In short. A therapy practice's books can show what each kind of client is really worth, but only when revenue is split by payer type and the P&L is read next to the EHR. An insurance session has the practice's full fee, the plan's allowed amount after the contractual adjustment, and what was actually collected from the plan and the client once denials and unpaid client balances are counted, and the three need to stay apart. Cash-basis books record only the last of those, so the fee, the adjustments, the denials, and what payers still owe are read from the EHR's payment and aging reports each month. Out-of-network clients who pay the full fee and file a superbill with their own plan are private-pay revenue to the practice. Revenue subaccounts by payer type work on any QuickBooks Online plan from Simple Start up, and the decision about which panels to keep stays with the owner.
Ask a therapist on two insurance panels what a session is worth, and the first number that comes to mind may be the fee on the intake paperwork. What the practice keeps from an insurance session can be well below that fee and arrive later, and a P&L with one revenue line cannot show by how much or how late. This article walks through how the books of a solo or small-group therapy practice answer that question payer by payer. It assumes the books are in QuickBooks Online and the clinical side runs in an EHR or practice management system that posts insurance remittances. For how bookkeepz, LLC works with mental health practices in general, start with bookkeeping and accounting for therapists and counselors.
The fee, the allowed amount, and what is collected
Every insurance claim carries more numbers than the deposit that eventually pays it. The practice bills its full fee. The plan sets an allowed amount, which HealthCare.gov defines as the maximum amount a plan will pay for a covered health care service, also called the negotiated rate. For an in-network practice, the difference between the fee and the allowed amount is the contractual adjustment, and for covered services it is not a balance the practice can bill to the client, because HealthCare.gov's definition of balance billing notes that a preferred provider may not balance bill for covered services. The allowed amount is then divided between the plan and the client. The client's share is whatever deductible, copayment, or coinsurance applies, and the plan pays the rest.
The electronic remittance advice, or ERA, is where those pieces are reported claim by claim. On the ERA each adjustment carries a two-letter group code that, in X12's words, generally assigns responsibility for the adjustment amount. X12's code list gives CO for a contractual obligation and PR for patient responsibility, among others. A reason code follows the group code. Reason code 45 means the charge exceeds the fee schedule or the contracted fee arrangement, so an adjustment coded CO with reason 45 is the contractual adjustment, assigned to the practice under its contract. Reason codes 1, 2, and 3 are the deductible, coinsurance, and copayment amounts, and paired with PR they are the client's share. Posting ERAs and working denials is billing work, done by the owner, an in-house biller, or a billing service, and the books use the result.
A denial is a different thing from a contractual adjustment. A contractual adjustment reduces the fee to the price the practice agreed to, while a denial means the plan did not pay a claim, or a line of it, for a reason the ERA states, such as missing information or a billing error (reason code 16) or an expired filing deadline (reason code 29). Some denials are corrected and resubmitted, and some end with the balance written off in the EHR. On cash-basis books the plan's share of a denied claim never appears in the P&L at all, because revenue is recorded only when money arrives, so the loss shows up only in the EHR's reports, and someone has to pull it out each month to see it.
Collected per session by payer, worked through
The figure that answers what a payer is worth is what the practice actually collected for the sessions delivered under that payer, from the plan and the client together, divided by the number of those sessions. It sits below the fee, and it can sit below the allowed amount too, once denials and client balances that never come in are counted. Here is one quarter at a hypothetical solo practice, using made-up round numbers chosen so the arithmetic is exact.
| Payer type | Sessions | Billed at full fee | Contractual adjustments | Denied, not recovered | Client balances still open | Collected | Collected per session |
|---|---|---|---|---|---|---|---|
| Private pay | 50 | $10,000 | $0 | $0 | $0 | $10,000 | $200 |
| Out of network, with superbill | 20 | $4,000 | $0 | $0 | $0 | $4,000 | $200 |
| Plan A, in network | 100 | $20,000 | $8,000 | $0 | $0 | $12,000 | $120 |
| Plan B, in network | 100 | $20,000 | $9,000 | $2,000 | $300 | $8,700 | $87 |
| Practice total | 270 | $54,000 | $17,000 | $2,000 | $300 | $34,700 | $128.52 |
Plan B's fee schedule says $100 a session, but the practice collected $87 for each session it delivered under Plan B that quarter, because ten sessions were denied and $300 of client cost sharing has not come in. If the $300 is collected next quarter, Plan B's figure for this quarter rises to $90, and the denials alone keep it below the allowed amount. Plan A collected its full allowed amount. The private-pay clients and the superbill clients both brought in the full $200, at the time of service. Across all 270 sessions the practice collected about $128.52 a session, which is the blended figure a single revenue line would give anyone who divided it by sessions, and it hides a $113 gap between the private-pay rate and Plan B.
On our Grow and Surge plans we build this view from the EHR's reports by date of service, so each payment is matched to the sessions it paid for, rather than by dividing a month's deposits by a month's sessions. Payments that arrive late are added back to the quarter they belong to, which is why the figure is worth recomputing once a quarter has had time to settle. Recoupments, where a payer takes back money it paid earlier by holding it out of a later payment, go against that payer's line too, so collected per session reflects what the payer finally paid.
