Bookkeeper for Medical Practices

How does money actually move through a practice?

Money comes in from two different directions, patients and insurers, and the two sides almost never land in the same week.

The patient side is usually smaller and quicker. Copays at the door, self-pay payments, and invoices you send after a visit. The insurance side is larger and slower. Medicare, Medicaid, and commercial plans each have their own rates and their own payment schedules, and any single claim can be delayed or sent back for a correction. That is why any experienced bookkeeper will tell you the same thing: if nobody tracks what was billed against what was paid, unpaid claims pile up without anyone noticing.

So the books for a practice need to separate three states of the same money:

• Billed: the claims and invoices you have sent out.
• Collected: the money that has reached your bank.
• Still to come: the billed amount that has not arrived yet.

At the end of each month those three should reconcile with each other. That single habit separates a practice that knows its cash position from a practice that is only guessing.

Why does my P and L look healthy when my bank balance doesn't?

Because the P and L records revenue on the day you do the work, and the bank records it on the day the payment arrives. For a medical practice those two dates are often months apart.

This is standard accounting, and it is not a mistake. But it does mean a busy month on paper can show a bank account that never moved. If the two are not reconciled, a clinician can watch a profitable statement and have no way to explain why the cash feels tight.

Reconciliation, matching each deposit in the bank to the claim or invoice it came from, is what closes the gap. When it happens every month, the difference between profit and bank balance is a known quantity: money in receivables, money in transit, money that will come. When it never happens, you are running the practice on hope.

Does a medical practice need its own chart of accounts?

Yes, because a generic chart lumps every dollar that comes in under one line called Sales, and for a practice that hides the most important split in the business.

Your revenue needs to be separable by payer. Patient copays and self-pay behave differently from what a commercial insurer pays, and that is different again from Medicare or Medicaid. If the payer mix shifts toward lower paying plans, the only way to see it is to have the lines split out.

A proper practice chart of accounts should also anticipate some of the stranger arrivals, like shared savings from a value based program or a quality incentive payment. If the account exists on the chart, the deposit is recognized the first time it shows up rather than turning into a mystery deposit that takes an afternoon to sort out.

The common failure in the other direction is over engineering, splitting every supply into its own line until nobody reads the report. Group supplies into a handful of categories and keep the report readable. A chart you look at is worth more than one that is technically precise and abandoned by your third month.

What is the credentialing period and why does it affect my books?

It is the gap between opening your doors and receiving your first insurance payment, and it is a bookkeeping problem because it can last for months.

Before an insurer will pay you, it has to credential you, and that process takes weeks and sometimes months. During that time the rent, the supplies, and the staff salaries all run as normal, but the payer revenue has not started. Your only cash in that window is the patient side left, the copays and the self-pay.

Practices plan for this by reserving months of operating costs before they open. The number varies widely by specialty and location, but more than one source we looked at suggests holding three to six months of staff payroll in a reserve. In the books it does not look like a bad month. It looks like a known start up spend, a distinct period with a beginning and an end that is separate from how the clinic will run later on.

What mistakes do practices make with their books?

The three real ones are underbilling, not following up on claims, and only touching the books at tax time.

Underbilling is exactly what it sounds like. A claim that is wrongly coded, or never logged at all, is revenue that is never billed, and no one pays a bill they never received. The loss is not visible because there is no line on a P and L that says missing revenue.

The second is the absence of a dedicated to do unpaid claims. If the list does not exist, no one calls the insurer to fix a rejected claim, and a claim that sits for a few months quietly becomes a claim that is never paid. A practice loses money at the desk, not at the bank.

The third is waiting for tax season. If the books are touched once a year, the information arrives too late to inform any decision. That month to month cash management, hiring decisions, and even the sanity of watching payroll fly out, all of it stays unavailable because the books were never maintained monthly.

Which costs take the biggest chunk of my revenue?

Your payroll. It is the largest cost line more often than it plans, and the industry data points to staffing as a primary reason a practice's costs have been climbing.

After payroll, the big categories vary noticeably by specialty and location, so there is no one true estimate with a medical practice's cost. Liability insurance, professional licenses and renewal, IT and software, and your supplies and lab all fall somewhere between 'we can see it' and 'it is hurting'. The point of good books is not to tell you what the average practice spends, but to show you whether your own payroll is 25 percent of revenue or 50 percent, and what that means for your runway.

When the books are kept monthly, a rising supply cost or a creeping software bill shows up in the month it happens, not in the following January.

How do I know if I can afford to hire?

You cannot answer the question from this month's P&L. You answered it from a few months of real history and a reading of where the money is.

Three things have to line up. First, a consistent stretch of months with the revenue ahead of the expenses, not just a strong month in the busy season. Second, a reasonable pile of receivables that is actually being collected, because a profit report looks nice but you need this cash for the first pay period and every one after. Third, enough of a reserve in the bank to survive a lag, which as the credentialing gap shows, is a real condition in this industry.

If your books are up to date you can see all three of those in an afternoon. If they are not, the honest answer is that you are not in a position to estimate, whichever way the numbers could go.