{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/450/954/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"450","topic_title":"Contingencies","subtopic":"450-954","subtopic_title":"Health Care Entities","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"450-954-25-1","para":"25-1","html":"
Sometimes health care providers enter preferred provider arrangements with self-insured employers whereby the provider guarantees that the employer's health care cost will not increase over a specified amount or percentage. In substance, these providers may have provided aggregate stop-loss insurance to the self-insured employer, and a material liability to the provider may exist. Topic 450 provides guidance on accounting for these contingencies.
","snippet":"Sometimes health care providers enter preferred provider arrangements with self-insured employers whereby the provider guarantees that the employer's health care cost will not increase over a specified amount or percenta…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5eafd11626b74965d2e8c0e6a84df5a203c08cc0faf44ced5ad690c1f08980e2","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7b1b5a69e357a23af1fc7f118b79e1d4708141127bfae3f8bcad6994d8366f82","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},{"block":null,"heading":"Medical Malpractice Claims","paragraphs":[{"citation":"450-954-25-2","para":"25-2","html":"
The ultimate costs of malpractice claims or similar contingent liabilities, which include costs associated with litigating or settling claims, shall be accrued when the incidents that give rise to the claims occur. A health care entity shall evaluate its exposure to losses arising from claims and recognize a liability, if appropriate. The liability shall not be presented net of anticipated insurance recoveries. An entity that is indemnified for these liabilities shall recognize an insurance receivable at the same time that it recognizes the liability, measured on the same basis as the liability, subject to the need for a valuation allowance for uncollectible amounts. The provisions in Section 720-20-25 and Subtopic 944-40 discusses accounting for insurance claims costs, including estimates of costs relating to incurred-but-not-reported claims. Subtopic 450-20 discusses the accounting for loss contingencies.
","snippet":"The ultimate costs of malpractice claims or similar contingent liabilities, which include costs associated with litigating or settling claims, shall be accrued when the incidents that give rise to the claims occur. A hea…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3eef7a77ef3f5f0df792bdcff3a8328891fa40b3e4ebca822bd68e6d89d65155","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},{"citation":"450-954-25-2A","para":"25-2A","html":"
Pursuant to paragraph 954-720-25-3, an accrual for malpractice losses shall be based on estimated ultimate losses and costs associated with settling claims. Accruals shall not be based on recommended funding amounts, which in addition to a provision for the actuarially determined liability also includes a provision for both of the following:
  1. a
    Credit for investment income
  2. b
    A margin for risk of adverse deviation.
","snippet":"Pursuant to paragraph 954-720-25-3, an accrual for malpractice losses shall be based on estimated ultimate losses and costs associated with settling claims. Accruals shall not be based on recommended funding amounts, whi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ff12aa86a4cfa70fa808afef4f270604a34897b3c3f042703a2fb988f3174b6c","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},{"citation":"450-954-25-2B","para":"25-2B","html":"
The following are examples of factors to consider and adjustments that may be required to convert actuarially determined malpractice funding amounts to an appropriate loss accrual to be reported in the financial statements:
  1. a
    The risk of adverse deviation is an additional cost factor applied to bring a funding requirement to a selected confidence level. This factor does not meet the criteria for recognition as a liability in accordance with Topic 450.
  2. b
    An evaluation shall be made of the extent and validity of industry data when the credibility factor actuarial technique is used. The lower the credibility factor, the greater the blending of industry data. This may create an unacceptable level of industry data at lower confidence levels. Further, a low credibility factor may indicate that provider-specific data is not sufficient to support the claims liability estimation process.
  3. c
    A review of the discounting approach used is necessary to develop the required disclosure. The impact on the discounting calculation of any other adjustment made to the actuarially determined amounts (such as risk of adverse deviation or the credibility of the risk management system) has to be evaluated.
  4. d
    A review of the expenses included in the loss estimation process shall be made. Such expenses include the expense of settlement and litigation (that is, allocated loss adjustment expenses).
","snippet":"The following are examples of factors to consider and adjustments that may be required to convert actuarially determined malpractice funding amounts to an appropriate loss accrual to be reported in the financial statemen…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db4f534f1e87dacb693d4dec433de77637e3cb53205dac69dfe320c5df797921","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f0c342f0c583fce9ceb2d691e534fe22b26b71f492d183eb62f12537372a94b7","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},{"block":null,"heading":"Medical Malpractice Trust Funds","paragraphs":[{"citation":"450-954-25-3","para":"25-3","html":"
Estimated losses from asserted and unasserted claims shall be accrued and reported, as indicated in paragraphs
954-450-30-1 through 30-2
. The estimated losses are not based on payments to the trust fund. See paragraph 954-720-25-5 for guidance concerning an entity that participates in a common trust fund and forfeits its rights to any excess funding. See also paragraph 954-810-45-4.
","snippet":"Estimated losses from asserted and unasserted claims shall be accrued and reported, as indicated in paragraphs 954-450-30-1 through 30-2. The estimated losses are not based on payments to the trust fund. See paragraph 95…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e2b28ac7ee52398675c4aa2abf3de346ae61256d56310f5e89583957b1a96150","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d34d804622b36075b697343fbe4f8ed398a301e6c6262360e7e83868e4c918ec","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},{"block":null,"heading":"Prepaid Health Care Services","paragraphs":[{"citation":"450-954-25-4","para":"25-4","html":"
A prepaid health care provider enters into contracts to provide members with specified health care services for specified periods in return for fixed periodic premiums. The premium revenue is expected to cover health care costs and other costs over the terms of the contracts. Only in unusual circumstances would a provider be able to increase premiums on contracts in force to cover expected losses. A provider may be able to control or reduce future health care delivery costs to avoid anticipated losses, but the ability to avoid losses under existing contracts may be difficult to measure or to demonstrate. Associated entities such as hospitals, medical groups, and individual practice associations may enter into similar contracts with prepaid health care providers in which they agree to deliver identified health care services to the providers' members for specified periods in return for fixed fees.
","snippet":"A prepaid health care provider enters into contracts to provide members with specified health care services for specified periods in return for fixed periodic premiums. The premium revenue is expected to cover health car…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f1ce944ccad6d855050e4b63d69ca25053f5ad0bfcb3cb2d04c7df6b85e4bc7f","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:27208b9c75404998c367c8d63e29945ad3fb03588af19b17eefe8afd55362311","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:75d25c72b7224eb398d7ad4aa83c70eaba12586eb0fde5086fe7e86acf193bbd","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:75d25c72b7224eb398d7ad4aa83c70eaba12586eb0fde5086fe7e86acf193bbd","downloaded_from":"2026-09-10T00:28:39.369Z","last_downloaded_at":"2026-09-10T00:28:39.369Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477527","source_sha256":"80700a570e899b8991551c069bcb17dcf1d7b8808eb1976061cefdbb675660cc"}}