Presentation of Patient Service Revenue Changed for Health Care Entities

FASB issued an Accounting Standards Update (ASU) containing amendments that require health care entities to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). Health care entities that recognize significant amounts of patient service revenue at the time services are rendered, even though the entities do not assess a patient’s ability to pay, will be affected by the change.

ASU no. 2011-07, Health Care Entities (Topic 954), Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (a consensus of the FASB Emerging Issues Task Force), requires those health care entities to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts.

The ASU says that under current practice, some health care entities recognize patient service revenue when services are rendered regardless of whether the entity expects to collect that amount. Stakeholders raised concerns that such accounting practices result in a gross-up of patient service revenue and the related provision for bad debts. The ASU says its objective is to provide financial statement users with greater transparency about a health care entity’s net patient service revenue and the related allowance for doubtful accounts.

The amendments change the presentation of the statement of operations and add disclosures that are not required under current GAAP for entities within the scope of the ASU. The provision for bad debts associated with patient service revenue for certain entities is required to be presented on a separate line as a deduction from patient service revenue (net of contractual allowances and discounts) in the statement of operations.

For public entities, the amendments in the ASU are effective for fiscal years and interim periods within those fiscal years beginning after Dec. 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for the first annual period ending after Dec. 15, 2012, and interim and annual periods thereafter, with early adoption permitted. The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively to all prior periods presented. The disclosures required by the amendments should be provided for the period of adoption and subsequent reporting periods.

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