Kế toán, kiểm toán - Chapter 16: Accounting for health care organizations

 Accounting for Health Care Organizations Chapter16Learning ObjectivesAfter studying Chapter 16, you should be able to:Identify different organizational forms and the related authoritative accounting literature for health care organizationsDescribe financial reporting for health care organizationsExplain unique accounting and measurement issues in health care organizationsJournalize transactions and prepare the basic financial statements for not-for-profit and governmental health care organizationsLearning Objectives (Cont’d)Learning Objectives (Cont’d)Describe other accounting issues in the health care industry:LegislationAuditingTaxation and regulationPrepaid health care servicesContinuing care retirement communitiesExplain financial and operational analysis of health care organizationsHealth Care Organizations, Such as Hospitals, can be Structured asFor-Profit:Investor-OwnedNot-for-Profit:BusinessOrientedNot-for-Profit:GovernmentalHealth Care Organizations (HCOs)— Types of ServicesClinics and individual or group practicesContinuing care retirement communities (CCRCs)Health maintenance organizations (HMOs)Home health agenciesHospitalsNursing homesRehabilitation centersIntegrated systems that include one or more of the above entity typesGAAP for a HCO Depends Upon Its Organizational StructureFor-Profit:Investor-ownedNot-for-Profit: Business Oriented Not-for-Profit: GovernmentalBusiness-typeFASB CodificationGASB CodificationAICPA Audit and Accounting Guide Health Care EntitiesTerminology in Remainder of SlidesIn the remainder of the slides the term:Not-for-profit refers to a nongovernmental not-for-profit HCOGovernmental is used to refer to a governmental business-type not-for-profit HCOFinancial Statements for HCOsNot-for-profit (NFP) and for-profit organizationsBalance sheet or statement of financial position (see Ill. 16-3)Statement of operations (see Ill. 16-4) Statement of changes in net assets (see Ill. 16-4)Statement of cash flows (see Ill. 16-5)Financial Statements for HCOs (Cont’d)Governmental – most governmental HCOs operate as business-type organizations using proprietary fund accounting and reporting Statement of net positionStatement of revenues, expenses and changes in net positionStatement of cash flows (see Ill. 16-6)Equity Reported on the Balance Sheet or Statement of Net PositionNFP—unrestricted net assets, temporarily restricted net assets, and permanently restricted net assetsGovernmental—unrestricted net position, restricted net position, net investment in capital assetsFor-Profit—capital stock and retained earningsAssetsAssets limited as to use is an asset category associated with NFPsAssets limited by contracts or agreements with outside parties other than donors or grantors, as well as limitations placed on assets by the boardShow on the financial statements or disclose in the notes separating assets with external limits from those with internal limits (board placed limits)Restricted assets are used by governmental HCOsAssets with restrictions placed by the donor or other external party Operating StatementsGovernmental HCOs must report operating and nonoperating activitiesNFPs may optionally reportOperating income/expense, which arises from ongoing major activitiesNonoperating income/expense, which arises from transactions peripheral or incidental to the delivery of health care, such as interest income/expense and unrestricted contributionsNFP health care organizations must include a performance indicator in their operating statementThe purpose of reporting a performance indicator is to provide an operating measure comparable to income from continuing operations of a for-profit health care organizationThe measure aids in comparing the performance across health care organizations with different organizational forms Performance IndicatorExamples of a performance indicator include:Excess of revenues over expensesExcess of revenues and gains over expenses and lossesEarned incomePerformance earningsPerformance Indicator (Cont’d)Performance Indicator (Cont’d)Include in the performance indicator: investment income, realized gains and losses, unrealized gains and losses on trading securitiesExclude from the performance indicator (among others): transactions with owners, receipt of restricted contributions, restricted investment incomePrincipal Sources of Revenue for a HCOPatient service revenueGovernment (e.g., Medicare/Medicaid)Third party payors (e.g., insurance co.)