Managing Practice Finances

LEARNING OBJECTIVES	PROCEDURES
1. Describe manual and computerized methods of maintaining patient accounts.
2. Differentiate between a simple charge slip and a charge slip with diagnosis and procedure codes (superbill).
3. Describe how a charge slip is completed.	Complete a patient charge slip.
4. Identify the information contained on a fee schedule, and describe how it is used.
5. Describe the information contained in a patient account ledger.
6. List the steps to post charges, payments, and/or adjustments to the patient account.	Post charges to the patient ledger.
	Post payments and/or adjustments.
7. List the information recorded on a day sheet.	Record a patient’s visit on the day sheet.
8. Describe the process to print patient ledgers and day sheets using a computerized billing system.	Use a computerized office billing system.
9. Identify various types of bank accounts.
10. Discuss the information printed on a check.
11. Describe various methods to write checks.	Write a check.
12. Describe how to balance a cash drawer.
13. Describe how a bank deposit is prepared and made.	Prepare a bank deposit.
14. Identify reasons why it is important to reconcile every bank statement.	Reconcile a bank statement.
15. Describe the components of accounts payable.
16. Describe how entries are made in the cash disbursement journal.
17. Describe how to maintain a petty cash fund.	Create and maintain a petty cash fund.

Introduction to Daily Financial Activities

A medical office is a business. The business of a medical office is providing medical services—one of the most important services in the entire economy. Because the medical office is a business, daily management of the practice’s finances is key to the physicians’ ability to provide the best services possible for patients. If the practice’s bills are not paid and fees are not collected, the practice will cease to be a viable business and the patients will suffer.

Accounting is the term for systematic recording and reporting of financial transactions. The cash basis of accounting, which is generally used by medical offices, enters income when payment is received for services. This contrasts with the accrual basis of accounting, in which income is entered at the time of sale, even if payment has not yet been received. Companies that sell merchandise usually use the accrual basis of accounting. In both systems, expenses are entered when they are incurred, even if they have not yet been paid.

Bookkeeping refers to the process of keeping detailed records of financial transactions. Managing the daily finances is a task that often falls to a medical assistant. Professional accountants are usually responsible for general aspects of financial management, such as preparing detailed financial reports, financial planning, and preparing tax returns.

This chapter focuses on the parts of the daily financial activities involved in charging patients for the services provided each day, maintaining patient accounts and other accounts receivable (money owed to the practice), and managing the accounts payable (money the practice owes).

Maintaining Patient Accounts

Patient accounts make up the bulk of the medical practice’s income. Some income might come from rental of space—for instance, to a particular laboratory for a specimen collection station or to a social worker, psychologist, or other specialist who consults for the practice. Other income may come from royalties—from a particular medical instrument that one or more of the physicians developed, for instance, or from a book written by the professionals in the practice. But the bulk of the practice’s income will be earned on a daily basis from the charges for services to patients.

Patient accounts may be recorded manually or using a computer. Most medical offices use a computerized medical billing system, although they may maintain some manual records, such as a day sheet. A manual bookkeeping system uses the following:

• A daily journal, commonly called a day sheet, to record all transactions that occurred on that day.

• An accounts receivable ledger for each patient, to keep a record of transactions related to that patient.

• A cumulative record of financial activity for the month, both for the practice as a whole and for each individual physician; this information is recorded on the day sheet, and cumulative totals are carried forward throughout the month.

In a computerized billing system, the same types of records are maintained. When procedures are performed, charges for individual patients are entered into the medical computer billing program and automatically posted to the patient’s account and the daily record of charges. In a similar way, payments made by the patient (or an insurance company) are posted to both the patient account and the daily record of charges. The computer program can access data to generate patient bills, insurance claims, and a variety of reports, including monthly statements, activity of individual physicians, and number of specific procedures billed.

Highlight on Bookkeeping Systems

The two most common systems for keeping records of accounts in the medical office are single-entry and double-entry systems. Historically, financial transactions were recorded in a book called a ledger with separate pages for individual accounts. In medical offices, separate cards began to be used for individual accounts (instead of pages of a book). These cards came to be called ledger cards, and in medical computer billing programs, a screen showing cumulative charges and payments for a single patient is called a patient ledger.

