Accounting Services For Hospitals/Clinic

What are the most important facts to know about healthcare accounting? 

Hospital accounting is a system of accounting which records, communicates and interprets historical  and projected economic data which are useful for the purpose of determining the financial position  and operating results of a hospital. 

• Accrual accounting: In hospital accounting, accrual accounting is comparison between  income earned from patients when they have received services and cost incurred for these  services 
• Cash accounting: In cash accounting, receiving and payment of cash is more important. It is a concept where the revenue and expenses are recognised. 
• Reimbursement: Federal, state or local regulatory agencies play a role in the hospitals.  Reimbursement rates are based on federal or state averages. The standard hospital rates are  not cost based. 
• Property, Plant and Equipment: Assets are recorded at historical cost or fair value.  Depreciations are recorded at all assets. Capitalisation policy, method of valuing assets and  depreciation methods must be disclosed in notes to financial statements. 
• Deprecation: Due to advances in technology, the high cost of repairs etc. the productivity of  fixed assets may decrease. In order to recognise such expenses, these costs are allocated to  its useful life. A separate accounting entry recognises the purchase of the asset which may  create liability also. 

Accounting Reports

Accounting reports are prepared on the regular basis to provide information on hospital activities.  Regular reporting is vital for conducting meaningful analysis in healthcare accounting. 

1. Statement of Operations and Changes in Net Assets as the Statement of Profit and Loss
2. Balance sheet 
3. Statement of cash flow 

Major revenue for a Hospital or Clinics: 

• Revenue earned from Patient Visits 
• Insurance claims 
• Doctor or Nursing Services for a specific fee

Few of the major costs are listed below: 

• Purchase of medical equipment and other supplies 
• Administrative expenses 
• Purchases of services 
• Software expenses 
• Lease expenses 

Gains are listed below: 

• Sale of investments in securities 
• Sale of capital assets 
• Gifts or donations 
• Investment income 

Main accounting transactions in hospitals 

• Debit Receivables 
  • Credit Patient/Insurance claims 
• Debit Bank
  • Credit Receivables
• Debit Provision for Uncollected funds 
  • Credit Receivables 

Maintain internal records: 

• Chart of Accounts 
• Revenue and Accounts Receivables – 
• Reconciliation monthly of the receivables 

Procedures to be Followed in Hospital Audit 

• Obtain a list of books, documents, register and other records as maintained by the hospitals
• Examine the audit report of last year 
• Note down the important clause of Trust Deed or Charter, which may affect the audit and  accounts of hospitals. 
• Obtain the rate structure for fees, medicine and other services, power to do concession or  waiver of fees. There should be an adequate system for charges and waiver. 
• Calculate and examine the input-output ratios. 
• Examine the Minutes of Meetings of the Board of Directors  
• Examine the internal control system regarding purchase of fixed assets, medicines, stores,  consumables, clothing and provisions, etc. 
• Examine the internal control system for recording of purchases, issue and storage of all  items and physical verification of them 

Audit of Expenses of Hospitals 

• Vouching of expenses.
• Clear distinction should be made between capital and revenue expenditure.
• Salary expenses should be vouched as per general auditing principles. 

Audit of Income of Hospitals 

• Checking the bill book, bill register and copy of bills. 
• It should be verified that bills are prepared properly according to visit charges of doctors,  medicine, stay charges, room rent, etc. 
• Bills should be verified with the fees structure. 
• Discounts given for the fees and other charges should be verified. 
• Bills should be verified with cash receipt book, counterfoil of receipts and cash book.
• Verification of arrears of bills should be done. 
• Difference between revenue and capital donation should be checked and verified. In case  donation is for some specific purpose, the Auditor should assure that the money is used for  the same purpose only. 
• Unrecoverable debts and arrears should be written off with the approval and consent of  proper authority. 
• Rental income should be properly verified. Properly vouch property register, arrear of rent,  advance rent and provisions for the same. 
• Interest and dividend income should be verified with an investment register, cash book and  share warrants, etc. 
• Documents and correspondence relating to donations and grants should be verified. 

Audit of Assets and Liabilities of Hospitals

• Title documents and other records relating to hospital building, ambulance and other  premises should be carefully examined by the Auditor as per hospital auditing . 
• Resolution of the Managing committee should be confirmed for sale and purchase of fixed  assets. 
• Depreciation should be expensed on the basis of the policies of the Managing Committee.
• Stock and stores of medicines should be physically verified at the every end of the year. 

How CDA Can Help You? 

Tailored solutions and stronger relationships will help healthcare systems to overcome any  complexities. Nowadays the health sector is facing unexpected challenges like COVID 19. In order to  cope up with the pressure exerted by the pandemic, the healthcare sector has to build up a well planned  approach. CDA, one of the leading hospital accounting and auditing firms in UAE who has identified  these stressful momentum. Our expertise is capable of implementing the initiatives and services  that improve the revenue of your hospital. Moreover we are fully qualified to manage a full range of  accounting and auditing services.