Last Updated: November 2025
Important: Medicare Benefits Schedule fees, bulk billing incentives, superannuation rates, and Practice Incentives Program requirements change regularly. Always verify current rates at servicesaustralia.gov.au/mbsonline and consult current ATO guidance for tax matters.
Medical practices have unique bookkeeping requirements that differ substantially from standard businesses. Unlike retail or professional services, medical practices must reconcile Medicare claims, manage mixed billing arrangements, track bulk billing compliance, handle private health insurance claims, and navigate complex GST treatment for different service types.
A 2023 Australian Medical Association survey found that 43% of GP practices reported negative or break-even profitability, with many citing poor financial management and incorrect Medicare claiming as contributing factors. Medical practices often have strong patient numbers but weak financial performance because revenue recognition, expense allocation, and cash flow management are handled incorrectly.
This comprehensive guide explains how to manage bookkeeping for medical practices in Australia, covering bulk billing, Medicare claiming, private billing, Practice Incentives Program payments, equipment depreciation, and the specific requirements that separate medical bookkeeping from general business accounting.
Medical practices require a specialised chart of accounts separating bulk billing revenue, private fees, Medicare gap payments, and different service types.
Medical practice income should be separated by payment source and service type:
Medicare Bulk Billing Revenue:
Private Billing Revenue:
Other Revenue:
This separation allows you to analyse revenue by source, calculate bulk billing percentages for PIP eligibility, and identify which service types deliver the best returns.
Medical practices have specific expense categories:
- Clinical Staff: GP salaries (salaried doctors), GP contractor payments (percentage-based arrangements), practice nurse salaries, locum fees
- Administrative Staff: Reception and administration salaries, practice manager salary
- Clinical Supplies: Medical consumables (syringes, dressings, gloves), vaccines (influenza, COVID-19, childhood immunisations), pharmaceutical stock (if dispensing), pathology collection supplies
- Equipment and Technology: Medical equipment lease or depreciation, practice management software (Best Practice, Medical Director, Genie), telehealth equipment
- Professional Costs: Medical indemnity insurance, medical registration (AHPRA), college memberships (RACGP, ACRRM), continuing professional development
- Occupancy: Rent or mortgage interest, utilities, cleaning, building insurance
Medical practices typically have low accounts receivable compared to other businesses because most revenue is received immediately:
- Bulk Billing: Medicare pays directly to practice within 3-5 business days. No patient debt.
- Private Billing: Patient pays at time of service. Medicare pays their benefit to patient, not practice.
- Mixed Billing: Patient pays gap at time of service. Medicare pays benefit to practice within 3-5 business days.
Exceptions creating accounts receivable: Medical reports invoiced to solicitors (30-day terms), workers compensation claims (30-90 day delays), corporate health services invoiced monthly, private health insurance claims (7-14 day processing).
Understanding the three billing models is fundamental to medical practice bookkeeping.
Practice bills Medicare directly for full consultation fee. Patient pays nothing. Medicare pays 100% of MBS (Medicare Benefits Schedule) item rate to practice.
Example: Standard Level B consultation (Item 23)
Revenue recognition: Record full income when service is provided, even though Medicare payment takes 3-5 days. Create accounts receivable for Medicare bulk billing if not yet received.
Bulk Billing Incentives: As of November 2025, the Bulk Billing Practice Incentive Program (BBPIP) provides additional payments to practices meeting bulk billing requirements. Practices achieving 100% bulk billing for eligible consultations receive a 12.5% quarterly top-up payment. Regional and remote practices may receive additional location-based loadings. Check Services Australia for current incentive structures and eligibility requirements.
Practice sets its own fee (typically above MBS rates). Patient pays full fee to practice at time of service. Patient then claims their Medicare benefit (85% of MBS fee) directly from Medicare.
Example: Standard Level B consultation (Item 23)
Revenue recognition: Record $85 income when patient pays. No accounts receivable because payment is immediate.
Practice bills Medicare for MBS benefit and charges patient the gap between MBS fee and practice's full fee. Medicare pays practice directly (not patient).
Example: Standard Level B consultation (Item 23)
Revenue recognition: Record full $85 income at time of service. Record patient payment of ~$48 as received immediately. Record Medicare benefit of ~$37 as accounts receivable until received (typically 3-5 days).
Medical practices must claim Medicare benefits correctly to receive payment. Claiming process differs for bulk billing vs mixed billing.
