Article
CA hospitals may significantly benefit from supplemental reimbursement program
April 5, 2020 · Authored by Brian Conner, Kimberly Sokoloff
Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), could significantly change the timing of supplemental revenue recognition under the California Hospital Quality Assurance Fee Program (California QAF) for California private hospitals.
Below is an overview of legacy and current legislation, key implications, and next steps for your hospital.
Key changes
The Healthcare Financial Management Association (HFMA) released an issue analysis last fall, providing additional clarity into accounting and reporting for provider tax programs and similar arrangements under ASC Topic 606.
Topic 606 provides a single model for evaluating revenue recognition. Prior to Topic 606, FASB’s revenue recognition guidance was industry-centric and inconsistent across industries. Legacy healthcare industry revenue recognition guidance was codified in ASC Topic 954, Healthcare Entities.
Topic 954 requirements
This guidance, along with nonauthoritative guidance — such as technical questions and answers from the American Institute of Certified Public Accountants (AICPA) — directed providers toward a legal entitlement model of revenue recognition as it relates to provider-tax programs like the California QAF.
Federal provider tax program regulations and state legislation required the Centers for Medicare and Medicaid Services’ (CMS) approval of three separate components for provider tax programs to be operative and eligible for federal matching funds:
- Provider tax waiver. Gives the state the ability to collect the tax.
- State plan amendments (SPAs). Gives the state approval for fee-for-service payments.
- Managed care contract amendments. Gives the state approval for the federal funds for managed care payments.
Due to this requirement, provider accounting policies historically required CMS program and managed care contract approval before revenue could be recognized, regardless of whether or not the program was likely to be approved.
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