Single-entry bookkeeping system

The single-entry bookkeeping system is the simplest system. It requires at least three records:

1. A chronologic journal that keeps track of all charges and patient payments, such as a daily journal.

2. A journal that keeps track of payments made by the medical office, traditionally a checkbook but now usually an electronic check register.

3. A method to keep track of individual patient accounts; these used to be recorded on pages of a book, index cards, or ledger cards, but today they are usually accounts in a computerized billing program.

Although the single-entry system is simple, it lacks methods for cross-checking to prevent and/or detect errors.

Double-entry bookkeeping system

The double-entry system is the most complete type of bookkeeping system. However, it usually requires a trained bookkeeper or accountant in order to be used effectively.

Every transaction is posted into two different records, as a credit in one and a debit in the other. A credit is a posting that is subtracted from the balance, and a debit is a posting that is added. Records of assets—money and property owned by the business and money owed to the business—are balanced against records of liabilities—money owed to others by the business.

A charge for service to a patient, for example, is a credit (added to the balance) in the records of assets because it increases the total assets; but it is a debit (subtracted from the balance) in the records of liabilities because it decreases the amount owed by the business.

The accounting principle

A common formulation of the accounting principle is as follows:

Assets=Liabilities+Owner’s equity

where assets are property owned by the business, liabilities are debts, and owner’s equity is the amount by which the owner’s assets exceed liabilities.

When a double-entry bookkeeping system is used by a medical practice, the medical assistant is usually responsible only for keeping the daily journal and/or entering charges in the computer. The actual records of assets and liabilities are kept by an accountant.

Putting It All into Practice

My name is Maria Hernandez, and I am a registered medical assistant. I work at the office of three physicians who specialize in internal medicine. One of my duties is to manage patient accounts. The charges and payments from our charge slips are entered either by myself or one of the other medical assistants, but I enter almost all of the payments we receive in the mail including checks from patients, as well as insurance payments. I am also responsible for paying the bills for the practice. We use two different computer programs, one for patient billing and another to manage our accounts payable and pay bills. We also use online banking, and we have set up automatic bill payment for those bills that occur every month including our mortgage, condominium fee, electricity, telephone, and answering service bills. We usually pay our other bills by check. The computer accounting program tracks all payments and prints checks. All of the physicians are authorized to sign checks under $500.00. If we purchase an item that costs more than $500.00, the check must be signed by any two physicians. When I was in school, I didn’t appreciate what a big job it is to manage financial accounts. I really enjoy this part of my job now, and I have come to understand that it always saves time to work carefully and avoid mistakes.

Procedure 44-1 Completing a Patient Charge Slip

Outcome

Complete an itemized charge slip for a patient using a fee schedule.

Equipment/Supplies

• Blank charge slip

• Patient information form or computer data

• Daily patient schedule

• Calculator

• Fee schedule

1. Procedural Step. Before the patient is seen by the physician, complete the top part of an itemized charge slip with the information requested including the patient’s name, date of birth, insurance, insurance group, and subscriber numbers and the name of the subscriber (insured person). This may be done manually from information on a ledger card or computer account, by attaching a label printed by the computer, or by printing charge slips using the computer billing program.

Principle. Complete information about the patient and his or her insurance facilitates the billing process.

Example:

2. Procedural Step. Before the patient is seen by the physician, enter the patient’s previous balance on the bottom of the charge slip.

Principle. The patient’s account balance includes the previous balance plus new charges minus any payment made at the time of the visit.

Example:

3. Procedural Step. Using the fee schedule, fill in the charges on the charge slip by writing the fee for each service provided beside the line containing the correct code and procedure name (if the physician has not already done so).

Example:

4. Procedural Step. Complete the remainder of the charge slip by entering the total charges and payment made, and then calculate the new balance. The new balance is the sum of the total charges and previous balance minus any payment.

5. Procedural Step. Complete other information requested on the charge slip, such as the place of service and check number and/or method of payment.

Principle. The information on the charge slip must be complete and accurate because it will be used to post the charges and payment to the day sheet and patient ledger.

Example:

What Would You Do? What Would You Not Do?

Case Study 1

In the afternoon, Maria is entering charges and payments into the patient computer accounts. She is using itemized charge slips (superbills) to do this. In Maria’s office the superbills are numbered consecutively, and Maria notices that there are two gaps in the numbers of the superbills. The office records all transactions using a manual day sheet, and Maria verifies that one of the physicians saw two patients for whom she does not have charge slips.

