Gross Revenue and Billed Charges

Hospitals and other healthcare providers are different from other businesses in the way they show the people who use their services (patients) a lot of individual detail.

Each service that a hospital does is billed separately, at a fixed amount. So, a patient might come in for a series of tests. The tests are all itemized separately and the bill shows the charges associated with each test. For example, a visit to the emergency room might result in a bill like:

Emergency room charge $400
Lab test $100
Chest X-Ray $200

The patient will then receive a total bill of $700 in billed charges, which the hospital recognizes as gross revenue.

Cash or Accrual Accounting

Accounting for healthcare practices are not uniform. Many small physician practices use cash basis accounting. Solo practitioners or small groups may simply keep a check register and book cash when received or paid out, the same way individuals do.

Larger physician practices may choose accrual based accounting, where revenues are recognized when they are generated (even if the cash comes in later) and expenses are booked when incurred, even if the checks are written later.

Hospitals (and other large entities with investors, like a surgery center) are most likely to use accrual accounting. If the entities have outside shareholders, or issue bonds, they are required to use accrual accounting.

Generally, the larger the organization, the more like accrual accounting will be used. Even individual practitioners should be aware of non-cash issues like accounts receivable. Even if they don't recognize the revenue until it is paid, they need to know how much money they can expect to come in.