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Accurate, timely, relevant healthcare accounting doesn’t make headlines. It operates in the shadows, staying out of the limelight while doing its thing. At least in theory.

But that doesn’t mean accounting in healthcare isn’t without its quarks. In fact, it’s loaded with them, from regulations and technology to specific talent needs and more. And unless you're well-acquainted with such quarks, they could very well sneak up on you when you're least expecting it and wreak absolute havoc on your operations. So, whether you're new to healthcare accounting, facing new accounting challenges, or just looking for a bit of guidance, we've collected some real-world insights and best practices to help you flourish. Let’s jump right in.

What is Healthcare Accounting?

Financial accounting in healthcare is more than just number crunching. It's specialized and streamlined, tailor-made for the healthcare sector by focusing on areas like managing revenue cycles, overseeing accounts payable and receivables, and financial reporting and forecasting. You know, the accounting processes that not only keep the doors open, but help hospitals, clinics, nursing homes, and physician practices thrive by providing a clear picture of financial health and the road ahead. And just like any industry, different stakeholders are involved, often pulling you in multiple directions.

  • Patients require transparent, accurate billing and fair pricing.
  • Providers depend on timely reimbursements and financial reports to manage their operations.
  • Insurance companies look for precision and compliance in claims and payment processes.
  • Government agencies demand strict adherence to regulations and standards.

In many ways, healthcare cranks accounting up to an eleven, which, like it or not, puts a pretty glaring spotlight on financial leadership.

Common Financial Challenges in Healthcare Accounting

As we said up top, financial officers face countless challenges in healthcare accounting, most capable of throttling efficiency and compliance if not managed properly. Let's take a look at some of the more common hurdles, pain points, and complexities you’re likely to face.

Revenue Cycle Management

Revenue Cycle Management (RCM) is the essential foundation of any successful healthcare practice or facility. It's indispensable. Irreplaceable. And when it breaks down on the side of the road, so does that practice or facility, with patient outcomes not too far behind.

At a high level, this comprehensive process involves managing everything from a patient booking an appointment to their account balance zeroing out, with plenty of potential pitfalls in between.

  • Patient Registration: Accurate collection of patient information is vital. Errors here can lead to claim rejections or delays down the line.
  • Service Documentation and Coding: Every service provided must be correctly documented and coded. Incorrect coding can not only delay payment but can also lead to audits and penalties.
  • Claims Submission and Adjudication: Claims must be promptly and accurately submitted to insurers. The adjudication process decides whether claims are accepted, denied, or require more information.
  • Payment Collection: This final step involves collecting payments from insurers and patients. Efficient processes here are crucial for maintaining cash flow and financial stability.

So, yes, RCM has a lot of moving parts. A lot. And any glitch along the way can bring cash flow to a grinding halt.

The Financial Close

Closing the books each month can feel like running a never-ending marathon. Still, achieving a swift, accurate month-end close is crucial for any healthcare organization intent on making timely decisions and maintaining fiscal responsibility. Yet, tedious, error-prone, time-consuming manual tasks still bog down this process in many organizations. The good news is that, as we've discussed before, you don’t have to let them.

Reconciliation Complexities

If you've ever felt tangled in a never-ending web of account reconciliations, you're not alone. Healthcare organizations deal with diverse billing platforms and endless payment methods, which can make reconciliations a migraine and a half. Frequent, systematic reconciliations are essential to catch discrepancies early, keep your financial statements accurate, and ensure your people stay sane. Needless to say, there's definitely a science behind an efficient reconciliation process.


Accrual accounting gives a more accurate financial picture by recognizing revenue when it's earned and expenses when they're incurred, rather than when money changes hands. This method is essential for detailed financial reporting and compliance with various standards, not to mention auditors, investors, and expectations once you hit a certain size. Accrual accounting is just what you do at a certain point, but transitioning from cash to GAAP (Generally Accepted Accounting Principles) is easier said than done.

