Healthcare accounting is complex. For accrual accounting, in particular, understanding revenue recognition for the intricate system of payers in the U.S., spanning private insurers and government programs such as Medicare and Medicaid, is daunting. Complying with generally accepted accounting principles (GAAP), the adopted accounting framework of the U.S. Securities and Exchange Commission, and the Internal Revenue Service is no small task for Healthcare Providers.
Good news! Our goal at Enter is to simplify this process by arming providers with all of the necessary data. In addition to the beautiful provider dashboard and real time business intelligence, Enter clients get monthly financial reports that make their accounting and financial lives easier.
Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when the provider gets paid. For example, a patient receives a service, for which the provider bills them via insurance or self pay. Under accrual accounting, the associated expenses and revenue would be recorded at that point.
The main advantage of doing so is accuracy, as it offers the best picture of what’s occurring during a given quarter. Large organizations will usually default to accrual accounting for this reason. The downside is the complexity that requires software that can handle complicated functions including accounts payable and receivable (Enter can help 😎).
In contrast, cash accounting is much simpler. Revenue and expenses are only recorded when actually paid. While this model works in some industries, it’s often a poor fit for many health providers, since the payment can take months to be received, if it’s received at all.
One of the trickiest aspects of accrual accounting with healthcare revenue cycle management is understanding this simple question… What do I book as revenue for patient services?
There are a variety of different bookable revenue types. Patient Service Revenue, Research Revenue, Direct and Indirect, Academic Revenue, and Other Revenue. Let’s focus on Patient Service Revenue.
Gross Patient Services Revenue (GPSR): The total amount of charges that result from the provision of health care to patients. To get to the ultimate revenue number, a provider would typically deduct Contractual Allowances, Denials, Charity Care, Bad Debt, and Risk Contract Forfeitures.
Net Patient Service Revenue (NPSR): The amount of patient revenue that remains after reducing charges to contractual rates and estimating charges for services rendered for charity care, bad debt, and insurer denials.
During a provider’s onboarding, our team will work alongside the provider’s staff to develop a chargemaster. The Enter chargemaster has 3 key variables:
The Accepted amount was designed to make it extremely easy to manage revenue for accrual accounting. It is also used by Enter’s Automation Engine to determine when a claim is underpaid or denied and will trigger Automation Apps like reconsiderations or appeals.
Enter generates a monthly financial report for each client. The Financial Report will have 8 different spreadsheets.
Accepted: The Accepted amount is the contracted amount or the expected revenue for that claim. The Acceptable amount is used to determine if a Payer has underpaid a claim and will trigger escalations like reconsiderations or appeals. This is your Revenue by Date of Service.
Allowed: The Allowed amount is the amount that the Payer allows by Date of Payment.
Charges: The raw charge value of services rendered on the date of service and measured in USD.
ClaimId: The total number of claims that have been sent by Date of Service.
Discounts: The calculated amount of contract deductions incurred on the date of service as the Gross Charges less the contractual payment (Accepted) amount.
Guarantor: Payments collected from the patient (guarantor) by Date of Payment.
GuarantorResp: The amount of Patient Responsibility owed to the Provider by Date of Service.
Payer: The amount of payments recorded through (i) clearinghouse records, (ii) captured and processed EoBs on accounts, and (iii) other manually created payment records for non-standard arrangements. For accounts with active PaymentVerification, sub-accounts for verified and unverified deposits can be included with a date of deposit rather than the date payment record.
Receivable: Earned dollars as of yet unpaid by payer or guarantor based on (a) Contractually agreed payment amount or (b) fair and customary market rate for Out of Network payers.
Windfall: Earnings associated with unexpected payment, for example from previously written off receivables or payments above either (a) Contractually agreed payment amount or, as is most frequently the case, (b) fair and customary market rate for Out of Network payers.
WriteOff: The amount of outstanding Accounts Receivable with a specified payer that stand to be written off. Enter’s policy is to pass Receivables through all payers in order of primacy, then to a claim guarantor. Only after exhausting collection methods, the account is written off from the allowance on doubtful accounts.
MonthlyTotals & MonthlyTotals_delta: Month over Month breakdown of each variable. Since past months can change with healthcare reports, the MonthlyTotals_Delta sheet is extremely useful to showcase the Month over Month change. This is particularly handy when calculating monthly adjustments.
PayerType: PayerType breaks down the month over month numbers by the payer type: Commercial, Medicare, Medicaid, Self, Workers Comp, etc.
PayerMonths & PayerMonths_delta: Similar to the MonthlyTotals sheet, just broken down granularly by each payer. The delta report shows the month over month change for each category by payer.
AgingTotal: Here is your 30, 60, 90, 120+ aging report for each of the categories.
AgingByMonth: Extrapolates your AgingTotal by month.
ClaimDetails: This is a complete breakdown of each service line of a claim:
ClaimId, Date, Event, Charges, Accepted, Discounts, TermRate, Allowed, Payer, GuarantorResp, PayNo, LetterNo, Guarantor, ClaimCreateDate, ServiceDate, ClientId, Client, PatientId, PatientName, ProviderId, Provider, ProviderNPI, FacilityId, Facility, SellerId, Payer1, Payer2, Payer3, P1CoverageType, P2CoverageType, P3CoverageType, PayerClass, FeeRateCollection, FeeRateMailPage, FeeRateFaxPage, Payment, Charges_cum, Accepted_cum, Discounts_cum, Allowed_cum, Payer_cum, GuarantorResp_cum, Guarantor_cum, FeeRateCollection_cum, FeeRateMailPage_cum, FeeRateFaxPage_cum, Payment_cum, Receivable, Receivable_cum, Receivable_gu, Receivable_pr, WriteOff, WriteOff_cum, Windfall, Windfall_cum
Healthcare accrual accounting can certainly be a daunting task to wrangle. Our hope, as always, is that Enter can dramatically reduce the work needed and make clients' lives far easier.