Hospital Accounting (Portfolio 5204)

BNA Tax and Accounting Portfolio 5204-2nd, Hospital Accounting (Accounting Policy and Practice Series) addresses a variety of unique operating circumstances that face hospitals and give rise to a multitude of accounting issues. 

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BNA Tax and Accounting Portfolio 5204-2nd, Hospital Accounting (Accounting Policy and Practice Series) addresses a variety of unique operating circumstances that face hospitals and give rise to a multitude of accounting issues. Complicating this is the fact that hospitals may be organized as either for-profit or not-for-profit entities. This Portfolio describes the fundamental concepts involved in the accounting and financial reporting for hospitals. Since the majority of hospitals are not-for-profit, the Portfolio discusses in depth the accounting rules affecting these types of organizations, highlighting major differences between not-for-profit and for-profit treatment.
The hospital industry is also heavily regulated, and this regulation impacts accounting and financial reporting in several ways. Most notably, hospitals rely extensively on third party payors, such as insurance companies and the government, for much of their revenues. The myriad of cost reimbursement and receivables issues are addressed, as are the charity care activities engaged in by not-for-profit hospitals to retain their tax-exempt status.
Hospitals receive, in addition to patient care revenue, income from ancillary services such as laboratories, gift shops, and physician office leases. This Portfolio analyzes accounting for the most common categories of hospital revenues and offers suggestions for improved reporting and, to a lesser extent, financial management.
Although tax exemption is a major issue for not-for-profit hospitals, tax matters are only addressed insofar as they impact accounting and financial disclosure. While a basic understanding of tax exemption issues is necessary, a full exposition of the topic is beyond the scope of this Portfolio. Readers interested in this subject are encouraged to consult Simpson, 869 T.M., Tax-Exempt Organizations: Organizational and Operational Requirements, and Webster, 452 T.M., Tax-Exempt Organizations: Reporting, Disclosure and Other Procedural Aspects. Likewise, cost accounting has become a topic of great interest to those involved in hospital financial management. While certain cost accounting issues are peripherally addressed, this Portfolio makes no attempt to describe hospital cost accounting in detail. Associated topics are addressed in 5300, Cost Accounting Principles for Federal Contracts (Accounting Policy and Practice Series).
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5204-2nd, Borek, Hospital Accounting (Accounting Policy and Practice Series).


Charles A. Borek, J.D., University of Baltimore (summa cum laude); M.B.A., University of Baltimore (summa cum laude); B.A., Mary Washington College. Mr. Borek is Executive Vice President for Tax Services and principal of Cohen, Rutherford + Knight, P.C., a Bethesda, Maryland accounting and consulting firm. Mr. Borek also practices law with the Law Offices of O'Connor & Borek, LLC. A member of the American Bar Association, the American Institute of Certified Public Accountants, the Healthcare Financial Management Association, and the American College of Healthcare Executives, Mr. Borek has lectured frequently for the American Bar Association, the Maryland Institute for Continuing Professional Education of Lawyers, and the American Health Lawyers Association.
A certified public accountant, licensed in Maryland, Mr. Borek is admitted to the bars of the U.S. Supreme Court, the U.S. Court of Appeals for the Fourth Circuit, the U.S. District Court for the District of Maryland, the U.S. Court of Federal Claims, the U.S. Tax Court, and the Court of Appeals of Maryland. He teaches at the University of Baltimore School of Law, where as a student he had served as Editor-In-Chief of the University of Baltimore Law Review.


