Healthcare accounting is a complex branch of your healthcare company’s financial management. The most noteworthy challenges facing the industry are regulatory laws, tax reforms, excess benefits, and fraud. If these issues are not addressed or resolved, a healthcare business may suffer losses.
Thus, a health care business has to use strict internal controls to manage risks. At the same time, a healthcare business should abide by government requirements.
With this in mind, we at CPA Solvers are pleased to offer healthcare accounting services to health institutions. This ensures compliance with all government regulatory policies.
Further, proper accounting services for your health institution will help in good financial management.
Health care accounting has evolved due to the increasing demand for quality services.
Accounting Evolution in the Healthcare Industry
The accounting process used to be simple and Health Care accountants used to perform traditional roles.
Accounting managers used to negotiate repayment rates to cut costs. They prepared financial statements, budgets, and debt policies. In short, health care accountants supervised the accounting department.
Over time however traditional roles changed. Now, stakeholders need a new way of interpreting accounting data, while at the same time, demanding higher quality service and a lower cost.
With these new demands, accountants need to provide extensive data analytics. These analytics are essential for the growth and sustainability of the business.
This evolution created unique features in health care accounting.
Unique Features of Healthcare Accounting
Health care accounting is unique in some ways. Here are the four distinctive features of healthcare accounting:
Accounts Receivables Reserves
Health care businesses need to have Accounts Receivables (AR) Reserves. In essence, AR Reserves involve setting aside cash in a bank. This is the government standard for health care businesses. This rule was created to make sure that health care businesses can offset anticipated future losses.
A loss may include a patient’s failure to pay the fees of healthcare services. It may also occur do to insurance claims being denied. When these common losses arise, a health care business can use this fund to offset it.
AR reserve is different from the allowance for doubtful accounts. Why? Because the AR reserve fund is computed after net surplus or a net loss.
Capital Intensive in Nature
A healthcare business invests in high-tech equipment and medical facilities. This investment ensures the delivery of quality services for its patients.
Aside from tangible assets, a healthcare business often invests in electronic systems. These provide a seamless exchange of information between departments. This quick turnover aids decision-makers to make timely strategies.
As a result, service quality improves. This improvement increases income and decreases costs. In short, there’s a ripple effect. We at CPA solvers can help you take a close look at these capital investments to help your business grow and to save you money.
Valuation Procedures and Methods
Many times the value of services rendered can be hard to calculate. Health care businesses need to consider various factors. These factors may include non-payment, the seriousness of a patient’s disease, and service quality.
Also, many healthcare facilities are non-profit. This non-profit nature of the health care industry complicates valuation procedures at times.
In all cases, the fair market value (FMV) is the accepted method of determining valuation.
The healthcare industry is a major growing sector of the economy. Despite its large share in the economic pie, much of it enjoys a tax-exemption status, but this status isn’t automatic. A healthcare facility has to abide by government requirements to qualify for tax exemptions.
This is where our expertise at CPASolvers can help as far as government compliance is concerned. This enables the facility to achieve these government exemptions and privileges.
Goals of Healthcare Accounting
The preparation of financial statements is the goal of healthcare accounting, but there are other objectives as well.
Healthcare Accounting financial statements need to influence internal and external decision-makers. To achieve this, the reliability of the reports is crucial.
Healthcare accounting needs to generate income. This can be done by working with the accountant to plan ahead for large expenditures and avoid large one time costs or pay excessive interest. Also seeing the financial landscape can help locate and eliminate waste.
Healthcare accounting monitors expenses. It ensures adherence to internal controls. Fraud is common in the healthcare industry. With internal controls, healthcare businesses can prevent its prevalence.
Healthcare accounting ensures the tax-exempt status of a healthcare business. A healthcare accountant can achieve this goal by looking for valid tax deductions.
Generally Accepted Accounting Principles (GAAP)
Despite its uniqueness, a healthcare business follows GAAP. GAAP are the standards recommended for businesses. It ensures uniformity and comparability between health care companies.
The GAAP varies in nature, depending on the industry. In the case of the health care industry, the statement of financial accounting standards (SFAS) is the GAAP, and the Financial Accounting Standards Board (FASB) created the SFAS.
The healthcare industry is a unique and complex business. It requires a different accounting approach. We at CPA Solvers have extensive experience with healthcare accounting and would love to work with you.
The health care industry is growing and will continue to grow. Thus, it will need the skills of health care accountants. Contact us at CPA Solvers today for worry-free healthcare accounting services.