Most practice owners shopping for help already have a bookkeeper. Why?
Often, it’s because whoever keeps the books treats a medical practice like any other business. As you know, healthcare doesn’t work that way.
A bookkeeper who doesn’t understand that will hand you financial statements that look healthy while your bank balance drops. Healthcare bookkeeping is its own skill, so here’s what to check before you sign with anyone.
Revenue and Collections Are Two Different Things
In most businesses, you charge $100 and you collect $100. However, a medical practice has to track four numbers instead of one:
- What you billed
- What the payer allowed
- What got written off
- What came in
Your payer mix drives all of it, since insurance reimbursements change quite a bit from one contract to the next.
If your bookkeeper posts billed charges as revenue and never records the write-offs, your profit and loss report is wrong from the start. You will look profitable in one month and wonder where the money went a few months later.
Plenty of practices bill over $1M a year and still lose money, and it usually comes down to one of two things. Either the practice is spending on things that don’t produce, or it isn’t charging enough.
In one case ,it was the fees, so the fix was to rebuild the fee schedules, move more of the caseload to private pay, and cut the insurance contracts that didn’t clear a set threshold.
Admin work got reorganized around one strong employee and an assistant, and that practice ran above 12% margins the next year. Only when the financial data was accurate did it become visible.
You Don’t Need a Coder. You Need Someone Who Knows the Revenue Cycle
Your bookkeeper doesn’t have to know CPT and ICD-10 codes cold, but they do need to understand what happens to a claim after it leaves your office. That’s where the money gets stuck!
Ask them…
- How they handle ERA files, the Electronic Remittance Advice that comes with each payment, and what they do with an explanation of benefits
- Where write-offs, patient balances and refunds land in your chart of accounts
- If they match the practice management system against the bank deposits every month, or if they simply sort whatever the bank feed sends over
Revenue cycle reconciliation is where problems appear. One practice had a medical billing company using a billing code that the payer rejected more often than it paid, and the financials looked fine at the top because charges kept going out the door. Once the code changed, collections picked up again.
Billing companies vary quite a bit. Some chase every rejection with real denial management and others don’t, so get a billings versus receipts report every month and compare it against what hit the bank.
Ask Whether You’ll See Both Sets of Books
Your accounting method is not only a tax decision. Cash basis accounting counts revenue when the money arrives, which is what most practices file taxes on and what tells you how much you have. Accrual accounting counts revenue when you deliver the service, so it tells you what you produced.
In a practice, you want both. The distance between those two numbers is your accounts receivable problem, and there is no other way to see it. A practice can look strong on accrual and still be short on cash, and a lot of owners learn that during the week payroll is due.
Whoever you hire should give you both views and explain what the difference means in plain terms. If they can only produce one of them, you are seeing half the picture.
What Should Land in Your Inbox Every Month?
Practice owners sometimes ask about the four C’s of healthcare finance, which are:
- Costs
- Cash
- Capital
- Control
It’s a reasonable way to frame the subject, though the monthly reports matter more.
Two of those reports are must-haves. Run the profit and loss statement, which some software call the income statement, as a comparison against the earlier months of the year and against the same month last year, because one month on its own tells you very little.
The balance sheet is your snapshot of bank balances, assets, and what you still owe on loans and credit cards. Owners skip it constantly, even though it’s the report that shows whether growth is real or borrowed.
Two more matter specifically in healthcare.
The accounts receivable aging report shows where your money is sitting, and since some aging is always normal, what you’re really watching is the size of each AR aging bucket.
MGMA puts the benchmark for A/R over 90 days at roughly 12% to 15% of total A/R. On speed, HFMA targets 30 to 40 days in A/R, while recent MGMA survey data has put the median closer to 47 days across physician practices, with better performers nearer 36. Past 120 days, your odds of collecting quickly drop, and timely filing limits will turn part of that balance into a write-off.
The fourth report is a short cash flow forecast, 60 to 90 days out, which is most of what cash flow management amounts to in a small practice and matters most when you’re hiring or carrying debt.
Pick three to five numbers and follow them monthly. Profit margin is a good one, as is payroll measured against collections. Support staff wages and benefits usually run about a quarter of practice revenue, and once you add physician and APP pay, total labor lands somewhere between 45% and 60%.
Staff payroll, rent and malpractice insurance stay flat no matter how many patients come through the door, while medical supplies move with patient volume. Sit above your specialty’s range for a few months running and you might find yourself overstaffed. You’ll see it in the report well before you see it in the bank account.