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., auxiliary services, investment income, unrestricted contributions)Revenue (Cont’d)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) Example: A hospital billed $50,000 for services on which it expected to make contractual adjustments of $20,000. Debit Credit Accounts and Notes Receivable 30,000 Contractual Adjustments (contra-revenue) 20,000 Patient Service Revenue 50,000Revenue (Cont’d)Prepaid health care plans that earn revenue from agreements to provide service record revenue at the point agreements are made, not when services are renderedPayment often comes from third-party payors, Medicare, or Blue Cross or private insurance companies according to allowable costs or predetermined (prospective) rates for servicesRevenue (Cont’d)Charity care to indigent patients for which payment is never expectedCharity care is not recordedFASB requires the NFP HCOs disclose their policy related to providing charity care FASB requires that the amount of charity care provided be measured at the cost of providing the careGASB is silent with regard to charity care reportingRevenue (Cont’d)NFPs report donated services at their fair value if material and criteria are metCreate or enhance nonfinancial assets ORRequire specialized skill, provided by someone with specialized skill, and otherwise would be purchased if not donatedGASB does not provide for recognition of donated servicesNFPs and governmental HCOs report donated noncash assets at their fair valueUse accrual accounting with transactions recorded similarly by all HCOsExpenses can be reported by natural classification (e.g., salaries and supplies) or functional categories (e.g., inpatient services and administrative services)FASB requires NFPs to disclose the functional categories in the notes if a natural classification is used on the face of the financial statementsAt a minimum NFPs must disclose the program and support expenses separatelyExpensesExpenses (Cont’d)Bad debts Reported as an operating expense by NFP and for-profit organizationsReported as reduction of gross revenue by governmental organizations Example: A hospital records an adjusting entry to increase its allowance for uncollectible receivables by $2,000 Debit Credit Provision for Bad Debts 2,000 Allowance for Uncollectible Receivables 2,000 (Note: Although the same account titles are used, NFPs report the provision as an operating expense and governments report it as a contra account)Statement of Changes in Net AssetsNFPs prepare a statement of changes in net assets, whichShows the changes in the three net asset categoriesCan be prepared as a separate statement or combined with the operating statementFrequently NFPs prepare as a separate statementAllows NFP NCOs to separate operating activity from changes related to nonoperating activityMakes the operating statement more comparable to for-profit HCOsStatement of Cash FlowsNFP HCOs prepare using direct or indirect method and the three classes (operating, investing, and financing)Governmental HCOs prepare using the direct method and four classes (operating, noncapital financing, capital and related financing, and investing)Particular auditing issues facing HCOs relate to:ContingenciesThird-party payorsRelated entitiesRestructuringHealth care fraud and illegal actsApplication of the Single Audit Act Amendments of 1996 and OMB Circular A-133 AuditingTax-exempt HCOs must conform to IRC sections and IRS regulationsIntermediate sanctionsUnrelated business incomeThe IRS also investigates:Physician recruiting incentivesJoint operating agreementsPrivate activity bondsIndependent contractor vs. employee statusDistribution of assets of NFPs that restructureTaxation and RegulationPatient Protection and Affordability ActPassed in 2010 the act has numerous provisions and is controversialAccording to the act the purpose is to improve the quality of health careThe law is being enacted over the period 2010 to 2014 with most of the provisions focused on the health insurance industryIt is unclear how the act will impact financial accounting and reporting by HCOsHealth maintenance organizations (HMOs) and preferred provider organizations (PPOs) function as brokers between the patient demanding the service and the providers of the service (hospitals and health care professionals)Accounting issues relate to:Revenue recognitionAccounting for risk contracts to cover when premium revenue does not cover agreed-upon costsPrepaid Healthcare PlansContinuing Care Retirement Communities (CCRCs)CCRCs provide residential care in a facility, along with some level of long-term medical care that is less intensive than hospital careAccounting issues relate to:Entrance fees that include future health careThe obligation to deliver future health servicesPeriodic fees to cover operating costsRefundable advance feesDecision makers evaluate HCOs for different reasons:Managers are accountable for performanceFinancial analysts determine the creditworthiness of organizations issuing debtThird-party payors determine appropriate payment for servicePatients assess quality of health care services, such as success rate of certain procedures Financial and OperationalAnalysis of HCOsPatient volume (e.g., occupancy rate or daily census and average length of stay)Patient and payout mix (e.g., Medicare, commercial, private pay)Productivity and efficiency (e.g., personnel per average daily census)Quality of care (e.g., process and outcome measures for major medical conditions and procedures)HCO Performance Measures can be Categorized byConcluding CommentsHealth care accounting and auditing is complexComplexity is due in large measure to patient service revenue being provided by third-party payorsCompetency in managerial cost accounting is critical for managers of health care providersEND