Health Care. A Focus on Financial Reporting. FASB Revenue Recognition for CHCs: 4/16/2018

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1 Health Care FASB Revenue Recognition for CHCs: A Focus on Financial Reporting Helping Community Health Centers Understand the Changes Needed for Financial Statement Presentation & Disclosure Requirements April 17,

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 Key goal of the standard = improve usefulness of required financial statement disclosures Footnotes Balance sheet Statement of operations Today s Goals Implementation/adoption options Increased disclosure requirements Required disclosures public vs non-public Policy updates driven by required disclosures Impact on financial statement presentation Action items 3

4 Implementation of ASC 606 Timing Public vs. Non-Public Entities Public entities Annual reporting periods beginning after December 15, 2017 December 31, 2018 year-ends & after Non-public entities Annual reporting periods beginning after December 15, 2018 December 31, 2019 year-ends & after 4

5 Methods of Adoption Full retrospective method Retrospectively to each prior reporting period presented Subject to practical expedients Modified retrospective method Retrospectively with the cumulative effect recognized at the date of initial application Additional disclosures required Methods of Adoption - Terms Disclosure required for change in accounting principle Nature & reason for change Method for applying change Date of initial application = start of reporting period of first application Completed contract = contract for which all (or substantially all) of the revenue was recognized before the date of initial application 5

6 Methods of Adoption - Example December 31, 2019 fiscal period end non-public entity Date of initial application = January 1, 2019 Completed contract = contract for which all (or substantially all) of the revenue was recognized before January 1, 2019 Full Retrospective Method Practical Expedients For completed contracts, a CHC need not restate contracts that begin & end within the same annual reporting period For completed contracts that have variable consideration, a CHC may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods For all reporting periods presented before the date of initial application, a CHC need not disclose the amount of the transaction price allocated to remaining performance obligations & an explanation of when the CHC expects to recognize that amount as revenue (comparative disclosures) 6

7 Full Retrospective Method Practical Expedients For any practical expedients used, they should be applied consistently to all contracts within all reporting periods presented Disclose effect of changes on comparative reporting periods only Disclose expedients that have been used &, to the extent reasonably possible, a qualitative assessment of the estimated effect of applying each expedient Modified Retrospective Method Recognize cumulative effect of initial application as an adjustment to beginning unrestricted net assets for the annual reporting period of initial adoption Option to elect to apply to all contracts at date of initial application or only to contracts not completed at the date of initial application Disclosure required Same option & disclosure requirements as full retrospective method regarding contracts modified before the beginning of the earliest reporting period presented 7

8 Understand the Impact Then Your Options What are your CHC revenue streams? Which revenue streams, if any, will require restatement? Would presenting a single year financial statement reduce implementation time & complexity? Consider choosing the option that meets the needs of the Organization & the user of the financial statements with the least amount of work Impact on Audit Report Change in Accounting Principle paragraph added to Notes to the Financial Statements Emphasis of Matter paragraph added to opinion letters 8

9 Audit Opinion Letter Additional Paragraph Footnote Disclosure Retrospective Restatement in Year of Adoption 9

10 Changes to Community Health Center Disclosures Current Presentation & Disclosure How robust is your current net patient service revenue disclosure? Patient accounts receivable & patient service revenue separated from other revenue streams (balance sheet & statement of operations) Commonly revenue by major payer classes is disclosed in footnotes Judgments & changes in judgments affecting amount & timing of revenue Nature of services, significant payment terms, & inputs or assumptions in calculating revenue recognition Material changes in estimates due to retrospective rate adjustments/final cost report settlements 10

11 Required Disclosures Nature, amount, timing, & uncertainty of revenue & cash flows Point in time versus over time Method used to recognize revenue if performance obligations are satisfied over time Qualitative & quantitative information about Contracts with customers Significant judgments, & changes in judgments Adoption methodology impacts disclosures for each reporting period presented Required Disclosures Public vs. Non-Public Disclosure Description Public Non-Public 1. Contracts with patients (customers) Revenue recognized (patient services revenue or other) & impairment loss (bad debt), separated Yes Yes from other sources of revenue (grants, contributions, etc.) a. Disaggregation of revenue Categories that depict the nature, amount, timing & uncertainty of revenue & cash flows (like payer type Medicaid, Medicare, etc.) Yes No b. Disaggregation of revenue Revenue recognized based on timing of satisfaction of performance obligations; Qualitative information about economic factors affecting the nature, amount, timing & uncertainty of revenue & cash flows (narrative rather than #s) N/A Yes, unless elect 1.a. 11