Detailed Analysis

I. Economic and Regulatory Perspectives

A. The State of the Industry

1. Acute Care vs. Clinic Care

2. General vs. Specialty Hospitals

3. Integrated Delivery Systems

4. Overview of Common Health Care Entities Other Than Acute Care Hospitals

a. Nursing Homes

b. Continuing Care Retirement Communities

c. Hospice Care Facilities

d. Home Health Agencies

e. HMOs and Other Managed Care Organizations

f. Ambulatory Care Organizations

B. The Regulatory Environment

1. Licensing and Accreditation

2. Patient Referrals

3. Peer Review Organizations

C. Sources of GAAP

1. Financial Accounting Standards Board

2. Government Accounting Standards Board

3. Centers for Medicare and Medicaid Services

II. Types of Hospital Organizations

A. Not-for-Profit, Tax Exempt Hospitals

1. Board and Foundation Oversight

2. Importance of Maintaining Tax Exempt Status

B. Investor-Owned Hospitals

III. Contractual Relationships

A. Introduction

B. Physician Employment Agreements

1. Anti-Kickback and Stark Rules

2. Compensation and Benefits

3. Billing Issues

4. Other Contract Provisions

C. Executive Employment Agreements

1. Executive Employment Agreements in Context

2. Incentives

3. Stock Options

4. Phantom Stock and Stock Appreciation Rights

IV. General Accounting Considerations

Introductory Material

A. Fund Accounting and FASB Statement No. 117, Financial Statements for Not-for-Profit Organizations

1. Basics of Fund Accounting

2. FAS 117 and the Decline of Fund Accounting

B. General Accounting Policies

1. Netting of Accounts

2. APB 22: Disclosure of Accounting Policies as Applicable to Hospitals

3. Typical Hospital Disclosures

a. Organization

b. Exposure to Credit Risk

c. Investments

d. Charity Care

e. Transactions With Affiliates

f. Depreciation, Amortization, and Pension Costs

g. Information About a Hospital's Service Efforts

h. Other Disclosures to Consider

V. Cash and Cash Equivalents

A. General Accounting for Cash and Cash Equivalents

1. Determining Cash Equivalency

a. Effect of FASB Statement No. 95, Statement of Cash Flows

b. Disclosure Regarding Cash Equivalents

2. Restricted Donations

B. Funds Held as Fiduciary

1. Donations Held for Other Organizations

a. FASB Statement No. 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others

2. Split Interest Arrangements

VI. Investments

A. General Accounting for Investments

1. Investments in Subsidiaries and Other Equity-Method Investments

a. The Equity Method in General

b. Other Transfers Requiring Equity-Method Accounting

2. Non Equity-Method Investments in Debt and Equity Securities

a. Application of FASB Statement No. 115: Accounting for Certain Investments in Debt and Equity Securities, and FASB Statement No. 124: Accounting for Certain Investments Held by Not-For-Profit Organizations

b. Investments Without a Readily Ascertainable Fair Market Value

3. Derivative Instruments and Hedging Activities

B. Financial Statement Presentation

VII. Receivables

A. Physician Loans

1. Common Practices

2. Application of FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan

B. Pledges

C. Receivables for Patient Care

1. Rate Setting

a. CPT Codes

b. Diagnostic Codes

c. HCPCS Codes

2. Estimated Final Settlements

3. State Waiver Contingencies Under Medicare

D. Financial Statement Presentation

VIII. Property, Equipment, and Other Assets

A. General Accounting for Property and Equipment

1. Real Estate

2. Equipment

B. General Accounting for Supplies and Other Assets

IX. Current Liabilities

A. General Accounting for Current Liabilities

1. Definitions and Classification

2. Internal Controls and Procurement Cards

B. Payroll Accounting

C. Current Liabilities Associated With Long Term Debt

X. Leases

A. General Considerations

B. Classification of Leases

C. Lease Terminations

XI. Long Term Obligations

A. General Accounting for Long Term Obligations

B. Tax-Exempt Debt and Financing Authorities

C. Advance Refundings

XII. Commitments and Contingencies

A. General Considerations: Applicability of FASB Statement No. 5, Accounting for Contingencies

B. Collectibility of Receivables

C. Malpractice Claims

D. Termination of Employee Benefit Plans

XIII. Net Assets and Equity

A. Basic Concepts

B. Investor-Owned Hospitals

1. General Accounting for Equity in Investor-Owned Hospitals

2. Financial Statement Presentation

C. Not-for-Profit Hospitals

1. General Accounting for Net Assets in Not-for-Profit Hospitals

2. Financial Statement Presentation

XIV. Revenues and Expenses

A. What Constitutes Revenue

B. Classification of Hospital Revenues

1. Primary Exchange Activities

2. Ancillary Exchange Activities

C. Reporting Expenses

XV. Affiliations and Related Organizations

A. Typical Affiliations

B. Consolidated Financial Statement Presentation

XVI. Accounting for Deferred Executive Compensation and Deferred Taxes

A. Importance of Executive Compensation in Financial Reporting

B. Deferred Compensation in General

C. Stock-Based Deferred Compensation

D. Deferred Taxes

XVII. Hospital Consolidations and Mergers

A. Background

B. Accounting for Hospital Combinations Under FASB Statement No. 141

C. Not-for-Profit Hospitals

D. Financial Reporting Issues

1. The Treatment of Goodwill

2. Consolidated or Combined Financial Statements

3. Notes to Combined or Consolidated Financial Statements

Working Papers



Worksheet 1 Glossary

Worksheet 2 Table of Acronyms

Worksheet 3 Sample Chart of Accounts

Worksheet 4 List of Significant Accounting Pronouncements Principally Discussed






Internal Revenue Service:

Department of Health and Human Services:

State Laws:

Court Cases:

American Institute of Certified Public Accountants:

Emerging Issues Task Force:

Financial Accounting Standards Board:

Governmental Accounting Standards Board:


Books and Reports