Next year, the reporting and presentation standards for revenues recognized by both public and private healthcare entities will be changing.
Change in Bad Debt Reporting
Currently, many healthcare entities recognize patient service revenue at the time services are rendered as a gross amount, with bad debts reported in operating expenses. This has raised concerns with stakeholders and other third party users of healthcare entities’ financial statements that current practice results in a “gross-up” of patient service revenues and the related provision for bad debts.
To help allay those concerns and provide financial statement users with greater transparency, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) in July 2011. This ASU will require healthcare entities that recognize a significant amount of patient service revenue at the time services are rendered, to also reflect the estimate of bad debts related to those revenues as a deduction from patient service revenues on the face of their income statement.
The new standard is intended to provide better transparency for financial statement users about a healthcare entity’s net patient service revenues.
In addition to the revised income statement presentation, healthcare entities will be required to include what the FASB calls “enhanced disclosures” about their policies for recognizing revenue and assessing bad debts, including a description of its policy for assessing collectability in determining the timing and amount of patient service revenue to be recognized, the patient service revenue (net of contractual adjustments) before the provision for bad debts, and major payor sources of revenue.
Timing of New Regulations
The new standards are effective for public company healthcare providers for fiscal years and interim periods within those fiscal years beginning after December 15, 2011. Privately held healthcare providers must comply with the new financial reporting standards for periods ending after December 15, 2012. Early adoption of these new standards is permitted.
For all intents and purposes, this means that all healthcare entities should follow the new reporting standards starting in 2012.
For more information on how these new regulations may affect your organization, or to learn more about our accounting and auditing services, contact Jim Suttie at 440-449-6800.