“Accounting is the art of turning chaos into clarity and confusion into financial wisdom.” – Michael Carter.
Healthcare organizations’ sole aim is to make people feel physically or emotionally better. The thing is, quality care has a price tag. It actually has more than a price tag; it has a range of financial transactions and regulations that must be managed.
Enter healthcare accounting.
Healthcare accounting enables organizations to make informed financial decisions that ensure long-term financial stability.
What Is Healthcare Accounting?
Healthcare accounting, like other accounting types, analyzes reports, maintains financial records, and tracks cash flow.
Unlike other accounting types, healthcare accounting works with the complex layering of healthcare-associated functions. For example, top-level layers include patients, insurance companies, pharmaceutical companies, and government agencies.
Each layer has subsets with unique accounting and financial nuances. Sometimes they intertwine. Healthcare accountants keep the layers distinct and manage the intertwining subsets like a maestro conductor manages her orchestra.
While accountants take care of the primary tasks (financial planning, budgeting, auditing), they also dig down into payment tracking, including the tracks from patients, providers, and insurance companies.
What Is The Importance of Healthcare Accounting?
Every decision in healthcare, including financial decisions, impacts patient health. Healthcare accountants specialize in optimizing patient care through efficient financial management.
As a result, healthcare accountants are pivotal to the provision of cost-efficient care that increases the quality of patient outcomes.
They may not be saving lives but healthcare accountants ensure that the lifesavers have sound financial backing.
What Are The Key Differences Between Healthcare Accounting And General Accounting?
General accounting is broad with services that include bookkeeping, tax preparation, and auditing.
Healthcare accounting covers all the variables contained within financial management specific to healthcare organizations and entities, including budgeting, financial reporting, and regulatory compliance.
Functions include:
- Managing accounts receivable
- Running payroll
- Collecting patient payments
- Making account adjustments
- Tracking insurance claims
- Preparing financial statements
Already we can see how valuable healthcare accountants are, but there’s more.
Accountants must have extensive, specialist knowledge of healthcare billing processes and reimbursement rates so they can successfully negotiate contracts with insurers and other third-party payers.
What Are The Important Healthcare Accounting Terms?
Like all fields, healthcare accounting has a language of its own. In fact, it uses terms that you won’t find in general accounting, and if the same terms do crop up, they sometimes mean something different.
Healthcare providers need to understand these terms so that they have a clear understanding of the organization’s financial status and can ensure the accuracy of their financial statements.
Common terms include:
Gross patient revenue
The amount healthcare organizations charge before adjustments or discounts.
Net patient revenue
The revenue earned after contractual allowances, adjustments, and discounts have been included.
Bad debt
Unpaid accounts that the organization writes off as a loss.
Charge description master (CDM)
A list of all billable services and items healthcare organizations provide, including procedure codes, descriptions, and associated charges.
Charge capture
The process that records the services and procedures patients receive for billing purposes.
Fee-for-Service (FFS)
Healthcare providers are paid for each service provided.
Accounts receivable (AR)
Uncollected money owed to an organization for services rendered.
Accounts payable (AP)
Money the organization owes to suppliers or vendors for goods and services received.
Contractual allowance
The difference between the full charge for services and the negotiated rate with third-party payers.
Cost-to-Charge ratio
Billed charges are used to estimate the actual costs of services.
Relative value unit (RVU)
The value of medical procedures and services weighed against the resources and time taken to provide them. RVU plays a role in determining physician compensation and reimbursement rates.
Revenue cycle management (RCM)
The efficient management of an organization’s revenue stream, including tracking claims, accurate billing, managing accounts receivable, and payment collection.
Third-party payer
Companies that pay for patients’ healthcare, including insurers and government organizations.
Uncompensated care
The cost of unpaid healthcare services from charity care and bad debts.
Balance sheet
A snapshot of an organization’s assets, liabilities, and shareholder equity at a specific point in time.
Income statement
A summary of an organization’s revenue and expenses over a specific period.
Operating margin
The profitability of core operations based on the ratio of operating income to revenue.
Cash flow statement
A financial statement that shows the inflow and outflow of cash and cash equivalents over a specific period.
Budgeting
Creating a financial plan that includes revenue projections, expense estimates, and funding allocations.
Gain a deeper understanding of Healthcare Accounting and how accounting methods can impact your practice.
Watch a video on Accounting for Healthcare Professionals.
Conclusion
If you want to maintain the financial health of your medical practice or organization, you need to invest in healthcare accounting services. They help manage the intricacies of financial management, including gross patient revenue, charge capture, and contractual allowances while navigating the complexities of managing patient care costs.
Understanding healthcare accounting terms and concepts is essential to ensure efficient operations and sustainable patient care strategies.
Learn more about Lescault and Walderman’s Healthcare Accounting Services.
Learn more about Lescault and Walderman’s Outsourced Law Firm Accounting Services.
Sources:
The Basics of Healthcare Accounting: What Every Provider Should Know
