# ASC 405-954: Liabilities — Health Care Entities Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/405/954/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:19:21.041Z to 2026-09-10T00:19:37.991Z Record version: sha256:b131fe65c9fad4b02c436e7d46c0034db98d6c82327f0a328f280772a3565543 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954: Liabilities — Health Care Entities ### Machine-generated study aids ```json { "summary": "This Subtopic governs recognition and disclosure of liabilities unique to health care entities, principally accrued health care costs under capitation and other risk-bearing payor contracts. Providers that bear risk for referrals and outside services must accrue a liability for unpaid claims, including incurred but not reported (IBNR) claims, and must accrue health care costs as services are rendered, including services required beyond the premium period and post-termination costs. It also clarifies that entering into a Medicare fraud settlement that requires five years of future compliance audits is not itself the obligating event, so no liability is recognized for those future audits.", "key_points": [ "A capitation contract that obligates the provider to assume the risk of physician referrals and other outside services requires establishing a liability for unpaid claims, including incurred but not reported claims; a lag analysis may help estimate it (405-954-25-1).", "Health care costs are accrued as services are rendered, including estimates of the cost of services rendered but not yet reported (405-954-25-2).", "If a prepaid health care provider must render services to specific members beyond the premium period (by contract or regulation), the costs of those services are accrued currently (405-954-25-2).", "Costs to be incurred after contract termination—such as guaranteed salaries, rent, and depreciation, net of anticipated revenues—are accrued when it is determined a contract with a sponsoring employer or group will be terminated (405-954-25-2).", "Amounts payable to hospitals, physicians, or other providers under risk-retention, bonus, or similar programs are accrued during the contract period based on relevant factors such as experience to date (405-954-25-2).", "No liability is recognized on the settlement date for future Medicare compliance audits required by a fraud settlement agreement, because entering into the agreement is not the obligating event (405-954-25-4 through 25-5).", "Disclosure is required of estimated amounts payable for contractual adjustments and third-party settlements, and, for prepaid health care providers, the basis for accruing health care costs and significant business/contractual arrangements with hospitals, physicians, or associated entities (405-954-50-1; 405-954-50-2)." ], "categories": [ "Recognition", "Disclosure", "Industry-specific", "Contingencies and guarantees" ], "audience_level": "intermediate", "student_note": "The recurring exam trap is timing: costs are accrued when services are rendered (including IBNR and obligations extending past the premium period), but a promise to perform future compliance audits under a Medicare settlement creates no liability because the obligating event hasn't occurred. Distinguish \"we already received/owe the service\" from \"we promised to do something in the future.\"", "related_topics": [ "954-10", "954-405", "405-20", "450-20", "606", "944-40" ], "key_concepts": [ "capitation contract", "incurred but not reported claims", "unpaid claims liability", "prepaid health care services", "lag analysis", "obligating event", "third-party settlements", "risk-retention and bonus programs" ] } ``` Source downloaded (UTC): 2026-09-10T00:19:21.041Z to 2026-09-10T00:19:21.041Z Record version: sha256:a095bd9699be65a724252bae3e8e9523938a6b2d7493a21e6811829af313507f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/405/954/#00-status) SEC content: no ##### [405-954-00-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:21.041Z to 2026-09-10T00:19:21.041Z Record version: sha256:7674f4c4ac3c913e1cba3c46418f7c794dd9618fbeb4efbea2d0d015e37cabab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
954-405-25-1AmendedAccounting Standards Update No. 2014-0905/28/2014
954-405-25-3SupersededAccounting Standards Update No. 2014-0905/28/2014
954-405-25-5AmendedAccounting Standards Update No. 2024-0203/29/2024
Source downloaded (UTC): 2026-09-10T00:19:24.097Z to 2026-09-10T00:19:24.097Z Record version: sha256:08abd8fe20928c6fc2ee4ff819f0abe6de6f3370e7680aea96504c439ce69e42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/405/954/#05-overview-and-background) SEC content: no ##### [405-954-05-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:24.097Z to 2026-09-10T00:19:24.097Z Record version: sha256:333e2e320f546f5697c1f8c44052120c18148223cc3bf93f2e92ff1c3243391d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on liabilities for health care entities within the scope of this Topic. ##### [405-954-05-2](https://asc.understandingaccounting.org/asc/405/954/#405-954-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:24.097Z to 2026-09-10T00:19:24.097Z Record version: sha256:dd7195dbf3446a9c056ee749171e9bd6a676c5356a323aa7fb2a14677a5e176b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contracts between a health care provider and a payor based on anything other than full charges require the provider to accept some financial risk. The nature and degree of risk for the provider varies depending on the contract terms (for example, the definition of the unit of service or the basis for payment). Source downloaded (UTC): 2026-09-10T00:19:25.824Z to 2026-09-10T00:19:25.824Z Record version: sha256:f63465673c6a7d1db86df1597da9109c727fdab8209e0d0614a4aa1f499314a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/405/954/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [405-954-15-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:25.824Z to 2026-09-10T00:19:25.824Z Record version: sha256:e9a61a48f55896a8d4eca28459be39746f6ce733637a4d469d94bf95d1711e1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 954-10-15. Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:c197dc615aca53f6b77ac0d63a367c4527f82a43fe68d20c4d767e34a4a0c812 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/405/954/#25-recognition) SEC content: no #### Health Care Contracting ##### [405-954-25-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:755374ff53a0c6181d18e36a663db0047d87fccfabc7681f7f79240e8f380383 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. #### Prepaid Health Care Services ##### [405-954-25-2](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:31116dca1169688194c818c2b601eac983d0f3e3e7beb7c6f3a1c55e3e85f411 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Health care costs shall be accrued as services are rendered, including estimates of the costs of services rendered but not yet reported. Furthermore, if a provider of [prepaid health care services](https://asc.understandingaccounting.org/glossary/p/#prepaid-health-care-services "Any form of health care service provided to a member in exchange for a scheduled payment (or payments) established before care is provided, regardless of the level of service subsequently provided.") is obligated to render services to specific members beyond the premium period due to provisions in the contract or regulatory requirements, the costs of such services to be incurred also shall be accrued currently. Costs that will be incurred after a contract is terminated, such as guaranteed salaries, rent, and depreciation, net of any anticipated revenues, shall be accrued when it is determined that a contract with a sponsoring employer or other group will be terminated. Amounts payable to hospitals, physicians, or other health care providers under risk-retention, bonus, or similar programs shall be accrued during the contract period based on relevant factors, such as experience to date. ##### [405-954-25-3](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:555c27ae5c30831044b2d8c4d0e447839413f9d9b239b1b9e76505015a221d16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-09](https://asc.understandingaccounting.org/updates/asu-2014-09/). #### Medicare Settlement Agreements ##### [405-954-25-4](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:17bab8c918ddf295f4a766d01e90e6c28602c7f87280ff575b80d76c9895add5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [405-954-25-5](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-5) Pending content: yes Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:c5255df484c8fd1d60ffcb233c3fbad03e872535ab7aeff0f2c21f8ee0a594e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9)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 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. Source downloaded (UTC): 2026-09-10T00:19:34.255Z to 2026-09-10T00:19:34.255Z Record version: sha256:89a859a6707b73655b1785f74b309120e28d52de7eb885ec18fa77c5f0a70644 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/405/954/#30-initial-measurement) SEC content: no ##### [405-954-30-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:34.255Z to 2026-09-10T00:19:34.255Z Record version: sha256:ff6a4def457ce7c02583360568f14d47221ebbd2fd1c04229736762061fe6512 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Section not used](https://asc.understandingaccounting.org/updates/page-1833002/). Source downloaded (UTC): 2026-09-10T00:19:36.311Z to 2026-09-10T00:19:36.311Z Record version: sha256:db9d38e99f19db78db14e754622323da8eebbb861799f5cbdfa8cf2267e3f4ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/405/954/#50-disclosure) SEC content: no ##### [405-954-50-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:36.311Z to 2026-09-10T00:19:36.311Z Record version: sha256:752acfbf0c2061fc537870fa4fc4419b77fd8d199339791f01d287dba67e702e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With regard to contractual adjustments and third-party settlements, identification and explanation of the estimated amounts that are payable by the entity shall be disclosed. ##### [405-954-50-2](https://asc.understandingaccounting.org/asc/405/954/#405-954-50-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:36.311Z to 2026-09-10T00:19:36.311Z Record version: sha256:e08506054c912317a8cdfe1126f6577a8363aa2612c6de1d2a3e5286ac784232 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For providers of [prepaid health care services](https://asc.understandingaccounting.org/glossary/p/#prepaid-health-care-services "Any form of health care service provided to a member in exchange for a scheduled payment (or payments) established before care is provided, regardless of the level of service subsequently provided."), the basis for accruing health care costs and significant business and contractual arrangements with hospitals, physicians, or other associated entities shall be disclosed in the notes to financial statements.