FASB Issues Health Care Proposals

FASB on Friday issued two exposure drafts that would change accounting for health care organizations. One proposal would require that the measurement of charity care for disclosure purposes by health care providers be based on the direct and indirect costs of providing the charity care. The second proposal is aimed at how organizations account for medical malpractice and similar liabilities and related insurance payouts.

In Proposed Accounting Standards Update, Health Care Entities (Topic 954): Measuring Charity Care for Disclosure (a consensus of the FASB Emerging Issues Task Force), FASB says that existing guidance does not dictate a specific measurement basis of charity care for disclosure purposes. Some entities determine their charity care disclosures on the basis of a cost measurement, while others use a revenue measurement.

“The proposed guidance would improve current GAAP by requiring all entities to use the same measurement of charity care, thus enhancing comparability,” the exposure draft says. “A health care entity does not recognize revenue when charity care is provided; accordingly, the amendments in this proposed Update would have no effect on the amounts reported on the primary financial statements.”

Proposed Accounting Standards Update, Health Care Entities (Topic 954), Presentation of Insurance Claims and Related Insurance Recoveries (a consensus of the FASB Emerging Issues Task Force), would clarify that a health care entity should not net insurance recoveries against a related claim liability. The amount of the claim liability would be determined without consideration of insurance recoveries.

Most health care entities have netted insurance recoveries against the accrued liability, although some entities have presented the anticipated insurance recovery and the liability on a gross basis, according to the proposal. The proposed amendments are consistent with guidance on netting receivables and payables in Subtopic 210-20, Balance Sheet—Offsetting, that are more broadly applicable for entities in other industries. The proposed amendments would improve current GAAP by clarifying that this guidance also applies to health care entities and, therefore, reducing diversity in practice, FASB says.

The deadline for comments on both proposals is May 17.