Richard L. Clarke, DHA, FHFMA 

How much? That is the question everyone seems to be asking about charity care. HFMA has just released guidance that will help answer that question.

HFMA members are only too well aware that the growing number of uninsured and underinsured patients is fueling an increase in the amount of charity care hospitals are providing. This increase has also fueled the need among various stakeholders to quantify the amount of charity care hospitals are providing.

Policymakers want to know this amount so that health policy is based on a factual understanding of the financial effect of the uninsured and underinsured.

Community groups want to know this amount so that they can determine the dimension and effects of the uninsured and underinsured in their community and determine the extent to which hospitals are providing a benefit to the community.

Rating agencies want to know this amount so they can more accurately predict the creditworthiness of the hospitals they rate.

And hospitals want to know this amount in order to demonstrate their community benefit and to facilitate accurate financial planning.

None of these stakeholders has been able to effectively use the available information about charity care because the definition, valuation, and reporting have not been consistent across hospitals. The result has been confusion over just how much charity care-and community benefit-hospitals are providing. The complexities of charity care policies and the difficult task of documenting charity care qualification have generally resulted in many charity care patients being classified as bad debt. At its root, this is an accounting issue, and any accountant will tell you that standards must be established and followed to ensure uniformity and comparability of financial information.

HFMA's Principles and Practices Board has just released a revision of its Statement 15: Valuation and Financial Statement Presentation of Charity Care and Bad Debt by Institutional Healthcare Providers. This guidance will standardize the valuation of charity care at the cost of providing services-a much more consistent and comparable approach than using list prices or charges. And providing clear disclosure of the amount of charity care-so valued-will help users of financial statements understand better the level of this type of care that is provided. The guidance also clarifies the recording and disclosure requirements for bad debt-again providing users of financial statements clear information about revenue generation.

As healthcare professionals, our ultimate goal is to serve patients and improve the health of our communities. This statement should go a long way toward helping key stakeholders to have a clear picture about the financial effect of the rising number of uninsured and underinsured. And that will help stakeholders to do a better job ensuring that health care is available to those who need it.

In financial management, the truism is that cash is king. But to understand the true financial effect of the uninsured and underinsured, consistency is king. This new statement provides just that.

Publication Date: Monday, January 01, 2007

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