The table leaves out the costs that attach to each side. Insurance carries costs that private pay does not, such as a billing service or clearinghouse and the credentialing work that keeps a clinician on a panel, while card processing fees attach to whatever is paid by card, copays included. When each of those has its own expense line, the owner can subtract them from the side they belong to. What the books cannot price is the owner's own time on authorizations, resubmissions, and calls with payers, which the owner has to weigh separately.
Days to payment by payer and the EHR's aging report
The other half of what a payer is worth is how long the money takes. Cash-basis books record revenue when the payment arrives, the same timing the IRS describes for the cash method in Publication 538, where income is generally reported in the tax year it is received. That also means insurance receivables are not in the ledger at all. What each plan and each client still owes lives in the EHR's aging report, which lists open balances by payer and by how long they have been outstanding, and that report is read alongside the P&L every month rather than rebuilt in the books. That monthly read is part of the receivables tracking in our Grow and Surge plans. Whether the practice reports on the cash or accrual method for tax purposes is a separate question for PizzelloCPA, PLLC or your own CPA.
Days to payment for claims that have been paid is measured claim by claim from the EHR's payment detail, from the date of service to the date the payer's payment reached the bank, and averaged for each payer over a quarter or longer. As a hypothetical, if three of one plan's claims were paid 20, 30, and 40 days after the sessions, that plan's average for those claims is 30 days. The date each claim was submitted is worth recording as well, because the gap between the session and the submission belongs to the practice's own billing routine, while the gap between submission and payment belongs to the payer. The client's share of an insurance session can come later than the plan's, when it is billed after the ERA arrives, so it gets its own count. Private-pay and superbill clients who pay at the session have days to payment near zero, apart from the time a card processor takes to deposit a payout.
The aging report covers the claims that have not been paid. It shows how long each payer's open balances have been waiting, and the per-session view takes its open client balances from it. It also catches what the P&L never will, such as a claim that has sat unpaid well past that payer's usual days to payment, or client balances from deductibles that keep growing. HealthCare.gov's glossary describes a deductible as the amount the client pays for covered health care services before the plan starts to pay, so a payer's split between plan-paid and client-owed dollars can shift as clients meet their deductibles, which is one more reason to read days to payment and collected per session over a full year as well as a quarter. The weekly habit in why your QuickBooks doesn't surface the numbers that run your week applies here, with the EHR's aging report standing in for receivables in QuickBooks.
Out-of-network and superbill clients in the books
A client who sees an out-of-network therapist and pays the full fee is private-pay revenue to the practice, whatever the client's plan later does. HealthCare.gov describes a non-preferred provider as one that does not have a contract with the client's plan, so there is no contracted rate and no contractual adjustment against the practice's fee. The superbill is the itemized statement the practice gives the client so the client can ask the plan for out-of-network reimbursement. When the plan reimburses the client, that money never passes through the practice's bank and does not belong in its books.
We still give superbill clients their own revenue account, separate from clients who pay with no insurance involved. The cash is the same, but the separate line shows how much of the private-pay caseload depends on clients getting reimbursed by their plans, which matters when the owner sets or raises the fee. If the practice submits an out-of-network claim on the client's behalf and the plan pays the practice directly, that payment is recorded as revenue from that plan, and anything the practice then refunds to the client or bills to the client follows the practice's own written policy. A reduced sliding-scale fee is the price of the session and is recorded at that amount rather than as a write-off, as what monthly bookkeeping does for a therapy practice explains.
How payer mix shows up in the P&L
In QuickBooks Online the payer split lives in the chart of accounts. Intuit offers subaccounts in QuickBooks Online Simple Start, Essentials, Plus, and Advanced, describes them as a way to keep the chart of accounts organized and create more detailed reports, and notes that one parent account can have up to five subaccounts. We stay inside that limit with two revenue parent accounts. An insurance revenue account holds a subaccount for each kind of plan the practice actually has, for example commercial plans, any government plans the practice is paneled with, and employee assistance programs, plus one for a single large plan if the owner wants to watch it on its own line, which is still four subaccounts. A private-pay revenue account holds one subaccount for clients who pay with no insurance involved and one for out-of-network clients with superbills. Copays, coinsurance, and deductible payments from insured clients are part of the allowed amount for an insurance session, so they are recorded under the insurance revenue account, in the subaccount for that client's kind of plan, and not as private pay. In the bank feed a copay paid by card looks the same as a private-pay fee, so the EHR's payment report is what tells the two apart. Late-cancel and no-show fees go in a separate income account. The P&L then shows insurance and private pay as two subtotals, with the payer lines beneath each. Each insurance deposit is recorded to its payer's subaccount from the EHR's payment report, after the monthly tie-out of that report to the bank described in bookkeeping for group therapy practices.
Classes are the other way to slice it. Intuit offers class tracking in QuickBooks Online Plus and Advanced, and its Profit and Loss by Class report groups income, expenses, and net income by class. A solo practice on Plus can use classes for payer type and tag the costs that belong to the insurance side, such as billing service fees, to the insurance classes along with the revenue. In a group practice we use the classes for clinicians, so payer type stays in the revenue subaccounts, and a report by class then shows each clinician's revenue by payer type down the rows. Either approach works as long as one is chosen and applied to every transaction.
