Managing finances in the medical world poses several challenges that many other industries don’t face: adhering to a complex web of federal and state regulations, managing claims and medical billing codes, properly accounting for grants and restricted funds — the list goes on.
Healthcare accounting is the practice of tracking, analyzing, and reporting a healthcare organization’s financial transactions. It encompasses everything from private-practice medical bookkeeping to financial reporting for healthcare organizations at scale. And it demands that you know all the rules and regulations to keep things compliant and accurate.
If your organization is as committed to its own financial health as it is to the health of its patients, implementing an effective accounting system is an absolute must.
Why is accounting for healthcare important?
In healthcare, accounting is important for the same reasons as any other business, like ensuring financial stability and developing (and sticking to) a realistic budget.
But being in the healthcare industry adds a layer of complexity to even the most generic of accounting needs. Let’s take a closer look at some of the extra steps for medical practices.
Regulatory compliance
Regulations like HIPAA, the Stark Law, and the Anti-Kickback Statute exist to protect patients. That’s a good thing, and non-compliance can result in severe penalties for healthcare organizations, including hefty fines and potential legal action.
Staying compliant requires meticulous recordkeeping and regular audits. Since regulations constantly change, your team needs ongoing education and the ability to adapt quickly.
Revenue cycle management
Healthcare revenue cycles become complicated very quickly. You’ll receive payments from patients, Medicare and Medicaid, and private insurance companies. In some cases, you’ll have services that never get paid for at all. And instead of scanning barcodes to sell products like many businesses do, your services are attached to complex billing codes. You’ll have to get a handle on claims management to make sure the money keeps coming in.
This level of complexity requires a robust healthcare finance system to track revenue at every step, from patient registration to final payment, ensuring nothing is lost to issues like billing errors or denied claims.
Stakeholder scrutiny
Transparent and accurate financial reporting fosters trust and demonstrates accountability. And healthcare organizations have a long list of stakeholders to answer to, including:
- Patients: The primary source of revenue via payments and insurance claims.
- Employers and employees: The healthcare staff critical to service delivery and financial operations, including doctors, nurses, and administrative personnel.
- Insurance companies: The public and private payers that reimburse healthcare providers for services rendered to patients.
- Pharmaceutical companies: Suppliers of medications and medical products, impacting inventory costs and procurement processes.
- Government agencies: The entities responsible for establishing regulations and overseeing compliance.
Each stakeholder has different expectations and requirements, meaning healthcare organizations need comprehensive, customized reporting in advanced accounting systems capable of generating detailed financial reports for every party.
Grant and fund management
Many healthcare organizations, especially nonprofits, receive most of their funding from grants and donations. Managing this money requires strict compliance with donor restrictions and regulatory requirements. This involves detailed tracking of how the funds are used, ensuring they’re spent in line with donor intentions. Failing to do so can result in the loss of funding and long-term reputational damage. And since competition for grants is fierce, you need strong financial management to demonstrate fiscal responsibility and increase the chances of securing future funding.
The key responsibilities of accounting for healthcare
You’re probably starting to get an idea of how tricky managing a medical practice’s financial health can be, but it’s not impossible. Here are seven of the vital tasks that make it manageable.
1.Tracking revenue and expenses
Healthcare accountants must keep precise records of all financial transactions, including patient fees, insurance reimbursements, and operating expenses. This involves:
- Recording patient charges: Accurately document services provided to patients, including consultations, treatments, and procedures.
- Insurance reimbursements: Track claims submitted to insurance companies and payments received.
- Operational costs: Recording daily operating expenses like salaries, utilities, supplies, and maintenance is crucial to balance your books.
2. Allocating revenue
Accurate revenue allocation ensures that funds are distributed correctly among various departments and services within the healthcare organization. This involves:
- Departmental budgets: Assigning revenue to different departments based on their activities and needs ensures everyone gets the right amount.
- Service line reporting: Breaking down revenue by specific service lines to understand profitability and resource allocation makes budgeting easier.
3. Creating accounting reports
Generating comprehensive financial reports is essential for internal analysis and external compliance. These reports include:
- Balance sheets: Provide a snapshot of the organization’s financial position at a specific point in time.
- Income statements: Detail the organization’s revenue and expenses over a period of time to demonstrate profitability.
