When you are a healthcare provider, an error in your financial records is rarely a harmless little error. In a best-case scenario, that error results in you being on a call with your bookkeeper trying to undo the damage. In a worst-case scenario, you are facing audits, penalties, and a damaged reputation. Regardless of the scale of the consequences, it’s a safe presumption that having inaccuracies in financial records is something you want to catch during the bookkeeping procedure. You certainly want to avoid discovering them in front of an auditor.
For this preventative approach, the financial records require a thorough revision and review to ensure accuracy and compliance, ideally, conducted on a monthly basis. These reviews contain certain areas that require special attention and should be double-checked before closing and finalizing financial reports.
This need for extra care in specific healthcare bookkeeping services areas is determined by the severity of potential errors, which is influenced by inherent risk factors.
This blog provides a comprehensive guide to the specific areas of bookkeeping that require special attention and an extra cross-check before the books are closed.
Which Areas of Healthcare Bookkeeping Require Special Attention
For healthcare providers, certain areas of bookkeeping require more attention than others because the financial structure of the healthcare industry revolves around the revenue management cycle. Because the RCM process contains a huge overlap of clinical and financial functions, it’s very easy to miscategorize transactions. This mis-categorization can lead to significant revenue loss and increased denial rates, with studies showing practices can lose up to 10-20% of their revenue due to errors.
Avoiding this requires special attention on the income and expense categorization phase of bookkeeping. The following section lists out more of these examples, for what requires special attention when bookkeeping for healthcare providers:
Reconciliation of Patient Credits and Refunds
Upon completion of a patient account, some patients may maintain credit balances. These balances may result from either an excess payment made directly by the patient or an excess payment from the insurance company that exceeds the approved amount. However, this amount has not yet been paid for the services received.
Because of the potential compliance risks associated with credit balances, an organization should give these credits special consideration in its healthcare bookkeeping practices. If not properly managed, credit balances may lead to regulatory fines due to violations of statutes such as the Anti-Kickback Statute. Additionally, they can contribute to operational inefficiencies and the emergence of self-referral issues. Failure to identify these credits in a timely manner can also lead to patient dissatisfaction and harm to the organization’s reputation.
To ensure proper healthcare bookkeeping, the organization must actively identify patient credit balances through thorough review and verification with Explanation of Benefits (“EOB”) forms. After completing these reviews, the organization should issue timely patient refunds or transfer the balances to another outstanding patient account.
When performing regular reconciliations, the organization must review credit balances consistently to ensure nothing gets overlooked. Undetected credit balances pose additional financial risks, as they can accumulate and lead to audits, litigation, financial discrepancies, and potential losses. Therefore, visiting and analyzing the patient credit balances provides the organization with an opportunity to maintain compliance. It also helps improve overall operational reliability by eliminating potential unfavorable behaviors and builds credibility and trust with both the patient and the insurance partners.
Accurate Tracking of Contractual Adjustments
When working with contractual adjustments in healthcare bookkeeping, there are many reasons why they require special attention. These adjustments have a major impact on how you manage your revenues. It is important to correctly segregate charges from cash collected for accurate reporting of a practice’s financial position. If these adjustments are misclassified, the resulting financial reports will not be accurate and will affect the budgets and forecasts of the practices.
The degree of complexity associated with contractual adjustments varies across payers. Therefore, detailed tracking by payer, code, and date of service is required for each adjustment to avoid misstated financial results. If this detail is not maintained, a practice is likely to miss out on underpayment opportunities or overstate its accounts receivable. This can lead to an inaccurate portrayal of the practice’s financial performance.
Compliance is another very important reason to have accurate classification of contractual adjustments. Having accurate classified records will help avoid problems with compliance and minimize the chance of an audit or penalty as a result of non-compliance. Keeping accurate records of contractual adjustments also helps to strengthen the relationship between the payers and practices. This creates a better foundation for future negotiations related to contract renewals. Therefore, by focusing on contractual adjustments, all financial resources available to a practice will have an overall contribution to the long-term viability and financial health.
Gross vs Net Revenue Recordings
Given the complexity of financial data supporting a medical practice, healthcare accounting must be conducted with a meticulous and focused approach. A clear distinction is needed between Gross Patient Revenue (bills issued) and Net Patient Revenue (money received after deductions). Because gross revenues do not actually reflect the money that has been collected by the practice, it can be misleading when presenting financials to other parties.
Examples of items that contribute to the difference between the two numbers are contractual allowances and accounts receivable from past due accounts. As such, bookkeepers must verify and document these items in a detailed manner. The calculation of Net Collection Rate is a critical component of the revenue cycle and serves as a primary performance indicator of the efficiency of the revenue cycle. This method will ensure compliance with regulations and regulate the financial health of healthcare providers. It will also establish trust and transparency among all parties involved in the process and highlight opportunities for continued growth.
Payroll Allocation by Provider Category
Bookkeeping for multi-provider practices is complex because compensation and service lines differ by provider. Therefore, it is critical that bookkeepers allocate labor costs based on the activity performed. Practices can only discover their true costs of care and assess whether providers are contributing net income or merely covering overhead when they have sufficient detail.
Accurately categorizing staff time on revenue-generating activities is essential for providing useful financial insights information. Without appropriate allocation, practices will misinterpret profitability and fail to consider important data when making business decisions. This lack of clarity hampers owners from effectively allocating resources, recognizing strengths and weaknesses, and developing informed strategies for future growth.
Multi-Payer Reimbursement Tracking
The healthcare bookkeeping process is much more complex than in other industries. This is due to the numerous different types of payment systems used in the healthcare field. Unlike businesses in other industries, health care providers often receive different amounts of reimbursement for the same services delivered by different payers. These payers include insurance companies, federal and state programs.
Because payers reimburse through various methods like fee-for-service or capitated payments, healthcare bookkeepers must carefully record and verify all payments. They must ensure payments are accurately applied against their corresponding claims and align with the methods used by different payers in their reimbursement process.
Likewise, any mistake on a payer’s matching a payment to the claim it was intended to settle may result in major financial problems. Therefore, it is important that healthcare bookkeepers quickly identify, and resolve denied claims, underpayments, or late submissions. This allows them to take necessary action to avoid cash flow problems caused by delays in processing these claims. If any of these problems are not resolved quickly, it could lead to a loss of revenue because of erroneous coding or an incorrect application of the payee’s established rates.
Conclusion
As a healthcare provider, managing multiple sources of revenue and expenses is challenging, but necessary. Accurate and up-to-date records of each financial transaction are very important for complying with the required legal and ethical guidelines. Assistance in managing your revenue cycle through detailed healthcare bookkeeping will ensure you have the necessary information. This will help you monitor your facility’s financial performance. This will help identify areas where the processes can be improved.
By improving these processes, you will increase operational efficiency, enhance the ability to allocate resources effectively, and improve the delivery of care to your patients. Additionally, sound financial management will help ensure the integrity of the organization and strengthen its ability to adapt and survive in a competitive healthcare environment.
