Bookkeeping for therapists: Keeping clinical and accounting records separate

Did you know?

In 2022, healthcare organizations were hit with over $133 million in penalties for HIPAA violations.

Bookkeeping services for therapists are just as important as the therapy services they provide to patients; even a small bookkeeping mistake could cost your practice thousands of dollars. And no, we’re not talking about a missed invoice or a misplaced expense. We’re talking about mixing up your clinical records with your accounting data.

As a therapist, it’s easy to overlook this. But failing to keep these two types of records separate can lead to serious privacy breaches and fines.

In this blog, we’ll show you why separating your clinical and accounting records is crucial and walk you through the steps to make it easy.

Clinical vs. accounting records in bookkeeping for therapists: What you need to know

Before we delve into how to separate your records, let’s take a moment to break down what exactly you need to separate.

Clinical records:

These sensitive documents include session notes, treatment plans, and assessments—basically, anything related to client care. In the U.S., clinical records fall under HIPAA, so they need to stay private and secure—no exceptions!

Accounting records:

Then there’s the financial side. Think invoices, payments, and expense reports. While these records don’t hold the same confidentiality as clinical notes, they still need to be accurate and well-organized—especially when tax season rolls around.

The issue?

When these two types of records get mixed up, you’ve got a recipe for trouble. Imagine accidentally attaching clinical notes to an invoice. Not only could this result in a HIPAA violation, but it could also throw off your bookkeeping, leading to financial errors.

Also read: How to prepare journal entries for your business

The fix?

Keep a clear boundary between your clinical and accounting records. And with the right systems in place, maintaining that separation is doable.

Why separating clinical and accounting records is non-negotiable in bookkeeping for therapists

Now that you understand the difference between clinical and accounting records, let’s talk about why keeping them separate is an absolute must.

Did you know?

A study found that 55% of small businesses struggle to comply with privacy laws like HIPAA, often due to mishandling sensitive information.

HIPAA compliance:

Let’s start with the big one: Health Insurance Portability and Accountability Act (HIPAA). As a therapist, you’re required by law to protect your clients’ personal health information (PHI) from unauthorized parties.

If you accidentally mix PHI with financial data—say, by sending an invoice with clinical notes attached—that’s a breach of HIPAA.

attached—that’s a breach of HIPAA. The penalties? They range from hefty fines to legal action, not something you want to be dealing with.

Client trust:

Your clients trust you to keep their personal information safe. If clinical notes end up mixed with your financial records and land in the wrong hands, it can seriously damage that trust. Keeping their records separate from your accounting files shows you’re serious about protecting their confidentiality.

Audit-ready financials:

But it’s not just about your clients’ trust. From a financial standpoint, keeping records clean and separate is just as important. If you’re ever audited by the IRS, having clinical and financial information bundled together will complicate things. By keeping clean boundaries, you’ll make life easier for yourself and any financial professionals you work with.

Administrative overload

Combining clinical notes and financial data isn’t just risky—they’re a recipe for burnout. Imagine trying to send an invoice but having to sift through session notes first. It’s confusing and time-consuming. And when your records aren’t clearly separated, mistakes are inevitable.

Harder to scale

As your practice grows, so do the number of records you need to manage. If your clinical and financial data are all mixed together, scaling your practice will feel like trying to untangle a web. The more you grow, the more difficult it becomes to manage without a clear system in place.

Best practices for keeping clinical and accounting records separate

Separating clinical and financial records might seem like a hassle at first, but with the right systems in place, it’s actually pretty straightforward. Here’s how to make it work without overcomplicating things:

Use dedicated software

The simplest way to stay organized? Use different software for clinical and financial tasks. HIPAA-compliant platforms ensure that sensitive client information stays secure, while bookkeeping software keeps your financial data accurate and organized.

Label files clearly

Whether digital or physical, your files need to be properly labeled. Clearly distinguish clinical documents (e.g., “Client A – Session Notes”) from financial documents (e.g., “Client A – Invoice”). It reduces the risk of accidentally mixing things up, and it makes finding what you need a breeze.

Limit access

Only authorized personnel should have access to each set of records. Your accountant doesn’t need to see clinical notes, and your clinical team shouldn’t have access to financials. This simple step can help prevent accidental data breaches and keep sensitive information where it belongs.

Also read: How to prepare journal entries for your business

Separate physical storage (if applicable)

If you still keep physical records, keep clinical files locked in a separate cabinet from your financial records. This not only helps with organization but ensures that confidential information is securely stored.

Backup and secure everything

Both clinical and financial records should be backed up, but be sure to store them separately. Encrypted backups for clinical records are essential for maintaining HIPAA compliance. For financial data, secure cloud storage with two-factor authentication is a smart choice.

By following these practices, you’ll ensure a clean separation between clinical and financial records, protecting both your clients and your business.

Tools you need to keep clinical and accounting data separate

To successfully keep your clinical and accounting records separate, you’ll need the right tools. Fortunately, there are plenty of options that make this easy without adding extra work to your day.

Did you know?

Research shows that 67% of accountants prefer automated, cloud-based accounting solutions, which can reduce manual errors and lower labor costs by up to 50%.

~ Sage

Clinical record management tools

For clinical records, you’ll want a HIPAA-compliant platform that ensures your clients’ data is secure.

Options like SimplePractice, TherapyNotes, and Jane are built specifically for therapists and offer everything from session notes to client scheduling in one place. These tools keep your client information organized and confidential.

Bookkeeping software

Platforms like QuickBooks, Xero, or FreshBooks are perfect for handling your bookkeeping needs. They allow you to track expenses, send invoices, and prepare your taxes—all without mixing in clinical data.

With these systems, you’ll have clear records ready for both your accountant and the IRS.

Cloud-based backups

Make sure both your clinical and accounting records are securely backed up. For clinical data, choose encrypted cloud services like Google Drive with HIPAA compliance enabled. For financial records, any secure cloud storage will do, but make sure access is restricted to avoid cross-contamination of sensitive information.

With these tools in place, keeping your clinical and accounting records separate becomes a streamlined, manageable part of your practice.

The bottom line

As a therapist, maintaining a clear separation between your clinical and accounting records is essential for protecting your practice’s reputation and ensuring smooth operations.

Good bookkeeping doesn’t just keep you compliant—it keeps your practice running smoothly. By keeping financial data organized and clinical information secure, both your client data and your financials stay in check and you reduce the risk of data breaches, fines, and client mistrust.

At CoCountant, we understand the unique financial challenges therapists face. Whether it’s ensuring HIPAA compliance, accurately tracking revenue from session fees, or managing your insurance claims and tax deductions, our bookkeeping services for therapists have got you covered.

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Disclaimer

CoCountant assumes no responsibility for actions taken in reliance upon the information contained herein. This resource is to be used for informational purposes only and does not constitute legal, business, or tax advice.  Make sure to consult your personal attorney, business advisor, or tax advisor with respect to believing or acting on the information included or referenced in this post.