Introduction
The healthcare industry is on the rise. Accounting in the healthcare industry is one of the important aspects of this growth. If you have healthcare sector business, you need to be very clear about the healthcare accounting processes, the healthcare accounting types and the overall strategies to manage the healthcare business finances with ease.
This blog explains everything you need to know—what is healthcare accounting, why having a healthcare accountant is important, how healthcare accounting services support overall healthcare business financial management, what are the benefits and challenges in healthcare accounting services, etc.
Let’s begin with this complete guide on healthcare accounting!
What is Healthcare Accounting?
Healthcare accounting focuses on collecting, analyzing, and reporting financial information of various healthcare organizations such as hospitals, clinics, nursing homes, labs, dental and orthodontist offices, rehabilitation facilities, etc.
In these healthcare organizations, money comes in from patient payment, insurance payments, grants and other sources. While money goes out to pay wages, salaries, supplies, and other healthcare expenses.
The problem healthcare businesses deal with most of the time is having late payments, delayed payments while the supply is needed on a routine basis from various vendors and the payment must be made to them on time.
Along with healthcare accounting management, the healthcare accountants also need to follow the HIPAA (Healthcare Insurance Portability and Accounting Act, 1996) guidelines and stay compliant with the law's regulations of it.
To understand all of these, you first need to be clarified on who actually needs healthcare accounting services.
Let’s figure it out.
Who Needs Healthcare Accounting Services?
To list it out, here are the key healthcare professionals and healthcare organizations that need healthcare accounting services and tax assistance with the expert financial advice and proper accounting guidance:
- Nursing homes
- Dental offices
- Orthodontic offices
- Hospitals
- Doctor’s offices
- Specialist clinics
- Outpatient clinics
- Counseling and therapy clinics
- Urgent care centers
- Imaging and diagnostic centers
Why is Healthcare Accounting Important?
Primarily, the healthcare industry provides the appropriate treatment and required care to people. But here the treatment and care should be manageable financially and that’s where the accounting team of the healthcare business comes in and ensures that the finances of healthcare organizations are on track.
Healthcare accounting is also important to record the inflow and outflow of the income in the business and simplifies the complications of health insurance claims, late payments or nonpayment.
Also, you have to look after a sufficient and quality supply of healthcare use.
If healthcare businesses don’t stay on track of their finances, they will not stay in business for long time. When accounting fails to process the finances on time and lacks efficient account tracking procedures, it creates major problems.
Therefore, handling the whole financial data and reports is crucial for making decisions and planning strategy.
Challenges of Healthcare Accounting
1. Financial Closing
Healthcare organizations find it difficult to close their financials with accurate records. Healthcare accounting becomes complicated with the process of matching various data, like insurance payments and patient fees. It may create more mistakes and longer delays in closing the books.
2. Complexities of Reconciliation
In healthcare accounting, reconciliation involves connecting various data of insurance claims, patient billing, and received payments. This process adds more complexity and increases the chance of errors.
3. Cash-to-Accrual Challenges
When healthcare businesses decide to switch from cash-based to accrual-based accounting, it creates challenges for financial statement reporting.
4. Managing Accounts Receivable
Handling accounts receivable is a tough task for healthcare accountants because it heavily relies on payments from patients and insurance companies which is uncertain, time-consuming, and often leads to delayed income.
5. Compliance and Data Integrity
The Affordable Care Act and HIPAA are two of the laws in healthcare accounting that guide compliance and data integrity. Their regulations make healthcare accounting more challenging by needing accuracy and privacy in tasks.
6. Skilled and Experienced Accountant
Finding a healthcare accountant with experience and required skills is tough. Mostly you have to deal with skill gaps when hiring a full-time healthcare accountant in your organization.
Key Stakeholders in Healthcare Accounting
When managing healthcare accounting, you must deal with various stakeholders who play an important role in the whole process of managing your healthcare accounts. Giving time and money management to the expert helps your stakeholders being free from the worry of finances.
Here we have listed key stakeholders involved in healthcare accounting processes that might be affected and have their impact in the process of accounting for your healthcare business.
1. Patients
The ones from where all this starts. The patients are the major stakeholders in the healthcare sector because they are the ones to whom you cater the services and get the actual revenue in return for your healthcare services.
The patients provide you with the desired healthcare services with insurance companies and pharmaceutical companies from where they get the insurance for their healthcare expenses and the medicine they need.
2. Healthcare Facilities
Healthcare facilities are the crucial aspects for healthcare businesses that actually provide various facilities and care services to the patients. They need actual financial integration to manage the care facilities for betterment of the healthcare services provided to the patients and have funds to further improve them and address the quality service issues.
