4/2/2018. Health Care. FASB Revenue Recognition Basics for CHCs. A Basic Overview & Introduction for Community Health Centers

Transcription

1 Health Care FASB Revenue Recognition Basics for CHCs A Basic Overview & Introduction for Community Health Centers April 3,

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 What Is Revenue Recognition? A new Financial Accounting Standards Board (FASB) pronouncement (ASU Topic 606) affecting revenue recognition for all entities following accounting principles generally accepted in the United States of America All not-for-profit CHCs impacted CHCs under Governmental Accounting Standards Board (GASB) have a project, but not complete Why Does a CHC Care? Revenues are a critical financial measure This will significantly affect all CHCs except governmental CHCs under GASB The standard will require time Time to understand it Time to develop & update policies Time to implement it 3

4 FASB Goals for the Standard Eliminate flaws & inconsistencies in previous rules Create a single comprehensive framework for all to apply Standardize practice Improve usefulness of required financial statement disclosures Consolidate all revenue recognition guidance into one standard Today s Goals When? Effective date A new framework Introduce the new five-step model Including key definitions & terms Overview of the impact on your CHC Action items Future revenue recognition webinars 4

5 When Will Revenue Recognition Be Effective for My CHC? Timing Nonpublic Entities Annual reporting periods beginning after December 15, 2018 December 31, 2019, year-ends & after June 30, 2020, if a midyear audit period Other year-ends would be March 31, 2020, or November 30, 2020 Start thinking now due to comparative disclosures 5

6 Timing Public Entities Annual reporting periods beginning after December 15, 2017 December 31, 2018, year-ends & after June 30, 2019, if a midyear audit period Other year-ends would be March 31, 2019, or November 30, 2019 If you are a December 31 year-end public entity, you are under revenue recognition now Public Entities Conduit Debt Obligor What CHC could be a public entity? A conduit debt obligor What is a conduit debt obligor? Issuer of debt that is traded, listed or quoted on an exchange or over-the-counter market Volume &/or frequency of trading is not a factor Bonds are biggest risk for CHCs, but not all bonds qualify 6

7 Public Entities Conduit Debt Obligor How does a CHC know if they are one? Traditional mortgages typically do not qualify New market tax credit debt is typically not publicly traded Bonds should specifically be investigated Not just whether they are traded, but whether they CAN be traded Organization management should determine & document conclusion Review bond documents & discuss with bond attorneys &/or trustees A New Framework 7

8 A New Framework Current Guidance Recognize revenue when it is earned & realizable Standards have a lot of industryspecific sections Rules-based standard A New Framework New guidance Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services Standard not industry-specific Industry-specific guidance in AICPA s Revenue Recognition Accounting & Auditing Guide (AAG) Chapter 7 Shift to principles-based standard 8

9 Introduce the New Five-Step Model & Provide Key Definitions & Terms Revenue Recognition: Five-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 9

10 Identify the Contracts with Customers Characteristics/definition of a contract Between two or more parties Creates enforceable rights & obligations Is in one of the following forms A written arrangement A verbal arrangement An arrangement implied by the entity s ordinary practices when conducting business Identify the Contracts with Customers To recognize revenue from a contract, it must meet the following conditions Approval & commitment of the parties including determining customer rights & payment terms Commercial substance something happened Probability of collection not for free 10

11 Identify the Contracts with Customers Key CHC elements of this step Contracts for patient visits Any signed patient forms >> Written Scheduled appointment or customary business practice >> Implied CHC contracts Exist with third parties Involve credentialing & other terms Governed by state & federal laws governing Medicaid & Medicare Identify the Performance Obligations Organization transfers a distinct good or service Key CHC elements of this step Service is performed for a patient Item is sold to a patient: think prescription Current CHC practice management systems handle the majority of the performance obligation tracking sufficiently Future webinars to explore risks for more complex items outside of traditional patient service revenue 11

12 Determine the Transaction Price The amount of consideration to which the entity expects to be entitled Price concessions complicated element for CHCs 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 Determine the Transaction Price Terms Explicit price concessions Reductions in accepted payment from your fee schedule based on an agreement with a third party or an internal organizational policy CHC examples Contractual adjustments Sliding fee discounts 12

