Health Care. A Focus on Patient Service Revenue. FASB Revenue Recognition for CHCs: 4/10/2018

Transcription

1 Health Care FASB Revenue Recognition for CHCs: A Focus on Patient Service Revenue Applying the 5-Step Model to the Traditional Patient Service Revenue Cycle of a Community Health Center April 10,

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificate within 15 business days of live webinar Presenters David Fields, CPA, CMA, CFM Partner dfields@bkd.com Ally Jackson, CPA Manager ajackson@bkd.com 2

3 Revenue Recognition What is the most significant source of revenue for a CHC affected by this new standard? Traditional patient service revenue (PSR) Why do I say traditional patient service revenue? Pharmacy, incentives, bundled payments, capitation, etc. Revenue recognition from abstract to example Today s Goals 5-Step Model for traditional PSR Portfolios: detailed & practical explanation for PSR Opportunity to better understand a CHC revenue cycle Policies to consider Action items Future revenue recognition webinars 3

4 Revenue Recognition: 5-Step Model 1) Identify the contracts with customers 2) Identify the performance obligations 3) Determine the transaction price 4) Allocate the transaction price to the performance obligations 5) Recognize revenue when (or as) performance obligations are satisfied 5-Step Model for Traditional Patient Service Revenue (PSR) 4

5 Step 1 Identify the Contracts Identify the contracts with customers Who are our customers? Do we have contracts? (focus on accounting not legal) Characteristics of a contract 2 parties = CHC & patient Enforceable rights & obligations = yes What is the form? written/implied Step 1 Identify the Contracts Criteria to recognize revenue from a contract Approval & commitment consent to treat, etc. Determining customer rights & payments Patient care & fee schedule Commercial substance provided care/labs/etc. Probable of collection Free care does not equal revenue see transaction price later 5

6 Step 2 Identify the Performance Obligation Identify the performance obligation Distinct service patient care Distinct good medication, medical device, etc. Capable of being distinct & distinct within the context of the contract Global billing OB/GYN Documentation Patient medical record Step 3 Determine Transaction Price Determine the transaction price Amount of consideration to which the entity expects to be entitled Price Concessions complicated element for CHC s Gross charges do not equal the transaction price Reduce by explicit price concessions: see definition Reduce by implicit price concessions: see definition Gross charges explicit implicit = transaction price 6

7 Step 3 Determine Transaction Price Transaction price Should be based on historical, current & forecasted information Includes primary & secondary insurance coverage Must update estimated transaction price at the end of each reporting period Monthly? Quarterly? Annually? Step 3 Determine Transaction Price Explicit price concessions Reductions in accepted payment from your fee schedule based on an agreement with a 3 rd party or an internal organizational policy CHC examples Contractual adjustments Sliding fee discounts 7

8 Step 3 Determine Transaction Price Implicit price concessions Chapter 9: Health Center Program Compliance Manual says The health center must operate in a manner such that no patient shall be denied services due to an individual s inability to pay. This leads to implicit price concessions after explicit price concessions While CHCs should try to maximize their legal reimbursement, CHCs understand that they will not collect 100% of the remaining balance due to them. The implicit price concessions a CHC does not expect to collect are based on historical collections Step 3 Determine Transaction Price Bad debt expense Limited/smaller balance due to implicit price concessions Typically patient/payer-specific event known to entity that suggests the patient/payer no longer has ability & intent to pay represents impairment, like bankruptcy of patient/payer Will be an expense rather than contra revenue account Under ASU adopted by many CHCs, it was a contra revenue account 8

9 Changes in Mapping of Revenue Cycle Gross charges practice management system Explicit price concessions practice management system &/or allowance methodology Implicit price concessions practice management system &/or allowance methodology Bad debt expense practice management system Step 3 Determine Transaction Price Portfolios practical expedient criteria May be used to account for patient contracts as a collective group rather than individual Similar contracts with similar classes of customers Only if financial statement effects are not expected to materially differ from individual contract approach Consider both sufficiency & homogeneity of portfolio data 9

10 Step 4 Allocate Transaction Price Allocate the transaction price to the performance obligations Only applies when multiple performance obligations exist Practically significant when over more than one reporting period Performance obligations & gross charges easily identifiable based on charge master May apply portfolio approach to similar performance obligations Step 5 Recognize Revenues Recognize revenue as performance obligations are satisfied Not expected to result in any significant changes from revenue being recognized as procedures are performed (current methodology) Consideration of revenue cut-off CHCs struggle (not new) close charts/visits timely from providers, record encounters on correct date, post payments on the date they are received 10