The full fee, the adjustments, the denials, and the open balances come from the EHR, so the P&L by payer type is worth reading next to a short payer schedule built from the EHR's reports by date of service, in the shape of the table above. The two answer different questions and are checked in different ways. The EHR's payment report, organized by payment date, should agree with the revenue the P&L shows for each payer type, apart from timing items listed at month-end, while the payer schedule is the view that says what each payer is worth. A practice that wants billed charges, adjustments, and receivables inside the ledger itself keeps accrual-basis books, which is a larger monthly job, and whether the tax return follows the same method is a question for PizzelloCPA, PLLC or your own CPA.
Using the numbers in a panel decision
Whether to join a panel, stay on one, renegotiate, or leave is the owner's decision, and the books do not make it. What they supply is collected per session and days to payment for each payer over a long enough stretch to mean something, the costs that attach to the insurance side, and the share of the caseload each payer represents. The owner brings what the ledger does not hold, such as how full the schedule is, where referrals come from, what clients on that plan would do if the practice left it, and the clinical reasons for keeping a panel.
For a solo practice the arithmetic can be read straight off the payer schedule. In a group practice the same question carries clinician pay with it, because a panel's sessions are delivered by clinicians who are paid per session or on collections, so a payer's collected per session has to be compared with the pay attached to those sessions. That is the contribution view built in bookkeeping for group therapy practices. When a group owner is weighing panel changes across several clinicians, our affiliated company SmallBizCFO, Inc. takes up payer mix and the rate actually collected as a fractional CFO for group therapy practices, working from the same books.
Key takeaways. An insurance session has a full fee, an allowed amount after the contractual adjustment, and what was actually collected from the plan and the client, and only the last of those is cash. Use the ERA's group codes to tell contractual adjustments (CO) from the client's share (PR), and track denials separately, because on cash-basis books the plan's share of a denied claim never reaches the P&L. Measure collected per session for each payer by date of service, over a quarter and over a year. Days to payment and open balances by payer come from the EHR's aging report, since cash-basis books carry no receivables. Out-of-network clients who pay the full fee and file a superbill are private-pay revenue, kept on their own line. Payer type belongs in revenue subaccounts, which QuickBooks Online supports from Simple Start up, or in classes on Plus and Advanced, and the decision about any panel stays with the owner.
Common questions
What is the difference between the allowed amount and what my practice collects?
HealthCare.gov defines the allowed amount as the maximum amount a plan will pay for a covered health care service, and that amount is divided between the plan and the client's deductible, copayment, or coinsurance. What the practice collects can be lower, because denied claims pay nothing and some client balances are never paid. That is why, on our Grow and Surge plans, we measure collected per session by payer from the EHR's reports instead of relying on the allowed amount in the fee schedule.
Where do insurance receivables show up if our books are on a cash basis?
They show up in the EHR rather than the ledger. Cash-basis books record revenue when the payment arrives, so what each plan and each client still owes is read from the EHR's aging report every month, alongside the P&L. That report also shows, payer by payer, how long open balances have been waiting, and it flags claims that have sat unpaid longer than that payer's usual days to payment.
How should out-of-network and superbill clients be recorded?
As private-pay revenue at the fee the client paid, on its own revenue line. There is no contractual adjustment, because the practice has no contract with the client's plan, and any reimbursement the plan sends to the client never reaches the practice's books. If the practice files the claim and the plan pays the practice directly, that payment is recorded as revenue from that plan.
Should payer types be classes or revenue accounts in QuickBooks Online?
Revenue subaccounts work in QuickBooks Online Simple Start, Essentials, Plus, and Advanced, and class tracking needs Plus or Advanced. A solo practice can use either. In a group practice we keep payer type in the revenue subaccounts because the classes are used for clinicians, and a profit and loss report by class then shows each clinician's revenue by payer type.
Can the books tell me whether to leave an insurance panel?
No. That decision belongs to the owner. The books show what each payer actually pays per session, how long it takes to pay, what the insurance side costs to run, and how much of the caseload each payer represents. The owner weighs those against what the books do not hold, such as demand for the practice's time, where referrals come from, and the clients on that plan.
Keep reading
For the full picture of how we work with mental health practices, see bookkeeping and accounting for therapists and counselors. The monthly routine underneath the payer numbers is in what monthly bookkeeping does for a therapy practice, and group owners will want bookkeeping for group therapy practices, which carries payer type into contribution by clinician. To turn the aging report into a weekly read, see why your QuickBooks doesn't surface the numbers that run your week. Physical therapists face the same split with different payers, covered in how cash-pay vs insurance PT practices should set up their books.
Talk it through with us
If your P&L shows one revenue line and you are not sure what each panel pays, book a free 30-minute consult. Bring a recent quarter's EHR payment report and aging report, and we will show you what collected per session and days to payment look like for each of your payers. Receivables and payables tracking and a custom chart of accounts setup are part of our Grow and Surge plans, with Grow starting at $349 a month.