software. Aside from capturing patients’ medical histories and demographics, an EHR system captures financial information (billing and claims generation) for your medical practice. The EHR’s report generation capabilities will aid in identifying gaps in payment capture and collection.
Using cloud-based accounting software will give you access to accounting information at your fingertips through any device. With patient data integrity being a vital requirement for medical practices, a cloud-based accounting system offers greater protection for your practice’s financial data. It also improves compliance with HIPAA guidelines and is easier to upgrade cloud-based software when needed. However, choosing the right accounting software can be daunting and expensive, which is why many medical practices prefer to outsource their medical practice accounting.
Implement portals and automation where possible to help ease burdens on your team. Paper-based processing is prone to delays and errors in payment collection. A better alternative is allowing your patients to interact with the medical practice digitally through a patient portal. The advantage for the patients is that they can register online, book appointments, view outstanding balances, and get reminders on upcoming health checks. The advantages for your staff is less headaches that come with manual processing and workflows.
From the perspective of medical accounting, a patient portal makes it easier to bill clients, collect payments online, create payment installment plans, and send payment reminders. By enabling a credit card on file, you can also ensure that appointments are paid for before patients walk into your office. In a nutshell, digital payments will ease patient collections, which is a common challenge in medical practice accounting.
Review financials regularly
Regularly producing and reviewing your financial statements gives you a chance to identify and correct issues before they become serious problems. This practice also allows you to measure your progress toward financial or practice growth goals. Periodic reconciliations will ensure that you don’t face a scenario of bounced checks, unreconciled transactions, or negative cash flow. In addition, the monthly reconciliation of your bank and credit card statements is crucial for preventing and detecting fraud and errors.
The reports that you should analyze each month are as follows:
Unfortunately, many healthcare professionals only look at their financial statements once a year when their accountant requests financial data for tax preparation. With the demands of patient care and compliance, regularly monitoring the financials of a medical practice may fall to the bottom of your to-do list. However, that can severely threaten the financial health of your medical practice. In the absence of regular bookkeeping, you lose track of financial vitals, such as:
If you find yourself unable to track your financials closely on a regular basis, consider outsourcing your medical practice accounting. In addition to preparing the monthly accounting reports with accuracy, your service partner will also utilize data analytics and AI to help you predict future cash flows and identify financial anomalies before they become larger issues. This information will be essential for making prudent financial decisions, such as the scope of cost reductions, improving collection turnaround times, or seeking a business line of credit.
In conclusion, owning a business is hard enough, and entrepreneurs must always wear multiple hats, including that of the CFO. Working with an accounting services provider can help you streamline crucial accounting decisions right from the start of your practice. Quatrro Business Support Service is a professional finance and accounting outsourcing service provider that helps healthcare organizations stay on top of the medical accounting game. We provide financial insights clients need to grow while freeing up time and resources providers need to manage their core business – delivering superior patient care.
Outsourcing finance and accounting to QBSS will help: