A new standard ...
... aims to make charity-care reporting more uniform
The nation’s top accounting policy body last week proposed new standards for how hospital and health system financial statements report free and discounted care for lowincome patients.
The Financial Accounting Standards Board, whose standards are recognized by the Securities and Exchange Commission and set the rules for auditors, released a draft of its standard, which would measure charity care using direct and indirect costs.
With the proposal, FASB joins the Internal Revenue Service in seeking uniform disclosure of how much subsidized care hospitals provide, a figure at the center of a debate over the tax-exempt status of not-forprofit hospitals.
Hospital reporting of charity care has varied widely, to the frustration of Congress, state attorneys general and irate consumer watchdogs. The nation’s not-forprofit hospitals receive tax breaks in exchange for providing subsidized care and other aid to communities.
If adopted, the accounting board’s proposal would replace existing standards that allow hospitals to select either costs, statistical measures or the charges billed for charity care. No deadline has been set for the switch, which would also be applied to prior financial statements under the proposed standard.
Martha Garner, a managing director with accounting firm PricewaterhouseCoopers, said many not-for-profit hospitals and health systems measure charity care using rates charged for ser- vices, or the sticker price that hospitals bill before any of the discounts negotiated or set by public and private insurers.
For that reason, Garner described charges as “a bit of an artificial number.” Charges are also problematic because they vary from one hospital to another.
Still, the switch to using cost to measure charity care likely won’t be significant for notfor-profit hospitals because of new tax reporting rules, said Garner, who is also on a healthcare expert panel for the American Institute of Certified Public Accountants, which recommended the charity-care accounting switch proposed by FASB.
Garner said the institute has sought FASB review of six healthcare accounting standards, including charity care, to revise the group’s audit guide for healthcare organizations.
FASB has moved to review two other issues, according to a February report by the board’s emerging issues task force. One issue addresses how financial statements report care provided to uninsured, self-pay patients and the second addresses how medical malpractice, similar claims and related insurance recoveries should be recorded.
The IRS yearly tax form for not-for-profits, the Form 990, began requiring disclosure of
Garner: Charges are “a bit of an artificial number.”