Accounting Principles

Accounting Principles


In order to understand transactions and how they are entered, it is important to first understand the way Aeris does its accounting. Taking the time to understand these principles will make everything else much clearer and easier to understand later.


Early in the development of Aeris Basic, we took a hard look at real world issues faced by health care providers. Among the more complex problems concern how charges and payments are handled, in other words accounting. At the time of entering a service charge, an office often doesn't know how much of the total charge will be paid by insurance, how much will be the patient's responsibility, and how much must be written off.


The issues are complex and dealing with them confusing so we decided to go back to basic principles and work from there. We started with some basic accounting principles.


Businesses that bill customers (who will be called patients from now on) use one of two accounting methods known as   balance-forward and open-item accounting. In balance-forward accounting each patient's account is a single pool of money. When services are added, the balance owed increases and when payments are received, the balance is reduced. It's a very simple system both to understand and to build into software programs. Unfortunately, it suffers from a serious shortcoming when it comes to insurance. Insurance payments are tied to particular services and need to be linked to those services but the balance-forward system has no way for that to happen.


To address the needs of payments being linked to specific services, the open-item accounting method is used. In this system, each item or service has its own balance. Payments and adjustments are applied to the service until this open item (the service with an outstanding balance) is paid or adjusted to a zero balance. Services with a zero balance are, by definition, closed. Wonderful, this solves all our problems… or does it?


With the exception of copayments, patients don't usually pay toward a specific service; they pay toward what is owed overall on their account. But this sounds like the evil balance-forward system that we gave up in order to handle insurance payments.


It turns out that we don't have to have only one method or the other, we could have both. Aeris Basic uses balance-forward accounting for charges to and payments from patients. It uses open-item accounting for insurance charges and payments. Maybe we really can have our cake and eat it too.


By combining the two accounting methods, Aeris Basic makes things much easier for you. The complexities of juggling these two accounting systems is mostly hidden behind a simple interface.


Unfortunately, the real world is not so simple. Neither you nor Aeris program can accurately predict the future and you cannot always know ahead of time what patient's responsibility on service will ultimately be. In some cases, the copayment is all you can ever charge the patient for a service. Sometimes, the patient is charged whatever insurance doesn't pay and sometimes, it's somewhere in between with the difference entered as an insurance write-off. There are surely other cases you can think of.


Aeris Basic was designed to be very easy to use and to handle almost all situations. Prognostication, however, is not one of its features.


Part of the problem is that seldom does an insurance carrier “owe” you any money. For the most part, their contractual agreement is with the insurance subscriber. If you are a preferred provider with a carrier, you probably know that the agreement you have with them is heavily weighted in the carrier's favor and the only thing they do for you is put your name on their list of providers from which patients are encouraged or required to select. Under most circumstances, they don't guarantee to pay you anything and when they do pay, their agreement limits what you can get.