HomeMedical PracticesAccounting for Medical Practices – What You Need to Know

Accounting for Medical Practices – What You Need to Know

While hospitals and private practices need to focus on their core responsibility which is providing health care services, other required processes must not be ignored. This is extremely important as the goal of almost any organization, whether non-profit or otherwise, is to maximize revenue while decreasing costs and expenses.

As such, it is critical that accounting is an essential part of the organization. While others may think that this is a very complicated job, having the right knowledge about accounting, which is considered to be the language of business, can go a long way towards satisfying this particular need in your practice.

Here is everything that you need to know about accounting for medical practices and how you can apply this in your hospital or practice.

Know About GAAP

All businesses regardless of the industry follow a set of rules and procedures when it comes to accounting and preparing financial statements. These are called GAAP or Generally Accepted Accounting Principles. Financial statements following GAAP rules can be easily interpreted by any accountant.

In some cases, companies are required to follow GAAP standards especially if they are publicly traded. Those who do not follow GAAP are also more likely to be audited. Perhaps most importantly, those who are seeing loans or additional grants may not be considered unless they are using GAAP standards that can be more easily understood and evaluated.

Accounting Methods

When doing accounting for a medical practice, it is important to determine which type of accounting method you should use. There are two types of accounting methods, namely accrued and cash basis accounting.

The main difference between the two methods is that accrued accounting determines receivables and payables upon receipt or submission of a bill. On the other hand, cash basis accounting accounts for expenses and incoming cash only when payments have been made.

You may consult with your accountant as to which method is best suited for your practice. There are also some pros and cons to each method that an accountant can better discuss with you.

Get a Bookkeeper

A bookkeeper is someone that records all transactions that are going on within the practice for use by the accountant later on. This task is in conjunction with the data and documents that other staff are creating such as receipts, billings, and the like.

You can have a bookkeeper as part of your accounting staff or simply hire someone part-time who can visit you regularly so that they can update your books. A good bookkeeper must be able to balance your books so that accountants will not have a difficult time preparing accurate financial statements for you to review.

Be Thorough in Keeping Records

It is important to be able to keep accurate records as garbage input will translate to garbage output. This should include complete information not only concerning numerical figures but also data such as;

  • Patient name and other information
  • Social security numbers
  • Insurance information
  • Co-pay details
  • Medication name and treatments
  • Addresses

In order to create fully accurate financial statements, all transactions must be accounted such as utility bills and petty cash expenses as well as other forms of revenue. Even any donations made should be recorded as these can be tax-deductible. These are not only good accounting practices but are also solid guidelines for regulatory compliance accreditations such as HIPAA or ISO.

Simplify Processes

Having simplified processes will not only eliminate wastage in terms of man-hours and expenses, but it can also decrease turnaround times so that actual service can be provided faster. Perhaps more importantly, simple processes that require fewer steps will lead to less accounting work and transmission of documents that can lead to inaccurate data.

Department heads can meet and discuss current procedures. They can come up with ways on how to cut back on redundant procedures and reengineer them in such a way that it will require fewer resources. Simple procedures can lead to an organization running more efficiently, and this would also translate to be a faster accounting process.

Invest in Software

Software geared towards the medical profession is a great way to capture data. This can save a lot of time especially since all information has already been digitized and can be retrieved almost instantly. Some can even generate financial statements by themselves, and you just have to have them checked by an accountant for verification of completeness and accuracy.

You can look for programs that offer a complete suite of functionalities that can cover all aspects of your operations. While some may consider using an enterprise-level application as a luxury, it will usually pay for itself over time due to the benefits that it can provide long term.

Outsource Accounting Jobs

Having an accountant under your payroll may be excessive, especially if you are running a private practice. Also, a CPA’s salary can be quite expensive, so having them around during times when financial statements are not a requirement can be wasteful if that’s their only responsibility.

With this in mind, it is recommended that those in the health care industry simply hire accounting consultancy firms to do these tasks for them. They can also supply bookkeepers that can work with your team to update your books.

Outsourcing accounting jobs is a practical idea for private practices as well as for small to medium-sized hospitals. You just have to make sure that they are well-versed in hospital administration so that they will have the experience and expertise necessary to handle transactions specific to your industry.

Learn to Review Financial Statements

Financial statements are not just for compliance purposes. As part of management, those who have medical practices, as well as medical executives, should know how to read and understand financial statements.

Information derived from transactions can be translated into profit and loss statements that can determine how profitable the organization is. It can also be used to make management decisions such as cutting back on certain expenses or letting go of redundant personal.

Being able to use financial statements as a tool to make your practice grow and improve is one of the most important benefits that an accurate and complete financial statement is capable of providing, which is why it is recommended that you understand the concepts mentioned above as well basic accounting principles.

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