# ASC 450-954-25: Contingencies — Health Care Entities — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/450/954/#25-recognition) 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): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:75d25c72b7224eb398d7ad4aa83c70eaba12586eb0fde5086fe7e86acf193bbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/450/954/#25-recognition) SEC content: no ##### [450-954-25-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:5eafd11626b74965d2e8c0e6a84df5a203c08cc0faf44ced5ad690c1f08980e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/glossary/s/#stop-loss-insurance "A contract in which an entity agrees to indemnify providers for certain health care costs incurred by members.") to the self-insured employer, and a material liability to the provider may exist. Topic 450 provides guidance on accounting for these contingencies. #### Medical Malpractice Claims ##### [450-954-25-2](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:3eef7a77ef3f5f0df792bdcff3a8328891fa40b3e4ebca822bd68e6d89d65155 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [450-954-25-2A](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-2A) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:ff12aa86a4cfa70fa808afef4f270604a34897b3c3f042703a2fb988f3174b6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pursuant to paragraph [954-720-25-3](https://asc.understandingaccounting.org/asc/720/954/#720-954-25-3), 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. ##### [450-954-25-2B](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-2B) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:db4f534f1e87dacb693d4dec433de77637e3cb53205dac69dfe320c5df797921 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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). #### Medical Malpractice Trust Funds ##### [450-954-25-3](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:e2b28ac7ee52398675c4aa2abf3de346ae61256d56310f5e89583957b1a96150 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimated losses from asserted and unasserted claims shall be accrued and reported, as indicated in paragraphs [954-450-30-1 through 30-2](https://asc.understandingaccounting.org/asc/450/954/#450-954-30-1) . The estimated losses are not based on payments to the trust fund. See paragraph [954-720-25-5](https://asc.understandingaccounting.org/asc/720/954/#720-954-25-5) 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](https://asc.understandingaccounting.org/asc/810/954/#810-954-45-4). #### Prepaid Health Care Services ##### [450-954-25-4](https://asc.understandingaccounting.org/asc/450/954/#450-954-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:39.369Z to 2026-09-10T00:28:39.369Z Record version: sha256:f1ce944ccad6d855050e4b63d69ca25053f5ad0bfcb3cb2d04c7df6b85e4bc7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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.