Patient Access: Leading the Way 2012 Revenue Cycle Fall Workshop WV Chapter, HFMA
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![Page 1: Page 0 November 9, 2012 Prepared for HFMA Fall Institute HFMA Fall Institute A&A Update for Meaningful Use of EHR and Lease Accounting November 9, 2012.](https://reader037.fdocuments.in/reader037/viewer/2022102923/551b7ad0550346d6338b5358/html5/thumbnails/1.jpg)
Page 1November 9, 2012
Prepared for HFMA Fall Institute
HFMA Fall InstituteA&A Update for Meaningful Useof EHR and Lease Accounting
November 9, 2012
Mike Shamblin, CPA – PYA PrincipalJohn Long, CPA – PYA Senior Manager
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Page 2November 9, 2012
Prepared for HFMA Fall Institute
Incentive Payments for Meaningful Use of Electronic
Health Records
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Page 3November 9, 2012
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Summary
• Background
• Overview
• Payment amount
• Accounting Treatment – Revenue Recognition
• Accounting Treatment – Financial Statement Presentation
• Accounting Treatment – Financial Statement Disclosures
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Page 4November 9, 2012
Prepared for HFMA Fall Institute
Background
• American Recovery and Reinvestment Act of 2009
• Health Information Technology for Economic and Clinical Health (HITECH Act)
• Promote more effective and efficient healthcare delivery through the use of technology
• Offer incentive payments to hospitals and physicians that implement and “meaningfully use” Electronic Health Record (EHR) technology
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Page 5November 9, 2012
Prepared for HFMA Fall Institute
Overview• Hospitals may receive incentive payments for up
to 4 years, beginning in fiscal year 2011
• A payment year is based on the federal fiscal year which ends on September 30
• To receive payments, eligible providers must– Register with CMS for EHR incentive program
– Attest to use of certified EHR technology and meaningful use of it
• Last year to begin receiving payments is 2015
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Page 6November 9, 2012
Prepared for HFMA Fall Institute
Overview• Payments will decrease for hospitals that begin receiving
payments in 2014 or later
• Hospitals that do not demonstrate meaningful use (MU) by 2015 will be subject to payment adjustments
• Phased approach using 3 stages to define MU• Stage 1
– Use EHR technology to meet 14 required core objectives and 5 out of 10 “menu set objectives”
– Operate certified EHR, ensure its workflow captures information properly and report achievement of key metrics defined by CMS
– Must demonstrate MU for 90 consecutive days in first payment year and 365 consecutive days subsequently
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Page 7November 9, 2012
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Overview• Stage 2
– Final ruling on Stage 2 released by CMS in August 2012– Expands scope of Stage 1 and focuses on continuous
quality improvement at point of care, use of computerized physician order entry (CPOE) and more exchange of information
– Final ruling delays the start of Stage 2 from 2013 to 2014 (see timeline table on next slide)
– Also reduced the time span over which eligible providers must demonstrate MU in 2014 from 365 days to 90 days
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Page 8November 9, 2012
Prepared for HFMA Fall Institute
Overview
1st
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20212011 1 1 1 2 2 3 3 TBD TBD TBD TBD2012 - 1 1 2 2 3 3 TBD TBD TBD TBD2013 - - 1 1 2 2 3 3 TBD TBD TBD2014 - - - 1 1 2 2 3 3 TBD TBD2015 - - - - 1 1 2 2 3 3 TBD2016 - - - - - 1 1 2 2 3 32017 - - - - - - 1 1 2 2 3
Source > CMS's EHR Incentive Program: Stage 2 Final Rule Fact Sheet (http://www.cms.gov)
Stage of Meaningful Use
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Page 9November 9, 2012
Prepared for HFMA Fall Institute
Overview
• Stage 3
– Final ruling on Stage 3 expected in 2013
– Will expand on previous stages and most likely focus on improving quality, safety and efficiency, patient access to self-management tools, access to comprehensive patient data, and improving population health
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Page 10November 9, 2012
Prepared for HFMA Fall Institute
Payment Amount
• Base amount of $2 million with an additional $200 per discharge for discharges between 1,150 and 23,000
• Above amount is multiplied by a Medicare utilization factor based on patient days and adjusted for charity care
• That product is then multiplied by a transition factor:
– Payment year 1 – 100% – Payment year 3 – 50%
– Payment year 2 – 75% – Payment year 4 – 25%
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Page 11November 9, 2012
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Accounting Treatment – Revenue Recognition
• No authoritative guidance issued by FASB on how the industry should uniformly account for EHR incentive payments
• HFMA Practice and Principles Board released an Issue Analysis that provides clarity
• Two reasonable models to choose from
– Contingency Model
– Grant Accounting Model
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Page 12November 9, 2012
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Accounting Treatment – Revenue Recognition
• Securities and Exchange Commission (SEC) has recommended SEC registrants to apply the Contingency Model
• Privately-held, not-for-profit or governmental hospitals should choose between the two models as a matter of accounting policy
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Page 13November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Contingency Model
– Identify contingencies that must be fulfilled prior to recognition of the revenue
– Successfully comply with MU criteria during the entire reporting period
• 90 consecutive days in the first payment year and in 2014 if Stage 2 begins in 2014 for the organization
• 365 consecutive days during second through fourth payment years
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Page 14November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Contingency Model – Continued
– Actual discharges on which final payment is based
• Incentive payment formula utilizes discharges occurring during a hospital’s cost report/fiscal year that begins in the EHR payment year