Patient Account Ledger

Each patient has his or her own account. It is important to verify that all information about the account is current when the patient arrives at the office, because address information and insurance information can change between visits. A cumulative record of charges and payments is kept, usually using a computer program. It is also possible to keep account records manually. This record of charges and payments is called the patient account ledger. In a computer billing program, the patient account ledger is linked to the patient demographic and insurance information so that periodic bills and insurance claims can be generated. Information about services provided to an individual patient and payments received for that patient show up in chronologic order on the patient ledger (Figure 44-3).

After the charge slip has been completed, the charges are posted to the patient ledger (Procedure 44-2).

Procedure 44-2 Posting Charges

Outcome

Using the information from the completed charge slip, post patient charges to a patient account.

Equipment/Supplies

• Patient charge slip

• Patient ledger

• Fee schedule

• Pen or computer

1. Procedural Step. If using a manual system, post the charges from a completed patient charge slip on the patient ledger using one line for one day’s services. Place the total charges for the services in the column labeled “charges.” If using a computer program, post the first charge on the first line of the transaction entry screen. For most computer programs, entering the procedure code will prompt the computer to automatically generate the correct charge for the patient’s insurance.

2. Procedural Step. If using a computer system, post each additional charge on a new line.

3. Procedural Step. If using a manual system, enter the total charge in the balance column. If using a computer system, save your work after all charges have been posted.

Example:

Posting Payments to the Patient Account

Payment for services performed can be received in four ways:

1. The patient pays at the time of service, in full, or in part (e.g., a copayment for managed care insurance). The office will accept cash and checks, and most offices also accept credit and debit cards.

2. The patient may make a payment through the mail in response to a bill.

3. The patient may make an online payment using a credit or debit card through the medical practice website.

4. An insurance company may make a payment either by mail or, increasingly, by electronic transfer.

All payments must be posted to the account of the patient for whom they are made. Most computer programs have different codes for each method of payment. Cash and checks must match daily bank deposits. Payments using credit cards, online banking, or electronic transfer must later be matched to bank statements or online banking records.

Posting Adjustments to the Patient Account

A change to the patient account that is neither a charge for services nor a payment is called an adjustment. Credit (negative) adjustments are subtracted from the patient balance. Examples of credit adjustments include discounts for payment at the time of service, professional courtesy, and discounts given to insurance companies (also called insurance write-offs). Credit adjustments are usually discounts that are given in specific circumstances. (See Box 44-1 for common terminology used in accounting.)

BOX 44-1

Common Terminology Used in Accounting

Account balance: The amount remaining in the account after all entries have been totaled.

Accounts receivable control: A summary of all unpaid accounts.

Adjustment: An entry to change an account balance that is not a charge for services or a payment, often a discount.

Credit: An entry that reduces an account balance, usually a payment.

Credit balance: The balance on an account when payments exceed charges.

Day sheet: The record of daily financial transactions (daily journal in a pegboard accounting system).

Debit: An entry that increases an account balance, usually a charge.

Disbursements: Money paid out.

Invoice: A bill or written statement describing a purchase or service and the amount due.

Journal: The original record of financial transactions that identifies the accounts to which they belong.

Ledger: A card, book, or computer database in which financial transactions are recorded.

Payables: Amounts owed to others.

Posting: Recording financial transactions or transferring information from one record to another.

Proof: Validation of calculations.

Receivables: Amounts of money owed by others.

ROA (received on account): Designation used for payments that reduce the amount owed but are not payment in full.

Trial balance: A method of checking the accuracy of calculations of accounts.

From Hunt SA: Saunders fundamentals of medical assisting, St Louis, 2007, Saunders.

Debit (positive) adjustments are added to the patient balance. Debit adjustments will be discussed in more detail in Chapter 47. When using a computer billing program, the medical assistant selects a code for each charge, payment, or adjustment. The correct mathematical operation is linked to the transaction code so that the computer automatically adds charges and debit adjustments (such as a returned check) to the patient balance and subtracts payments and credit adjustments (such as an insurance write-off). (Procedure 44-3).

Procedure 44-3 Posting Payments and/or Adjustments

Outcome

Post payments and/or adjustments to a patient account.

Equipment/Supplies