A Complete Guide to Bookkeeping for Doctors’ Offices
Running a healthcare practice can be complicated work. Getting your finances straight shouldn’t make it more difficult. In reality, however, this is often the case.
You’re up against a billing system that grows more complex by the day. You’ve got insurance claims to make, medical codes to get right, and unpaid balances to chase. This is not to mention rising overhead costs.
You need a system. You need a robust way of tracking and managing what you spend and what you get paid.
Bookkeeping is precisely that—but it’s also another thing on your to-do list, another thing to learn and find time for.
We put together this guide to help you gain a strategic advantage in bookkeeping for doctors’ offices. We’ll explain why it’s so important. Then, we’ll share medical practice bookkeeping basics.
Next, we’ll offer some best practices to follow before asking the big question: should you outsource?
We’ll tie it all together with a couple of practical tips. Follow these to give your practice’s financial health a boost.
Let’s put an end to money-related stress for good. Here’s everything you need to know about bookkeeping for medical practices.
Why Bookkeeping Is Essential for Doctor’s Offices
Yes, bookkeeping is about tracking your revenue.
But more than that, it strengthens your financial position. It gives you the cold, hard data you need to make informed decisions. Critically, it enables your practice to meet stringent healthcare regulations.
If you don’t have accurate bookkeeping, you wind up in all kinds of trouble:
- If you underbill, you lose revenue.
- If you overbill, you fracture patient trust and relationships.
- If you don’t have up-to-date information, you risk non-compliance. This can result in financial and legal issues you may or may not recover from.
In contrast, robust bookkeeping practices improve cash flow. They keep track of reimbursements, bills, and outstanding balances. You can follow up and get paid.
It also helps you make educated decisions. You can flag inefficiencies and cut or increase costs. You can invest in the most profitable areas and fuel your practice’s growth.
Finally, bookkeeping reduces the risk of audits or penalties. Accurate records keep your practice in compliance with tax and healthcare regulations.
Despite the benefits, good bookkeeping isn’t without its challenges:
- You’re up against complex insurance reimbursements; keeping an eye on these can be difficult. Rates vary, and sometimes reimbursements are delayed. Without proper systems in place, losing track of what’s been paid and what hasn’t is all too easy.
- You have more than one revenue stream. Some come from insurance providers, Medicare, and Medicaid. And some come directly from your patients.
- You need to adhere to all the rules that apply to medical practices. This includes HIPAA and IRS regulations. These rules can be complicated. They also evolve over time, so you need to stay updated.
- You have high overhead costs—and they’re only getting higher. You’ve got to pay staff salaries and rent. You also need medical supplies. You might also invest in technology or run marketing campaigns. These costs can snowball, so you need to keep tabs on them.
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Medical Practice Bookkeeping Fundamentals
Bookkeeping can help you steer clear of financial and compliance pitfalls. But what exactly does it involve?
In this section of our complete guide, we’re taking it back to basics.
Bookkeeping for Doctor’s Offices 101
The best approaches to bookkeeping involve these foundational elements:
- An accurate record of every transaction: This includes patient payments, insurance reimbursements, and medical supply costs.
- Regular reconciliation of accounts: This is where bank statements are compared with bookkeeping records to flag discrepancies.
- A record of accounts receivable: This tells you how much money your practice is owed.
- Management of accounts payable: This helps you stay on top of your outgoing expenses.
- Detailed financial reports: This looks at income statements, balance sheets, cash flow statements, and other insightful reports
Cash Basis vs. Accrual Accounting
Another important concept to grasp is the types of accounting you can use. The two main options are cash basis and accrual accounting.
Here’s how they work:
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In cash basis accounting, income is recorded when it’s received. Expenses are logged when they’re paid. This strategy gives you a clear and accurate picture of your cash flow. The drawback? It’s not a true representation of your financial health. For example, you might have a large outstanding balance that will likely be paid next week. This is not reflected in your bookkeeping records.
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In accrual accounting, income and expenses are logged when they are incurred. So when you send a bill, the income is recorded. It’s not recorded when the payment is actually made. This gives you a good long-term look at your financial performance. But it can lead to mistakes. For example, you might make a large purchase thinking you have the funds to cover it. But payment delays mean you actually don’t.
HIPAA Compliance in Medical Practice Bookkeeping
A considerable part of strong and strategic bookkeeping is compliance.
The medical industry is highly regulated. You must adhere to all of these rules—even when it comes to financial management.
