Beyond the Virtual Visit: Specialized Accounting for Telehealth & Digital Health

Let’s be honest. The explosion of telehealth and digital health services didn’t just change how we see a doctor. It turned the financial and accounting playbook for these businesses upside down. Sure, the basics of revenue and expenses still apply. But underneath that, the ground is shifting.

You’re not just selling a product on a shelf. You’re navigating a maze of software subscriptions, multi-state licenses, and reimbursement models that can change with a policy update. The accounting? It needs to be as agile and specialized as the service itself. Here’s the deal on what makes it so different.

Revenue Recognition: It’s Not Just a “Visit” Anymore

This is where things get, well, interesting. Recognizing revenue for a traditional clinic is pretty straightforward: service rendered, bill sent, revenue recorded. For digital health, the service is often the platform itself—a blend of access, data, and asynchronous care.

The SaaS Model Meets Healthcare

Many digital health companies operate on a Software-as-a-Service (SaaS) model. Think monthly or annual subscriptions for a mental wellness app or a remote patient monitoring platform. Under accounting rules (ASC 606), that subscription fee must be recognized ratably over the subscription period. You can’t book the entire annual fee on day one, even if you get paid upfront. It’s like a magazine subscription; you earn it as each issue—or in this case, each month of access—is delivered.

Bundled Services & Performance Obligations

What if you offer a package? Say, a device plus a year of monitoring and quarterly clinician check-ins. That single price tag contains multiple “performance obligations.” You have to identify each distinct service (the device, the platform access, the live consults) and allocate the revenue to each, recognizing them as each part is fulfilled. The device revenue might be recognized on shipment, while the service revenue is recognized over time. Untangling this bundle is a core accounting challenge.

The Compliance Quagmire: Licenses, Payers, and Privacy

If revenue is the engine, compliance is the complex highway system you have to drive on. And it’s under constant construction.

Multi-State Licensing & Nexus

A clinician in Florida can treat a patient in California via telehealth. This creates a nexus—a tax and regulatory presence—in California for your business. Suddenly, you might have to file income tax returns, collect sales tax on certain services, or pay franchise taxes in dozens of states. Tracking where your providers are licensed and where patients are located isn’t just an HR task; it’s a direct input into your tax accounting and accruals. The cost of maintaining these licenses and filings? A significant, recurring operational expense.

Reimbursement Rate Variability

Billing insurance? Medicare? Medicaid? Each payer has its own rules for telehealth—what codes are covered, what the rate is, even what “place of service” code to use. These rates can differ from in-person rates. Your accounting system must be able to track and reconcile payments against a complex, payer-specific fee schedule. Underpayments and denials need meticulous follow-up. It’s a far cry from a simple cash-based transaction.

Cost Structure: Decoding the “Digital” in Digital Health

The expense side tells its own story. The cost mix of a digital health company looks nothing like a traditional practice.

See the shift? A huge portion of your investment is in technology development and maintenance. The accounting question becomes: is this a capital expense (an asset) or an operating expense? Costs for developing the software platform might be capitalized, while routine bug fixes are expensed immediately. Navigating these rules requires close collaboration between your CFO and your tech team.

Data Security & HIPAA: An Accounting Line Item?

Absolutely. HIPAA compliance isn’t free. The costs of encryption tools, secure messaging platforms, BAA-compliant vendors, and staff training are real and ongoing. More subtly, a data breach represents a massive contingent liability. While you hope it never happens, prudent accounting means having a plan—and potentially an accrual—for incident response, legal fees, and notification costs. It’s a cost of doing business in this space that you simply can’t ignore.

Key Performance Indicators (KPIs): Measuring the Right Pulse

You can’t manage what you don’t measure. And the old KPIs don’t always fit. Forget just “patient visits per day.” Digital health finance teams live by metrics like:

• Monthly Recurring Revenue (MRR) & Annual Recurring Revenue (ARR): The lifeblood of any subscription model. Shows growth stability.
• Customer Acquisition Cost (CAC): How much you spend on marketing/sales to get a new user or patient. In a crowded app market, this can be steep.
• Lifetime Value (LTV): The total revenue you expect from a customer over their lifespan. The magic ratio is LTV > 3x CAC.
• Churn Rate: The percentage of subscribers who cancel. A high churn rate can sink a SaaS model, no matter how good the growth looks.
• Average Revenue Per User (ARPU): Tells you if your pricing and upsell strategies are working.

Your accounting system should be able to feed data into these metrics seamlessly. It’s not just about the general ledger; it’s about business intelligence.

Pulling It All Together

So what’s the takeaway? Treating telehealth accounting like traditional medical practice accounting is a bit like using a paper map for a GPS-driven world. The terrain is different. The milestones are different.

Success here demands an accounting function that understands the nuances of software revenue, the relentless demands of healthcare compliance, and the unique cost structure of a tech-enabled service. It requires systems that talk to each other—billing, EHR, CRM, and the GL—to paint a complete, accurate, and actionable financial picture.

In the end, robust, specialized accounting isn’t just about compliance and accurate books. It’s the framework that allows a innovative health company to understand its own performance, make smart investments, and ultimately, build a service that’s not just clinically effective, but financially sustainable for the long haul. And that’s the kind of health that keeps any business thriving.