Ask the Experts: Definition of Bad Debt
What is the standard industry definition for bad debt percentage? I’ve found various calculations and wonder if there is a standard definition.
Answer 1: A good reference is HFMA’s Principles & Practices Board Statement 15: Valuation and Financial Statement Presentation of Charity Care and Bad Debts by institutional health Providers.
In general, the numerator of the ratio is total bad debt write-offs for the period. The denominator is total net revenue for the period.
This question was answered by: David Hammer, FHFMA, CHFP, principal at Healthcare Performance Management Consultants, Atlanta, and a member of HFMA’s Florida Chapter.
Answer 2: In addition to the HFMA Principles & Practices Board statement, the HFMA MAP Keys define the bad debt key performance indicator as follows: total bad debt adjustment to the allowance for bad debt allowance/provision account divided by total gross patient service revenue for the month. The numerator is the general ledger adjustment posted via the accounting allowance calculation.
This question was answered by: Sandra Wolfskill, FHFMA, HFMA’s director, healthcare financial policy, revenue cycle MAP.
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