3. Insurance Companies
Insurance Companies are the ones who need clear documentation on each case in your healthcare organization. Some patients will pay the amount through their insurance companies which means the payment can be delayed and have documentation issues. While making your books you have to clarify them, deal with them on time and provide them with the time to make insurance payments made in an appropriate form.
4. Healthcare Employees and Employers
The healthcare employees and employers require the clarity and aligned finances of your healthcare business.
As an employer, a transparent account helps you figure out the actual accounts payable and accounts receivable, along with giving the employee side clarity of their total expenses of payroll and other expenses.
5. Pharmaceutical Agencies and Medical Equipment Manufacturers
Pharmaceutical companies and medical equipment manufacturing companies influence the accounting and bookkeeping of the healthcare businesses in many ways.
They will be the key vendors providing you with required medicines and medical devices. Therefore, having clear records of expenses made with them is important in healthcare accounting.
6. Government Agencies and Lawmakers
Government agencies and lawmakers also play a major role at the time of financial statements which will go public. You assure the government agencies and lawmakers about well-managed finances of your healthcare business and make sure that you have compliance with laws and regulations of HIPAA along generally accepted accounting practices (GAAP).
The Role of a Healthcare Accountant
1. Calculating Revenues and Expenses
As a healthcare accountant, your key role is to calculate income and expenses from various sources. You can keep track of all the accounts payable and account receivables of your healthcare business.
The problem here is to keep them in sync with the routine financials of the business, make quality supply available with making payments on time to vendors is the main responsibility of healthcare accountant.
2. Allocating Revenue
A Healthcare business has multiple sources of income, so their account receivables have also different sources of revenues. Healthcare accountants need to allocate the revenue to the specific point because a healthcare organization has emergencies all the time requiring medical supply, equipment, medical devices, medicines, etc.
3. Calculating Depreciation
With revenue, you need to calculate the depreciation as well. As you move forward to grow your healthcare business, you also purchase assets for business use.
For instance, a medical device for special operation is an asset for your business, and it will be a key part of the business for years. But as time passes, its value will depreciate, and healthcare accountant needs calculated it.
4. Preparing Accounting Reports
Healthcare accountants have primary responsibility of preparing accounting reports such as profit and loss account, balance sheet, cash flow statement, etc. They also generate year-end fiscal report of business and measures the annual financial health of the business.
5. Reporting Reimbursement
There are times when employees make payments out of their pockets on behalf of the organization. In healthcare business too, the official accountant has to report these payments and reimburse them to the employees accordingly and record it in the final statements.
6. Preparing the Budget
Healthcare finances require a sort of budget or estimated number for expenses and income. Therefore, healthcare accountants have to prepare the estimated budget for the whole year or certain time to cover all the probable expenses in return for the income it will generate.
7. Monitoring Financial Reports
With all the financial tasks around, as a healthcare accountant you also require monitoring all financial reports and ensuring that there are no financial errors in them, and they are accurate and cross-checked with the original receipts and bills.
Top 5 Reasons to Have Healthcare Accounting
1. Revenue Cycle Management
Revenue cycle management is a key part of healthcare accounting. It includes tasks like patient billing, claims processing, and handling insurance payments, receipts and claim collections.
A healthcare organization needs a strong revenue cycle management strategy, that can convert cash as quickly and reliably as possible. However, this funding procedure can impact negatively on patient care.
2. Payroll and Compensation
Payroll management is within a healthcare organization. Well managed payroll and compensation policy ensures that healthcare employees like doctors, nurses, technicians, and administrative executives receive their payments on time.
There are various compensation methods, such as bonuses, overtime, and benefits, that should be managed accurately in healthcare accounting systems.
3. Managing Capital Investments
High costs for assets like machines, buildings, technology, and medical supplies are crucial for cash flow. Here, the financial benefit of these assets is measured in healthcare accounting. Healthcare accountants direct their organizations about depreciation, return on investment, and long-term expenses.
4. Treatment and Cost Control
Healthcare Accounting helps healthcare organizations balance quality services with fair pricing for patients. Healthcare accountants monitors both direct and indirect costs, reduce unnecessary expenses along with making proper care for patients.
5. Insurance Reimbursement
Another reason for American healthcare accounting system requires efficient account management is insurance payments. Mostly patient claims go to various insurance companies where accurate accounting is required.
When the Accounting team gets recorded invoices and on-time payments, the healthcare business can reduce lost revenue from denied or delayed claims.
Features of Accounting in Healthcare Sector
1. Provide Error Free Accounts
A healthcare organization must hire an experienced accountant with a number of years in healthcare accounting. An experienced accountant provides your error-free accounts and proper fund management.
2. Eliminate Poor Communication
A skilled healthcare CPA uses clear financial reports to keep healthcare organizations updated on their financial condition and future goals. The role helps improve communication and reduce errors.
