Recent changes to how hospitals must report uncompensated care have resulted in more accurate reporting of net revenue and more comparability among companies, according to a Fitch Ratings report. The report was reviewing a new rule from the Federal Accounting Standards Board, effective for fiscal years that started Dec. 15 or later, which requires healthcare providers to report bad debt as a reduction to net patient revenue rather than an operating expense. The change also requires increased disclosures from companies about how they are estimating bad debt.
Late News: Fitch: Net revenue reports more accurate following new rule
The Fitch report noted that the change was necessary given the unrelenting levels of uncompensated care that hospitals are providing—owing to high levels of unemployment, the growing ranks of uninsured and self-pay patients, and more patients shouldering a higher percentage of their own healthcare costs. It found that while higher levels of uncompensated care will reduce net revenue under the new accounting standard, there will be no effect on operating expenses; however, operating margins will increase. The report singled out LifePoint Hospitals, Brentwood, Tenn., as seeing the most significant boost to its operating margins as a result of the new accounting standard. It added that the company's higher level of bad-debt expense may be the result of a relatively less-generous charity-care and discount policy.
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