Bookkeeping for Medical Practices: Medicare, Billing & Compliance

Medical Practice Finances: Where Healthcare Meets Business

Running a medical practice means balancing clinical care with business management. The financial side involves Medicare billing, patient payments, practice overhead, staff management, and regulatory compliance. Whether you are a GP, specialist, or allied health professional, understanding your practice's finances is essential for sustainability and growth.

Revenue: Medicare and Patient Payments

Medical practice revenue comes primarily from two sources:

Medicare Billing

Medicare is the backbone of medical practice revenue in Australia. Understanding how it works is essential for your bookkeeping:

Bulk billing - The practice bills Medicare directly for the full scheduled fee. The patient pays nothing. Revenue equals the Medicare benefit amount.

Mixed billing - The patient pays a fee above the Medicare rebate. Medicare pays the rebate, and the patient pays the gap. You need to track both components.

Private billing - The patient pays the full fee upfront. They claim the Medicare rebate themselves. Your revenue is the full fee charged.

Tracking Medicare Revenue

Set up separate revenue accounts for:

• Medicare bulk billing revenue
• Medicare rebates (for mixed billing)
• Patient gap payments
• Private billing (non-Medicare services)
• WorkCover and TAC claims
• DVA (Department of Veterans' Affairs) payments

This breakdown shows you exactly where your revenue comes from and helps you model the impact of changing your billing practices.

Medicare Reconciliation

Medicare payments arrive in your bank account as aggregated deposits. You need to match these deposits to individual patient claims. Your practice management software should produce reconciliation reports that break down each Medicare deposit by patient and service.

Reconcile Medicare payments weekly. Common discrepancies include:

• Rejected claims (incorrect item numbers, patient eligibility issues)
• Adjusted amounts (where Medicare pays less than expected)
• Timing differences (claims submitted but not yet paid)

Practice Structure and Its Impact on Bookkeeping

Medical practices operate under various structures, and the structure affects bookkeeping:

Solo Practice

You own the practice, earn the revenue, and bear all costs. Bookkeeping is relatively straightforward - all income and expenses are yours.

Service Entity Model

A company (the service entity) owns the practice infrastructure (lease, equipment, staff) and contracts with individual doctors. The doctors earn the patient revenue and pay a service fee to the company. This requires careful bookkeeping to track:

• Service fee revenue in the company's books
• Practice expenses in the company's books
• Professional income in each doctor's books

Partnership

Two or more doctors share ownership, revenue, and expenses. Partnership bookkeeping requires tracking each partner's share of income and drawings.

Associateship

A practice principal engages associate doctors who use the practice facilities. The associate earns their own professional income and pays the principal a percentage or fixed fee. Track principal and associate revenue separately.

Practice Expenses

Medical practice expenses typically include:

Staff wages - Practice nurses, receptionists, practice managers, cleaners. Usually the second-largest expense after practitioner remuneration.

Rent - Medical premises, often in purpose-built or adapted facilities.

Medical supplies and consumables - Syringes, dressings, pathology supplies, vaccines, medications.

Equipment - Examination beds, diagnostic equipment, ECG machines, spirometers, minor surgery instruments.

Technology - Practice management software (Best Practice, Medical Director, Bp Premier), computers, printers, internet.

Insurance - Medical indemnity (for each practitioner), public liability, workers compensation, building and contents.

Accreditation costs - RACGP accreditation fees, quality improvement activities.

Professional development - CPD courses, conferences, journal subscriptions.

Equipment and Depreciation

Medical equipment should be recorded as assets and depreciated:

• Diagnostic equipment - ECG machines, spirometers, otoscopes - effective life 5-10 years
• Treatment equipment - Examination beds, minor surgery equipment - effective life 10 years
• IT equipment - Computers, servers, medical software - effective life 4 years
• Furniture - Waiting room and consulting room furniture - effective life 10-15 years

Check the instant asset write-off threshold for immediate deductions on eligible purchases.

GST for Medical Practices

This is where medical practice GST gets interesting:

GST-free services - Most medical services provided by a registered medical practitioner are GST-free. This includes consultations, procedures, and diagnostic services that are covered by Medicare or are of a kind that would be covered.

Taxable services - Cosmetic procedures that are not clinically necessary, medical reports for non-health purposes (like insurance or legal reports), and some allied health services may be subject to GST.

Input tax credits - Even though your services may be GST-free, you can still claim input tax credits on your business purchases. Register for GST if your turnover exceeds $75,000 (or even voluntarily below this threshold) to claim back GST on expenses.

Mixed supplies - If you provide both GST-free and taxable services, you need to apportion your input tax credits. This is a common area of complexity.

Payroll Considerations

Medical practices have specific payroll complexities:

Practice nurses - Covered by the Nurses Award or a modern enterprise agreement. Pay rates depend on qualifications and experience.

Reception staff - Covered by the Health Professionals and Support Services Award.

Practice managers - Often on individual contracts with negotiated terms.

Registrars and trainees - If your practice is a training practice, registrar salaries may be partially funded by the relevant GP training organisation.

Superannuation - 11.5% for all eligible employees, due quarterly.

Key Financial Metrics

Monitor these regularly:

• Revenue per consultation - Are your fees covering your costs?
• Overhead ratio - Practice costs as a percentage of gross billings
• Medicare rejection rate - What percentage of claims are rejected?
• Debtor days - How long are patients taking to pay gap fees?
• Revenue per doctor per day - Measures practice productivity

Bookkeeping Setup for Medical Practices

1. Practice management software integrated with your accounting platform
2. Separate revenue tracking for Medicare, gap fees, private, WorkCover, and DVA
3. Weekly Medicare reconciliation
4. Equipment asset register with depreciation schedules
5. Payroll with correct award rates and STP reporting
6. GST reporting with correct treatment of GST-free and taxable supplies
7. Monthly financial review with your practice accountant
8. Automate office expenses with SortBooks for accurate categorisation

A financially healthy practice is one that can invest in better patient care, attract quality staff, and sustain itself for the long term. Keep your books as thorough as your clinical notes and your practice will thrive.