Bookkeeping for medical and dental practices

Why practice income is hard to reconcile

A single consultation can generate several money movements: a patient gap paid at the desk by card, a health fund portion arriving days later, or a bulk billed amount paid by Medicare in a batch that bundles many patients together. Your practice management system records the clinical billing; your bank feed shows lump sum settlements that combine and net all of these flows. Reconciling one to the other is the core discipline of practice bookkeeping.

The standard approach uses clearing accounts: billing from the practice software posts into a clearing account, and the batched deposits from Medicare, health funds and card terminals clear against it. When the clearing account returns to zero, everything billed has been banked. When it doesn't, something's missing, an unbanked amount, a rejected claim, a keying error, and the balance points straight at it.

Practitioner arrangements shape the whole file

Many practices engage practitioners who aren't employees, operating instead under facility or service arrangements, with the practice collecting fees and remitting a share, or the practitioner billing patients directly and paying a service fee. The bookkeeping has to mirror the actual legal arrangement precisely, because money collected on behalf of a practitioner isn't practice income and should never be reported as if it were. Get this wrong and revenue, GST treatment and BAS reporting all distort at once.

These arrangements also carry payroll tax and contractor classification considerations that have drawn significant attention from state revenue offices in recent years. The bookkeeping can't settle those questions on its own, but clean records of how money actually flows are exactly what your accountant and advisers need when they do. Never had the arrangement documentation and the money flows compared side by side? Worth a conversation with your adviser.

GST needs more care than most practices expect

Many health services are GST-free, but a practice's income is rarely all health services. Cosmetic procedures, reports for insurers or lawyers, room rental to other practitioners and retail product sales can each carry different GST treatment. The chart of accounts should separate these income types so GST gets applied per stream rather than under one blanket assumption. The classification rules are situational, so confirm the treatment of specific services with the ATO or your adviser.

What a well run practice file looks like

• Daily or weekly reconciliation of practice software billing to banking through clearing accounts, so discrepancies surface within days.
• Income split by practitioner and by type, consultations, procedures, product sales, matching the real arrangements.
• Practitioner remittances calculated and paid on a documented, auditable basis.
• GST coding by income stream rather than one default setting.
• A monthly management report showing income per practitioner, per chair or room utilisation where relevant, and overheads against income.

As an illustration of the payoff

Consider an example two dentist practice where reconciliations had drifted for a quarter. Tidying the clearing accounts turned up an illustrative $9,400 of health fund claims that had been rejected and never resubmitted, sitting invisible in the gap between the two systems. Nothing clever was needed to find it, just the reconciliation discipline that makes gaps like that impossible to miss.

Specialist support for practice finances

NextEra manages bookkeeping for medical and dental practices with clearing account reconciliation, practitioner level reporting and GST coding by income stream built in from the start. Practice software and accounting file quietly stopped agreeing with each other? Our Strategic Finance Review will establish the true position, and a rhythm to maintain it.