Healthcare Revenue Recognition

Healthcare Revenue Recognition & Self-Pay Contracts



FASB Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers could create sweeping changes in revenue recognition for healthcare entities.  Through the new guidance, a large section of industry specific guidance has been removed. The effective date has been delayed by one year through ASU 2015-14. For non-public entities the effective date is now FY2019-2020.

The purpose of the standard is to converge, streamline and improve existing standards on healthcare revenue recognition. There is variation among how various industries recognize revenue, creating different accounting treatment for similar transactions. This guidance tries to remove these inconsistencies so that external users, including creditors, are better able to understand and compare financial information including revenue across various companies and industries.

Consolidating various practices into a more streamlined method has created questions and complications, including those in the healthcare industry. There is currently an AICPA task force looking into some of the implementation issues. One particular area being discussed is how to recognize and record revenue from self-pay patients.

Currently, revenue from self-pay patients is recorded at the gross amount, then reduced by self-pay discounts and an allowance for doubtful account based on the facilities estimate of credit risk and historical percentages of collections. Bad debt expense is recorded on the income statement as a reduction to patient revenue. On the income statement, gross revenue is reduced by the allowances to end up at a net revenue amount representing what the facility expects to receive payment for.

Under the new revenue standard, facilities would first need to determine whether or not a contract has been created. For a contract to be created, both the facility and patient would be committed to performing their obligations. The facility would provide services and the patient would be committed to completing their obligations or paying for those services. One area where guidance is requested is how to determine if a contract is in force if the facility needs to provide services before being able to access whether or not the patient is willing to complete their obligations.

If a contract is in force, then the facility will need to determine whether or not it is probable that they will collect the amount due to them for performing the services. Again, this may not be able to be done before providing services. If a contract exists and collection is probable, under the new guidance, the facility would record revenue at the amount the entity expects to receive or the transaction price.

Facilities would also need to use their judgement in determining what represents an implicit price concession, which would be the difference in the full amount charged and the estimated transaction price, and what would be recorded as bad debt expense reported as an operating expense on the income statement. If the facility isn’t able to establish that a contract is created or if collection is not probable, the facility may not be able to recognize any revenue related to those services.

The Health Care Entities Revenue Recognition Task Force has an open comment period until September 1, 2016 regarding the implementation of accounting for revenue from self-pay patients among other healthcare implementation issues. The AICPA plans to publish the interpretive guidance in early 2017.


julianne kipple




Julianne Kipple is a Healthcare Shareholder at Lutz with over 12 years of professional experience in the healthcare industry. Her expertise is in accounting and consulting services for healthcare facilities, including outsourced CFO services, Medicare and Medicaid reimbursement, and Medicaid Disproportionate Share Surveys (DSH).

  • Healthcare Financial Management Association, Member
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Revenue Cycle Representative
  • Certified Public Accountant
  • Certified Healthcare Financial Professional
  • BSBA in Accounting, with high distinction, Creighton University, Omaha, NE
  • MBA, Creighton University, Omaha, NE


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