One of the promises of healthcare reform is that expanding insurance coverage will lower the amount of bad debt that hospitals need to write off for unpaid patient bills. A full two years before the reform act boosts coverage, however, the Financial Accounting Standards Board will make bad-debt expense disappear—from healthcare organizations' income statements, at least.
In July, FASB (pronounced “FAZ-bee”) issued a new rule in its generally accepted accounting principles, or GAAP, that is specific to healthcare organizations for their accounting treatment of bad debt. Rather than report bad debt as an expense item to be subtracted from net revenue, the estimate of amounts that a hospital operator doesn't expect to collect must be deducted from gross patient revenue as part of the calculation of net patient revenue. The new rule also requires greater disclosure of the processes the organization uses to estimate bad debt, such as its review of collections history.