• Unless cost report/fiscal year coincides with federal fiscal year, a portion of the discharges used in the final payment calculation will occur after the EHR payment year
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Page 15November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Contingency Model – Continued
– Actual discharges on which final payment is based
• Since the actual number of discharges will be unknown until the cost report/fiscal year has ended, these amounts represent an uncertainty that must be resolved prior to revenue recognition
• Income from incentive payments would be recognized entirely in the last quarter of the cost report/fiscal year that is used in the payment calculation
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Page 16November 9, 2012
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Accounting Treatment – Revenue Recognition
9/ 2011 12/ 2011 3/ 2012 6/ 2012 9/ 2012 12/ 2012 3/ 2013 6/ 2013 9/ 2013 12/ 2013 3/ 2014 6/ 2014 9/ 2014
FFY - payment year 2 FFY - payment year 3
90 days MU 365 days MU
Hospital cost report/fiscal year 2013 Hospital cost report/fiscal year 2014
FFY - payment year 1
Compliance contingency for payment year #2 met Actual discharges contingency
for payment year #2 met
Compliance contingency for payment year #1 met
Actual discharges contingency for payment year #1 met
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Page 17November 9, 2012
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Accounting Treatment – Revenue Recognition
• Contingency Model – Continued
– Submission of cost report and subsequent desk review or audits by CMS would not be viewed as contingent events precluding recognition of income
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Page 18November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model
– International Accounting Standard 20, Accounting for Government Grants and Disclosures of Government Assistance
– Widely used by U.S. companies where a government provides resources in return for compliance with certain conditions
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Page 19November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model - Continued
– Recognition of income appropriate when there is reasonable assurance that
• The grants will be received
• The organization will comply with the specified requirements
– Reasonable to assume receipt given minimal credit risk of federal government
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Page 20November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model - Continued
– Reasonable determination of compliance• Recognize all at once if compliance over specified time
period cannot be reasonably assured
• In this case, recognition is appropriate when specified time period for compliance ends and it is determined that MU was demonstrated
• If hospital fiscal year coincides with federal fiscal year and determination of successful compliance is made before the financial statements are issued, recognition in that fiscal year is appropriate
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Page 21November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model - Continued
– Reasonable determination of compliance• It is possible that a hospital could be reasonably assured at
the beginning of the payment year that it will demonstrate MU over the specified time period for compliance
• In this case, ratable recognition of income over the applicable payment year would be appropriate
• Cumulative catch-up adjustment followed by ratable recognition is appropriate if reasonable assurance of demonstrating MU is attained during the payment year
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Page 22November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model - Continued
– Reasonable determination of compliance• Matter of judgment as to determination of whether MU will
be achieved
• Management should consider items such as
– How long the hospital has been operating an EHR system
– How long has it been working on meeting MU requirements
– How far along is it in implementing CPOE
– Reliability and effectiveness of internal controls around data entry
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Page 23November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Revenue Recognition
• Grant Accounting Model - Continued
– Estimates are necessary and appropriate since incentive payments are based on inputs that will not be known, but can be reasonably estimated, when determining the amount to be recognized
– As actual discharges and other inputs to the incentive payment calculation become known, revisions to original estimates should be made and accounted for as a change in accounting estimate resulting from new information
– Any recoupments of previously recognized incentive payments would be accounted for similarly
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Page 24November 9, 2012
Prepared for HFMA Fall Institute
Accounting Treatment – Financial Statement Presentation
• MU incentive payments are clearly distinct from patient revenues and should be reported separately
• Offset of expense is also not appropriate since the payments are not a reimbursement of specific expenses but rather an incentive to take a certain course of action
• Present as separate line item or as component of other revenue
• Classification as operating or non-operating is a matter of accounting policy as determined by management
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Page 25November 9, 2012
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Accounting Treatment – Financial Statement Disclosures
• Recognition policy applied to MU incentive payments
• Location of the applicable income in the financial statements
• General description of the program
• If applicable, discussion on the fact that amounts recognized are based on estimates and subject to change
• Disclosure that the hospital’s attestation is subject to audit by CMS
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Page 26November 9, 2012
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Change is Coming - Lease Accounting
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Page 27November 9, 2012
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• Overview of Key Points– Why are FASB and IASB concerned with changing the accounting
for leases?