Process:
Reconciliation: Daily Medicare reports show claims transmitted, claims paid, and rejected claims. Rejected claims must be investigated and resubmitted.
Example: Practice bulk bills 120 patients on Monday. Medicare report on Friday shows 118 claims paid ($5,246) and 2 claims rejected (incorrect Medicare number, duplicate claim). Practice must contact two patients to verify Medicare details and resubmit claims.
Process:
Assignment of benefit: Mixed billing requires patient to assign their Medicare benefit to practice. This is done electronically through claiming process. Patient does not need to sign physical form for each visit.
Medicare rejects claims for various reasons: incorrect Medicare number, patient not eligible for Medicare, item number not valid for patient age or circumstances, duplicate claim, missing or incorrect provider number.
Rejected claims show in daily Medicare reports. Most practice management software flags rejected claims for review.
Cost of not following up: Practice with 2% claim rejection rate and $1 million annual Medicare revenue loses $20,000 if rejected claims are not identified and resubmitted.
The Practice Incentives Program and related bulk billing incentives provide additional payments to practices meeting specific criteria. These payments can add significant income to practice revenue.
- Bulk Billing Practice Incentive Program (BBPIP): Introduced November 2025, provides quarterly top-up payments to practices achieving 100% bulk billing for eligible consultations. Practices receive 12.5% of their quarterly bulk billing revenue as an additional payment.
- Workforce Incentive Program (WIP): Replaced some elements of former PIP. Provides payments for practices in rural and remote areas and for specific workforce initiatives.
- PIP Quality Improvement Incentive: Payments for practices meeting quality improvement standards and data collection requirements.
- PIP Indigenous Health Incentive: Payments for practices providing services to Aboriginal and Torres Strait Islander patients meeting specific consultation and health check targets.
- PIP Teaching Payment: Payments for practices supervising medical students and GP registrars based on hours of teaching provided.
Eligibility requirements change regularly. Most incentives require:
Tracking bulk billing percentage for BBPIP:
Practice qualifies for 12.5% top-up payment. If bulk billing drops below 100%, additional payment is lost.
PIP and incentive payments are received quarterly, direct deposited to practice bank account. Payments arrive without invoices or detailed breakdowns.
Bookkeeping treatment:
Example: Practice receives $14,520 deposit from Services Australia. Check portal: BBPIP $8,200 + Indigenous Health $4,320 + Teaching $2,000 = $14,520 total.
Always verify current incentive programs and requirements at servicesaustralia.gov.au as structures change regularly.
Many practices employ GPs as contractors rather than employees, paying percentages of revenue rather than fixed salaries. This creates specific bookkeeping requirements.
Common arrangements: GP receives 60-70% of billings they generate, practice retains 30-40% to cover overheads (reception, nursing, rent, equipment).
Example: Dr Smith on 65% arrangement. In March, Dr Smith generates bulk billing revenue $42,000 + private billing revenue $18,000 = $60,000 total billings.
Dr Smith's payment: $60,000 x 65% = $39,000Practice retains: $60,000 x 35% = $21,000
ATO and Fair Work have strict tests determining if GP is genuinely a contractor or actually an employee misclassified to avoid superannuation and other obligations.
Factors indicating genuine contracting:
Factors indicating employment:
Superannuation obligation: If GP is actually an employee, practice must pay superannuation guarantee (12% from 1 July 2025). Misclassifying employees as contractors to avoid superannuation results in back payment of super, Superannuation Guarantee Charge, and penalties.
Locum GPs engaged for short-term cover (sick leave, holidays, unexpected gaps) are clearly contractors, typically paid:
Locum payments are recorded as an expense, not salary. Locums are responsible for their own tax, super, and medical indemnity insurance.
GST treatment of medical services is complex, with some services GST-free and others taxable.
Most GP consultations and medical services are GST-free. This includes GP consultations, specialist consultations, diagnostic services, pathology and radiology arranged by GP, minor surgical procedures, chronic disease management services.
GST-free means:
Example: Practice charges $85 for consultation. Full $85 is GST-free income. No GST component.
Some medical services are taxable at 10% GST:
Example: Medical report for solicitor - Fee $330 including GST, GST component $30, GST-free base $300.
When providing taxable services, you charge GST and can claim input tax credits on related expenses.
Practices providing both GST-free and taxable services must allocate expenses correctly for GST purposes.
