Changes to Presentation and Disclosure of Patient Service Revenue and Related Accounts for Certain Health Care Entities

In July 2011, the Financial Accounting Standards Board issued 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.  Certain healthcare organizations have historically recognized a significant amount of patient service revenue at the time the service is performed and did not evaluate the likelihood of collection.  The resulting accounting is to report a gross-up of revenues along with a provision for bad debts in operating expenses. 

ASU 2011-07 clarifies how to report these transactions to encourage consistency in reporting and improved transparency regarding net patient service revenue.  This standard requires those health care entities that recognize significant amounts of patient service revenue at the time the services are rendered to  present the related provision for bad debts as a separate deduction from patient service revenue, net of contractual allowances and discounts, if they do not assess the patient’s ability to pay at the time of service. 

If an entity records patient service revenue at the time the services are rendered only to the extent of expected collection, any resulting bad debt expense will still be reported as an operating expense.  Also, bad debts related to non-patient service revenue will still be reported as operating expenses. 

The new accounting standard also incorporates new required disclosures.  The following disclosures are now to be included in annual and interim financial statements upon adoption of ASU 2011-07:

1. The health care entity’s policy for assessing the timing and amount of uncollectible patient service revenue recognized as bad debts by major payor source of revenue. 
2. Additionally they have to disclose any significant qualitative or quantitative change in the allowance for doubtful accounts.  These disclosures may include significant changes in estimates and underlying assumptions, the amount of write-offs by payor source, and other unusual transactions impacting the allowance for doubtful accounts. 

This update will be effective for public entities, for fiscal years and interim periods within those years beginning on or after December 15, 2011, and for nonpublic entities, for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.  Early adoption is permitted, and all disclosures are to be applied in the period of adoption.  Changes to the presentation of the provision for bad debts in the statement of operations are to be applied retroactively to all prior periods presented.

Contact your Feeley and Driscoll, P.C. advisor to discuss how this standard affects your organization. Email us or call us at 1 (888) 875-9770.

Related Links