On July 25, 2011, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-07, Healthcare Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and Allowance for Doubtful Accounts for Certain Healthcare Entities. The Update affects entities that recognize significant amounts of patient service revenue at the time services are rendered regardless of a patient s ability to pay.
The Update requires certain healthcare entities to change the presentation of their statement of operations to reclassify the provision for “patient revenue bad debts” from an operating expense to a deduction from net patient service revenue (defined as “patient service revenue less contractual allowances and discounts”). The entity would then show a resulting amount of net patient service revenue less the provision for bad debts. Bad debts related to receivables from revenue other than patient services can continue to be presented as an operating expense.
The Update also requires certain healthcare entities to provide additional disclosure about their revenue recognition and bad debt policies. The entity shall disclose, by major payor source, its policy for assessing collectability in determining the timing and amount of net patient service revenue to be recognized, as well as its net patient service revenue before the provision for bad debts for each major payor. The entity is also required to include a qualitative and quantitative analysis of the changes in the allowance for doubtful accounts.
For public entities, the Update will be effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption permitted. For nonpublic entities, the Update will be effective for the first annual period ending after December 15, 2012, and interim and annual periods thereafter, with early adoption permitted. The amendments to the presentation for the provision for bad debts related to patient service revenue should be applied retrospectively to all prior periods presented. To view the ASU in its entirety, please click here.
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