Example: Practice provides 95% GST-free consultations and 5% taxable medical reports.
GST treatment of expenses:
Calculations become complex. Many practices simplify by not claiming input tax credits on mixed-use items unless material.
Medical reports to solicitors, insurance companies, or workers compensation insurers are taxable at 10% GST. Invoices must show GST separately.
Correct format: Medical Report - Personal Injury Assessment, Professional fee $330.00, GST $30.00, Total $360.00.
If you invoice $330 total without showing GST separately, you must remit $30 GST to ATO from the $330, leaving only $300 (10% less than intended).
Medical practices invest significantly in equipment. Understanding depreciation rules helps with financial planning. Tax treatment of equipment purchases depends on your specific circumstances. Always consult your accountant or registered tax agent before making equipment purchase decisions. Visit ato.gov.au for current guidance.
The ATO's instant asset write-off threshold changes regularly. As of the latest information, the threshold for businesses with turnover under $10 million is $1,000 per asset. Assets costing less than this threshold may be immediately deducted rather than depreciated over multiple years.
Check ato.gov.au for current thresholds and eligibility requirements.
For assets above the instant write-off threshold, ATO effective life guidelines provide depreciation rates. Common medical equipment typically depreciates over:
Check ato.gov.au for current effective life and depreciation rate guidance specific to your equipment.
Practices can lease medical equipment rather than purchasing outright. Lease payments are expenses, but you do not own the equipment.
Example: Ultrasound machine - Purchase $55,000 (depreciate over effective life) vs Lease $1,200/month ($14,400/year).
Leasing provides different cash flow and tax implications. The decision depends on your cash flow, tax position, and how long you plan to use equipment. Consult your accountant for advice specific to your situation.
Medical practices use significant consumables requiring tracking for both expense management and stock control.
- Consumables used immediately: Syringes, needles, gloves, dressings and bandages, suture materials, single-use diagnostic supplies. These are expensed when purchased because they are used quickly and stock levels remain low.
- Stock held for future use: Vaccines (influenza, COVID-19, childhood immunisations), pharmaceutical stock (for practices with dispensing authority), large quantities of consumables purchased in bulk.
Stock on hand at year end must be counted and valued, recorded as an asset rather than expensed.
Example: Practice purchases vaccines throughout financial year - Influenza vaccines $15,000, COVID-19 vaccines $8,000, childhood immunisation vaccines $12,000, total vaccine purchases $35,000.
At 30 June year end, count remaining stock: Influenza vaccines $1,200, COVID-19 vaccines $400, childhood immunisation vaccines $2,800, total stock on hand $4,400.
Accounting treatment:
This ensures expenses match vaccines actually used, not just purchased.
Patients with private health insurance can claim rebates for some GP services. Claiming process differs from Medicare.
Most practices use HICAPS terminals to process private health insurance claims at point of service.
Process:
Revenue recognition: Practice receives full fee from patient immediately. Insurance rebate goes to patient, not practice.
Example: Specialist consultation, patient has private health cover - Practice fee $180, patient pays practice $180, private health insurer pays patient $80 rebate, patient's out-of-pocket $100.
Practice records $180 income. The $80 rebate is between patient and insurer.
Some practices (particularly specialists) can claim insurance rebate on patient's behalf and charge patient only gap.
Example: Specialist consultation - Practice fee $180, private health rebate $80, practice claims $80 from insurer on patient's behalf, patient pays gap $100.
Revenue recognition: Record $180 total income, record $100 received from patient, record $80 accounts receivable from health insurer (paid within 7-14 days).
Medical practices require practice management software handling clinical records, appointments, Medicare claiming, and integrated billing.
Cost: From $495 per month (base licence, pricing is quote-based)
Best Practice is the most widely used practice management system in Australian general practice, offering clinical notes, e-prescribing, Medicare claiming, appointment management, and integrated accounting. Best Practice maintains patient billing records, generates invoices, and can export to external accounting software (Xero, MYOB) or be used standalone for smaller practices.
Best for: Established GP practices (2-10 doctors) wanting comprehensive clinical and administrative functions.
Cost: From $395 per month (base, pricing is quote-based)
Medical Director provides similar functionality to Best Practice with different user interface and workflow preferences. Also widely used in Australian general practice.
Best for: Practices preferring Medical Director's interface or migrating from older Medical Director systems.
