The Basics of Healthcare Accounting: What Every Provider Should Know

As a healthcare provider, your main focus is improving your patient’s health and well-being. However, providing quality care also means managing a business that involves various financial transactions and regulatory requirements. Understanding healthcare accounting is essential for making informed decisions and ensuring the long-term financial stability of your practice or organization. In this blog, we will cover the basics of healthcare accounting to help you easily navigate this complex but crucial field. So, whether you are new to healthcare accounting or simply need a refresher, keep reading for valuable insights!

What Is Healthcare Accounting? 

Healthcare accounting is the process of tracking, recording, and analyzing a healthcare organization’s financial transactions. It is a critical function in ensuring the financial stability of a healthcare organization and providing decision-makers with the information they need to make informed decisions about the allocation of resources. It encompasses all aspects of financial planning, including bookkeeping, budgeting, and auditing. All of this makes healthcare accounting a critical function in ensuring the financial health of healthcare organizations. 

What Are the Goals of Healthcare Accounting? 

Healthcare accounting aims to ensure accurate financial reporting, monitor and control spending, and optimize financial performance. Healthcare accounting systems track revenue and expenses and produce financial statements showing the organization’s financial health. 

Healthcare accounting teams work closely with other departments to record all revenue and expenses properly. They also develop internal controls to prevent fraud and misuse of funds. In addition, healthcare accountants provide decision support to executive leadership by analyzing financial data and developing recommendations for improving financial performance. 

Types of Healthcare Entities 

Non-profit healthcare entities include hospitals, clinics, and other medical organizations that are 501(c)(3) tax-exempt. For-profit entities include physician practices, nursing homes, home health agencies, and durable medical equipment suppliers. 

Government healthcare entities include Medicare, Medicaid, the US Department of Veterans Affairs (VA), and the Indian Health Service (IHS). These organizations provide care to specific populations and are funded by taxpayers.  

There are a variety of healthcare entities, and the type of entity will impact the types of transactions, financial statements, and tax filings that are required. Following is a list of some of the entities mentioned above in detail: 

1. Hospital: A hospital is a healthcare institution that provides medical and surgical treatment as well as diagnostic services to patients. Hospitals can be public (government-owned) or private (non-profit or for-profit).
2. Physician Practice: A physician practice is a business entity formed by one or more physicians to provide medical services to patients. Physician practices can be solo practices, partnership practices, or professional corporations.
3. Durable Medical Equipment Provider: A durable medical equipment provider is a business that sells, rents or leases durable medical equipment, such as wheelchairs, hospital beds, and oxygen tanks.
4. Pharmacy: A pharmacy is a business that dispenses prescription drugs and other medical supplies to patients. Pharmacies can be standalone businesses or integrated into other healthcare entities, such as hospitals or physician practices. 

Other types of healthcare entities include preferred provider organizations (PPOs), health maintenance organizations (HMOs), nursing facilities, rehabilitation centers, group practices, hospices, renal dialysis centers, patient-centered medical homes (PCMHs), accountable care organizations (ACOs), free-standing ambulatory care and surgical service centers, and other health care delivery models that meet the definition.

Reimbursement & Revenue Cycle Management 

Reimbursement and revenue cycle management are two of the most important aspects of healthcare accounting. Healthcare providers can quickly find themselves in financial trouble without a proper understanding of these concepts. 

Reimbursement is the process by which healthcare providers receive payment for the services they render. In order to get paid, providers must submit claims to insurance companies or government programs like Medicare and Medicaid. The claims process can be complex and time-consuming, so providers must clearly understand how it works. 

Revenue cycle management is the process by which healthcare organizations track and manage their income and expenses. This includes everything from billing and collections to denied claims and accounts receivable. A well-run revenue cycle ensures that providers are paid promptly and accurately for the services they provide. 

Both reimbursement and revenue cycle management are critical components of healthcare accounting. By understanding how they work, providers can ensure they are getting paid correctly and manage their finances effectively.  