13 Determine the Transaction Price Terms 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 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 For example, understanding that a CHC typically only collects X% of their self-pay balance Determine the Transaction Price Terms Bad debt expense Limited/smaller balance due to implicit price concessions Typically patient/payor-specific event known to entity that suggests the patient/payor no longer has ability & intent to pay amount due represents impairment, like bankruptcy of patient/payor Will be an expense rather than contra revenue account Under ASU , many CHCs adopted it as a contra revenue 13

14 Determine the Transaction Price Variable Consideration Commonly price concessions Potentially discounts like prompt payment discounts Rare items Rebates with the exception of some in-house pharmacy Refunds, credits, incentives, performance bonuses, penalties or payments dependent on future events Determine the Transaction Price Other terms all rare for CHCs unless noted Significant financing Concept of a year or less consider if a material impact Noncash consideration Consideration to a customer: think coupons/vouchers/etc. 14

15 Portfolios Price Concessions Do we seriously have to do this for every contract/patient individually? Thankfully, no Expect CHCs to use the practical expedient Portfolios Similarities to groupings for allowance calculation now Common payor types with similar characteristics Key this approach would not differ materially from considering contracts individually More detailed explanation to follow with webinar #2 Allocate the Transaction Price to the Performance Obligations What do you do if there are multiple performance obligations? CHCs Seeing patients has minimal issues because focused on the visit rather than each component of a visit Think incentives or bundled payments, i.e., prenatal to delivery, where the accounting is more complex 15

16 Recognize Revenue Occurs when customer obtains control of the good or service CHCs Patient visit is performed/completed Good is given: prescription, medical device, etc. Recognize Revenue Note that technically all services are considered over time Irrelevant for most CHC services, as the services are performed in one day & don t typically cross reporting periods More complex with incentives, bundled payments or other items earned over time 16

17 Overview of the Impact on Your CHC Impact Changing Items Fundamental change in terminology Updates in policies Change in the mapping of revenue cycle AR system >> G/L >> financials & footnotes Change in the financial statement disclosures This will all take time 17

18 Impact Practice Management System Your existing practice management system will work Posting contractual adjustments (explicit price concessions) more timely or automatically will help New adjustment codes may be required Potential revisions to monthly revenue journal entries Impact Statement of Operations Your statement of operations presentation will change Patient service revenue = transaction price (one line item) Bad debts >> operating expense The excess (deficiency) of revenues over expenses will not change dramatically for most revenue items Potential exceptions (covered during webinar #4) 18

19 Impact Items That Will NOT Change Exceptions/transactions not covered by the revenue recognition standard Leases Topic 840 Guarantees Topic 460 unlikely to impact CHCs Others with limited applicability Major issue is grants/contributions exchange/nonexchange transactions Topic 958 exposure draft Separate webinar when the standard is finalized Adoption Full retrospective method Retrospective to each prior reporting period presented Note practical expedients are available Modified retrospective method Retrospective & cumulative effect at date of application Disclosures required 19

20 TIME! Management s time Auditor s time & CHC s expense Be proactive because it will give you more flexibility with time & competing priorities Action Items 20

21 Action Items Determine your year of adoption Start thinking timeline Consider revenue streams of your CHC that will be impacted Accumulate questions for your auditor/advisor Continue to educate yourself & organization Future Revenue Recognition Webinars 21

22 Future Revenue Recognition Webinars FASB Revenue Recognition for CHCs: A Focus on Patient Service Revenue Step-by-step working through the five-step model FASB Revenue Recognition for CHCs: A Focus on Financial Reporting Statement of operations, footnote & adoption methodology FASB Revenue Recognition for CHCs: A Focus on Other Affected Revenue Streams How to handle things like pharmacy & third-party cost report settlements bkd.com/fasb4chcs Questions? 22

23 Continuing Professional Education (CPE) Credits BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered. CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at training@bkd.com 23

24 Thank You! David Fields Ally Jackson 24