Lori,
The Financial Accounting Standards Board (FASB, not AICPA) Emerging Issues Task Force (EITF) has released its second exposure draft on an Accounting Standards Update (ASU) for Health Care Entities (Topic 954).
(Got all those acronyms?)
That this is the second exposure draft means that this will probably happen and that they are looking for clarification after a lot of comments on their first exposure draft. The comment period ended February 15, 2011, so a final pronouncement would possibly come this summer, unless they just sit on it. With that, there is usually an implementation timeline which should mean that you won’t start seeing new presentation until December 31, 2011 financial statements or later.
The biggest difference in classification is that they are probably going to move Bad Debts out of expenses and into operating income.
The new statement would look something like this:
Old Net Patient Service Revenue amount $XXX
Bad Debts $XXX
New Net patient Service Revenue amount $XXX
You should still be able to see the bad debt amount on the front of the Statement of Operations, just as negative revenue instead of expense.
The reason for this move is that current discounts to third party payors are netted into NPSR. Bad debt is only linked to self-pay amounts. What they are thinking is, “What’s the difference between discounts on third party payors against charges or self-pay discounts on charges.”
For things like ratings and covenants, what this means is that your expenses are going to go down, though your performance indicator will remain the same since bad debt was in the performance indicator before and after this rule change.
There will also be some new notes to the financial statements disclosures and tables, but they should not affect the front of the statements.