March 29, 2006
Today, HFMA's Principles and Practices (P&P) Board releases an exposure draft of revisions to its long-standing guidance on how to report charity care and bad debt (P&P Board Statement No. 15, Valuation and Financial Statement Presentation of Charity Service and Bad Debts by Institutional Healthcare Providers).
Accountability among tax-exempt healthcare providers is in the spotlight on Capitol Hill and in state capitols around the country. Legislators and the IRS expect healthcare providers to act now to establish consistent, comparable standards for the reporting of charity care and other community benefits.
Since 1978, the P&P has provided standards for how to measure and report uncompensated care. The updates in this exposure draft address current questions raised in relation to charity care reporting practices and also incorporate principles of the PATIENT FRIENDLY BILLING® project, a national, cross-industry initiative that HFMA launched in 2000 to improve hospitals' financial communications with patients.
Broad Relevance to Healthcare Providers
Although the statement is particularly relevant to the current discussions regarding the amount of charity care tax-exempt hospitals provide, the principles apply to all types of healthcare providers -- tax-exempt, governmental, and investor-owned -- that need to accurately and consistently report bad debts and charity service.
The guidance also is applicable to all institutional providers, including skilled nursing facilities, subacute care facilities, multispecialty clinics, freestanding ambulatory centers, and continuing care retirement communities.
Overview
The statement discusses key issues surrounding the valuation and reporting of charity care and bad debt, including the criteria for charity care; the valuation, recording, and disclosure of these two types of uncompensated care; and the classification of receipts relating to charity care.
Major points in the exposure draft include:
- The determination of whether a patient is eligible for free or discounted services under a facility's charity care policy can be made at any time in the revenue cycle as pertinent information becomes available. However, the patient's eligibility for charity care is based on his or her financial status at the time service is rendered.
- Costs, not charges, should be the primary basis for reporting the amount of charity care provided, since cost-based reporting is more reliably measured and provides more comparability.
- Financial communications with patients throughout and after the healthcare encounter should be consistent with the principles of the Patient Friendly Billing project, a nationwide initiative to make patient financial communications clear, concise, correct, and caring.
- Revenue for patient services should be recognized only when it meets GAAP's revenue recognition criteria, which include the existence of a payment agreement between the provider and the patient and reasonably assured collectibility.
The guidance also reinforces the P&P Board's long-standing position that although comparability is an important goal to strive for, within the current multifaceted healthcare environment, efforts to standardize charity care criteria are unrealistic; rather, each institution must establish criteria for charity care consistent with the organization's mission, community needs, resources, and state laws.
Call for Comments
To ensure the revised statement meets the needs of both the providers and the users of this information and thus can be broadly adopted, it is important that professionals from diverse perspectives read this exposure draft carefully, discuss it, and provide detailed input to the P&P Board on considerations such as:
- Would reporting based on this guidance provide a clear understanding of the charity services provided by an institution?
- Does the guidance balance the concerns of providers, patients, regulators, charitable givers, investors, and other users of the financial information?
- Does the guidance serve the needs of all types of institutional healthcare providers?
The comment period will be open from March 29 to May 26, 2006.
To submit comments, download the exposure draft from www.hfma.org/ppb15. Use the Notes feature in Adobe Acrobat to insert your comments in the document, save, and return by e-mail to lnoble@hfma.org.
SOURCE: Exposure Draft of Revised P&P Board Statement No. 15, Valuation and Financial Statement Presentation of Charity Service and Bad Debts by Institutional Healthcare Providers.
Additional Resources
- About HFMA's Principles and Practices Board
- The Patient Friendly Billing project
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume V, Issue 7. Copyright 2006, Healthcare Financial Management Association. All rights reserved.