If a capitation contract obligates the provider to assume the risk of physician referrals and other outside services, a liability for unpaid claims, including incurred but not reported claims, shall be established. A lag analysis may be helpful in estimating the liability.
A number of health care entities have entered into settlement agreements with the U.S. government regarding allegations of Medicare fraud. In addition to the promise to pay specified penalties to the U.S. government, the settlement agreements impose an obligation on the health care entity to engage an independent review entity to test and report on compliance with Medicare requirements each year for the following five years.
The settlement agreement represents a promise by a health care entity to perform future compliance audits and a duty or responsibility on which others are justified in relying is created by that promise. However, that promise creates a present duty or responsibility only if an obligating event has already occurred (the third characteristic of a liability; see paragraph 6 of FASB Concepts Statement No. 6, Elements of Financial Statements) that leaves the health care entity with little or no discretion to avoid the future transfer or use of assets. The obligating event for the costs of the future compliance audits is not entering into the agreement. Therefore, the entity shall not recognize a liability for the future Medicare compliance audits on the date the settlement is agreed to.
(P) December 16, 2024; (N) December 16, 2025
105-10-65-9The settlement agreement represents a promise by a health care entity to perform future compliance audits and a duty or responsibility on which others are justified in relying is created by that promise. However, that promise creates a present duty or responsibility only if an obligating event has already occurred that leaves the health care entity with little or no discretion to avoid the future transfer or use of assets. The obligating event for the costs of the future compliance audits is not entering into the agreement. Therefore, the entity shall not recognize a liability for the future Medicare compliance audits on the date the settlement is agreed to.