Why are charges not reported as revenue for health care organizations?
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Charges are not reported as revenue for healthcare organizations because charges do not directly represent the amount of money received by the organization. In the healthcare industry, charges refer to the published prices set by the organization for various medical services or procedures.
The actual amount received by healthcare organizations is often significantly different from the charges due to various factors such as negotiated discounts with insurance companies, government reimbursement rates, contractual agreements with patients, and other adjustments. Therefore, reporting charges as revenue would not accurately reflect the organization's financial performance.
Instead of charges, healthcare organizations report revenue based on the actual payments received or expected to be received for the services provided. This is often referred to as net patient service revenue or net revenue.
To determine the exact revenue generated, healthcare organizations follow a process of recording and monitoring patient services and payments. They typically use a combination of financial systems, billing systems, and reimbursement contracts to track and report their revenue accurately. This process entails capturing information about the services provided, the insurance policies of the patients, and any contractual agreements with third-party payers.
By recording revenue based on the actual payments received or expected, healthcare organizations can provide a more accurate representation of their financial performance and allow for better financial planning and analysis.