How is Accounting for the Healthcare Sector Different from Other Organizations? 🏥💼

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How is Accounting for the Healthcare Sector Different from Other Organizations? 🏥💼
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Like anyone else, those in the healthcare industry need to keep an eye on their finances in order to keep their businesses running. Healthcare accounting will help you better understand your cash management while also making your business transparent to all stakeholders.

Any business must maintain a positive cash flow, and the healthcare sector is no exception. If anything, it becomes all the more important. With the speed at which the healthcare industry is growing and evolving, it is imperative to comprehend the nuances and importance of healthcare accounting in order to facilitate more effective bookkeeping.

What is healthcare (hospital) accounting?

Hospital accounting covers every item on an organization's income statement and balance sheet. This pays for the money the hospital receives from patients, additional services like parking, rent and supply costs, and employee salaries.

However, hospital accounting is often more complex than in other industries due to the large number of parties involved. Parties include insurance companies, pharmaceutical companies, patients, healthcare providers, and government organizations like Medicare and Medicaid.

Why do health organizations need accounting?

Healthcare organizations require professional accounting services just like any other. Despite its apparent simplicity, hospital accounting is actually quite complex. 

Most hospitals, for example, have multiple distinct entities within the larger parent company, each of which has its own unique financial data that needs to be combined at the end of each month.

Furthermore, compared to traditional businesses, hospitals' accounts receivable are far more complex because they typically receive payment from both insurance companies and patients. 

Insurance companies may decline to pay for particular expenses, which would further complicate matters. This slows down how long it takes for a patient to receive care and how long it takes the hospital to get paid.

A hospital CFO's job can be difficult as a result, and keeping accurate and current accounting records is crucial. 

Standards to follow while accounting for Healthcare

1. Reporting

Hospitals that follow Indian GAAP prepare financial reports for trustees, the general public, and management. Cash flows, balance sheets, and modifications to current assets are all included in reports. Hospitals that are tax-exempt outline the benefits of community service, much like charitable work does.

2. Depreciation

Hospital equipment and IT systems age over time. In order to account for gradual depreciation, the value of an asset is divided over the course of its useful life. This method preserves accurate asset values over time without adversely affecting first-year earnings.

3. Payments and Receivables Related to Hospital Services

For hospitals, complicated payment systems present a challenge. Insurance companies, patients, and other organizations pay them. There are instances in which multiple people are accountable for payment. Hospitals use a range of billing techniques to keep track of outstanding payments and guarantee accurate billing. They also oversee credits to patient accounts; however, tracking payments becomes challenging because insurers often pay them partially.

4. Credit Balances and Outstanding Checks

There may occasionally be an outstanding check or credit balance due to overpayment by patients or insurers. This causes accountants headaches, and the hospital needs cash on hand to pay for the expenses. If the patient moves or dies, the process becomes more challenging. Hospitals are required by law to give the state any unclaimed money.

5. Multi-Entity Accounting

The complexity of accounting is increased by the fact that many hospitals have multiple locations or departments. Even though every organization keeps separate financial records, accurate reporting necessitates merging them. Manual multi-entity accounting takes time because it involves more than just adding numbers. They must also do away with double-counting.

6. Allowance for Doubtful Accounts

Cash flow problems arise for hospitals when insurance disputes or patient inability to pay result in partial payment. Even though they record all revenue, they might only get a portion of it. In order to manage, accountants use doubtful allowances, which are usually between 2% and 5% of total revenue, to adjust revenue to reflect what they anticipate collecting.

Standards to follow while accounting for Healthcare

Role of accounting technology in health care accounting and finance

It saves time

You will save a ton of time with cloud accounting's revolutionary technology. Rather than spending that time manually entering data or organizing receipts, you could use it to expand your business. Set up easy-to-use reporting tools and automated bank feeds to reclaim your time. In addition, your accountant can monitor everything in real-time, saving you hours of paperwork. Through the accounting software, they will be able to see everything clearly.

Allows real-time data access

In order to make informed business decisions, data access is necessary. You can view reports and dashboards on the go with cloud accounting, doing away with the need for large software or in-person office visits. Physician accountants support cloud adoption because it allows busy medical professionals to quickly access critical data. Without interruption, concentrate on your business; make sure you have easy access to make the best decisions.

Automated invoicing

Everything can change if your invoices are automated. Using cloud accounting technology makes it easy to send bills to customers. An automated follow-up is sent if something is not paid. It cuts down on how much time you have to spend trying to get payments.

It is possible to optimize healthcare accounting software. Billing errors can be greatly decreased by automatically applying the relevant fees and taxes. Once billing is completed precisely and automatically, you will notice quicker payments and improved cash flow.

Improved collaboration with your team

Your accounting team's technological proficiency will enable you to work closely with your financial team. To avoid reducing your annual taxes through guesswork, speak with your accountant or bookkeeper as soon as charges and expenses appear. The financial team and partners can view the information they require whenever they need it, avoiding meetings and phone calls, by granting or restricting user access. 

Easily scalable

Expansion of your business is costly, time-consuming, and difficult when using traditional accounting software. However, cloud accounting has made it possible for you to progress whenever you are ready. With your data, your accountant can easily offer business advice. Furthermore, tax planning gets simpler. Modern accounting technology offers greater growth prospects than conventional approaches.

Saves money

Cloud accounting removes the hassle of configuring, updating, and maintaining software on a centralized computer. It also saves money and energy. Monthly subscriptions include automatic updates and maintenance, eliminating the need for manual backups. You can cut operating costs and concentrate on your business by doing this.


Lastly, in the current fast-paced healthcare industry, efficient healthcare accounting is crucial. Cloud computing offers instantaneous data access while streamlining processes and saving time and money. Automation enhances collaboration and scalability, allowing healthcare organizations to prioritize patient care and growth. Jordensky offers specialized bookkeeping, MIS, CFO, and finance services, empowering healthcare professionals to excel with our comprehensive support.

Frequently Asked Questions (FAQs)

1. How is accounting in the healthcare sector different from other organizations?

In the healthcare sector, accounting involves specific regulations and standards unique to the industry, such as compliance with healthcare laws like HIPAA and Medicare billing requirements.

2. What are some key challenges faced in healthcare accounting compared to other sectors?

Healthcare accounting often deals with complex revenue recognition issues, managing costs related to patient care, and navigating the complexities of insurance reimbursements and government funding.

3. How does financial reporting in healthcare differ from other industries?

Financial reporting in healthcare requires a deep understanding of healthcare-specific metrics and key performance indicators, such as patient volumes, average length of stay, and case mix index.

4. What role does technology play in healthcare accounting that sets it apart from other organizations?

Technology is vital in healthcare accounting, handling electronic health records, patient billing, insurance claims, and ensuring compliance with industry-specific software.

5. How important is it for healthcare organizations to have specialized accounting professionals on their team?

 Specialized healthcare accountants are crucial for accurate financial records, regulatory compliance, and maximizing revenue while delivering quality patient care.

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Akash Bagrecha

Co-Founder of Jordensky