Chapter 12C

For-Profit:
Proprietary
Not-for-Profit:
Voluntary
Governmental:
Public


Clinics and individual or group practices

Continuing care retirement communities

Health maintenance organizations (HMOs)
 Home health agencies

Hospitals

Nursing homes

Rehabilitation centers

For-Profit:
Proprietary
Not-for-Profit:
Voluntary
Governmental:
Public
FASB
Guidance
GASB
Guidance
AICPA Audit and Accounting Guide
Health Care Organizations

Governmental health care organizations follow
GASBS 34 and are considered special purpose governments that may be:
 component units of another government, or
 stand-alone governmental entities.
These governmental entities may be engaged either governmental or business-type activities or both.

 This guidance includes:
 using full accrual accounting
 capitalizing long-lived assets
 depreciating those capital assets


Balance Sheet

Statement of Operations

Statement of Changes in Net Assets

Statement of Cash Flows – could be either 3 or 4 sections depending on type of hospital.

NPO
— unrestricted net assets; temporarily restricted net assets; and permanently restricted net assets
Governmental — unrestricted net assets; restricted net assets; invested in capital assets, net of related debt
For-Profit
— capital stock and retained earnings

 patient service revenue (cash)
 government (e.g., Medicare/Medicaid payments)
 third party payors (e.g., Blue Cross/Blue Shield)
 premium revenue from capitation fees (i.e. fixed fees per person paid periodically regardless of services provided)
 resident service revenue (e.g., maintenance or rental fees)
 other revenue (e.g., sales, fees, rental of facilities, investment income and gains, unrestricted contributions)

 Patient service revenue is reported net of contractual adjustments (i.e., differences between gross charges and the amount to be paid by third party payors) - Medicaid
 Prepaid health care plans that earn revenue from agreements to provide service record revenue at the point agreements are made, not when services are rendered. (Fee for Service)


Charity service to indigent patients for which payment is never expected is not recorded, but may be reported in the notes to the financial statements.

Operating income arises from ongoing major activities, such as service revenue

Nonoperating income arises from transactions such as investment income.

 Payment often comes from third-party payors ,
Medicare or Blue Cross or private insurance companies according to allowable costs or predetermined (prospective) rates for services.
 Donated services and supplies are reported at their fair value

 Current Assets (including receivables with related allowance accounts for contractual adjustments and bad debts)
 Assets limited as to use — assets limited by contracts or agreements with outside parties other than donors or grantors, as well as limitations placed on assets by the Board.
 Investments (at fair value, see relevant FASB or
GASB statements for exact treatment)
 Noncurrent assets (e.g., plant property and equipment)

o Use full accrual accounting o Bad debts is an expense (not a reduction of gross revenue, as it had been in the past) o Depreciation is recorded on capital assets o Expenses can be reported by natural classification
(e.g., line items such as salaries and supplies) or functional categories, such as inpatient services and fiscal and administrative services.

 malpractice claims
 risk contracting
 third-party payor payments
 obligations to provide uncompensated care
 contractual agreements with physicians
 as well as others incurred in any business

 The health care industry requires capital investment in buildings and equipment which often results in the need for long term debt financing.
 Financing assistance may be available through governmental financing authorities, without regard to the legal structure of the HCO.
 Financing agreements may include requirements to set aside funds for repayments, in which case these are called Assets Limited as to Use .


All hospitals use comprehensive budgets for managerial purposes

Only governmental hospitals record budgets in the fund accounts.

Taxation and Regulation
Tax-exempt HCOs must conform to IRS regulations
 Intermediate sanctions –
 Loss of tax-exempt status
 Fines & penalties
 Limitation of services allowed to be provided
 License granting or renewal

Charity Services For Hospitals
The hospital should not make any journal entries related to Charitable hospital work or supplies.
This following charitable information should be disclosed in the notes:
1) Policies for providing services
2) Value of care provided