- Cash flow statements: Track the flow of cash into and out of the organization to ensure liquidity.
4. Setting a budget
Healthcare accountants develop budgets that align with the organization’s strategic goals, ensuring resources are used effectively. These budgets include:
- Operational budgets: Plan for day-to-day operational costs and revenues.
- Capital budgets: Allocate funds for long-term investments like new equipment, facility upgrades, or technology systems.
- Variance analysis: Compare actual performance against the budget to identify and address discrepancies.
5. Tracking reimbursements
Managing accounts receivable and tracking reimbursements from insurance companies and patients is critical for maintaining cash flow. This involves:
- Claims management: Ensuring timely submission of claims to insurance companies and following up on denied or delayed claims is part of monitoring accounts.
- Patient billing: Managing patient accounts, including co-payments, deductibles, and payment plans, helps you track unpaid invoices.
- Aging reports: Monitor outstanding receivables to identify and address overdue accounts.
6. Monitoring financial reporting
Regular financial reporting helps monitor the financial health of the organization, ensuring compliance with GAAP and other regulatory requirements. This involves:
- Internal controls: Implement internal processes to ensure accuracy and prevent fraud.
- Regulatory compliance: Ensure all financial practices meet regulatory standards and guidelines.
- Audit preparation: Stay prepared for internal and external audits to validate financial statements.
7. Calculating asset depreciation
The depreciation of assets like medical equipment and facilities requires accurate financial reporting and tax compliance. This process includes:
- Asset tracking: Maintain detailed records of all capital assets, including purchase dates, costs, and useful life.
- Depreciation schedules: Apply appropriate depreciation methods (e.g., straight-line or declining balance) to allocate the asset costs over their useful life.
- Impairment testing: Value assets for any potential impairment and adjust their book value accordingly.
How inventory management impacts healthcare accounting
Healthcare organizations rely on effective inventory management because it directly impacts financial health and operational efficiency, which in turn affects patient outcomes. They might seem separate, but let’s look at how integrating your inventory management system with your medical practice’s accounting system would help your organization run more smoothly.
Accurate inventory and asset tracking
Using advanced accounting software integrated with an inventory management system like Fishbowl ensures accurate tracking of medical supplies, pharmaceuticals, and equipment. This reduces waste, prevents stockouts, and ensures that critical supplies are always available, helping you maintain smooth operations and patient care.
Cost management
Inventory management lowers costs by optimizing stock levels and reducing excess inventory so you aren’t paying to store materials you don’t need. That also frees up space for you to stockpile the equipment you will need, keeping you from scrambling to reorder when you realize you’re running low. This also directly impacts the financial statements by improving the accuracy of expense reporting and budgeting processes.
Regulatory compliance
Proper inventory management ensures compliance with healthcare regulations regarding the storage, handling, and disposal of medical supplies and pharmaceuticals, preventing costly penalties and ensuring that financial reports reflect the organization’s adherence. For example, by tracking lot numbers, you’ll quickly identify specific medications subject to a product recall. This enables you to better handle issues that arise and comply with audits performed by regulatory bodies.
Enhanced financial reporting
Integrating inventory management with accounting systems allows for more detailed and accurate financial reporting. This type of integration provides a clear view of inventory costs, asset depreciation, and the financial impact of inventory decisions, supporting better budgeting and analysis.
Streamlined operations
By automating inventory tracking and integrating it with accounting processes, healthcare organizations can streamline operations, reduce administrative burdens, and improve overall efficiency. Team members can use software to check where they can find what they need, and you won’t have to conduct tedious physical counts of all the materials you have on hand. Healthcare accountants will have more time to focus on strategic financial management because they won’t be bogged down by manual data entry.
Efficient inventory asset tracking with Fishbowl
Good accounting and strong inventory management go hand in hand. And thanks to Fishbowl’s seamless integration with QuickBooks, improving data communication between these two areas is easier than ever. Fishbowl ensures accurate tracking of medical supplies, equipment, and inventory levels while keeping you compliant with industry standards.
Are you ready to take control of your assets and finances and gain end-to-end visibility over your operations? Schedule a demo of Fishbowl, the intuitive, scalable, and user-friendly inventory management platform.