Practicing medicine is complicated, but you can at least hone in and focus on the task at hand. When you start your own practice though, the business, payroll, customer care, etc. can quickly override everything else. For a better understanding what the healthcare accounting process is and how it works, here’s a detailed list:
- Accrual and Cash Accounting
Healthcare accrual and cash accounting is the process of matching the revenue stream for a given period with the expenses required to generate that revenue.
It’s important to note that healthcare providers and insurance companies have different needs when it comes to this process. For example, hospitals need to be able to properly calculate the cost of their patient care services, but insurance companies just need an estimate of what they will be paying out over time. However, these two entities may still use a similar methodology for their calculations.
A healthcare provider or insurer should plan ahead in order to make sure that they can provide accurate financial statements at any time.
This section will focus on the methods of accounting that are used to report and present healthcare organizations. The importance of healthcare accounting reports is to ensure that a healthcare organization is complying with ever-changing regulations.
In order to report on the financial condition of a health care organization, it is necessary to provide appropriate data for external analysis. These reports are important in ensuring compliance with regulatory requirements and maintaining an ongoing relationship with stakeholders.
A well-written healthcare accounting report provides information about the revenues and expenses, as well as other statistics such as net income, cash flow, and liquidity.
Healthcare providers are always looking for ways to save as they use tons of IT infrastructure, capital equipment, and commercial buildings, all of which depreciate with time. The depreciation of a company’s assets is a very important accounting concern. Depreciation is the process of allocating the cost or value of an asset over its useful life.
The accounting for depreciation can be confusing and time-consuming to calculate, but if done correctly it can save you hours of work.
The depreciable cost for a company can be calculated by dividing the net book value (NBI) by its estimated useful life (EUL). The NBI is found by taking the purchase price and deducting any accumulated depreciation on the asset from previous years.
4. Payments and receivables related to medical services
Payments and receivables associated with medical services have been on the rise over the past few years. This is primarily because of the increase in population with health insurance coverage. Below are the descriptions of these terms:
- Payment methods: This focuses on how to understand how the different payment methods work and what they are used for. It goes in-depth as to why it’s so important to know these things when negotiating with medical professionals.
- Receivables: The importance of understanding receivables, which is defined as “the money owed to an organization.” It talks about the best way to find out who owes you money, as well as where that debt’s been sent for collection if necessary.
Value-based payments are a type of health care financing that pays providers based on the value or quality of care they provide to patients rather than the volume of services provided. Paid per diem is where a fixed amount is paid per patient per month or per year. With this method, providers receive payment without regards to service utilization but are responsible for all overruns. Alternatively, healthcare providers could be paid per diem, at an amount typically set by the payer, or on an agreed amount, for example through Blue Cross Blue Shield.
5. Payer mixes and chargemasters
Healthcare Payer mixes and chargemasters are the most important aspects to consider when you are trying to anticipate changes in healthcare. The mix of payers and prices for services is changing, which affects what providers can price, and how they price it. In order to stay in business, hospitals need to keep up with these changes by predicting what will happen next, and adapting accordingly.
These payer mixes change every year as the industry continues to evolve at a rapid pace. It’s not just about what the current mix of payers looks like; you need to anticipate how it will change in the future, too. This means maintaining an understanding of who insurers cover or may cover in the future and how they price their products (i.e., chargemasters).
6. Credit balances and outstanding checks
A healthcare provider has a number of ways to accumulate credits. One way is through the sale of goods and services. The other way is through the receipt of payments from individuals or entities that have unpaid balances for previously provided goods and services.
The number of credits that a provider can accumulate may not exceed an established level, which varies by state. The balance of credits for a provider may be calculated by adding together the outstanding checks and credit balances for all providers in the same timeframe.