Health Care - BKD€¦ · • CHC can bill for CCM once a month for each qualifying patient if it...

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Health Care

FASB Revenue Recognition for CHCs:A Focus on Other Impacted Revenue Streams

Considering the Implications of the Five-Step Model on Pharmacy, Third-Party Settlements & Other Revenue Streams

May 1, 2018

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TO RECEIVE CPE CREDIT• Individuals

Participate in entire webinar

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Presenters

David Fields, CPA, CMA®, [email protected]

Ally Jackson, [email protected]

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Patient Care Service Revenue

• Traditional PSR

• Complex elements of PSR

• Global billing

• Fee-for-service grant revenue

• Medicare CCM

• Pharmacy revenue

• Cost report & wrap settlements

Patient Care Service Revenue

• Traditional PSR (Webinar #2)

• Complex elements of PSR (Webinar #4)

• Global billing

• Fee-for-service grant revenue

• Medicare CCM

• Pharmacy revenue (Webinar #4)

• Cost report & wrap settlements (Webinar #4)

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Other Impacted Revenue Streams

• Capitation revenue

• Grant revenue

• Contributions

• Incentive revenue

• Rent revenue

• Investment return

Other Impacted Revenue Streams

• Capitation revenue (nonrisk-sharing: Webinar #4)

• Grant revenue (Topic 958, draft form)

• Contributions (Topic 958, draft form)

• Incentive revenue (Webinar #4)

• Rent revenue (Topic 840)

• Investment return (Topics 320 & 323)

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Today’s Goals

• Addressing some additional revenue streams

• Global billing

• Pharmacy

• Medicare CCM

• Limited nonrisk-sharing capitation

• Cost report & wrap settlements

• Incentive revenue

• Action items

What About Grant Revenue?

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Proposed ASU for Topic 958

• Nonexchange transactions (contributions & grants) – ASC 958• Exchange transactions – ASC 606

Clarify & improve current guidance about whether a transfer of assets is an exchange transaction or a contribution

Expected to be finalized in summer 2018

Anticipate future webinar once update is finalized

Proposed ASU for Topic 958

Not addressing funds you pass through to subrecipientor vendor

• Vendor – ASC 606• Subrecipient – ASC 958

Is your CHC a subrecipient or a vendor?

Fee-for-service exception

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When Are Grants an Exchange Transaction?

• Topic 958, as proposed, does not apply to transfers of assets that are part of existing exchange transaction between CHC & patient

• Third-party payments by governmental entity on behalf of identified customers (fee-for-service)

• Medicare & Medicaid are governmental funds, but we are considered a vendor (rather than subrecipient)

When Are Grants an Exchange Transaction?

• Fee-for-service exception – the key is the facts & circumstances of each agreement

• How does reimbursement work?

• Expenses

• Detailed/granular-level billing with similar characteristics of traditional patient service revenue

• Could have uncompensated care, but impacts transaction price & not exchange transaction level

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Five-Step Method Refresher


1) Identify the contracts with customers

• Contract = agreement between two or more parties that creates enforceable rights & obligations

• Customers = typically patients, rather than payors

2) Identify the performance obligations

• Performance obligation = promise to transfer either a distinct good or service or series of distinct goods or services

• Not influenced by involvement of multiple payors or timing of payment

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3) Determine the transaction price

• Transaction price = amount of consideration to which the entity expects to be entitled

• Gross charges – explicit price concession – implicit price concession

• Variable consideration: Key = probable that a significant reversal in the amount of cumulative revenue recognized will not occur

• Constraints of estimates


4) Allocate the transaction price to the performance obligations

5) Recognize revenue when (or as) performance obligations are satisfied

• Commencement to completion of service – over time

• Goods provided to patients – point in time

• Stand-ready performance obligations – over time

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Global Billing

Global Billing

• May apply to surgery or OB services

• Qualified Medicare & most Medicaid are exempt from global billing rules – no difference from traditional PSR

• Commercial payors may accept global billing

• Billing done at time of delivery based on services rendered during prenatal & scheduled for postpartum

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Global Billing in Five-Step Model