Cost: From $450 per month (base, pricing is quote-based)
Genie is cloud-based practice management gaining popularity with newer practices. Offers modern interface, telehealth integration, and automated administrative workflows.
Best for: New practices, practices wanting cloud access, telehealth-focused services.
Most practice management software can export financial data to Xero or MYOB for full accounting and reporting. Recommended for practices with multiple doctors, complex expense allocation, or requiring detailed financial analysis.
Monthly process:
This separation keeps clinical systems (patient records, Medicare claiming) in practice management software while maintaining full accounting in dedicated software.
Medical practices commonly claim expenses directly related to earning practice income. Tax deductibility depends on your specific circumstances and how expenses relate to your income-earning activities. Always consult your accountant or registered tax agent before claiming deductions. For authoritative guidance, visit ato.gov.au.
Common expenses medical practices may be able to claim include:
- Professional costs: Medical indemnity insurance, medical registration (AHPRA), college memberships (RACGP, ACRRM), professional journal subscriptions
- Professional development: Continuing professional development courses, medical conferences, seminars directly related to maintaining professional knowledge in current practice areas
- Equipment and assets: Medical equipment, diagnostic tools, practice management software. The ATO's instant asset write-off threshold changes regularly (currently $1,000 for businesses under $10 million turnover). Assets above this threshold are typically depreciated over their effective life. Check ato.gov.au for current rates.
- Motor vehicles: GPs making house calls, visiting aged care facilities, or attending hospital rounds may claim vehicle expenses using logbook method (business percentage of all costs) or cents per kilometre (up to 5,000 km at current ATO rate). Check ato.gov.au for current rates and requirements.
- Home office: GPs working from home for telehealth consultations or administrative work may claim a portion of home-related expenses if the space is exclusively used for practice purposes and represents a regular place of business. This is a complex area requiring specific advice from your accountant.
- Medical consumables and stock: Clinical supplies, vaccines, and pharmaceutical stock. Remember to adjust for stock on hand at year end.
These are general examples only. Consult your accountant or registered tax agent for advice specific to your circumstances.
Recording Medicare income only when received (cash basis) rather than when services provided (accrual basis) causes incorrect monthly profit reporting.
Cost: Practice that bulk bills heavily but only records income when Medicare pays will show artificially low income in periods with public holidays (Medicare processing delays) and artificially high income when catch-up payments arrive.
Solution: Record bulk billing income when services provided, creating accounts receivable for Medicare benefits not yet received. Reconcile Medicare deposits to clear receivables.
Failing to monitor bulk billing percentage monthly can result in losing incentive payments when percentages drop below required thresholds.
Cost: Practice receiving $40,000 annually in bulk billing incentive payments requiring 100% bulk billing loses entire $40,000 if bulk billing drops to 98% and is not corrected within quarter.
Solution: Generate monthly bulk billing reports from practice management software. Track percentage by doctor and overall practice. Address drops immediately.
Paying GPs as contractors (no super, no PAYG withholding) when they are actually employees under ATO and Fair Work definitions results in back payment obligations.
Cost: Practice with three GPs paid as contractors at $150,000 each would owe $54,000 in superannuation (12% x $150,000 x 3) if reclassified as employees, plus Superannuation Guarantee Charge and penalties.
Solution: Review GP arrangements against ATO contractor vs employee tests. If GPs work set hours, cannot work elsewhere, and practice directs how services provided, they are likely employees requiring super.
Claiming input tax credits on expenses related to GST-free medical services overstates GST refunds and creates ATO audit risk.
Cost: Practice claiming $10,000 annually in incorrect input tax credits will be required to repay this amount plus interest if caught in ATO audit, along with potential penalties.
Solution: Understand GST-free vs taxable services. Only claim input tax credits on expenses related to taxable supplies (medical reports, cosmetic procedures) or general overheads (rent, utilities) apportioned by taxable use percentage.
Failing to count and value medical consumables and vaccines at year end overstates expenses and understates profit, affecting tax calculations.
Cost: Practice with $8,000 in vaccine stock at year end that does not perform stock take overstates expenses by $8,000, reducing profit and creating incorrect tax positions.
Solution: Count all vaccines, pharmaceutical stock, and bulk consumables at 30 June. Value at purchase cost. Record as stock on hand (asset) to adjust expenses for items not yet used.
Relying on quarterly incentive payments for daily cash flow creates problems when payments delayed or conditions change.
