Exam 14: Health-Care Providers

Problem 3 a. Patient billings To patient revenues, and contractual discounts (38% of $550,000) b. Capitation payments To recognize revenue from capitation fees c. Charity care - No entry necessary; should not be recognized as revenue. d. Billing and retrospective adjustment Patient accounts receivable-allowance To recognize billings and estimated contractual adjustments To recognize collections Patient accounts receivable-allowance To recognize refund due to Lowen, Inc.

St. Anthony's Hospital is a private not-for-profit entity that provides health care services to citizens of the small rural community in which the hospital is located. The most recent construction at the hospital was financed using Hill-Burton funds. During the current month, St. Anthony's engaged in the following transactions. Make the appropriate journal entries for St. Anthony's for the current month. a. Based on the hospital's established billing rate, services rendered to patients amounted to $1.5 million. Of this amount $1,000,000 will be billed to Delta Medical Group; a third-party payor that insures many state employees; $190,000 will be billed to uninsured patients; $250,000 is provided to indigents and will be considered charity care; and $60,000 was for services rendered to hospital employees. b. Delta Medical Group pays for services rendered to its insurees on a rate schedule based on types of procedures rendered. For the services rendered during the current month to Delta insurees, Delta will reimburse the hospital $975,000. Part of the agreement between St. Anthony's and Delta is that Delta insurees will not be billed for the difference between the amount that the hospital bills and the amount that Delta pays. c. Based on prior experience with uninsured patients, the Hospital estimates that $75,000 of the $190,000 will be uncollectible. d. The hospital provides a 50 percent discount for services rendered to its employees. e. The hospital recognizes the value of charity services rendered. f. The hospital is the defendant in a malpractice suit. Attorneys for the hospital are reasonably sure the hospital will be found liable and that the best estimate of the amount of the loss is $1,500,000. The hospital carries medical malpractice insurance with a $500,000 deductible clause. g. The hospital has numerous capital assets on its books. Straight-line depreciation on the assets is $150,000 for the current period.

The community hospital of Briarwood normally includes proceeds from sales of meals in its cafeteria as

Daniel, an auditor, is performing a routine review of a not-for-profit hospital and notes the following account balances in the statement of activities for the fiscal year ending September 30, 2017: What amount should the hospital report as net patient service revenue in its statement of activities for the fiscal year ending September 30, 2017?

The statement of financial position of a not-for-profit health care organization should distinguish among nonrestricted and donor restricted net assets.

AICPA's current industry guide, Health Care Entities, supersedes FASB guidelines for government-owned hospitals

Charity care provided by a health care organization would be recorded in a contra-revenue account.

In accounting for health care organizations, restricted net assets are:

An accountant has encountered a perplexing financial reporting issue related to the hospital for which she is preparing financial statements. The issue is not specifically addressed by FASB statements. To which of the following sources would the accountant probably look first for industry-specific guidance?

Based upon St. Thomas Hospital's established billing rate structure, the hospital would have earned patient service revenue of $5,100,000 for the year. However, the hospital does not expect to collect this amount because of charity care provided in the amount of $600,000 and contractual allowances to third-party payers of $450,000. How much should the hospital record as patient service revenue for the year?

The LRF Healthcare Foundation donated 1,800,000 as a permanent endowment to a senior citizen health and welfare organization during the year. The foundation stipulated that the income and investment appreciation be used to maintain its preventive care center for the elderly. The endowment principal had an investment appreciation of $120,000 and investment income of $160,000. The organization spent $140,000 to maintain its preventive care center during the year. What is the amount of change in nonrestricted net assets that the organization should report?

Prepaid health care plans that earn revenue from agreements to provide services record revenue when services are rendered.

The services of Preferred Provider Organizations are prepaid and fixed.

In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships. During the current year $8,000 of scholarships were awarded. These scholarships should be reported

Unlike businesses, not-for-profit health care providers often serve patients who they know will be unable to pay any portion of the amounts billed.

During a particular year, a not-for-profit hospital provides services that at standard rates would be billed at $400 million. This amount includes $20 million of charity care. Of the remaining $380 million, the hospital estimates that $240 million will be billed to third-party providers which, per contractual agreements, will pay only 75 percent of the standard rate (i.e., $180 million). Of the $140 million to be billed to individuals, the hospital estimates that $80 million will have to be written off as bad debts. The hospital should recognized net patient care revenue of

Prepare journal entries for the following transactions of St. Mary's Hospital, a not-for-profit health care entity. a. St. Mary's hospital billed the state Medicaid program $550,000 for services provided at its standard billing rate. The prospective payment system gives Medicaid a 38 percent discount from these rates. b. The hospital has an arrangement with an HMO to provide hospital care to the HMO's members at a specific rate per member, per month. In April the HMO paid the hospital $640,000 per agreement for patients treated in March. Based on pre-established billing rates, the hospital would have billed the HMO $735,000. c. The hospital provided services to patients under "charity care" which amounted to $1,915,000 for the year. d. At its standard billing rates St. Mary's hospital provided services to Lowen, Inc., a third-party payor, for $3,580,000. The retrospective billing arrangement with Lowen, Inc. stipulates that the hospital would receive payment at an interim rate of 85 percent of its established rates, subject to retrospective adjustment based upon agreed-upon allowable costs. By the end of the fiscal year, Lowen, Inc. had paid all the billings. Before issuing its financial statements, the hospital estimated that it would need to refund $290,000 to Lowen, Inc., based on allowable costs.

Health care organizations provide uncompensated patient care as a matter of policy but not law.

The services of Health Maintenance Organizations are prepaid and fixed.

During the current year, St. Louise's Hospital (a not-for-profit entity) earned, based on its normal billing rate, $1 million in patient service revenues. Many of these patients belong to a health plan that has an established pay schedule. Based on the specific services rendered to members of the plan, the hospital estimates that $0.05 million will not be collectible from the plan or the patient. Some of the patients are hospital employees. These employees are given a 50 percent discount on the services rendered. Employee discounts for the current year total $0.01 million. Some of the patients are uninsured and the hospital estimates that, of the amount billed to the uninsured patients, $0.2 million will not be collectible (bad debts). The amount of net patient service revenues for St. Louise's Hospital for the current year is