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FASB Ratifies EITF Consensus - Results in Change in Presentation of Bad Debt Expense

At the June 23, 2011 FASB Emerging Issues Task Force (EITF) meeting, the Board ratified the following consensus regarding Issue No. 09-H, "Health Care Entities: Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities."

The scope of the consensus is limited to health care entities that recognize patient service revenue at the time the services are rendered even though the entity does not assess the patient’s ability to pay.

The primary impact of the decision is that a health care entity within the scope of this consensus should present the provision for bad debts related to patient service revenue as a deduction from patient service revenue (net of contractual allowances and discounts) in the statement of operations. In addition, the following information should be disclosed:


  • By major payor sources of revenue:
    • The policy for assessing the timing and amount of uncollectible revenue recognized as bad debts
    • The policy for assessing collectability in determining the timing and amount of revenue (net of contractual allowances and discounts) to be recognized
    • Patient service revenue (net of contractual allowances and discounts) before any provision for bad debts.
  • Quantitative and qualitative information about significant changes in the allowance for doubtful accounts related to patient accounts receivable.


An entity should identify its major payor sources of revenue consistent with how the entity manages its business (for example, how it assesses credit risk).The consensus will be effective for public entities for fiscal years and interim periods within those years beginning after December 15, 2011.

The consensus will be effective for nonpublic entities for the first annual period ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.The consensus to present (1) patient service revenue (net of contractual allowances and discounts), (2) the provision for bad debts related to patient service revenue, and (3) the resulting net patient service revenue less the related provision for bad debts as separate line items on the face of the statement of operations should be applied through retrospective application for all periods presented, while the new disclosure requirements should be applied prospectively.

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