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Unformatted text preview: Chapter 13 Health Care Providers and Colleges and Universities Questions for Review and Discussion 1. Although both government and not-for-profit health care organizations are accounted for similarly, there are also significant differences. Not-for-profit hospitals have to follow the provisions of FASB Statement No. 117 as to the form and content of their financial statements. Hence the balance sheet of a not-for-profit hospital, but not that of a government hospital, must display the three categories of donor restrictiveness. Similarly, the statement of changes in net asset must indicate the amount of resources released from restriction and the statement of cash flow must be divided into three categories of receipts and disbursements (operations, financing and investing) rather than the four required of governments (operations, capital financing, noncapital financing and investing). 2. Capitation fees are those received in exchange for a health organizations agreement to provide specified services to a specified population. The fees, based on number of persons covered and on expected costs to be incurred rather than on actual services provided. They should be accounted for over the covered period, not as services are provided. 3. Charity care results from an entitys policy to provide health services free of charge to individuals who meet certain financial criteria. Bad debt expense, by contrast, represents what the entity expects to be unable to collect from parties to whom it has extended credit. Contractual adjustments are discounts from standard rates that the entity knowingly and willingly provides to third-party payers. Health care organizations should report patient care revenues at full established rates. They should deduct contractual adjustments from gross revenues to determine net patient care revenue and should report provisions for bad debts as an expense. However, they should exclude charity care from patient care revenue. Instead, they should disclose in notes to the financial statements their policies as to charitable care and the value of the care provided. 4. Retrospective insurance premiums are premiums that will be adjusted at the conclusion of the policy period based on actual claims experience. Consequently, the insured party may be uncertain as to actual insurance premium expense until after the end of a fiscal year and financial statements have been prepared. The AICPA health care audit guide indicates that an insured party should charge the basic premium as an expense pro rata over the term of the policy. In addition, it should accrue additional premiums or refunds based on the FASB Statement No. 5 criteria for recognition of losses. If it is unable to estimate losses from claims, then it should disclose the contingencies in notes....
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- Spring '10