Assignment: Uncompensated Hospital Care

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Assignment: Uncompensated Hospital Care

Assignment: Uncompensated Hospital Care

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bAd debt And cHArIty cAre Although they are not methods of third-party payment, bad debt and charity care are impor- tant concepts to discuss in this context because the amounts are substantial in healthcare organizations.

bAd debt

Bad debt refers to unpaid healthcare bills. Healthcare organizations that use accrual account- ing incur bad debt expense when they receive no payment or partial payment on an invoice and then write off all or part of the account. The AICPA Audit and Accounting Guide for Health Care Entities (2010) required that healthcare organizations report bad debt expense as an operating expense based on charges, not costs. While reporting charges overstates the value of bad debt, hospitals can uniformly report charges for bad debt, whereas hospitals would have some difficulty reporting costs for bad debt because of the variety of ways to determine cost. The AICPA Audit and Accounting Guide for Health Care Entities (2012, 170) requires that a

AICPA is considering a proposal to include classic bad debt as an operating expense based on rates and to include bad debt determined at time of service due to the hospital’s financial assistance policy or the patient’s high and unaffordable insurance deductible as an implied price concession as a deduction from revenue.

cHArIty cAre

Healthcare organizations incur charity care expense when they provide care to patients who they know are unable to pay. The AICPA Audit and Accounting Guide for Health Care Entities (2010) requires that healthcare organizations not report charity care as revenue, a deduction from revenue, or an operating expense. Rather, it requires that healthcare organizations report the level of charity care (at full cost) in a note to the statement of

operations in the annual report, along with the organization’s policy for providing charity care and the method used to determine cost.

uncomPensAted cAre

According to American Hospital Association (AHA) data for 2014 and 2015 (see exhibit 5.7), hospital spending for uncompensated care, which is the total of bad debt and charity care, showed a decline in 2014 for the first time since 2001; the decline continued in 2015 (AHA 2016c). Uncompensated hospital care was $435.7 billion in 2015 and represented 4.2 percent of hospital total expenses (AHA 2016a). Medicaid expansion in 31 states likely caused the reduction in uncompensated care. Hospitals often attempt to shift uncompensated care costs along with Medicare and Medicaid shortfalls to paying patients through increased charges. To the extent they cannot shift these costs, hospitals cut costs in other areas.


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