Medical Office Expense Costing and Modeling
[Differentiating Managerial from Financial Accounting]
By Gary L. Bode
By David Edward Marcinko
The two most beautiful words in the English language are ”check enclosed” – Dorothy Parker
Cost accounting differs from traditional financial accounting which is concerned with providing static historical information to creditors, shareholders and those outside the private medical practice.
Traditionally, cost accounting helps determine the selling price of a product in a manufacturing environment. But it can be applied to services too. Different focuses exist with the field of cost accounting. Budgets are a typical function with subsequent analysis of any variances.
Since, generally, prices for medical services are forced on practitioners by third party payers, we will concentrates on its’ use for evaluating decisions on accepting managed care contracts and assignment on traditional health care policies. It also concentrates on information used to set long and short term practice management policies to increase profitability by decreasing costs, increasing revenues or decreasing operating assets.
More than ever, cost accounting can mean the difference between a successful medical practice; or a mediocre one. It consists of six goals:
- Providing vital costing information for internal office use
- Developing pro-active strategic planning
- Accentuating the relevancy and flexibility of financial data and practice parameters
- Reviewing real-time service segments, rather than just total office operations
- Acquiring non-financial business data.
- Providing current, accurate and relevant tools for practice management
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