3. Fix the Lack of Workflow
Healthcare accountants improve efficiency and reduce costly downtime and delays by using specific processes and workflow systems.
Benefits of Healthcare Accounting
1. Creating and Meeting Financial Goals
Healthcare accountants analyze expenses and budget to create an effective plan. They assist you in establishing financial goals for your organization and recommend practical steps to achieve them.
2. Providing Accurate Records
Healthcare accounting manages regular bookkeeping to help you stay on top of daily operations. This allows your team to easily create and check financial statements, determine tax obligations, and manage cash flow effectively.
3. Managing Treatment Costs
Health organizations need to manage treatment costs, considering a careful financial balance to stay profitable and friendly to patients. Here, a healthcare accountant helps your business eliminate unnecessary expenses.
4. Evaluate Business Performance
Healthcare CPAs help to evaluate your healthcare business performance by keeping up-to-date financial records helps. They assist you in making smart financial choices by providing a clear view of your finances. This improves your organization’s reputation and trust of stakeholders.
5. Federal and State Tax Compliance
Having CPA services for your healthcare company helps you stay compliant with IRS regulations. Healthcare accounting helps ensure that your important documents, tax forms, calculations, and deductions are submitted on time.
Risks of Not Hiring a Healthcare Accountant
Healthcare workers have busy schedules and limited time to learn about the complex and ever-changing field of healthcare accounting. Without healthcare accountants, your organizations may face issues like noncompliance, poor resource management, and negative impacts on patients, staff, and overall operations.
What if employees were not paid, if an audit happened because of tax issues, or if expenses went unreported for weeks, months, or even years? This can lead to the downfall of even the strongest organizations.
That’s why having dedicated and skilled accountants ensures the smooth running of offices, clinics, and hospitals.
Important Healthcare Accounting Reports
1. Profitability Reports
Profitability reports help healthcare businesses understand their financial performance by comparing revenues and costs. This report assists the organization in identifying where to invest in the future and where to cut costs.
2. Chart of Accounts
A clear chart of accounts helps healthcare organizations sort and record all money-related activities from patients, such as payments, medical supply costs, and staff salaries. This organization also makes audits simpler and quicker.
3. Billing Reports
Billing reports help monitor payments from patients and insurance companies and prevent losing money from unpaid invoices. These reports keep track of outstanding bills and collect them promptly.
4. Supply Records
Keeping precise records of medical supplies is essential for managing inventory and controlling costs.
5. Payroll Cost Records
Payroll refers to the payments, benefits, and taxes for employees in healthcare organizations. Payroll costs are large in the organization, and you have to record them accurately.
6. Cash Flow Monitoring
A key part of healthcare accounting is keeping track of cash flow. When cash flow is managed well, there will be enough money available to pay for all expenses, such as capital payments, medical supplies, and daily costs like staff salaries.
7. Rent and Taxes on Property
Many healthcare organizations rent properties. Therefore, taxes and rent expenses must be recorded in healthcare accounting.
How Does a Healthcare Accounting Firm Serve You?
Healthcare accounting requires a strategic approach towards its complexities of compliance, reporting and other accounting receipts. Accounting firms specialized in healthcare accounting help you tackle these challenges.
Expert healthcare accounting firms improve the accuracy of financial reports, reduce accounting mistakes, and establish efficient accounting practices, lead you to better management of revenue cycles and accounts receivable, and ease the compliance burden related to various healthcare regulations.
Access to skilled healthcare accounting professionals is the second major advantage of outsourcing to healthcare accounting service providers. Many healthcare organizations face challenges due to insufficient staff or expertise.
The specialized knowledge and experience that an outsourced healthcare accounting firm offers help surety precision in financial tasks, especially in cash-to-accrual transitions, financial reporting, and billing reconciliation.
Outsourcing healthcare accounting services not only supports patient care while managing financial operations but also lets you concentrate on your main strengths. It also directs you to reduce operating costs and better financial efficiency in the healthcare system.
Why Choose Virtue CPAs for Your Healthcare Accounting?
Choosing the right CPA firm for healthcare business is tough because of the quality of services, timely recording, expertise and experience of the complex healthcare accounting sector, required skills, etc.
But this is not the case when you have Virtue CPAs by your side. We make your Healthcare accounting easy and simplified. CPAs, Accountants and Finance Experts at Virtue CPAs are well versed in healthcare sector accounting. Our healthcare accountants record transactions accurately, leaving every error far from your books and keep every expense and income in proper statements.
Final Thoughts
Thus, Healthcare accounting is the key part of your healthcare business and making it prepared with the help of accounting experts who specialize in healthcare accounting is the answer to all your accounting related issues.
Choose Virtue CPAs, we are a healthcare accounting firm in Atlanta, GA and our healthcare accountant team has expertise and experience your healthcare business needs.
Contact Us now to learn more!