Cost: Practice budgeting monthly expenses based on $12,000 quarterly incentive payment faces cash shortfalls if payment delayed or requirements change mid-year.
Solution: Treat incentive payments as supplementary income, not base operating funds. Budget expenses based on core billing revenue only. Use incentive payments for equipment purchases, debt reduction, or profit distribution.
What is the difference between bulk billing and private billing?
Bulk billing means the practice bills Medicare directly and receives the full MBS fee. The patient pays nothing. Private billing means the practice sets its own fee (typically higher than MBS) and the patient pays the full amount. The patient then claims 85% of the MBS fee from Medicare as a rebate. Mixed billing combines both: the practice bills Medicare for 85% of the MBS fee and charges the patient the gap, receiving payment from both sources.
How long does it take to receive Medicare payments?
Medicare bulk billing payments are typically deposited within 3-5 business days after claims are transmitted. Mixed billing payments (where the practice claims the Medicare benefit on the patient's behalf) follow the same timeline. Daily Medicare reports show claims transmitted, approved, and paid. Public holidays can delay processing by 1-2 days.
Do medical practices need to charge GST?
Most GP consultations and medical services are GST-free, meaning no GST is charged to patients and the practice cannot claim GST input tax credits on related expenses. Taxable services at 10% GST include cosmetic procedures, medical reports for solicitors, work capacity certificates, and travel medicine consultations. Practices providing both types must allocate expenses carefully for GST purposes.
What are bulk billing incentives and how much are they worth?
As of November 2025, the Bulk Billing Practice Incentive Program (BBPIP) provides additional government payments to practices achieving 100% bulk billing for eligible consultations. Practices receive a 12.5% quarterly top-up on their bulk billing revenue. Additional incentives exist for practices in rural and remote areas, indigenous health services, and teaching practices. Total incentive value depends on practice size, location, and services provided. Check servicesaustralia.gov.au for current program details.
Should GPs be employees or contractors?
This depends on the actual working arrangement, not just what the contract says. GPs who work set hours, use practice equipment exclusively, cannot work elsewhere, and have clinical decisions directed by the practice are likely employees requiring superannuation (12% from July 2025) and other entitlements. GPs who control their own hours, work at multiple locations, bear business risk through percentage-based payments, and make independent clinical decisions are likely genuine contractors. Misclassification results in back payment of super and penalties.
What equipment can medical practices claim immediately?
The ATO's instant asset write-off threshold changes regularly. As of the latest information, businesses with turnover under $10 million can immediately deduct assets costing less than $1,000. Assets over this threshold must be depreciated over their effective life (typically 5-10 years for medical equipment). Always check ato.gov.au for current thresholds and consult your accountant before making equipment purchase decisions.
How should medical practices handle Medicare rejected claims?
Medicare rejected claims appear in daily reports from practice management software. Common rejection reasons include incorrect Medicare numbers, duplicate claims, invalid item numbers, or patient ineligibility. Practices must review rejected claims daily, contact patients to verify Medicare details if necessary, and resubmit corrected claims. A 2% rejection rate on $1 million Medicare revenue means $20,000 in lost income if not followed up.
What software do medical practices need for bookkeeping?
Medical practices need practice management software (Best Practice, Medical Director, or Genie) for clinical notes, appointments, and Medicare claiming. Financial data can be exported to accounting software like Xero or MYOB for full bookkeeping, payroll, and reporting. Smaller practices (1-3 doctors) may manage basic bookkeeping within practice management software. Larger practices (5+ doctors) benefit from integrated accounting software for detailed analysis.
Can medical practices claim home office expenses?
GPs working from home for telehealth consultations or administrative work may be able to claim a portion of home-related expenses if the space is exclusively used for practice purposes and represents a regular place of business. Deductibility depends on specific circumstances and how expenses relate to earning practice income. This is a complex area. Consult your accountant or registered tax agent for advice specific to your situation.
How do mixed billing arrangements work for Medicare?
Mixed billing means the practice charges a fee higher than the MBS rate and bills Medicare for 85% of the MBS fee while charging the patient the difference. For an $85 consultation on a ~$43 MBS item, Medicare pays the practice ~$37 (85% of ~$43) and the patient pays ~$48 directly to the practice. The practice receives total revenue of $85 from the two sources combined. This requires the patient to assign their Medicare benefit to the practice.
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