8/3/2018 Implementing Revenue Recognition for Health Care Organizations AUGUST 6, 2018 TO RECEIVE CPE CREDIT • Individuals Participate in entire webinar Answer polls when they are provided • Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to training@bkd.com within 24 hours of webinar • If all eligibility requirements are met, each participant will be emailed their CPE certificate within 15 business days of webinar 1
8/3/2018 INTRODUCTIONS Kimberly McKay, CPA Managing Partner kmckay@bkd.com Brian Pavona, CPA Managing Director bpavona@bkd.com Background & Key Principles 2
8/3/2018 ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS • Effective for Public Business Entities (& not-for-profit entities that are conduit debt obligors) in fiscal years & interim periods beginning after December 15, 2017 • Effective for all other entities in fiscal years beginning after December 15, 2018 • Principles-based approach instead of a rules-based approach OBJECTIVES OF THE NEW REVENUE STANDARD Remove inconsistencies Provide a more robust & weaknesses in existing framework for addressing requirements to improve revenue issues comparability FASB/IASB* converged standard Simplify the preparation Provide more useful of financial statements by information through reducing the number of improved disclosure requirements by having requirements one revenue framework *IASB: International Accounting Standards Board/FASB: Financial Accounting Standards Board 3
8/3/2018 ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS This ASU superseded health care industry-specific guidance & substantially all existing revenue recognition guidance & added significant interim & annual disclosures PROMISED GOODS CONSIDERATION OR SERVICES TO TO WHICH THE CUSTOMERS ENTITY EXPECTS TO BE ENTITLED CORE PRINCIPLE recognizing 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 NEW REVENUE RECOGNITION PROCESS Identify contract with a customer Identify performance obligations Determine the transaction price Allocate the transaction price Recognize revenue when/as a performance obligation is satisfied 4
8/3/2018 ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS EXCEPTIONS • Lease contracts • Insurance contracts • Financial instruments • Guarantees • Nonmonetary exchanges in the same line of SCOPE OF NEW STANDARD business to facilitate sales to customers All entities that enter into contracts with customers EXCLUSIONS • Public, private, not-for-profit • Contributions • Regardless of industry • Collaborative agreements 9 ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS Insurance Contract Exception • Entities that fall under ASC 944: Financial Services – Insurance Entities are excluded However … • Entities that fall under ASC 954: Health Care Entities are in scope & so their insurance-related revenues need to be considered • Arrangements seen within health care entities that are in-scope include the following examples • Claims handling/ASO arrangements • Capitation & prepaid arrangements 10 5
8/3/2018 ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS Contributions & Grants Exclusion • While excluded from ASU 2014-09, new guidance was issued recently On June 21, 2018, the FASB Issued ASU 2018-08, Clarifying the Scope & the Accounting Guidance for Contributions Received & Contributions Made 11 Transition Methods & Guidance 6
8/3/2018 TRANSITION APPROACHES *assumes a public entity with a December 31 year-end Transition Date of Cumulative 2017 2018 Approach Effect Adjustment* Restate for all Full Retrospective Apply to all contracts January 1, 2017 contracts Restate for all Full Retrospective contracts except Using One or More Apply to all contracts January 1, 2017 contracts covered by Practical Expedients practical expedients No contracts restated; Modified reported based on Apply to all contracts January 1, 2018 Retrospective legacy guidance 13 TRANSITION HELP FASB/IASB AICPA SEC TRG AICPA Financial Focus on consistent • Advises the Boards Reporting Executive application • Does not have Committee (FinREC) standard-setting authority AICPA Revenue Focus on accounting Recognition Working questions that may Group require standard setting Focus on internal AICPA 16 Industry Task controls, systems & Forces (RRTF) processes 7
8/3/2018 AICPA REVENUE RECOGNITION TASK FORCES Aerospace & Defense Hospitality Airlines Insurance Asset Management Not-for-profit Broker-Dealers Oil & Gas Construction Contractors Power & Utility Depository Institutions Software Gaming Telecommunications Health Care Timeshare AICPA REVENUE RECOGNITION TASK FORCES • Develop a new Accounting Guide on Revenue Recognition • Guide to provide helpful hints & illustrative examples on how to apply the standard • Guidance will not be prescriptive but instead is intended to be a resource • Full implementation issues are posted for comment after review from the overall Revenue Recognition Working Group & FinREC • List of issues for the health care industry is posted on the AICPA website https://www.aicpa.org/interestareas/frc/accountingfinancialreporting/revenuerecognition/rrtf-healthcare.html 8
8/3/2018 HEALTH CARE ISSUES IDENTIFIED BY THE AICPA REVENUE RECOGNITION TASK FORCE Issues identified & finalized • Revenue recognition for self-pay patients • Application of Steps 1 & 3 • Application of the portfolio approach • Disclosure requirements • Performance obligations (other than CCRCs) HEALTH CARE ISSUES IDENTIFIED BY THE AICPA REVENUE RECOGNITION TASK FORCE Issues identified & open • Third-party estimates • To be published in the next version of the revenue recognition guide • Bundled payments & risk sharing arrangements • To be published in the next version of the revenue recognition guide • Contract acquisition costs • Final paper to be presented to FIN Rec in September of 2018 • Identifying the performance obligation & recognition of refundable & nonrefundable entrance fees for CCRCs, including significance financing component considerations & future service obligations • Final paper to be presented to FIN Rec in September of 2018 9
8/3/2018 HEALTH CARE ISSUES BEING CONSIDERED BY HFMA PRINCIPLES & PRACTICES BOARD The effect of Update of revenue HFMA Medicaid recognition Capitation Statement 15 supplemental on Medicare revenue on Bad Debt payment cost & Charity programs reporting Care Common Industry Implementation Challenges 10
8/3/2018 A legally enforceable contract can be 1 written, oral or implied by an entity’s customary business practices , & needs to meet all of the following requirements STEP 1 – The parties The entity IDENTIFY have can identify It has approved the each party’s CONTRACT(S) commercial contract & are rights WITH A substance committed to regarding their goods or CUSTOMER obligations services It is probable The entity the entity will can identify collect the the payment amount of terms for the consideration goods or to which it will services be entitled COLLECTIBILITY CONSIDERATIONS Before applying the model in the standard to a contract, it must be probable that the entity will collect substantially all of the consideration to which it is entitled in exchange for the goods & services that will be transferred to the customer If this collectability threshold is A health care entity may make Assessment is based on both not met, a contract with a patient this determination based on past the customer’s ability & intent to does not exist within the scope experience with that patient or pay as amounts become due of the standard class of similar patients May be difficult for entities to No such thing as cash basis assess 11
8/3/2018 Transaction price is the amount of consideration an 3 entity expects to be entitled to STEP 3 – Significant Consideration IDENTIFYING Variable financing payable to a consideration THE component customer TRANSACTION PRICE Explicit & Constraint of implicit price revenue concessions IMPLICIT PRICE CONCESSION CONSIDERATIONS What should we consider? Customary business practice of not performing a credit assessment prior to providing services Continues to provide services to a patient (or patient class) even when historical experience indicates that it is not probable that the entity will collect substantially all of the discounted charges (gross or standard charges less any contractual adjustments or discounts) in the contract 12
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