The Importance Of Accounting In Healthcare
The healthcare industry is one of the largest service sectors in the United States, accounting for nearly 19.7% of the nation’s GDP as of 2020. Healthcare has been booming over the last decade, thanks to an aging population and more Americans having access to health insurance. As a result, the demand for ancillary healthcare services has grown substantially. As the healthcare industry shifts from volume-based reimbursement to value-based pricing, organizations are working to align their accounting processes with their business strategies. As a result, healthcare accounting is changing rapidly and becoming more challenging.
Accounting in healthcare can seem more complex than in other industries due to the profusion of acronyms, codes, regulations, payers, and standards. Accounting in health care follows generally accepted accounting principles (GAAP), however, no matter how complicated it becomes, accounting remains the best way to measure financial performance and track KPIs so you can measure ROI on new initiatives. Additionally, the growing presence of technological innovations such as data analytics and robust electronic health records (EHRs) can further streamline health care efficiency, which can directly impact a facility’s bottom line in several ways, from operational costs to patient billing.
In this blog post, you’ll learn about accounting in healthcare and why it’s so important to the healthcare industry today. Keep reading to discover what you should know as an accountant or prospective accountant who might be considering a career in hospital or medical center auditing as well as some tips on what type of specialty would suit your interests and skills best.
Accounting in healthcare can seem more complex than other industries due to complex coding and billing requirements. Healthcare accounting is a subset of accounting, the process by which healthcare organizations capture, record, and classify financial and operational information for regulatory compliance and management purposes. Healthcare auditing is the process of reviewing accounts to ensure an organization is compliant with regulatory standards and financial reporting requirements. The healthcare industry has its own standards for reporting financial information due to the extensive regulations and payer rules healthcare organizations have to follow.
What is Healthcare Accounting?
Accounting is the process of measuring, recording, and analyzing financial data to make business decisions. The data comes from a variety of sources, including financial statements, operational metrics, and market research. Healthcare organizations are unique in that they may have several different types of accounting systems. For example, there is medical billing, revenue cycle management, HR/payroll accounting, financial accounting, and compliance accounting.
Medical billing accounting is the process of charging patients for services received. Revenue cycle management is the process of managing accounts receivable so that providers receive payments from insurance companies at the correct time. Financial accounting is the process of managing the organization’s assets and liabilities. Compliance accounting, in contrast, ensures that providers comply with federal and state regulations.
The accounts receivable department is responsible for managing accounts payable, which is the amount providers owe to their vendors for services provided. Healthcare organizations also need to track their assets, such as real estate, equipment, and cash, as well as their liabilities, such as loans and leases.
Why is Healthcare Accounting Important?
Healthcare organizations have high volumes of cash flows and patients’ health information. Therefore, it is important to establish effective controls around accounting and financial processes. Accounting departments have a direct impact on providers’ financial results. Losses in collections, improper payments, and audit findings all negatively impact healthcare providers’ financial performance. They can also impact patients’ lives negatively by driving up the cost of healthcare.
Key Areas of Healthcare Auditing
Healthcare auditing is the process of evaluating providers’ financial and operational activities. Auditors look for areas where providers can improve their financial results. Areas that auditors focus on include operational controls, financial controls, and compliance controls.
Operational controls refer to the processes an organization uses to ensure they are effective and efficient. Financial controls, on the other hand, refer to the controls an organization uses to protect assets and guard against fraud. Lastly, compliance controls are the controls that an organization employs to ensure it complies with laws, regulations, and licensure requirements.
Auditing can be conducted internally or by an independent third party. When healthcare organizations choose to audit themselves, they are conducting an internal audit. The types of audits providers can conduct include a risk assessment, compliance audit, or management audit. Third parties can conduct an audit as part of a larger engagement or as a stand-alone audit. Healthcare providers often choose to conduct audits so that they can identify potential areas for financial improvements.