1. Contracts with patients to provide prenatal, delivery & postpartum services

2. Separate performance obligations

• Each prenatal & postpartum visit

• Delivery

• Unknown number of performance obligations prior to delivery

Global Billing in Five-Step Model

3. Variable consideration – constraints• Number of prenatal visits

• Type of delivery

• Level of postpartum care needed

4. Allocating transaction price among performance obligations can be complicated, but consider materiality

5. Recognize revenue consistent with traditional PSR as performance obligations are satisfied

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Pharmacy Revenue

Pharmacy Revenue in Five-Step Model

1. Contracts with patients to fill prescription written by provider & filled by pharmacy (in-house or contract)

2. Dispensation of each distinct drug

3. Retail price – explicit price concessions – implicit price concessions = collections from patient & third party

4. Allocate transaction price among drugs based on collections from patient & third party for each drug

5. Recognize revenue when prescription is filled

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Presentation & Disclosure of Pharmacy Revenue

• No change in presentation

• Patient accounts receivable on balance sheet

• Patient care service revenue on statement of operations

• In contract pharmacy relationships, dispense fee, admin fee & drug cost are excluded from guidance & should be expense

• Disclosure of revenue recognized over time vs. point in time

• Essentially a disclosure of pharmacy revenue disaggregated from other service lines (medical, dental, etc.)

Medicare CCM

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Medicare CCM

• CCM = Chronic Care Management

• Multiple chronic conditions of Medicare patient lasting 12 months or more

• Non-face-to-face work by CHC to coordinate care for qualifying patients

• CHC can bill for CCM once a month for each qualifying patient if it provides at least 20 minutes of CCM services during month, among other program expectations – see plan for details

CCM in Five-Step Model

1. Contracts with patients, but paid by Medicare

• Requires signed agreement with patient

2. Promised service

• Must spend a minimum of 20 minutes per month on CCM services

• Stand ready for the month – other various services requirements like emergency access to health care professional 24/7, care coordination, etc.

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3. CCM payment rate less implicit price concession (20% coinsurance due from patient) = transaction price

• Consider collectibility of the 20%, sliding fee impact, etc.

• Included with patient care service revenue

4. CCM payment rate is monthly amount for standing ready & providing at least 20 minutes of CCM services


5. Recognize revenue monthly to align with time period of required performance obligation

• Includes both the required 20 minutes or more & the additional stand-ready provisions

• Note that this matches monthly reporting period

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Capitation Revenue

Capitation Revenue

• HFMA Principles & Practices Board will tackle true risk-sharing arrangements – not addressed here

• Capitation as payment mechanism to be reconciled through cost report settlement – see cost report settlements

• Typical CHC capitation arrangements

• Per member per month (PMPM) payment received by CHC

• Minimal risk to CHC – meaning the CHC does not incur costs of services due to other health care service providers

• Recognized as revenue in period members are entitled to receive services

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No-Risk Capitation in Five-Step Model

Contracts with managed care entities, HMOs, ACOs, etc.

Stand ready: Revenue generated from agreement to provide health care rather than from actual provision of health care services

PMPM rate

Period of satisfaction of performance obligation typically corresponds with monthly reporting period

Recognize revenue over time as stand-ready performance obligation is satisfied

Presentation & Disclosure of Capitation Revenue


• Estimated amounts due to/from third-party payors on balance sheet

• Capitation or premium revenue on statement of operations (per AICPA A&A Guide for Health Care Entities)

• Exception = Accounted for in cost report or reconciliation process

• Disclosure of nature, amount, timing & uncertainty of revenue & cash flows if on separate line item & significant

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Cost Report & Wrap Settlements

Cost Report Settlements in Five-Step Model

1. Contracts with patients rather than payors

• Contractual arrangements with third-party payors establish amounts third-party payor will pay on behalf of patient for covered services rendered

2. Third-party settlements are NOT distinct performance obligations from traditional PSR

3. Transaction price – key concepts to follow

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Cost Report Settlements in Five-Step Model

4. Remember: no allocation of transaction price because third-party settlements are NOT distinct performance obligations

5. Recognize revenue as service is performed (over time = date of service & not the settlement time frame)

• Cost report settlements may be based on adjudicated claims, but revenue is recognized based on satisfaction of performance obligations (date of service)

CR Settlements – Transaction Price Estimate

• Two methods of estimating transaction price

• The expected value method

• The most likely amount method

• Choose the method that will better predict the amount of consideration to which CHC will be entitled

• Method must be applied consistently to contracts with similar characteristics in similar circumstances

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• Both estimate methods should

