TEXT-Fitch: changes in hospitals' bad debt reporting improve disclosure
Link to Fitch Ratings' Report: For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting Policies and PracticesJune 21 - High levels of uncompensated care for hospitals have not abated during the weak economic recovery. This is due to elevated unemployment, more uninsured patients and increasing patient responsibility for health care costs. Elevated levels of uncompensated care highlight the need for close scrutiny of bad debt accounting methodologies, according to Fitch Ratings. Starting with fiscal years beginning after Dec. 15, 2011, healthcare provider entities were required to adopt an Accounting Standards Update (ASU) that results in bad debt expense being recorded as a reduction to net revenue, rather than an operating expense. Fitch believes the ASU is an improvement on the prior reporting standard. It results in companies reporting a net revenue number closer to what they actually expect to collect while also enhancing the comparability of some metrics including operating margins, reported revenue growth and revenue per admission. Reclassifying bad debt expense results in a boost in operating margins, but does not affect operating income. On average, operating EBITDA margins of for-profit hospital providers would have been 112 bps higher in 2011 under the updated accounting treatment. Companies with relatively less generous charity care and discount programs, such as LifePoint Hospitals, Inc., were recording higher bad debt expense and therefore saw a bigger boost to margins. The full report 'For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting Policies and Practices' is available at 'www.fitchratings.com.' The report includes an in-depth discussion of bad debt accounting practices and reserve methodologies plus a company-specific presentation of historical trends in revenue, bad debt expense, accounts receivables, and the allowance for doubtful accounts. Additional information is available at 'www.fitchratings.com'.
- Tweet this
- Share this
- Digg this