What is the Importance of Accounting for Healthcare?

While direct patient care is a critical part of the healthcare process, individuals in behind-the-scenes positions play a key role too. Some of these back-office positions fall under the umbrella of healthcare accounting, which involves helping organizations collect, track, and store their financial data.

What makes accounting in healthcare important? It can impact an organization’s day-to-day and long-term operations, also helping them stay compliant with regulations, indirectly affecting the patient experience, and more. We’ll look more in-depth at each of these areas, helping you to understand that if you pursue a career in healthcare accounting, you will be serving a critical purpose.

Note: UMA’s Healthcare Accounting Associate of Science degree program does not prepare students to become certified public accountants or to take the Certified Public Accountant exam, but to work in the field as a healthcare accounting clerk or bookkeeper. This information is aimed at providing information necessary to make an informed decision regarding a future in healthcare accounting.

Healthcare Accounting Impacts on Daily Operations

Healthcare organizations are still businesses, and budgeting is a crucial element of business success.¹ Keeping track of financial data can support the daily operations of these organizations in several ways, some of which include:

Supply management.

If you don’t have the physical items needed to tend to patients (like gauze to cover a gaping wound), your healthcare facility can struggle to provide even the most basic level of care. A healthcare accounting professional can provide the data needed for department leaders to budget for the supplies they need.

Adequate staffing.

Labor expenses can eat up a large part of a healthcare organization’s budget, accounting for 84% of medical groups’ total expenses in 2024.² Having enough money for payroll is critical to securing and maintaining the staff needed to provide quality patient care.

Equipment purchases and maintenance.

Not knowing where an organization stands financially can impact an its ability to buy and maintain state-of-the-art medical equipment. Offering modern technological advances provides patients with access to the latest diagnostic and/or treatment options. It can also give healthcare organizations a competitive advantage over facilities with equipment that is outdated or malfunctions.

Long-Term Importance of Accounting in Healthcare

Another reason accounting in healthcare is important is that it impacts the life of the business. More specifically, if a healthcare organization or agency doesn’t adequately monitor its finances and budget for specific expenses, it may not be in business for long. One process used for this purpose is called revenue cycle management.

What is revenue cycle management?

The Healthcare Financial Management Association (HFMA) explains that revenue cycle management, or RCM for short, is “the process used by healthcare systems to track revenue from patients, from their initial appointment or encounter with the healthcare system to their final payment of balance.”³ The HFMA adds that these transactions include everything from verification of patient benefits to claim submission and reimbursement.

Revenue cycle management involves developing processes for invoicing and billing, accounts receivable, and the recording of expense-related payments. This is where healthcare accounting professionals come into play. They’re often tasked with helping the healthcare facility track and manage its incoming and outgoing transactions, ensuring that it has the revenues needed to last for the long term.

How healthcare accounting professionals help optimize RCM for greater financial health

Improving an organization’s revenue cycle efficiency offers two benefits: lowering operating costs and maximizing reimbursements.⁴ A healthcare accounting professional can help with both by providing data needed to identify and reduce operating costs and supporting an effective payment collection process.

Paying attention to patient billings helps organizations monitor whether accounts are being paid in full and within a reasonable amount of time. Some of the questions healthcare accounting professionals may ask could include:

• How many patients currently have outstanding balances?
• What is the average balance amount due per patient?
• What is the total amount due in outstanding patient balances?
• How are we notifying patients of the monies they owe?
• How long does it typically take a patient to pay after notice is sent?
• What methods of payment are used most? Is there a cost to use them? If so, what is it?

All these questions can help the healthcare accounting professional better determine whether the organization has an effective payment collection process. If not, this process may need to be revised so the organization continues to bring in enough revenue to support it over time.

Accounting in the Healthcare Industry Promotes Compliance

Individuals proficient in healthcare accounting can also help their organization maintain compliance with requirements set by regulatory agencies. In addition to learning and being able to adhere to these requirements, it may also be the responsibility of entry-level healthcare accounting professionals to assist in the completion of required financial forms.

Recognizing and abiding by set regulations helps organizations avoid non-compliance penalties. For instance, the IRS can charge an information return penalty if payee statements like employee W-2 forms aren’t filed accurately or on time. For forms due in 2025, the IRS charges $60 for each one that is incorrect or late.⁵ Additionally, if a payee statement is intentionally disregarded, the charge increases to $660 per form.

Once you understand these types of compliance requirements, it becomes easy to see why accounting plays such a critical role for healthcare facilities.

Good Bookkeeping and Accounting Practices Mean Fewer Errors

On a personal level, poor accounting practices can lead to unpaid bills, overdraft charges, or a call to your creditors to explain what happened. For a business, the impact can be more expansive.

Not establishing effective bookkeeping and accounting practices can lead to errors on important financial documents. These errors can cause administrators to make wrong decisions about the organization’s future. Organization leaders may also have to answer to shareholders for these errors, which can quickly take the situation from bad to worse.

Hiring an entry-level healthcare accounting professional to keep accurate books and maintain sound accounting practices may decrease the likelihood that the organization will face these types of situations.

Healthcare Accounting’s Role in Patient Satisfaction

Another reason healthcare accounting is important is that it can affect the patient experience. If an organization has an ineffective process for submitting health insurance claims, for instance, it may fall back on patients to resolve issues related to their covered benefits, co-pays, or deductibles. This can leave them feeling frustrated, reducing their satisfaction with the facility.

Conversely, if the patient has a positive experience, they may be inclined to continue to choose that specific healthcare facility or provider. They may even refer family and friends, helping the healthcare facility grow.

Ready to Pursue Healthcare Accounting Training?

If you’re interested in providing accounting services within the healthcare field, Ultimate Medical Academy (UMA) offers a Healthcare Accounting Associate of Science degree program that can help get you started in your pursuit. It can be completed in 18 months or more⁶ and covers important topic areas like accounting principles, cost and payroll accounting, reimbursement cycle optimization, and healthcare business operations.

Contact UMA to learn more or to enroll. Our knowledgeable and helpful staff is here to answer any questions you may have, as well as assist you with selecting the right healthcare career training program for you.

FAQs

What is healthcare accounting?

It encompasses the collection, storage, and tracking of financial information for healthcare organizations and facilities. This can include monitoring and recording expenses (utilities, supplies, etc.), as well as keeping track of patient and insurance billing information.

Is healthcare accounting hard?

People differ in what they find easy or hard. If you struggle in your healthcare accounting courses at UMA, our student services teams are here to support you. We can help with discussions, assignments, course content, and more.

What is the role of finance in healthcare?

It is to help organizations understand their financial health at all times based on the monies coming in versus going out. Healthcare accounting professionals can also provide the information leaders need to make informed decisions about the organization’s future given their current status.