12 Required Disclosures Public vs. Non-Public Disclosure Description Public Non-Public 1. Contracts with patients c. Contract balances Opening & closing balances of receivables, contract assets & liabilities (may not apply to all CHC s) Yes Yes d. Contract balances Revenue recognized that was included in the contract liability at the beg. of the reporting period; Correlation between timing of satisfaction of performance obligations & typical timing of payment; Cause of significant changes in contract asset & liability balances (may not apply to all CHC s) Yes No Required Disclosures Public vs. Non-Public Disclosure Description Public Non-Public 1. Contracts with patients e. Performance obligations Timing of satisfaction of performance obligations; Significant payment terms; Nature of goods/services; (CHC limited - obligations for returns, refunds, types of warranties) Yes Yes f. Performance obligations Aggregate transaction price allocated to unsatisfied performance obligations; Revenue recognized for performance obligations satisfied in previous periods; Expected timing of recognition of revenue for unsatisfied performance obligations (CHCs to consider which performance obligations cross financial periods affecting this disclosure) Yes No 12

13 Required Disclosures Public vs. Non-Public Disclosure Description Public Non-Public 2. Significant judgments Judgments & changes in judgments that significantly affect the amount & timing of revenue Yes Yes a. For performance obligations satisfied over time, method used to recognize revenue (CHCs to identify) Yes Yes b. For performance obligations satisfied over time, explanation on how methods used faithfully depict the transfer of goods/services Yes No c. For performance obligations satisfied at a point in time, significant judgments made in evaluating when a customer obtains control Yes No d. Methods, inputs & assumptions used for determining transaction price & allocating the transaction price Yes No e. Methods, inputs & assumptions used for assessing whether an estimate is constrained (think AR allowance & 3 rd party estimates) Yes Yes, unless elect 2.d. Required Disclosures Public vs. Non-Public Disclosure Description Public Non-Public 2. Significant judgments f. Amount of sliding fee adjustments & implicit price concessions (not required, may quantify community benefit) No No g. Methods, inputs & assumptions used for measuring obligations for returns, refunds & similar obligations (expect limited for CHCs) Yes No 3. Assets arising from costs to obtain or fulfill a contract a. Judgments made in determining amount of cost incurred & method used to determine amortization Yes No b. Closing balances & amount of amortization & impairment losses Yes No 13

14 Disaggregation of Revenue By Payer Disaggregation of Revenue By Service Line & Timing 14

15 Consideration for Non-Public CHCs Will CHCs choose to report revenue by payer type instead of qualitative disclosures? Will revenue by location or service line be deemed significant enough to disclose (not required for non-public)? Expect portfolio approach as practical expedient Policies & methods, inputs & assumptions in determining portfolios need to be addressed Revenue Recognition Policy Checklist 15

16 Revenue Recognition Policies Definition of revenue to be reported (hint: amount that reflects the consideration to which the CHC expects to be entitled in exchange for providing patient care) Timing of revenue recognition (hint: as performance obligations are satisfied) Commencement to completion of service >> over time Goods provided to patients >> point in time When no longer required to provide additional goods or services Revenue Recognition Policies Determination of transaction price 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 16

17 Revenue Recognition Policies Basis for estimates of settlements with third-party payers Treatment of adjustments to estimated settlements in future reporting periods Changes to Community Health Center Financial Statement Presentation 17

18 Balance Sheet Allowance for uncollectible accounts no longer disclosed, unless material (think bad debt expense) Contract assets & liabilities may apply Contract asset = CHC provides goods/performs services before payment is due Contract liability = Non-refundable advance payments by patient before goods received/services performed Statement of Operations Transaction price recorded as patient care service revenue Gross charges explicit implicit = transaction price One line item instead of the three if you interpreted ASU as applying to your CHC Operating expense - limited/smaller balance of bad debt expense due to implicit price concessions 18

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20 Action Items Action Items Get the outside assistance you need for implementation Determine your adoption approach Update your policies Identify sources of qualitative data needed Document quantitative data needed Begin capturing data needed for presentation & disclosure 20

21 Future Revenue Recognition Webinars Future Revenue Recognition Webinars FASB Revenue Recognition for CHCs: A Focus on Other Affected Revenue Streams How to handle things like pharmacy & third-party cost report settlements Archived webinars FASB Revenue Recognition Basics for CHCs FASB Revenue Recognition for CHCs: A Focus on Patient Service Revenue bkd.com/fasb4chcs 21

22 Questions? 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. 22

23 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 Thank You! David Fields Ally Jackson 23

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