Accounts Receivable Management

Talk about complex—AR in healthcare entails a twisted interplay of delayed reimbursements, health insurance claim denials, and a forest of patient payment inconsistencies. These issues can severely hinder cash flow, crucial for daily operations and the financial health of healthcare facilities. Let's put it this way—there's a thriving industry just dealing with healthcare AR management alone so, yes, it's that big of a deal.

Compliance and Data Integrity

Navigating the maze of healthcare regulations like HIPAA and the Affordable Care Act (ACA)—among others—is no small feat. Getting and staying compliant requires strong internal controls, regular staff training, and a deep understanding of any and all regulatory requirements.

Of course, accurate financial information is essential for too many compliance requirements to count, serving as a cornerstone for strategic decision-making as well. However, disparate systems and cluttered data environments can throw a wrench in the works, impacting compliance, decision-making, and a million other facets of operations.

Staff Shortages & the Talent Gap

Like many others, the healthcare industry is grappling with widespread turmoil in the labor markets, highlighting the overwhelming need to retain skilled talent, including at the leadership level. However, certain unique aspects of healthcare accounting jobs only amplify the labor challenges, leading to high turnover and staff shortages, including:

Specialized Knowledge Requirement: Specific know-how in healthcare limits the number of candidates suitable for roles within industry accounting departments. Likewise, requiring specific certifications like the CPA—Certified Public Accountant— further limits the field of candidates.
  • Reliance on Outdated Processes: Manual, paper-based accounting processes aren't just inefficient; they’re unappealing to a workforce increasingly interested in technologically advanced workplaces.
  • Impact on Financial Operations: A shortage of skilled healthcare accountants can lead to delayed billing and reimbursements, inaccurate financial reporting, and difficulties maintaining compliance with industry regulations.
  • Best Practices and Solutions in Healthcare Accounting

So, what's a well-minded healthcare accounting function like yourself to do in the face of so many potential challenges? We have good news on that front—you're definitely not lacking for solutions to help you sort through it all. From advanced technologies to experienced specialists, the answers you're looking for are out there, ripe for the picking. It's really just a matter of choosing what's best for your specific needs.

On that note, let's look at some ways you can refine, redefine, and reinvent your accounting and finance function for tomorrow's healthcare industry, today.

Healthcare Accounting Software

Yes, we're starting with the most obvious. Modern healthcare accounting software can streamline the complex financial workflows that are an unfortunate hallmark of healthcare. These systems equip financial professionals with powerful tools like, to name a few:

  • Automated Workflows: Automation reduces manual data handling, decreasing the risk of errors while increasing efficiency along the way.
  • Integrated Claims Management: Seamless integration with claims management speeds up processing and improves accuracy in billing and collections.
  • Reporting Dashboards: Real-time dashboards offer quick insights into financial metrics, helping healthcare managers make informed decisions promptly.
  • Real-Time Data Analytics: By analyzing data as it becomes available, hospitals and clinics can dynamically manage their finances with a high level of precision.

Automation in Healthcare Accounting

The first bullet point from the previous section—automated workflows—is so important, we're giving it its very own spotlight. Automation can be a game-changer in healthcare. A king-maker. By replacing manual, labor-intensive tasks with automated systems, healthcare organizations can transform their financial operations. Literally. Off the top of our heads, automation breeds:

Reduction of Manual Errors: Manual data entry is prone to human error. Automation standardizes entries and calculations, significantly reducing the chances of inaccuracies.
  • Streamlined Processes: Automated workflows ensure that financial operations, from billing to reporting, go smoothly and don’t require manual intervention at each step. This cohesion greatly speeds up processes like the month-end close and financial reconciliation.
  • Higher-Value Work for Staff: By automating routine tasks, staff members are freed from mundane activities and can focus on more strategic aspects like financial analysis, decision support, and advanced compliance management.

And that's just the tip of the iceberg. It's difficult to overstate the benefits automation tech brings to healthcare accounting functions. From bank reconciliations and RCM to reporting dashboards for decision-making, automation is equal parts operational upgrade and strategic advantage.