Healthcare Auditing Certification
Healthcare auditing is a highly specialized field that requires a combination of thorough knowledge and skills. Certification is often used as a way to distinguish experienced auditors from other professionals within the field. Having a certification demonstrates that you have the knowledge and capabilities necessary to lead a healthcare audit.
Several professional organizations offer certifications in healthcare auditing. The Association Of Healthcare Internal Auditors (AHIA), offers a Certified Healthcare Internal Audit Professional (CHIAP) while the Institute of Internal Auditors (IIA) offers a Certified Internal Auditor Certification (CIA). The Healthcare Financial Management Association (HFMA) offers several certifications including a Certified Healthcare Financial Professional(CHFP).
The Importance of Healthcare Audits
At this point, some of you might be wondering: “Why does auditing matter?” as already mentioned, auditing is the process of reviewing accounts to ensure an organization is compliant with regulatory standards and financial reporting requirements. If a healthcare organization is not compliant, it could be fined or have its license revoked. Auditing ensures that healthcare organizations are compliant with regulatory agencies. Healthcare auditing also provides a way to measure financial performance by tracking key performance indicators (KPIs).
Healthcare organizations are required to follow a variety of standards, regulations, and financial reporting requirements. These rules include the Patient Protection and Affordable Care Act (ACA), the Health Information Technology for Economic and Clinical Health (HITECH) Act, the Health Insurance Portability and Accountability Act (HIPAA), the Code of Federal Regulations (CFR), and the Standard on Accounting for Health Care and Other Medical Care Services (SASC).
Healthcare Financial Reporting Standards
The Standard on Accounting for Healthcare and Other Medical Care Services (SASC) is the authoritative guidance for accounting for healthcare and other medical services. It is published by the Financial Accounting Standards Board (FASB), a private standards-setting organization.
The accounting standards for healthcare and other medical services are broken down into three categories: external, internal, and other healthcare providers. External refers to patient billing, internal refers to the financial reporting used within the healthcare organization, and other healthcare providers include accounting rules specific to other service providers, like pharmacies.
What does a Healthcare Financial Accountant do?
A healthcare financial accountant calculates the amount of money that a healthcare organization spends on its payroll, bills, expenses, and supplies. They also track any lost revenue from insurance claims and make sure that no fraud occurs with insurance payments. Healthcare financial accountants work in every part of the healthcare industry, including hospitals, long-term care facilities, clinics, and medical offices. They also work in both the private and public sectors of healthcare.
Requirements to be a Healthcare Financial Accountant
If you want to become a healthcare financial accountant, you’ll need to have a strong background in accounting and finance. You should also have good communication and computer skills to help manage large amounts of data and interact with the business side of healthcare.
Healthcare financial accountants need to be highly detail-oriented, have good analytical skills, be able to work under pressure, and have excellent time management skills. It’s also helpful if you have a degree in accounting.
Healthcare Auditing and Accounting Pathways
If you want to become a healthcare auditor, you’ll need to start with a degree in accounting or a related field. Most healthcare auditors have at least a bachelor’s degree in accounting or auditing and a license to work as public accountant. If you want to become a professional healthcare accountant, you’ll need to have a bachelor’s degree in accounting and complete the Chartered Accountant exam. It’s helpful if you have some experience in healthcare, such as having worked as an office manager or in billing.
Healthcare Information Management Accountant Pathway
If you are seeking a career as an information management accountant, you’ll need to have a strong foundation in medical terminology and business management. You’ll also need to be proficient with at least one computer software program, such as Excel. If you want to become a healthcare actuary, you’ll need to have at least a bachelor’s degree in Mathematics, Economics, or Statistics. You’ll also need to pass the exams of the Society of Actuaries.
Conclusion: The Next Steps
As the healthcare industry breaks away from traditional accounting approaches and as new payment models emerge, healthcare accounting departments will have to adjust to more granular tracking of patients’ outcomes, costs, and provider qualifications. This will require new skill sets and a big cultural shift, one that the accounting department should prepare for by welcoming modern technologies and new ways of doing things.
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