Accounting for Hospitals and Other Health Care Providers Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 12 Accounting for Hospitals and Other Health Care Providers McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Overview of Chapter 12 Who has standard setting authority? What types of entities are included? General reporting principles and Illustrative transactions Example Financial Statements

Private Not-For-Profit: Ownership Types   Investor Owned: Human Inc. stock is widely held and the company is listed on the New York Stock Exchange Private Not-For-Profit: The Hospital is owned by the (Catholic) Archdiocese of Atlanta Government Owned: The NY City Health and Hospital Corporation was created by the NY state legislature

Ownership Types – Standard Setter   Investor Owned: FASB – except standards specifically for not-for-profits Private Not-For-Profit: FASB– particularly, standards for not-for-profits such as SFAS 116 & 117 Government Owned: GASB

Standard Setting Authority GASB - Category A GAAP Authority over government related hospitals FASB - Private not-for-profit hospitals Major FASBs 93, 116,117, 124, 136, 164 Investor owned hospitals Other FASBs Additional guidance is provided by the AICPA Audit Guide for Health Care Organizations.- This is level B GAAP for government related, private not-for-profits, and business oriented

What Types of Organizations? Clinics Medical groups Individual practitioners Emergency care Laboratories Surgery care centers Continuing care HMOs Home health agencies Hospitals Nursing homes Rehabilitation centers

Contractual Adjustments Third-party payers commonly receive discounts for services. The amount of these discounts are estimated and recorded at the time of service They are reported as “contra-revenues”

Contractual Adjustments vs Charity Care Contractual Adjustment Entry: Contractual Adjustment …. Dr Patient Accounts Rec. ……Cr Charity care (no expectation of receiving payment) No Journal entry

Hospital Financial Statements Balance Sheet, Most use classified balance sheet – exception: continuing care communities Statement of Operations, Statement of Changes in Net Assets (or “Changes in Equity” if investor owned) Statement of Cash Flows and Notes

Display Issues – Statement of Operations Private not-for-profits and Government related entities must provide a Performance Indicator. This a measure of income which excludes: Equity transfers, Restricted Contributions, Contributions of LT assets, Most unrealized gains and losses, Restricted investment returns, and Extraordinary items

Display Issues – Statement of Operations, cont’d Patient service revenues are shown net of contractual adjustments. Patient service revenue excludes charity care (service provided where there is no expectation of payment). The estimate of uncollectible accounts is shown as an operating expense.

Display Issues – Statement of Operations, cont’d Operating revenues are often classified as Net patient service revenues, premium (capitation) revenue, and Other Revenue (parking lot, gift shop, cafeteria, and tuition). Unrestricted gifts may be treated as Operating or Nonoperating depending on policy.

Display Issues – Balance Sheet FASB vs. GASB net asset accounts: FASB: unrestricted, temporarily restricted, and permanently restricted net assets The term restricted used only for donor restrictions; Assets whose use is limited is used to indicate board or bond covenant restrictions. GASB: unrestricted net assets(position), restricted net assets(position), and net investment in capital assets

Comparison of Financial Statements Two statements take the place of the Statement of Activities: Statement of Operations: Similar for not-for-profits, Government, Business Statement of Changes in Net Assets: not-for-profits must show details of net changes for unrestricted, temporarily and permanently restricted

Comparison of Financial Statements Statement of Financial Position: Classified, similar for not-for-profit, Government, and commercial businesses except for the equity section: not-for-profit: unrestricted, temporarily and permanently restricted net assets Government: unrestricted net assets(position), restricted net assets(position), and net investment in capital assets Business: Contributed Capital and Retained Earnings Statement of Cash Flows: Business and not-for-profits use the FASB format (3 sections); Governments use the GASB format (4 sections)