What Do New Revenue Recognition Rules Mean for Healthcare Industry?

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The new revenue recognition standard, starting in 2019 for private companies, could change the way your healthcare organization records revenue and structures deals and contracts. The new rules (ASC Topic 606) may impact everything from your accounting processes and customer contracts to your technology systems and financial statements.

Private companies must now join public companies in adopting the new standard, which is effective for annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. 

Complying with the new revenue recognition standard is management’s responsibility; it’s not done by your auditor, although in certain circumstances, your auditor may be able to assist.  If you fail to comply, your auditors may not be able to issue an unqualified audit opinion. We’re sharing this information now, so companies can assess their ability to comply, or identify the need to engage consultants to assist with their preparation.

Revenue recognition is a five-step process, as outlined below. Reviewing the steps involved should enable you to assess whether you’re ready to complete the process. Healthcare companies have some special considerations as you apply this standard. 

 

What to do

Healthcare considerations

Step 1

Identify customer contracts

Typically the contract is considered to be with the patient even though payment is often received from third parties.

 

Step 2

Identify performance obligations

Many healthcare contracts are expected to have a single performance obligation.

 

Step 3

Determine transaction price

Includes variable consideration, which frequently has explicit price concessions (contractual adjustments) and implicit price concessions that arise from customary business practices and require more judgment to apply.

 

Step 4

Allocate transaction price

Allocate the transaction price to each performance obligation proportionally based on stand-alone selling prices (if available) or observable market conditions.

 

Step 5

Recognize revenue

Recognize the transaction price when the performance obligation is satisfied, which can be over time or a point in time, depending on the nature of the performance obligation.

 

 

 

Additionally, there are enhanced disclosure requirements and choices for transition application of the standard.

If you have questions or would like to discuss how we can help your healthcare organization get ready for the new standard, please contact me.

 

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