Efficient accounting is key to the smooth running of any business — and achieving that necessitates dealing with accounting challenges. Healthcare providers, in particular, face certain unique challenges that they must overcome if they are to achieve operational efficiency. With government regulations constantly changing and the demand for technological innovations on the rise, UK healthcare businesses of all sizes face several common accounting challenges that lead to operational and administrative errors. Let’s take a closer look at some of them.
Common accounting challenges faced by the healthcare industry
1. Cash versus accrual accounting methods
Cash accounting logs transactions on the day the cash is actually received, while accrual accounting logs transactions on the day the transaction is actually made. In general, healthcare industries use accrual accounting as per GAAP since the expectation is that many of the healthcare services rendered will be paid for later, such as by reimbursements from insurance. This approach ensures that expenses and revenue are matched suitably for efficient financial planning.
One of the accounting problems to deal with here, however, is the fact that any delays in payments will have the payments showing up on bank statements much later than when they were recorded. It is necessary to align these records to avoid discrepancies in accounting and potential tax penalties.
2. Shortcomings in medical billing and coding
One of the biggest accounting challenges for healthcare businesses stems from mistakes made in medical billing and coding. Healthcare employees may, under the pressure of the work environment, link the wrong diagnosis code to the Current Procedural Terminology. If the wrong code is entered in the patient invoice, the payment received will be inaccurate, leading to discrepancies in the accounts, disruptions in cash flow, and an incorrect picture of the business’s profitability.
3. Depreciation of assets
Any physical asset undergoes depreciation, which must be accurately entered in a business’s financial statements. Essentially, depreciation involves spreading the expense of the asset over each year of its estimated useful life for proper representation on the company’s balance sheet. The trouble arises when medical equipment depreciates faster than expected owing to regular technological upgrades or unexpected wear and tear. To avoid potential accounting problems with this, it’s advisable to consult with an accountant who can guide you on healthcare asset depreciation.
4. Incorrect configuration of the chart of accounts
Among the most common accounting challenges is an incorrect chart of accounts setup. A chart of accounts (COA) is a tool that enables providers to view full listings of all accounts in a single glance. However, with new clients constantly entering the system, properly tracking and organising these accounts can be difficult. The problem is compounded when there are errors in billing, which could lead to incorrect graphs and significant inaccuracies in the financial overview of the healthcare business.
5. Handling uncollectible debts
Bad debt is a frequent problem in the healthcare industry, as many patients simply do not have the insurance coverage or the personal funds actually to pay for the medical services they avail of. Among the most frequent small business accounting challenges in this regard is the lack of time to do a credit check on patients who need urgent medical help. As a result, they run the risk of unpaid accounts, leading to disruptions in cash flow and potential tax issues.
Healthcare businesses can minimise the occurrence of bad debt by working with an accountant to conduct stringent credit verification on each customer and having strict billing timelines. In addition, it’s a good idea to set up a bad debt reserve to offset any potential losses.
6. Remaining current with regulatory compliance
The UK healthcare sector is constantly subject to changes in regulatory requirements. This makes accounting and financial reporting as a healthcare business quite complex — it is, however, critical to stay up-to-date with these rules so as to avoid penalties for non-compliance. For small healthcare businesses, this can lead to significant accounting problems, as they do not always have the resources to monitor policy updates and train themselves on the implications. Using healthcare-specific accounting software can be helpful in this regard since they come fully equipped with the latest regulations to help you prepare compliant accounts.
7. Navigating complicated financial information
Healthcare business owners often struggle to make sense of financial data, which makes business decision-making a lot harder. By using accounting software with strong reporting features, your unsorted data gets converted into clear and concise financial reports that show you exactly where and how your money is going.
8. Adapting to the evolving healthcare landscape
The UK healthcare system is in a state of constant flux, with technology, reimbursement models, and policies frequently changing to reflect industry trends. Keeping up with these changes can impact healthcare financial management by forcing business owners to update their systems constantly. Having flexible accounting software is vital here, as these solutions are designed to adjust to changing dynamics and will, in fact.
Final words
Managing financial accounts as a healthcare business can pose multiple accounting problems, which is where the need for solid accounting practices comes in. Not all healthcare providers have the resources to do this on their own — which is where we come in. At 3ES Accountants, we’ve worked extensively with healthcare businesses and can give your accounting the tailored attention it deserves at a price that works for you. Reach out to book a call with us today.