11 Portfolios: Detailed & Practical Explanation for Traditional Patient Service Revenue Portfolios Contract characteristics Type of service medical, dental, behavioral health, lab, other specialty, etc. Type of payer Medicaid, Medicare, managed care, wrap-around payments, commercial insurance, other third-party payers, sliding scale, uninsured self-pay, etc. Timing Not all will be used, but more than historically 11

12 Portfolios Key point To ensure revenue recognition on a portfolio basis is not materially different compared to individual contract approach, CHCs should consider Sufficiency of the portfolio data how much experience it has with the portfolio Homogeneity of the data the similarity of patient accounts within a portfolio Portfolios Special Considerations State-by-state Medicaid Medicaid & Medicare managed care Wrap-around Time of year for patient responsibility under highdeductible plans Medicaid pending Previous uncollectible balance write-offs Patient populations, i.e., homeless Sites 12

13 Portfolios Monitor regularly & update for changes in collection patterns, reimbursement rates, insurance exchanges or intermediaries, etc. Changes in expectation of the amount entities expect to receive will be recorded in revenue (change in estimates) Unless entity has obtained adverse information regarding patients ability & intent to pay (bad debt expense) Example #1 Sliding Fee Portfolio Facts Sliding fee gross charges = $3 million Sliding fee adjustments = $2.55 million Patient payments on date of service = $80,000 80% of expected total payments Transaction Price Gross charges = $3 million Explicit price concession = $2.55 million Implicit price concession = $350,000 Transaction price = $100,000 13

14 Example #2 Medicare Portfolio Facts Transaction Price Medicare gross charges = $1.65 million Medicare contractual adjustments = $150,000 Remaining balance Medicare (100% collectible) = 80% Patient (33% collectible) = 20% No secondary insurance (MCD) Gross charges = $1.65 million Explicit price concession = $150,000 Implicit price concession = $200,000 Transaction price = $1.3 million Example #2 Change in Facts Facts Change During Reporting Period Original transaction price = $1.3 million Patient = $100,000 Revised collectible patient responsibility = $60,000 No adverse information regarding patients financial condition Transaction Price Gross charges = $1.65 million Explicit price concession = $150,000 Implicit price concession = $240,000 Transaction price = $1.26 million 14

15 Example #2 Change in facts Facts Change in Subsequent Reporting Period Revised transaction price = $1.26 million Revised patient = $60,000 Actual patient payments = $120,000 $60,000 change in estimate in subsequent reporting period Portfolios Key Takeaways Importance of accurate payer information in PMS Sufficiency & homogeneity of data Consideration of automated adjustments in PMS Less manual estimation of transaction price if gross charges & explicit price concessions are system-generated Requirement to update at end of each reporting period Develop >> analyze >> revise 15

16 Opportunity to Better Understand A CHC Revenue Cycle Practice Management System Your existing practice management system will work Significance of accuracy of patient/payer information Consideration of application of explicit price concessions Apply contractual adjustments automatically at time of billing? Major payers? Not just Medicaid, Medicare & sliding fee Distinction between implicit price concessions & bad debt expense 16

17 Increased Monitoring of Revenue Cycle Potential for improved collections due to increased focus & scrutiny on price concessions & collectible balances Emphasis on live accurate practice management system reporting due to automated application of price concessions Additional emphasis on monitoring actual results compared to estimated collectability Polices to Consider 17

18 Policies to Consider Traditional patient service revenue will be recognized in accordance with ASC 606 using the 5-Step Model Recommendation to elect to use the portfolio approach as a practical expedient If financial statement effects are not expected to materially differ from an individual contract approach Consideration in determining portfolios Monitoring of portfolios & updates to transaction prices Action Items 18

19 Action Items Practical expedient or not hint choose expedient The portfolio approach is the only practical solution Analyze patient service revenue categories Determine portfolios Improvements to practice management system Categories or category groupings in AR system Posting adjustments Develop a timeline for implementation Future Revenue Recognition Webinars 19

20 Future Revenue Recognition Webinars Financial reporting Statement of operations, footnote & adoption methodology Other impacted revenue streams How to handle things like pharmacy & third-party cost report settlements Archived webinar Basics Questions? 20

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22 Thank You! David Fields Ally Jackson 22