AICPA and Healthcare Trade Group to Issue Guidance for Revenue Standard

May 16, 2018

To help healthcare companies with Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers (Topic 606), the Healthcare Financial Management Association and the American Institute of Certified Public Accountants are planning to offer additional industry-specific guidance. The interpretive guidance is expected to address when healthcare providers should record revenue from special state funding methods that cover deficits between Medicaid reimbursements and patient care costs.

Frustration over recognizing revenue related to provider tax programs was discussed at last month’s meeting between the FASB and the Healthcare Financial Management Association’s Principles and Practices Board. Brian Conner, a national practice leader for hospitals at a Seattle-based accounting firm, said that substantial diversity in practice exists within the same state programs regarding when different healthcare providers recognize revenue on the same revenue stream. He also noted that diversity in practice exists between potentially similar state programs, but each state could have a nuanced program.

Conner said that states create provider tax programs as another funding tool to repay healthcare companies for treating Medicaid patients. Medicaid programs get state and federal funding, states contribute money, and the federal government equals states’ contributions at a specified percentage. Based on federal rules, the state then dispenses the money.

To boost federal funding matches, all states except Alaska charge healthcare providers taxes or fees. States collect the receipts in a fund that is used to qualify for more federal matching funds. The funds are then redistributed to healthcare providers as supplemented Medicaid reimbursements. However, funding must be approved multiple times before being distributed to hospitals and other providers. This delay caused by the approval process leads to questions on the timing of the revenue recognition.