Accounting for Medical Practices: Everything You Need to Know

Healthcare industry accounting is more complex and time-consuming than accounting for a typical small business, which has its own complexities. Not only will your practice need to account for patient payments, but you might also regularly battle insurance companies, Medicare, and Medicaid to secure your fees.

Whether you've just launched your medical practice or have been struggling with medical accounting for a while, use this blog as your guide to everything you need to know about accounting for medical practices. 

Choose the right accounting method for your medical practice

When it comes to accounting for doctors, medical practices can use one of two accounting methods: accrual or cash basis accounting.

Accrual accounting lets healthcare accountants account for expenses when you receive your bills, as opposed to when you pay them. This protocol also applies to patient billing. While this option usually provides more accurate accounting than other methods, many types of medical practices don't embrace accrual accounting due to its difficulty. 

Cash basis accounting is much more common than other accounting methods for medical practices. You embrace this method by accounting for expenses when they are paid and receivables when payment is received. A doctor will usually receive compensation after all outstanding expenses have been settled.

What you need to accurately track for your medical practice

There are many items your medical practice accountant or healthcare CPA must track and account for, whether you embrace accrual or cash basis accounting. While tracking some items unique to the medical profession, you will also be responsible for more conventional items that non-medical small businesses must also track. 

Record keeping/documentation

Maintaining accurate records and documentation for your medical practice is crucial to the health of your business. Misplaced or inaccurate records and documentation can cause delays and, ultimately, drive up your costs. 

The records and documentation you'll be responsible for tracking include the following: 

Basic patient information

Insurance details

Treatment history 

Consent forms

While accurate recordkeeping has always been a challenge, it was much more complex before the advent of computers. The digitization of computer records has helped to make a difficult task more manageable.

Billing and Reimbursement

While digitization has provided some relief for recordkeeping, medical billing is more challenging. There are many moving parts and competing interests during the process, making a denied claim or another roadblock more frequent in this industry.

A denied claim can result from something as simple as a clerical error or a more significant issue identified by an insurance company or government-run Medicare. Medical practices might also have to grapple with patients who fail to pay their bills or pay them on time.

While there is no perfect solution to address these issues, establishing protocols for more efficient organization and data tracking can help make billing issues a less frequent headache.

Financial statements and reports

Your financial statements and reports indicate the financial health of your medical practice. You'll want to regularly check your medical practice's balance sheet, income statement, and cash flow statement. These routine reviews will help you keep on top of key indicators, which include: 

Cash flow

Receivables

Payables

Liabilities 

Revenue

Expenses

Staying on top of your medical practice's financial health allows you to make data-backed decisions and address minor problems before they become more significant systemic trends. It's in your patient's best interest to regularly monitor their bodily health, and it's in your best interest to monitor the well-being of your medical practice. 

Managing accounts receivable

Managing your medical practice's accounts receivable is incredibly important, and it allows you to maintain a positive cash flow, which acts like your business's circulatory system. Without proper cash flow, you won't be able to pay your employees and address your business expenses.

Collecting your fees is an eternal challenge, so you must have an efficient billing team who will help your medical practice get paid faster. The best teams amplify billing processes that work, slash processes that don't, and innovate with new ideas that positively impact your financial health. 

Budgeting and forecasting

Budgeting and forecasting for your medical practice is another critical piece of your financial puzzle. Cash flow forecasting, for example, helps you identify cash deficiencies before they seriously impact your business. Identifying cash flow issues allow you to slash expenses and push to collect outstanding fees before you're affected.

Neglecting to budget and forecast deprives you of knowing your expenditures and whether you're maintaining profitability. Without them, you won't know if you have enough money to pay your employees and address other fixed expenses of your medical practice. 

Compliance and regulatory requirements 

Another aspect unique to medical practices involves the compliance and regulatory requirements associated with your patients' data. You're probably familiar with the 

Health Insurance Portability and Accountability Act (HIPAA). HIPPA is the federal law that created national standards to protect patient health information from being disclosed without their consent or knowledge.

Ensuring their data is secure while keeping up with ever-changing compliance standards is crucial. If you're not on top of current best practices in your industry, you may be violating those standards fast. 

Partner with accountants experienced in medical practice accounting

It's difficult and time-consuming to perform the core duties of your business, and that's before accounting for your medical practice comes in. Accounting for healthcare is complicated, so many healthcare professionals turn to 1-800Accountant, America's leading virtual accounting firm for small businesses, for their accounting needs. 

Whether it's business tax advisory, small business taxes, bookkeeping for medical practices, or any of our professional services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.