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Healthcare Accounting: Overcoming the Burden of Financial Close

A doctor wearing white coat, glasses and stethoscope with laptop and a mug on the table
Closing the books of your practice each month can be dreadful. The process is bogged down by tedious, error-prone, and time-consuming manual tasks. On top of that, healthcare accounting is no easy puzzle to figure out. Financial data in healthcare is riddled with complexities compared to traditional businesses. Still, having an accurate month-end close to evaluate your financial health is crucial since you gain crucial insight into how you serve your patients better.

In this blog, we’ll discuss the issues that underlie healthcare’s financial close and how to overcome them through expert tips and industry best practices.

What is financial close?

Finance teams use the term “financial close” to describe all accounting processes, including, but not limited to, closing the books on the preceding month, quarter, or year. This looks like resetting income statement accounts to zero and locking in balance sheet accounts as of the period’s end. As a result, you can generate historical trend analysis based on your financial statements and make informed decisions for your practice.

Here are the core steps involved in financial close:

  1. Identify transactions
  2. Record transactions in a journal
  3. Post to the general ledger
  4. Prepare an unadjusted trial balance
  5. Reconcile debits and credit
  6. Create adjusting journal entries
  7. Run an adjusted trial balance and financial statements
  8. Close the books

Remember, the net result is transferred to the balance sheet to update retained earnings, showing undistributed profit or loss. This is an important account because it represents funds available for reinvestment.

Common challenges in financial closing

By nature, the financial close process is difficult, combined with the intricacies of layered economic components in healthcare associated with patient payments, such as private insurance and government-backed programs. There are bound to be roadblocks ahead, but as long you are informed of these common challenges, it will lead to key strategies for overcoming them.

These are the top financial close challenges that healthcare organizations encounter.

  • Incomplete or missing data: Duplicate financial transactions, unrecorded payments, and missing invoices cause your accounting team to lose time tracking these critical details.
  • Cash-to-Accrual: Since healthcare accounting follows generally accepted accounting principles (GAAP), you should use accrual-based accounting. However, changing from cash to accrual is not an easy transition.
  • Poor AR management: Your finance teams are tasked to handle bill collection matters, especially when the month-end is near. Sadly, unpaid accounts, delayed reimbursements, and improper patient management lead to denials that hurt your cash flow.

3 tips for a healthier accounting system

Financial close may seem unimportant as your finance team does it behind the scenes. Yet, every healthcare process and its efficiency level ultimately impact your patient’s experience. A study published in the Journal of Cutaneous and Aesthetic Surgery reported that patient satisfaction affects clinical outcomes. These 3 expert tips will help you increase efficiency during the financial close, improving your healthcare accounting system.

Tip #1: Automate your accounting system

Say goodbye to manual, labor-intensive tasks with automated systems tailored to your practice’s needs. These systems reduce manual errors and ensure that billing and reporting are streamlined for improved cash flow.

Tip #2: Have a solid audit preparation

Effective audit preparation requires robust auditing efforts. When you organize your meticulous records, you prevent gaps in financial data when the financial close process begins. Documentation will be your strategic powerhouse since you’ll detect irregularities early, thereby reducing last-minute corrections during formal audits.

Tip #3: Grow your professional pool

There’s a quicker way to implement these best practices: outsourcing your healthcare accounting. This will connect you to cloud-based accounting systems that facilitate remote work, allowing you to gain access to financial insights on demand. It’s a win-win situation—your healthcare practice is safe in the hands of experts while you do what you do best.

Contact Synapse today to learn how we can help you maximize accounting strategies for a swift and accurate financial close.

Source:

Prakash B. (2010). Patient satisfaction. Journal of cutaneous and aesthetic surgery, 3(3), 151–155. https://doi.org/10.4103/0974-2077.74491

Sember, B. (2024). Cash Vs. Accrual Accounting: What’s The Difference? From: https://www.forbes.com/advisor/business/cash-vs-accrual-accounting/

Understanding the Financial Close: Challenges, Impacts, and Solutions for Cash Management Professionals. (2023). Cash Management Leadership Institute. From: https://www.cashmanagement.org/financial-close/understanding-the-financial-close-challenges-impacts-and-solutions-for-cash-management-professionals/