A Guide to Revenue Recognition for Concierge Medical Practices

In recent years, concierge medical practices have become increasingly common. Many different types of practice exist — from national, telemedicine-first services to independent physician-owned practices that have pivoted to a concierge model (also known as U.S. cash healthcare).

Concierge healthcare systems have a completely different model to more traditional medical practices. For the most part, they’re focused on providing proactive, preventive care. It’s an approach focused on equipping patients with the knowledge to stay healthy, rather than addressing symptoms once patients get sick.

These practices also differ when it comes to their business models and, by extension, their accounting practices. Unlike traditional fee-for-service models, concierge practices often operate on a membership or subscription-based model. This introduces unique accounting complexities.

For many medical professionals who’ve opened a concierge medical practice, it’s a completely unfamiliar approach. But getting the basics right is crucially important. Properly recognizing revenue isn’t just a matter of compliance; it’s critical to understanding your financial health and ensuring your practice’s sustainability.

In this guide, we’ll outline the basic principles of revenue recognition for concierge medical practices. We’ll discuss some of the challenges these organizations face and share a series of accounting and bookkeeping best practices for concierge medical practices to keep in mind.

Understanding Revenue Models in Concierge Medicine

One of the defining features of concierge medical practices is their reliance on a membership-based revenue model. Instead of charging patients per visit or submitting claims to insurance companies, many practices often charge a flat monthly or annual fee. This fee typically covers a range of services, such as routine check-ups, diagnostic tests, and sometimes even unlimited office visits.

While this model offers predictability for both patients and providers, it also creates unique revenue recognition challenges. The flat fee often covers services that will be delivered over time, which means revenue cannot always be recognized upfront. Instead, it must align with when the services are actually provided.

Of course, not all concierge medical practices are structured this way. Some practices have a hybrid approach between the membership model and the traditional fee-for-service model, with supplemental fees for specific procedures, diagnostics or services not included in the membership. Many do interface with insurance companies and other payers (including employers), offering a hybrid model that accepts insurance for certain services while still charging a membership fee for the enhanced care experience they provide.

For these practices, which have multiple revenue streams, revenue recognition is more complex and demands the ability to account for several distinct revenue streams.

Common Challenges in Revenue Recognition

Revenue recognition in concierge medical practices comes with a unique set of hurdles that can impact the financial clarity and compliance of the business. One of the most significant challenges lies in managing prepaid memberships. Many practices collect fees upfront (either monthly or annually), but these payments cannot be treated as immediate revenue.

For instance, when members pay for an annual membership upfront, the revenue associated with recurring monthly activities or services as part of this membership is recognized throughout the year. So they must be recorded as deferred revenue and recognized incrementally as services are provided. This ensures that revenue aligns with the actual delivery of care.

Another complexity arises from bundled services. Membership fees typically include a combination of offerings, such as wellness visits, diagnostic tests and additional healthcare benefits. Accurately assigning revenue to each of these services and determining when they are fulfilled can be a daunting task. Without proper allocation, practices risk misrepresenting their income.

Timing is yet another challenge. Revenue must correspond to the timing of service delivery. For instance, if a membership includes an annual diagnostic test, the revenue associated with that test is not earned until the test is completed. The revenue is not recognized proportionally on a monthly basis the same way as membership revenue is; it’s recognized in full in the accounting period in which the diagnostic test is performed. This requires a meticulous approach to tracking service delivery and matching it with revenue recognition.

Best Practices for Revenue Recognition for Concierge Medical Practices

Establishing effective revenue recognition practices is essential for concierge medical practices to maintain financial clarity and compliance. Given the complexity of membership-based models, it’s crucial to take a strategic approach that ensures alignment with accounting standards and operational goals.

The first step is understanding your performance obligations. This means clearly defining what services are included in your membership fees and identifying when these obligations are fulfilled. By doing so, you can ensure that revenue is recognized at the appropriate time, reflecting the actual delivery of services.

Equally important is implementing robust healthcare accounting processes. Practices need  accounting systems capable of tracking deferred revenue and allocating it properly over time. Automating these processes not only reduces the potential for error but also streamlines financial reporting, freeing up time to focus on patient care.