– What were the concerns with the first exposure draft on new lease accounting rules?
– What can we expect to see in the next exposure draft?
– What can we do to prepare for the change that is coming?
Change is Coming - Lease Accounting
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Page 28November 9, 2012
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• Why are FASB and IASB concerned with changing the accounting for leases?
“If it ain’t broke, don’t fix it”
• So, is the accounting for leases broken?
Change is Coming - Lease Accounting
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Page 29November 9, 2012
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• Currently we have two lease model – Capital and Operating
• Capital lease is on-balance sheet
• Operating lease is off-balance sheet
Change is Coming - Lease Accounting
GOOD
BAD
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Page 30November 9, 2012
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• What were the concerns with the first exposure draft on new lease accounting rules?
• Approximately 800 comment letters were received in response to first exposure draft.
Change is Coming - Lease Accounting
800
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Page 31November 9, 2012
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• Most comment letters did not say…
“Great job FASB, keep up the good work!”
Change is Coming - Lease Accounting
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Page 32November 9, 2012
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• What the comment letters did say…
“Not so fast my friend!”
Change is Coming - Lease Accounting
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Page 33November 9, 2012
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• Original exposure draft (August 2010)– Established concept of “right-of-use” asset
– Essentially, capitalize operating leases (including real estate and equipment)
– Replaces rent expense with amortization expense and interest expense (expense may not equal cash outflow on lease)
Change is Coming - Lease Accounting
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Page 34November 9, 2012
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• Original exposure draft (August 2010) - Continued
– Lessee must estimate the renewal period that is more likely than not (greater than 50% chance) to become reality. Determination is reassessed annually.
– Liability is recorded based on the estimated lease term (including projected renewals to occur).
– Liability must be adjusted based on changes in projected renewal period as of each financial reporting date.
Change is Coming - Lease Accounting
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• Numerous concerns expressed in comment letters– Complexity and cost of implementing new rules, specifically the
initial and subsequent measurement of lease assets and liabilities
– Introduces more subjectivity (i.e. determination of lease term) on balance sheet
Change is Coming - Lease Accounting
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Page 36November 9, 2012
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• Numerous concerns expressed in comment letters - Continued
– Less comparability for financial decision making because of subjectivity
– Definition of lease (what’s in and what’s out???)
Change is Coming - Lease Accounting
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Page 37November 9, 2012
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• Numerous concerns expressed in comment letters – Continued
– Concerns that new rules would result in higher lease expenses in earlier periods compared to later periods.
– Banks and other lenders may need to be educated on how lease expense will be impacted for debt covenants
Change is Coming - Lease Accounting
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Page 38November 9, 2012
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• What can we expect to see in the next exposure draft?
Change is Coming - Lease Accounting
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Page 39November 9, 2012
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• FASB and IASB Redeliberations – Lessee Model
Change is Coming - Lease Accounting
Balance sheet Income statement
1 Measured at present value of lease payments 2 Initially measured at same amount as liability, plus initial direct costs
DR ROU asset 2 CR Lease liability1
Lessee consumes more than insignificant
portion of leased asset
Amortization expenseInterest expense
Lease expenseLessee does not
consume more than insignificant portion of
leased asset
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Page 40November 9, 2012
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• FASB and IASB Redeliberations – Lessor Model
Change is Coming - Lease Accounting
Lessor accounting approach
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• FASB and IASB Redeliberations – Classification of Leases*
Change is Coming - Lease Accounting
*Both lessee and lessor
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Page 42November 9, 2012
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• FASB and IASB anticipate releasing the revised exposure draft in the fourth quarter of 2012
Change is Coming - Lease Accounting
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Page 43November 9, 2012
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• What can we do to prepare for the change that is coming?
Change is Coming - Lease Accounting
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Page 44November 9, 2012
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• Be Prepared…– Look for updates in industry publications and
websites (Journal of Accountancy, www.pyapc.com)
– Prepare an “inventory” of all operating leases under contract. Determine how many “right-to-use” assets would be added to balance sheet.
– Read debt covenants to determine whether they have the potential to be impacted by a change from rent expense to amortization and interest expense
– Consider writing a comment letter to FASB and IASB regarding the revised exposure draft once it is released
Change is Coming - Lease Accounting
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• In summary…– We know why FASB and IASB are concerned with changing
the accounting for leases.
– We know what the concerns were with the first exposure draft on new lease accounting rules.
– We know what we can expect to see in the next exposure draft.
– We know what we can do to prepare for the change that is coming.
Change is Coming
Change is Coming - Lease Accounting
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Questions?
Contact information for Mike Shamblin and John Long(800) 270-9629
[email protected]@pyapc.com