Accounting vs. Billing: Pitfalls to Avoid
Accounting and billing are oftentimes confused in the private practice setting. Billing usually refers to the process called revenue cycle management (RCM) where a practice submits a claim for reimbursement from a third party payer. Accounting usually refers to the process of bookkeeping and tax preparation as a result of revenue, expense, and profit generation. It is important to learn about the difference between accounting and billing so that you can run your practice effectively and efficiently without confusing the two departments.
Terms to Know
First, we need to understand the terms that you will encounter in both billing and accounting so that you can keep track of the results expected from each department. There are some overlapping terms in each department but they have different meanings. Keeping each term separate will help you in discerning how each term is used and when to use the terms.
Billing terms and their definitions:
Claim filing: Filing a claim is the process of submitting a document to the insurance company that helps them determine whether a service should be paid or not
Write-off: A write-off from a billing (RCM) perspective is the difference between a clinician’s cash pay rate and the contracted rate with the insurance company
Contracted rate: The contracted rate is the rate that the insurance company pays (includes both the patient amount and the insurance amount) for a given service
Submission: Submission refers to the process of electronic filing of a claim
Follow-up: Follow up refers to the process that billers use to ensure all outstanding claims have been resolved
Accounting terms and their definitions:
Write-off: A tax write-off is an accounting action that reduces the value of an asset while simultaneously debiting a liabilities account
Tax filing: Tax filing is the process of submitting a tax return to the IRS
Billing Pitfalls to Avoid
The first billing pitfall to avoid is to recognize that your private practice is made up of several different departments such as scheduling, billing, accounting, marketing, and the actual therapy. While in practicality you may not have multiple people in those departments, there are different functions that allow your practice to thrive. One of those departments is the billing department. This department is responsible for a specific process known as revenue cycle management. If you would like to see a high-level breakdown of that process feel free to head over to read our blog on the revenue cycle management process.
The person running the billing department is usually somebody who has healthcare administrative experience but likely does not have accounting experience. This person would not consider themselves a professional accountant. They have specific knowledge of the healthcare revenue cycle, and they know how to navigate the bureaucracy that surrounds claim payment.
The second pitfall to avoid would be to rely on your biller for accounting or tax related advice. Unless your biller also has very specific accounting and bookkeeping experience they do not have the knowledge necessary to advise you on tax related matters. Usually a private practice owner has an accountant that they meet with on a regular basis to go over the financial metrics of their practice and their biller is not included in these conversations.
The third pitfall to avoid is assuming that a write off in billing is the same as a write off in accounting. A billing right off is the difference between a clinicians cash pay rate and the rate that the insurance company pays the practice for a particular service. The difference between those two numbers cannot be collected by the client and is therefore written off. This is not an amount that you can write off on your taxes, it is simply a lost amount.
The final pitfall to avoid in billing is to rely on your electronic health record system as your accounting system. Your electronic health record system should be a separate system than your accounting system. Your accounting system would track things like revenue collected, expenses, profit and any other financial metric that you would need to track. Your electronic health record system tracks claim submission, follow up, outstanding claims, and other practice related metrics that you would need to track. The reason why you would not want to use your Health record system as your accounting system is because your Health records system is not auditable by the IRS. When the IRS does an audit of a system or a company they need access to detailed financial records that are not housed with an electronic health record system.
Accounting Pitfalls to Avoid
The first accounting pitfall to avoid is not employing the services of a certified public accountant. A certified public accountant is somebody who is trained and qualified to advise you on financial related metrics and goals within your private practice. A certified public accountant is somebody who can file your taxes and provide tax related advice in relation to your business. This is somebody who is familiar with best practices within the tax and accounting and bookkeeping world. They have your best interest in mind when it comes to the financial health of your business, and if you were to sell your business they would be somebody that you would include in the conversation. Your medical biller is not someone that can provide this kind of advice or insight into your business.
The second pitfall to avoid is not becoming familiar with your accounting software tool in an intimate way, or hiring someone who will do this for you. It is likely that you are extremely familiar with your electronic health record tool, but similarly you need to become just as familiar with your accounting software tool as you are with your electronic health record tool. You should be monitoring your profit and loss statement on a regular basis, and your accounting software tool is the place where your profit and loss statement would be generated. However, if you are not familiar with your accounting software then you would be operating at a disadvantage from the other businesses in your area.
The third accounting pitfall that we see that private practice owners should avoid is planning their finances around the outstanding claim amounts listed in their electronic health record systems. The amount of money listed on your aging reports, both patient aging and insurance aging, is an estimated amount of money based on your cash pay amount. If you are planning your expenses or expansion plans based on your aging reports, you could be making a mistake because the revenue that comes in could be slower and lower than initially projected.
We know that running a private practice can be complicated and there are a lot of moving parts to running your business. We would love to hear from you if there are topics that you would like us to address or areas of billing that you would like clearer information about. Feel free to reach out and we would be more than happy to answer any questions or concerns you may have.