Analysis of Financial Condition

The healthcare industry can change on a dime, making regular analyses of financial and operating performance both beneficial and essential for survival and growth. Put more formally, understanding a healthcare organization's financial condition through detailed analyses helps leaders make informed, strategic decisions that align with their financial and operational goals, primarily by:

Revealing Financial Health: Regularly tracking financial metrics allows organizations to gauge their overall financial stability and pinpoint potential issues before they escalate.
  • Identifying Improvement Areas: Analysis helps identify less-than-optimal areas within financial operations, revealing where you can improve to enhance efficiency and effectiveness.
  • Informing Decision-Making: Armed with accurate and timely financial data, managers and executives can make well-informed decisions that optimize financial outcomes and align with overarching organizational strategies.
  • The point is, there's no time like the present to start building the FP&A function of your dreams—because you're going to need it.

Data and Systems Cleanup

M&A and growth can be a blessing and a curse for a healthcare accounting team. Sure, expansion is always exciting. But dealing with disparate systems and data environments scattered to the winds after a business combination can be overwhelming.

Tackling the mix of different accounting systems isn't just cleanup, though. It's also essential for strategic preparation. By aligning all your financial data, you minimize errors and make financial reporting smoother and quicker. This means you can access reliable insights that drive everything from better budget decisions to more efficient audit preparation. Think of it as fine-tuning your financial toolkit, ensuring every number and report is exactly where it needs to be, helping your healthcare organization succeed.

Audit Preparation in Healthcare Accounting

Audit preparation is often an unheralded—even dreaded—part of accounting. Yet its benefits go far beyond ensuring compliance with regulations and accurate financial reporting. In reality, audit prep is both a canary in the coal mine and a strategic powerhouse for healthcare providers. Or at least it should be.

Since effective audit preparation is an ongoing process and not just an annual activity, it can serve as an early warning detection system of sorts, especially when combined with robust continuous auditing efforts. By perpetually preparing and refining, you're also perpetually improving, ensuring a better audit while bolstering operations. It's the ultimate win-win.

We previously wrote an entire guide on audit preparation so we won't take a terribly deep dive today. However, to get you started, some of the areas you should focus on include:

  • Organized Record-Keeping: Thoroughly and systematically keeping meticulous records prevents gaps in financial data, including backing up your digital record-keeping regularly.
  • Regular Documentation: Routine documentation efforts ensure all financial transactions and control activities are captured correctly and are readily available for audit purposes. This includes detailing the transactions as well as the rationale behind key decisions.
  • Segregation of Duties: This fundamental control involves separating responsibilities within financial processes—e.g., disbursements, reconciliations, and record reviews—across different individuals or departments to mitigate the risk of errors or fraud.
  • Standard Operating Procedures (SOPs): Clearly defined SOPs help maintain consistency in handling financial transactions and responses to discrepancies, making auditing more straightforward.
  • Routine Checks and Balances: Regular internal reviews and reconciliations act as preliminary audits; they ensure ongoing adherence to financial policies and early detection of irregularities, thereby reducing last-minute corrections during formal audits.

Ultimately, truly effective audit preparation involves meticulous accounting work and management of financial records, serving both as a compliance measure and a strategic asset. And yet too many healthcare organizations still leave all of those strategic benefits on the table.

Partner With Specialists

Granted, the best practices and solutions we’ve discussed so far don’t necessarily address the entire cavalcade of challenges we covered earlier. For those areas where a new accounting system, automation, or soothsaying FP&A can’t fill the void, partnering with the right team of specialists just might be a lifesaver.

Want to trim your month-end close process down to a week? Implement a new ERP to drive better decision-making? Or take a deep due diligence dive into a potential acquisition target? Chances are, these types of needs—and a thousand others—are outside your in-house team’s area of expertise. Therefore, finding the right partner is essential in helping you reach such objectives.

That’s what makes Embark such an ace-in-the-hole for healthcare organizations, combining industry experience with practical expertise across operations. Whether you need an interim controller who actually understands healthcare, help with ESG compliance, accounting guidance, or just to straighten out your data environment, Embark’s team is ready, willing, and able to lead the way. So let’s talk and see what we can do for your operations—you’ll be glad you did.

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