Accounting Rules Changes for Patient Service Revenue, Bad Debts and the Allowance for Doubtful Accounts

Accounting Rules Changes for Patient Service Revenue, Bad Debts and the Allowance for Doubtful Accounts

By Mike Rowe, CPA, Audit Partner

Accounting Standards Update (ASU) No. 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities was issued in July and requires health care entities to (1) present the provision for doubtful accounts as a deduction from patient service revenue in the statement of operations, rather than as an operating expense, and (2) provide enhanced disclosures concerning their policies for recognizing revenue and assessing bad debts. 

Governmental hospitals already record the provision for bad debts as a reduction of revenues. Non-governmental hospitals currently reflect the provision for bad debts as an operating expense.
ASU No. 2011-07 will result in non-governmental hospitals reflecting the provision for bad debts in a manner consistent with the existing method for governmental hospitals.

Following is a discussion of the principal amendments to the FASB Codification resulting from ASU No. 2011-07.

FASB ASC 954-605, Health Care Entities – Revenue Recognition

FASB ASC 954-605-45 has been amended to require entities that recognize significant amounts of patient service revenue at the time services are entered without consideration of patients’ ability to pay to present the following as separate line items on the face of the statement of operations.

• Patient service revenue (net of contractual
  allowances and discounts).
• The provision for bad debts.
• The resulting net patient service revenue.

FASB ASC 954-605-50 has been amended to require health care entities to disclose the following information by major payor source of revenue:

• The entity’s policy for assessing collectibility in
  determining the timing and amount of patient
  service revenue recognized as bad debts.
• The amount of patient service revenue (net of
  contractual allowances and discounts) before
  taking into account the provision for bad debts.

FASB ASC 954-310, Health Care Entities – Receivables

FASB ASC 954-310-50 has been amended to require the following disclosures:

• By major payor revenue source, the entity’s policy
  for assessing the timing and amount of
  uncollectible patient service revenue recognized as
  bad debts by major payor source; note that such
  identified sources should be consistent with the
  way in which the entity manages its business
  (e.g., how it assesses credit risk).
 
• Qualitative and quantitative information about
  significant changes in the allowance for doubtful
  accounts relating to patient accounts receivable;
  such information could include significant changes
  in estimates and underlying assumptions,
  the amount of self-pay write-offs, the amount of
  third-party payor write-offs, and other unusual
  transactions.

Effective Date

Questions?

If reading this article gave you more questions than it answered, please contact us and we'd be glad to help you understand what it all means for your healthcare entity.

Mike Rowe, CPA, Audit Partner. Click Here for Mike's bio.

Healthcare Accounting Services

Our healthcare industry professionals have significant experience serving healthcare organizations of all sizes in Colorado Springs and throughout Colorado, including urban and rural acute care hospitals, outpatient surgery centers, medical clinics, physician groups and managed care providers.

To learn more about the Healthcare Accounting Services offered by Stockman Kast Ryan + Co., please Click Here.

If you have any questions, feel free to call us at (719) 630-1186 or use our Secure Email.