Where HIPAA Touches Your Books
HIPAA reaches your bookkeeper only if protected health information reaches them first.
Anyone who creates, receives, maintains or transmits PHI on your behalf is a business associate and needs a signed Business Associate Agreement. The cleaner approach, and the one most accounting engagements are built around, is to keep PHI out of the accounting file entirely.
Bank deposits, payer summaries and totals from your billing system carry everything an accountant needs. Patient names, dates of service and diagnosis detail have no business sitting in a general ledger.
So the question to ask is not only whether someone will sign a BAA. Ask them…
- How do they plan to keep PHI out of your books?
- How do they receive documents from you, since emailed attachments are not an acceptable answer?
- What do they do with deposit detail that arrives with patient names attached?
A bookkeeper who works with practices knows how to strip identifiers out and still leave a clean audit trail.
If the engagement does require access to your EHR or to raw EOBs, then a BAA comes first, before anyone sees a single record. Secure technology and a written handling process are the baseline either way, because patient privacy is your liability.
Internal controls deserve a question of their own. The person who reconciles the bank account shouldn’t be the person writing the checks. Embezzlement in a medical office does happen, and it almost always starts with one trusted employee who controls both ends.
Software Matters Less Than the Person Using It
Doctors ask about the best bookkeeping software for a medical practice constantly, and QuickBooks Online handles the accounting for nearly every practice out there.
There is a catch that surprises people. Intuit has not signed Business Associate Agreements, and its own guidance tells healthcare users to keep identifiable health information out of the product.
Vendor positions do change, so confirm it directly for whichever product and plan you use. That doesn’t rule it out, but it does mean your process has to keep PHI out of customer names, memos, attachments and invoices.
The handoff is just as important.
Charges and payments start in your electronic health records or practice management software and turn into financial statements in your accounting system. Somebody has to own that connection, either through an integration or a simple monthly entry from your deposit reports.
When the handoff is sloppy, you get double-counted revenue, deposits that don’t exist, and books you can’t rely on.
What It Costs and What to Ask Before You Sign
Whether you hire in-house or use outsourced bookkeeping services, two numbers usually get mixed up.
A bookkeeper on your payroll earns a wage, and the national average has been sitting in the low to mid $20s per hour.
On the other hand, a freelancer or a firm charges a rate, which currently runs closer to $40 to $100 an hour, because that rate covers their:
- Taxes
- Software
- Insurance
- Review time
Healthcare work sits at the higher end.
Most practices do better on a flat monthly fee, which typically falls between $300 and $2,500 a month depending on transaction volume, provider count, payroll, and whether controller services are included.
Treat any of these figures as a starting point and price your own market. Ask what cleanup of prior year books will cost before you sign, since that gets billed separately and is often the largest cost in year one.
A good accountant is an asset, not an expense.
(And, yes… That is exactly what an accountant would say!)
Make sure to ask these five questions before you hire anyone also:
- Do you work with other medical or mental health practices, and how do you reconcile their collections?
- Will I get a monthly reporting package, and will you walk me through it?
- How do you keep protected health information out of my books, and will you sign a BAA if the work requires access?
- Do you close my books monthly, or catch up before tax season?
- Does your tax team see these books during the year, or only in April?
That last question decides most of the others. Books that only feed a tax return arrive too late for tax planning, while books that are current in September still leave you room to act.
There is still time to make retirement plan contributions to a SEP or a Solo 401(k), and time to put an equipment purchase against Section 179 or the 100% bonus depreciation that the 2025 law made permanent. You can also set a reasonable S corporation salary before year end and correct your quarterly tax payments before penalties start.
One more thing to ask about is whether you can email questions during the year without being billed for each one. A short question in October is often more useful than a formal meeting in April. Current books give you room to act while it still counts.
The Bottom Line
Bookkeeping for doctors and healthcare practices comes down to one test:
Do your books tell you what you collected, or only what you billed? Everything else follows from that.
Before you decide whether your current setup measures up, run one test this week.
Pull your accounts receivable aging report and put it next to a billings versus receipts report for the same period. If the two don’t line up, or if nobody can explain why, the problem isn’t going to fix itself in April.
That’s the point where a conversation with an accountant who works in healthcare every day pays for itself. At Leichter CPA, we handle bookkeeping, tax planning, and controller work for medical and mental health practices around the country.
See how we can help medical practices like yours.