Health care is one of the largest industries in the United States. According to the Centers for Medicare and Medicaid Services (CMS), total U.S. health care spending now exceeds $4 trillion per year. Medical practices and other businesses operating within the health industry have some unique accounting needs. Here, our medical industry business accountants provide an overview of the key things that companies in the health industry should know about bookkeeping and accounting.
Health Care Industry Accounting: Know the Basics
Health care accounting shares many commonalities with accounting for other industries. An accountant working on behalf of a medical company or health care organization will still need to track cash flow, carefully maintain financial records, and produce and analyze reports.
However, there are also some things that make health industry accounting different. For example, there are often many parties involved in a health-care transaction, including patients, private insurers, other medical providers, and federal or state governments. The financial nuances matter.
Health Industry Businesses and Organizations Must Select an Accounting Method
When getting started, health care businesses and organizations must select an accounting method. There are two main options available: Cash Accounting and Accrual Accounting. The most simple, straightforward method, cash accounting tracks every dollar as it comes in or leaves the organization. The more comprehensive (and accurate) method, accrual accounting in an anticipatory model that tracks projected revenue and expenses through a system of credits.
Know Your Confidentiality Obligations
All companies and organizations operating within the medical industry are required to keep sensitive patient records confidential. The federal Health Insurance Portability and Accountability Act contains a strong privacy rule. It applies to health providers, insurance companies, and other parties that handle sensitive records. This could have implications for accounting. It is important that sensitive patient medical records are protected every step of the way.
Depreciation is a Major Accounting Issue in the Healthcare Industry
Investopedia defines depreciation as an accounting practice that allocates the “cost of a tangible or physical asset over its useful life or life expectancy.” While depreciation is certainly an issue in many industries, it is especially important in health care. As many health industry businesses and organizations include big capital equipment and commercial property, it is crucial that they have access to an accountant who knows how to handle depreciation of these assets.
Payment for Services (Multiple Payors, Reimbursement, etc)
Tracking revenue (anticipated and actual) can be challenging for companies operating in the medical industry. In many cases, payment for services comes from multiple sources, including directly from patients, from private insurance carriers, and from government programs. An accounting system should be in place to ensure that everything is documented and that all payments are handled properly.
Contact Our Health Industry Accountants for Immediate Assistance
At Williams Accounting & Consulting, our tax and accounting professionals provide reliable, solutions-driven representation to business and entrepreneurs. If you have any questions about accounting practices for the medical & health industry, we can help. Call our team at 770-964-4100 or send us a message for a confidential consultation. With offices in Atlanta and New Orleans, we provide accounting services to health industry businesses throughout the Southeast.