Benefits of Healthcare Accounting 

When it comes to the financial health of your healthcare organization, accurate accounting is essential. Healthcare accounting can seem daunting, but understanding the basics is critical for every provider. Here are some of the key benefits of healthcare accounting: 

1. Improved financial management: Accurate accounting is vital for effective financial management. Having a clear understanding of your organization’s income and expenses can help you make sound decisions about resource allocation.
2. Enhanced decision-making: Accurate accounting information can help you assess different options and make informed decisions about the best course of action for your healthcare organization.
3. Greater transparency: In today’s competitive healthcare market, transparency is crucial. Being able to share accurate financial information with stakeholders can build trust and confidence in your organization.
4. Compliance with regulatory requirements: Healthcare organizations are subject to several complex regulations. Maintaining accurate records can help ensure compliance with these requirements.
5. Better patient care: Ultimately, the goal of any healthcare organization is to provide quality patient care. Having good accounting practices in place can help you optimize resources and improve patient outcomes.

Important Healthcare Compliance and Regulation Requirements 

There are a number of compliance and regulatory requirements that healthcare providers need to be aware of. Here are some of the most important ones: 

1. The Centers for Medicare & Medicaid Services (CMS) sets forth a number of regulations that providers must comply with to participate in Medicare and Medicaid programs. These include requirements related to billing, coding, documentation, and more.
2. The Health Insurance Portability and Accountability Act (HIPAA) establishes national standards for the protection of patient health information. HIPAA compliance is required for all healthcare providers who deal with protected health information.
3. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) is a private, non-profit organization that accredits healthcare organizations across the United States. JCAHO accreditation is voluntary, but many payers will only reimburse for services provided by accredited organizations.
4. State licensure is another form of regulation that healthcare providers must comply with to be eligible to offer healthcare services. Each state has its own licensure requirements, which vary depending on the type of provider (e.g., physician, nurse, etc.).
5. Finally, providers must also comply with any local ordinances or regulations that may apply to their business operations.  

Common Challenges with Healthcare Accounting 

There are a few common challenges that providers face when it comes to healthcare accounting. One challenge is understanding the different types of reimbursement, such as fee-for-service, capitation, and risk-based contracts. Another challenge is managing the accounts receivable (A/R) process, which can be complex and time-consuming. Additionally, providers must stay up-to-date on constantly changing regulations to remain compliant.

Finally, providers must also be proficient at managing the costs of labor, supplies, and technology. Properly managing these costs is essential to staying competitive and maximizing revenue.

How Does Outsourcing Help with Healthcare Accounting? 

Outsourcing is often thought of as a way to save money, but it can also be used to improve efficiency and quality. In the healthcare industry, accounting is one area where outsourcing can have a significant impact. 

Healthcare accounting is a complex and ever-changing field. By using outsourced healthcare accounting and bookkeeping services, businesses can benefit from the expertise of experienced professionals who stay up-to-date on the latest changes. This can help ensure that provider organizations are in compliance with the many laws and regulations governing the healthcare industry. 

In addition, healthcare organizations that outsource their healthcare accounting functions can free up internal staff to focus on other important tasks. This can help improve overall efficiency and quality within the organization. And by working with an outsourced partner, healthcare organizations can develop a customized solution that meets their specific needs.

Conclusion 

Overall, healthcare accounting is a critical component of providing quality healthcare services to patients and staying compliant with federal regulations. With the right tools and systems in place, you can ensure accuracy and efficiency while decreasing costs. Keeping up with current rules and regulations will put you one step ahead of your competition in the ever-evolving field of healthcare accounting! However, managing all these things internally can sometimes become hectic and distractive, so the best way to go about it is by outsourcing. Outsourced accounting and bookkeeping services providers help ease the process of accounting and bookkeeping for healthcare organizations, reducing their stress so they can focus on offering better patient care. 

In order to avail of all the positive effects of outsourcing, it is crucial to find an efficient outsourced service provider. So, if you are looking for an expert outsourcing partner for your business, you can contact us. Whiz Consulting is one of the best-outsourced accounting and bookkeeping services providers and caters to the needs of numerous industries, including healthcare. Our experts have been helping numerous businesses ensure efficient financial management to help them grow without drowning themselves in the complex world of accounting. So, make the right decision for your business and choose the best services provider to enhance your profitability and growth.