At Supporting Strategies, we stress to small-business owners the importance of acquiring a basic understanding of key financial statements. From balance sheets to cash flow statements, we cover just about every financial report a business might need.
For the most part, healthcare practices are no different from any other type of business. A healthcare practitioner needs to understand, say, a profit and loss statement. However, one financial report that all practitioners must be familiar with is the accounts receivable aging report.
Why the Healthcare Industry Has Different Priorities
Although governed by the same accounting principles as any other business, healthcare practices face unique challenges. Government regulation, for one, including compliance with the Health Insurance Portability and Accountability Act (HIPAA). If you operate a healthcare practice, it's critical not only that you understand HIPAA laws, but that your bookkeepers and/or accountants do as well. (Here's one example of why this is so important.)
Suffice to say that if you want to avoid violating privacy laws, and the financial penalties that can result, you must carefully monitor the information you enter into the bookkeeping system.
Accounts Receivable Aging Report Doesn't Age Well
The accounts receivable aging report is the one report that requires consistent review and follow-up in a healthcare practice. As we detailed in our healthcare bookkeeping system checkup, the collection cycle tends to be longer and more complex in the healthcare profession than in most other industries. There are many reasons for this, from complicated billing codes to the lag time inherent in insurance reimbursements.
With their accounts receivable so far behind their accounts payable, healthcare practices can quickly develop cash-flow problems. Consistent monitoring of the accounts receivable aging report will help you manage cash-flow issues. At a glance, you can see which accounts are over 90 days old, making it easier to pinpoint potential billing and collection issues.
Cash collections should be monitored in conjunction with accounts receivable. Providers want to make sure changes in the receivable account are due primarily to collections rather that write-offs or allowances. Third-party billing agencies are typically compensated as a percentage of collections, so monitoring cash activity helps ensure fees paid to billing agencies are accurate.
A Practice Made Perfect
As with any other small business, the key to a financially successful healthcare practice is the identification and interpretation of the most relevant financial statements. If your healthcare practice is like most others, the accounts receivable aging report should be at the top of your list.