• Consider all information reasonably available to CHC

• Historical

• Current

• Forecasted

• Identify a reasonable number of possible outcomes/consideration amounts


• Expected value method

• Think probability-weighted approach

• Identify outcomes, assign probability & weigh estimated results

• Most likely amount method

• Single most likely amount in a range

• May be appropriate for scenario with only two possible outcomes, e.g., meet a performance bonus or not

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CR Settlements – Transaction Price Financing

Financing consideration – many settlements

extend beyond a year

Cost report settlements are associated with

third-party payor & do not involve the

patient/customer

As a result, significant financing not expected

for cost report settlements

Wrap Settlements in Five-Step Model

1. Contracts with patients rather than payors

2. No distinct performance obligation outside of traditional PSR

3. Determine the transaction price based on traditional PSR transaction price for payor

• Example: Additional payments to be received based on paid claims

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Wrap Settlements in Five-Step Model

4. No distinct performance obligation outside of traditional PSR

5. Recognize revenue as service is performed

• Revenue recognized when it is earned = date of service—NOT date claims adjudicated

• Estimate what claims may never be settled, & therefore no wrap received

• May not match wrap reconciliation filed – reconciliation typically based on adjudicated claims

Presentation & Disclosure of Cost Report & Wrap Settlements


• Estimated amounts due to/from third-party payors on balance sheet

• Patient care service revenue on statement of operations

• Disclosure of disaggregation of revenue by payor (recommended but not required for nonpublic entities)

• Differences between original estimates & subsequent revisions, including final settlements, disclosed in footnotes in period of revision if material

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Incentive Revenue

Incentive Revenue

Quality incentive programs encouraging improvements in a variety of health care areas

Collaboration with various third-party payors

• First-year eligibility & continuing achievement of escalating criteria & other requirements

Electronic Health Records Incentive Program

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Incentive Revenue in Five-Step Model

1. Whom are our contracts with? Patients or payors?

2. What is (are) the performance obligation(s)? Quality? Shared savings?

3. What are the constraints on the transaction price? key concepts to follow

4. Allocation will depend on the performance obligations & period

5. Recognize revenue with satisfaction of performance obligations & removal of constraints

Incentive Revenue – Transaction Price Estimate Constraints

• Key = probable (likelihood) that a significant (magnitude) revenue reversal will not occur based on the final settlement

• Lack significant historical experience or experience with limited predictive value – constrained estimate

• Precluded from recognizing revenue pending better historical experience or uncertainty resolved

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Incentive Revenue – Transaction Price Estimate Constraints

• Magnitude (significance) – When determining, compare to total consideration expected

• Likelihood (probability) – Factors to consider

• Susceptibility to factors outside CHC’s influence

• Experience with similar types of contracts

• Length of period until uncertainty is resolved

• Practice of offering price concessions or changing payment terms

• Number of possible consideration amounts

Presentation & Disclosure of Incentive Revenue


• Other receivables on balance sheet

• Other revenue on statement of operations

• Disclosure of nature, amount, timing & uncertainty of revenue & cash flows if significant

• Differences between original estimates & subsequent revisions disclosed in footnotes in period of revision

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Action Items

Action Items

• Identify your revenue streams

• Determine changes required for revenue recognition for your revenue streams – policies, processes, etc.

• Research &/or get assistance with revenue streams as necessary

• Determine any material impact of revenue recognition

• Communicate to board & users of financial statements

• Use the impact to inform your method of adoption

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Adoption/Implementation Options

• Full retrospective method

• Apply to all contracts presented in financial statements

• Modified retrospective method

• Apply to either all contracts or only to contract not completed as of date of adoption

• Completed contract = substantially all revenue was recognized under legacy GAAP

Other RevenueRecognition Webinars

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Archived Revenue Recognition Webinars

• FASB Revenue Recognition Basics for CHCs

• Introduction to ASC 606 for CHCs

• 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

• bkd.com/FASB4CHCs

• bkd.com Article – Revenue Recognition: A Comprehensive View for Health Care Entities

Future Revenue Recognition Webinar

• Not-for-profit financial reporting for CHCs

• Leases for CHCs

• Accounting for contributions (& grants) for CHCs

• bkd.com/CHC

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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: www.nasbaregistry.org

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.

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CPE CREDIT

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]

Thank You!David Fields | [email protected]

Ally Jackson | [email protected]

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