Clinic Accounting: Separating Physician Fees from Facility Revenue

This is written for managers and accountants of specialist clinics, day-surgery centres, imaging units and laboratories. It focuses on the question whose wrong answer is the most expensive mistake in the sector: of the money a patient pays, exactly how much is the centre's revenue. In the healthcare files I have handled, mis-recording this single item has meant paying tax on the physician's share as well as the clinic's.

The revenue structure of a treatment centre

Pooling all of these into one revenue account hides segment profitability and makes it impossible to separate exempt from taxable supplies on audit.

Physician share: gross or net recording

This is the central accounting decision in a clinic, and the answer lies in the substance of the relationship, not the accountant's preference. The standards are clear that amounts collected on behalf of others are not the entity's revenue.

• Principal, gross recording. The centre is responsible for the service, sets the tariff and bears collection risk. The full amount is revenue and the physician's fee is an operating cost.
• Agent, net recording. An independent physician uses the centre's space and equipment; the centre collects and remits after retaining its share. Only the centre's share is revenue and the physician's portion is a liability from the moment of collection.

The choice directly affects reported turnover, presumptive coefficients and even the taxpayer group. What I most often see is gross recording combined with an inability to evidence the physician cost — which means tax on income the centre never kept. Whichever route you take, the physician's contract must say the same thing the ledger says.

Tax duties specific to treatment centres

1. Withholding on physician fees. Budget laws have for years required centres to withhold a percentage of physicians' fees and remit it within a set deadline. Confirm the current rate; the liability for failure sits with the centre.
2. Card terminals linked to the correct tax file. Every terminal must be registered to the file of the person actually earning that income. A terminal in the centre's name collecting a physician's fees, without a supporting contract, is treated as the centre's income. This is expanded in the professionals and physicians tax article.
3. E-invoicing and quarterly reports. Revenue exempt from VAT is not exempt from recording and reporting duties. Portal mechanics are in the taxpayer system guide.

VAT in healthcare

Treatment, diagnostic and preventive services are exempt. But exemption is not zero-rating: because your output is exempt, input tax cannot be credited and VAT paid on medical equipment, consumables and support services becomes part of your cost. That matters most when budgeting a major equipment purchase. Any service outside the medical scope, or goods sold on site, should be recorded separately from the start.

Insurance receivables and deductions

Insurer receivables are the largest current asset of most centres and the largest source of accounting optimism. A workable routine:

1. File each insurer's claims separately with the submission reference.
2. In the month of submission, book a deduction provision based on the average rate of the last three periods.
3. Classify finalised deductions by cause: incomplete documents, tariff, coverage, coding error.
4. Feed a monthly cause analysis back to admissions and medical records.
5. Track collection days separately per insurer and use them in the cash forecast.
6. Flag anything over a year old for review and, if needed, legal follow-up.

Most deductions are administrative in origin, not clinical, which means process changes actually reduce them. General principles are in managing receivables.

Costing a medical service

To price self-pay services and judge whether an insurer contract is worth signing, you need the cost of each service. The components are clinical and administrative payroll, consumables, equipment depreciation, space cost and support overhead. For theatres and imaging the sensible allocation base is occupied machine or room time; for outpatient services it is visit count.

Take depreciation of expensive medical equipment seriously — ignoring it makes a loss-making service look profitable, and it is the item most often left out of a service costing.

Monthly indicators

• Revenue per physician, per room and per device
• Deduction rate by insurer and by cause
• Average collection days for insurance receivables
• Theatre utilisation and idle capacity
• Share of cash revenue in total revenue, the key liquidity measure

Key takeaways

• Separating the physician's share from facility revenue is the defining accounting decision in a clinic.
• The substance in the physician's contract must match the recording method.
• Withholding on-account tax on physician fees is the centre's duty and its exposure.
• VAT exemption costs you input credit; it is not a saving.
• Provide for insurer deductions when claims are submitted, not when they are finalised.