For example, HIPAA dictates how patient information can be stored and shared. Billing and other financial records often contain sensitive patient data. This, too, must be protected.
What steps can you take to ensure compliance?
- Only use HIPAA-compliant software. Look for solutions made for the healthcare industry.
- Store paper records securely. Dispose of any documents containing protected health information (PHI) by following HIPAA guidelines.
- Train your team. They should know how to keep all information—financial or otherwise—safe and secure.
Benefits of Using Accounting Software for Efficient Record-Keeping
Maybe you’re feeling a bit overwhelmed at this point. The good news? Modern bookkeeping software simplifies much of the process.
It is:
- More efficient: It automates many tasks related to bookkeeping. You don’t have to log all of this information manually.
- More accurate: Because there’s less manual data entry required, this risk of human error plummets.
- More insightful: Software gives you access to an incredible range of meaningful and customizable financial reports.
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Bookkeeping Best Practices for Your Doctor’s Office to Follow
Bookkeeping can transform your practice’s finances. Get the most out of it by following these best practices:
Leverage Technology
Invest in software solutions that integrate your bookkeeping and billing workflows. That way, your practice can stay on top of billing, coding, AR management, claims, and payment collection. And at any time, you can see how all these factors contribute to the overall financial health of your practice.
Billing software with integrated payments can also help you easily track payments and set realistic goals for revenue. Your practice can accept patient payments online as well as credit card payments from insurance companies as reimbursement.
Automate the Process
Automation is a time-saver. Even better, it mitigates the risk of human error.
Choose medical billing software that meets the needs of doctor’s offices like yours. Use it to automatically generate invoices and patient statements. Your practice can ensure timely payments and reduce administrative costs.
And when you integrate your systems, you get more financial information with less manual effort. It’s a win-win
Track Your Expenses
There are two main types of expenses: fixed and variable.
Fixed are those that stay the same, like staff salaries. Variable expenses change from month to month, like equipment repairs.
Diligently track both. See where you can cut back. Identify areas where spending more could open the doors to growth opportunities.
Use your records to claim deductions and credits when tax season rolls around.
Reconcile Your Bank Accounts
Your bank account and bookkeeping records should match up. If they don’t, something along the line went wrong.
It’s wise to reconcile your accounts each month. The sooner you find a problem, the sooner you can identify the cause and take action. Culprits could be data entry errors, missed payments, or even fraudulent charges.
Manage Payroll
Payroll is often one of the largest expenses for a doctor’s office, so invest in the way you manage it.
Use software to ensure your team is paid on time. This will help keep them happy. Software can also check that all tax and benefit deductions are correct.
Remember to always comply with local labor laws and tax regulations.
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Should You Outsource Bookkeeping for Your Doctor’s Office?
Bookkeeping is a service that many businesses outsource. This means entrusting another company to handle it for you.
They’ll manage your financial records on your behalf. They’ll track your expenses, ensure compliance, and generate reports.
Outsourcing can be extremely beneficial.
It improves your financial management. Bookkeepers who do it for a living are experts. They live and breathe it. And their approach to finances is backed by experience.
For you, bookkeeping might just be another task to tick off. But for them, it’s their full-time job and top priority.
This means you benefit from insider knowledge, can rest easy knowing opportunities for improvement won’t be missed, and can be confident in your compliance, too.
Outsourcing can also be cheaper. At first, it might feel like another expense. But in the long run, it can save you money by reducing mistakes. Errors can lead to revenue loss and compliance issues.
Finding the Right Bookkeeping Service for Your Doctor’s Office
If you’re interested in outsourcing, you’ll need to find a reliable partner. You’ll need someone who understands the complex web of medical billing and regulations.
So, look for providers with experience in the healthcare industry. They should be familiar with handling insurance claims. Ask about their software. Does it integrate with your other systems, like your electronic health records (EHRs)?
Finally, assess the level of support they offer. Some companies provide only basic bookkeeping services. Others offer comprehensive solutions like consulting and tax planning.
Think about the level of service you need.
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4 Tips to Maintain Your Medical Practice’s Financial Health
Give your financial health the support it needs with these four tips:
- Manage the flow of funds from patient services. From billing and coding to ensuring payment collection, effective revenue cycle management is key to maintaining steady cash flow.
- Stay on top of insurance claims. Submit and follow up on claims fast to avoid delays.
- Reduce overhead costs. Review and cut unnecessary expenses to free up resources. Use these to invest in growth-driving activities.
- Create a budget and stick to it. Track your expenses and stay within your limits to lock in financial stability.