Compliance with Generally Accepted Accounting Principles (GAAP), particularly ASC 606, is another key consideration. This involves carefully assessing transaction prices, allocating revenue to various performance obligations, and keeping your reporting practices transparent and consistent with regulatory requirements.

An Example of Revenue Recognition for Concierge Medical Practices

Here’s a simple example showing how a concierge medical practice would recognize revenue. In this instance, the concierge medical practice collects a $7,500 upfront payment for an annual membership. The membership includes a monthly office visit, a series of one-time diagnostic tests and unlimited telehealth services.

The first step is for the concierge medical practice to determine the performance obligations and assign a value to each component of their service. They decide on the following:

• Monthly office visits: Spread evenly over the year, valued at $4,500
• Diagnostic tests: One-time service valued at $1,500
• Telehealth services: Spread evenly over the year, valued at $1,500

Because office visits and telehealth services are spread evenly across the year, the revenue associated with them can be recognized on a monthly basis. Diagnostic tests, however, don’t follow a routine. So in the above example, the practice would recognize the revenue as follows:

• Monthly office visits: Recognize $375 of revenue each month.
• Diagnostic tests: Recognize $1,500 the month the patient receives the tests. For instance, if the patient received the tests in June, you would recognize all $1,500 of revenue in June.
• Telehealth services: Recognize $125 of revenue each month.

Before the revenue is recognized, it should be recorded as unearned (or deferred) revenue on the balance sheet as a liability — even though the cash is sitting in your practice’s bank account. By the end of the year, the practice will have recognized all of the revenue.

Avoiding Common Pitfalls in Revenue Recognition

The above example is simplified; in reality, the accounting and revenue recognition needs of your concierge medical practice will be much more complex. As such, there are certain pitfalls that you need to know how to avoid.

Even the best-intentioned, most diligent practices can encounter significant challenges. These missteps often stem from a lack of alignment between revenue recognition policies and the operational realities of the practice. Ignoring these problems doesn’t just lead to compliance issues. It can also result in cash flow disruptions, inaccurate financial reporting and misalignment with GAAP.

Recognizing Revenue Too Early

Think back to your example above: the practice collects a lot of revenue upfront but doesn’t earn all of it until the very end of the year. Practices that fail to properly account for deferred revenue may find themselves overstating their income. This issue becomes especially problematic during periods of financial scrutiny, and could cause issues should you seek equity or debt financing, or become a target of an acquisition.

Ignoring Nuances of Revenue From Ancillary Services

Memberships often cover a predefined suite of services. However, many practices provide additional offerings, like specialized tests or treatments, outside the scope of these agreements. If revenue from these services isn’t tracked and recognized separately, practices risk underreporting their income, potentially violating compliance standards and creating financial discrepancies.

Inconsistent Accounting Practices

Lack of consistency in this area can lead to unreliable financial statements. Without standardized processes, it becomes difficult to ensure accuracy in financial reporting. This inconsistency can erode trust with patients, investors and regulatory bodies while also complicating strategic decision-making.

Avoiding these pitfalls requires a proactive approach that combines robust accounting systems, compliance with ASC 606 when reporting on a GAAP basis, and a clear understanding of the practice’s performance obligations. Addressing these challenges head on not only safeguards financial integrity but also ensures the long-term sustainability of your concierge medical practice.

How James Moore Supports Concierge Medical Practices Beyond Revenue Recognition

At James Moore, we understand that running a concierge medical practice requires more than just managing your revenue. That’s why we offer a full range of services designed to help your practice thrive. From outsourced accounting and advisory to custom HR solutions and IT support, we’re here to help you succeed in every back-office component of your business.

Our team has extensive experience working with concierge medical practices and understands the unique challenges you face. Whether you need help implementing better revenue recognition practices, optimizing your financial systems or managing other operational areas, we’re your trusted partner.

If you’re ready to take your practice to the next level, contact the James Moore healthcare team to learn more about how we can help. Let us provide the expert guidance you need to build a stronger, more sustainable practice.

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