Review Tip

2. Review Tip You’ve worked hard and made it this far. Good work! An unknown author said, “You can be on the right track but you can still get hit if you just sit there.” So keep going!

3. Overview Chapters 13 and 14 described how physician fees are established and reimbursement is obtained through insurance companies using claims and coding. This chapter concentrates on the day-to-day financial practices in the medical office.

4. Accounts Accounts are records of financial transactions and the resulting balances during a fiscal period, usually January 1st through December 31st. The medical office primarily deals with two types of accounts: accounts receivable, which is the money owed to the practice (e.g., patient bills), and accounts payable, which is the money the practice owes (e.g., rent, utilities, medical supplies, payroll). The following accounting functions apply to both accounts receivable and accounts payable: ■ Accounting functions • Entries—recording of each transaction • Postings—transferring information from the journal (day sheet) to the accounts receivable ledger or to the individual patients’ ledgers • Adjustments—changes made to the amount of money owed for reasons other than additional services or payments, such as fee discounts or refunds

5. Accounts, cont’d. • Billings—records of charges sent to the patient in the form of statements to indicate balance due and to request payment; most practices bill on a monthly cycle • Balancing—ensuring accuracy in totals by comparing them with preestablished criteria (e.g., in accounts receivable, the total of balances from individual patient statements must equal the total of accounts receivable recorded in the journal) ■ Accounts receivable • Components - Day sheet—a daily record of the services rendered, charges made, and payments received; may be a manual or a computerized system - Journal—a chronologic collection of the day sheets with running totals for a specific period - Accounts receivable ledger—a listing by individual patient names of all monies owed to the practice

6. Accounts, cont’d. - Patient ledger—a patient statement or itemized statement that is an individual form of each patient’s accounts receivable activities; often used as the patient bill - Charge slip—a form given to the patient to indicate the charges for the service(s); may be a copy of the superbill or the patient ledger - Receipt—a numbered form given to the patient indicating the payments he or she made that day - Pegboard system—a system of layered forms that allows all transactions to be completed at one time; composed of day sheet, patient ledger, charge slips, receipts, and day sheet–sized board with pegs to hold forms in place

7. Accounts, cont’d. Figure 15-1. Pegboard system.

8. Accounts, cont’d. • Age of accounts receivable—the period between when the service is rendered and the bill is paid, usually in 30-day intervals; computerized financial programs will process statements calculating the amount of money that is owed on the account for 30, 60, 90, or 120 days since the date of service; also known as aging analysis •Monthly trial balance—a list and total of all the debit and credit accounts for the medical practice; usually a two-column chart with debt listed in one column and credit listed in the other column; a monthly trial balance ensures that debits equal credits • Collections—efforts to obtain money owed to a medical office

9. Accounts, cont’d. - Office efforts can include payment by cash, check, or charge at time of service; payment plans with or without interest; payment through billing, by billing all patients on the same day each month or by cycling patients for billing on different days of the month based on preestablished criteria, such as billing those whose names begin with certain letters on the same day; and telephone calls and letters for aging bills - Collection agency—an outside company, independent of the medical practice, that is contracted by the medical practice to attempt to obtain payment of delinquent bills after internal efforts have failed; a medical practice should not make further efforts to collect a bill after the account is turned over to the collection agency; collection agencies are usually paid 50% of the amount collected

10. Accounts, cont’d. - Small claims court—a less formal court setting that allows the parties to represent themselves in civil disputes involving small amounts; the amount is designated by the court and is generally less than $5,000 - Bankruptcy—if a patient declares bankruptcy, the medical office must attempt to collect unpaid bills through the court-appointed representative - Deaths—unpaid bills of deceased patients should be collected through the patient’s estate

11. Accounts, cont’d. ■ Accounts payable • Purchase order—a document sent to a vendor via mail, fax, or the Internet to purchase supplies and equipment for the medical office • Invoice—a bill sent from the vendor stating what was purchased and the charges • Materials—items received from the vendor should be verified with the invoice or packing list and purchase order • Bill—statements sent to the medical office requesting payment for materials or services • Payment—money remitted by the medical office for materials or services • Petty cash—a small sum of money (usually less than $200), kept separate from the cash drawer, used for incidental expenses (e.g., postage due)

12. Banking ■ Checks • Payee—the person to whom the check is written; the person receiving the money • Payer—the person or organization giving the money to the payee • Acceptable checks—cashier’s check, traveler’s check, certified check, personal check with proper identification, money order • Unacceptable checks—third-party checks (except from the patient’s insurance company), payroll checks, personal checks without identification if unfamiliar with the person and his or her financial history with the medical practice • Voided check—a check written by the practice but not used because of error or other reason; write VOID across the front and keep with canceled checks in the proper numeric sequence

13. Banking, cont’d. • Lost or stolen check—the bank should be notified immediately and a notation made in the checkbook • Endorsement—signing the back of a check as the payee for the amount represented on the front of the check - Blank endorsement—only the signature of the payee on the back of the check (can be easily cashed by anyone) - Restrictive endorsement—signature of the payee with instructions, such as “for deposit only” • Nonsufficient funds (NSF)—indicates that the checking account on which the check is written does not hold enough money to honor the amount of the check; medical offices usually add a charge to the balance to cover the associated bank charges

14. Banking, cont’d. ■ Deposits—checks and cash paid to the medical office and placed in a checking account at the bank; usually deposits are made daily • Deposit slip—a form completed with the deposit listing all checks and cash and the total amount deposited; contains account number and other identifying information • Check register (checkbook)—a book or computer program maintained by the office listing in chronologic order all checks written, deposits made, and an ongoing balance; used to reconcile bank statement ■ Bank statements—reports sent by the bank listing the monthly account activities, including checks written and cashed, deposits, bank charges, and balances

15. Banking, cont’d. ■ Reconciliation (balancing or trial balancing)—process of verifying that the information on the bank statement tallies with the information in the check register ■ Line of Credit—a financial agreement between a bank or financial institution and a borrower establishing the maximum amount of money the borrower can obtain through a loan; the total amount of the funds may be borrowed at one time or in increments as needed until the maximum amount has been reached

16. Banking, cont’d.

17. Common Taxes The federal and state governments require medical offices to pay specific taxes. The most common and “exam probable” taxes follow: ■ Federal income tax—a specified percentage of income withheld based on total amount earned • W-2 form—a federal tax form prepared for each office employee containing all income and deductions for the previous calendar year • W-4 form—a federal tax form for each employee that contains the number of tax exemptions he or she claims ■ Federal Insurance and Contribution Act (FICA)—a percentage of income withheld for Social Security and Medicare ■ Federal Unemployment Tax Act (FUTA)—a percentage of each employee’s income paid by employer for an unemployment fund

18. Income The amount of money a medical practice earns is the income (accounts receivable). The practice also incurs expenses such as wages, taxes, supplies, equipment, and utilities (accounts payable). Certain additional deductions (e.g., bad debts) are allowed in addition to expenses. These are deducted from the total income: ■ Gross income—total amount of earned income for the medical practice before deductions ■ Net income—amount of earned income for the medical practice after deductions

19. Income, cont’d.