Most medical practices do not have a bookkeeping problem. They have a reconciliation problem between the billing system, the bank, and the accounting records. When those three agree, the practice can see what it earns. When they do not, decisions get made on guesses. This guide explains what to expect from a bookkeeper.
Understanding the revenue cycle in the books
- Charges: the amount billed for services, from the billing system.
- Contractual adjustments: the difference between billed charges and what the payer agreed to pay. These reduce reportable revenue and are not an expense.
- Payments: insurer remittances, patient copays, and self-pay collections.
- Denials and write-offs: amounts not collected, which affect receivables.
- Patient balances and credits: amounts owed by or to patients.
What revenue should look like
In most practices, revenue in the books should reflect expected or actual net collections, not gross charges. The choice between cash and accrual reporting affects how and when revenue appears. See cash vs accrual accounting. Whatever method is chosen, deposits must tie to the billing system's payment reports, including electronic remittances, and any difference should be explained.
Accounts receivable by payer
Receivables are the largest asset in many practices. Aging them by payer and by days outstanding shows which insurers are slow, where denials cluster, and whether patient balances are collectible. The accounting records should reflect an allowance for amounts unlikely to be collected, if you use accrual reporting. The billing system produces the detail; the bookkeeping makes sure the totals agree.
Physician compensation
- Employed physicians receive salary or production-based pay through payroll.
- Owner-physicians in an S corporation must receive reasonable wages before distributions. See S-corp reasonable salary.
- Locum tenens and per-diem providers may be contractors or employees depending on the relationship. See W-2 vs 1099 classification.
- Bonuses, productivity pay, and retention agreements should be documented and run through payroll.
Payroll and staffing
A typical practice has physicians, mid-level providers, nurses, medical assistants, and front-office staff, with varying pay structures. Overtime, shift differentials, and benefits all need correct handling. See small business payroll services and multi-state payroll taxes if you use telehealth providers in other states.
Entity structure
Most states restrict who may own a professional medical practice, and many require a professional corporation or professional LLC. The structure affects liability, ownership, and tax. Confirm the rules in your state with an attorney, then work with your tax adviser on elections such as S corporation status. See LLC taxed as S corp.
Compliance-minded record keeping
- Maintain organized records of payer contracts, credentialing, and fee schedules.
- Keep documentation for refunds and overpayments owed to payers or patients.
- Limit access to patient-identifiable information in accounting systems. Bookkeepers who see patient data may need a business associate agreement under health privacy rules.
- Retain records for the periods required by tax law, payer contracts, and state regulations.
Monthly reports that matter
- 1Collections by provider and by payer.
- 2Days in accounts receivable and aging by payer.
- 3Overhead and payroll as a percentage of collections.
- 4Cash flow and upcoming obligations, including debt service and tax payments.
- 5Profit and loss compared with budget and the prior year.
Tax planning for practices
Equipment purchases, retirement plans, and owner compensation all affect the tax picture. For related planning, see small business year-end tax planning and dental practice accounting, which covers similar practice-economics issues.
Our bookkeeping service supports medical practices with monthly reconciliation to billing reports. To discuss your bookkeeping needs, tell us your billing system, number of providers, and entity type. We do not provide legal or healthcare compliance advice.
