Healthcare accounting covers the accounting, financial management, and reporting practices specific to the healthcare industry. It involves managing revenue, expenses, and compliance with a complex regulatory environment. Since it becomes hard for young accountants and internal teams to manage accounts properly due to limited knowledge and guidance, Finsmart Accounting, the leading team of outsourced accountants will share everything crucial about healthcare accounting. From meaning to types and differentiating factors to expert tips – we got you covered.
So, let’s start by understanding the meaning of healthcare accounting!
Healthcare Accounting: Meaning
Healthcare industry accounting is more complex than other industries due to the large number of financial elements involved. Healthcare industry accounting covers the funds received from patients, expenses related to property rent, supply costs, medical supplies, and employee salaries.
Healthcare service providers need to follow a budget for running functions smoothly and it can sometimes become hard without having an accurate operations budget.
Before diving into how healthcare accounting works, let’s learn about the two major types of healthcare accounting.
Healthcare Accounting Types
Below are the two major types of healthcare accounting:
– Financial: Financial healthcare accounting tracks the money flowing in and out of a healthcare organization. Financial accounting ensures the accuracy of income and expenses.
– Managerial: Managerial healthcare accounting analyzes data to make informed decisions about the practice’s operations. Managerial accounting provides insights into operational spends.
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Healthcare Accounting: How it Works
The below insights will help you learn how healthcare accounting works:
– Revenue cycle management: Healthcare organizations generate revenue primarily through services provided to patients. RCM involves managing the process of capturing patient service information, verifying insurance coverage, submitting claims, and collecting payments.
– Expense management: Healthcare organizations have various expenses including salaries, medical supplies, facility maintenance, and administrative costs. Healthcare industry accountants manage these expenses to budget appropriately and ensure resource allocation.
– Financial reporting: Accountants prepare balance sheets, income statements, and cash flow statements. These financial reports provide insights into the organization’s financial health, performance, and profitability. They also ensure compliance with regulatory requirements and accounting standards.
– Budgeting and forecasting: Hospitals develop budgets to plan and allocate resources for future functions. Accountants play a key role in budgeting by analyzing historical financial data and forecasting revenue and expenses to set realistic financial goals.
– Regulatory compliance: Healthcare accounting involves adhering to various regulations and guidelines set by government agencies. Healthcare accountants ensure compliance with laws related to billing practices, reimbursement, fraud, privacy, and financial reporting requirements.
– Cost accounting: Cost accounting in healthcare involves assigning costs to patient services, procedures, and departments. This financial information helps healthcare organizations understand the true cost of providing care, evaluate the profitability of services, and make informed pricing decisions.
Accounting can be challenging, no matter the industry you work in. Watch this review to learn how Finsmart Accounting creates value for clients:
How Does Healthcare Accounting Differs From Others?
The below insights will help you understand how healthcare accounting differs from other industries:
– Third-party payers: Unlike other industries where revenue is primarily generated from direct sales to customers, healthcare organizations often rely on third-party payers such as insurance companies and government programs for a significant portion of revenue. It adds complexity to the revenue cycle and billing processes.
– Cost allocation: Determining the true cost of providing healthcare services can be challenging due to overhead costs, shared resources, and varying patient complexities. Accountants must employ specialized cost accounting techniques to accurately allocate costs to specific services, procedures, and departments.
– Non-profit status: Some healthcare firms operate as non-profit entities. This affects their financial reporting requirements, tax obligations, and governance structures. Accountants in non-profit organizations must adhere to government guidelines for non-profit entities.
– Clinical integration: Healthcare accounting often involves collaborations with clinical staff and departments to understand the financial implications. Accountants may need to analyze clinical data and outcomes to assess the financial impact on the organization.
– Community benefit reporting: Non-profit healthcare organizations should report their community benefits activities. Healthcare accountants are responsible for tracking and reporting these activities accurately to demonstrate the organization’s commitment to serving the community.
Healthcare Accounting: Expert Tips
Below are the expert tips for accountants and hospital managers for managing accounts properly:
– Stay updated with regulatory changes: Healthcare regulations frequently change, impacting billing practices, reimbursement rates, compliance requirements, and financial reporting standards. Stay informed about changes in regulations and tax laws to mitigate risks.
– Invest in training: Healthcare accounting requires specialized knowledge of medical terminology, coding systems, and industry-specific practices. Invest in ongoing training for your team to stay aware of healthcare accounting trends, regulations, and best practices.
– Conduct regular financial analysis: Conduct regular financial analysis to monitor key performance indicators, identify trends, and assess the financial health of the hospital or clinic. Analyze revenue streams, expense patterns, and other financial metrics to make informed strategic decisions.
– Focus on cost efficiency: Identify opportunities for cost control and efficiency improvements throughout the organization. Implement cost-saving initiatives, negotiate favorable vendor contracts, and optimize resource utilization to enhance profitability and sustainability.
– Maintain documentation: Maintain thorough documentation of financial transactions, billing activities, and compliance efforts. Keep detailed records to support audits, regulatory filings, and reimbursement claims. Ensuring compliance with healthcare regulations, accounting standards, and internal policies is the best approach to sound healthcare accounting.
Accounting for Healthcare Industry: Wrapup
We hope the above insights helped you learn everything about accounting for the healthcare industry. By employing the expert tips and strategies mentioned in this blog, healthcare accountants can eliminate the risk of penalties and legal issues. Whether you run a clinic or manage an independent hospital, these insights will help you take the right healthcare accounting steps.
Finsmart Accounting has been helping healthcare service providers through outsourced accounting services for more than 2 decades now. Email us at sales@finsmartaccounting.com to discuss your accounting and bookkeeping goals.
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India Business Head
Mrs. Dipali Phadke is a qualified Chartered Accountant with more than 20+ years of experience in the field of Accounting, Taxation and Payroll. She is the backbone of Company’s Operations and heads India Business at Finsmart Accounting
