The Healthcare Financial Management Association (HFMA) has published a revised version of Statement 15, “Valuation and Financial Statement Presentation of Charity Care, Implicit Price Concessions and Bad Debts by Institutional Healthcare Providers,” to reflect changes in bad debt reporting resulting from the Financial Accounting Standards Board (FASB) Accounting Standards Update 2014-09, “Revenue from Contracts (Topic 606),” a cross-industry update.
Reporting changes include the addition of implicit price concessions as a new category, along with charity care and bad debt, within uncompensated care. Implicit price concessions occur when an organization determines that it will, or is likely to, acknowledge a discount or concessions to standard pricing for an individual patient or portfolio of patients before a credit risk assessment can be made.
“Rigorous separation of charity care from bad debt and implicit price concessions is important for many reasons,” said HFMA Senior Vice President, Healthcare Financial Practices Richard L. Gundling, FHFMA. “Appropriate classification and reporting of charity care, bad debts and implicit price concessions is often difficult. The urgency of some treatments, as well as certain federal regulations, often requires the provision of service without consideration of the ability to pay. Statement 15 seeks to bring clarity to these issues.”
While there are a wide range of policy and business processes involved in the reporting of charity care, bad debt and implicit price concessions, the scope of Statement 15 is specifically to recommend best accounting and financial reporting practices for these types of uncompensated care. Published by HFMA’s Principles and Practices Board, this 18-page statement includes sections on the importance of properly reporting charity care; implicit price concessions and bad debt; criteria for charity care; timing of charity care eligibility determinations; recordkeeping for charity care; valuation of charity care; disclosure of charity care; recordkeeping for bad debts and implicit price concessions; recognition and disclosure of bad debts; recognition and disclosure for implicit price concessions; classification of receipts relating to charity care; and classification and disclosure of payment shortfalls. View the position statement.
Hospitals are the most high-profile providers of charity care. In addition to hospitals, these guidelines are applicable to all taxable and tax-exempt institutional healthcare providers, including skilled nursing facilities, subacute care facilities, multispecialty clinics, freestanding ambulatory centers and continuing care retirement communities. This guidance does not apply to facilities under the Governmental Accounting Standards Board.
HFMA published additional guidance on this topic in January 2019 in the form of an issue analysis, “Revenue Recognition, Including Implicit Price Concession and Bad Debt Considerations, for Healthcare Organizations: Accounting Issues and Trends.”
Statement 15 was originally published in December 2006 and was revised in December 2012. The history of HFMA’s Principles and Practices Board’s guidance about uncompensated care dates back to 1978, when it first issued Statement No. 2, which provided a basis for differentiating between charity care and bad debts.
Prior to issuance, a proposed position statement follows an extensive due process. An exposure draft is released for public comment for at least 60 days. These comments are analyzed and reviewed by HFMA’s Principles & Practices Board. Additional interpretive guidance may be released as circumstances evolve. Consultation on these matters with independent auditors is highly recommended.