The Healthcare Industry and Revenue Recognition

Written on July 31, 2018

Healthcare Revenue Recognition Warren Averett Image

Below are a few points concerning potential impacts of the new revenue recognition standard (ASC 606) on the healthcare industry. The information presented here does not represent a comprehensive assessment of the outcome of applying the new standard, but these points may help when considering how ASC 606 could impact you.

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HEALTHCARE REVENUE RECOGNITION

 Issue: Contract identification and transaction price

Step(s) within the Five-Step model: 1, 3

Description and Examples: Entities need to apply significant judgment to assess collectability (identification of the contract) and to estimate variable consideration (transaction price), particularly related to self-pay customers. Estimation of the transaction price will involve consideration of price concessions, subsequent changes in transaction price and the constraint on variable consideration.

 Issue: Significant financing component

Step(s) within the Five-Step model: 3

Description and Examples: Entities must assess whether a significant financing component is applicable to patient and third-party payor amounts in arrears. Revenue may need to be adjusted for time value of money if the timing of payments provides the customer with a significant benefit of financing the transfer of goods or services. This may be a change in practice for many entities.

 Issue: Portfolio approach

Step(s) within the Five-Step model: 1, 3

Description and Examples: Entities must carefully consider whether application of the portfolio approach in identifying the contract and estimating transaction price would result in a materially different accounting result than from applying the guidance to individual contracts.

 Links to Relevant AICPA Task Force:

Healthcare

Healthcare revenue recognition and the implications of the new standard can be complicated to navigate, and the topics presented above may not be representative of what your organization will need to address when considering the new standard. Please consult your Warren Averett advisor for more information specific to your business, its particular situation and healthcare revenue recognition.

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