# ASC 450-954-30: Contingencies — Health Care Entities — 30 Initial Measurement

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/450/954/#30-initial-measurement)

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## ASC 450-954-30: 30 Initial Measurement

[Read section](https://asc.understandingaccounting.org/asc/450/954/#30-initial-measurement)

SEC content: no

#### Medical Malpractice Claims

##### [450-954-30-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-30-1)

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Estimated losses from asserted and unasserted medical malpractice claims shall be accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, shall be used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period.

##### [450-954-30-2](https://asc.understandingaccounting.org/asc/450/954/#450-954-30-2)

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In estimating the probability that unreported incidents have occurred, some health care entities may develop a range of possible estimates of the number of unreported incidents, including zero. However, the greater the volume of a health care entity's operations, the greater the likelihood that the entity's minimum estimate of the number of probable unreported incidents will be greater than zero. In estimating losses from malpractice claims, a health care entity may need to modify data drawn from industry experience so it is relevant to developing an estimate that is specific to the entity. Various factors (such as the nature of operations, size, and the provider's past experience) shall be considered in assessing comparability. Further, industry data that are not current may not be relevant.

#### Prepaid Health Care Services

##### [450-954-30-3](https://asc.understandingaccounting.org/asc/450/954/#450-954-30-3)

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The estimated future health care costs and maintenance costs to be considered in determining whether a loss has been incurred shall include fixed and variable, direct and allocable indirect costs.

##### [450-954-30-4](https://asc.understandingaccounting.org/asc/450/954/#450-954-30-4)

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Losses under [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.") contracts shall be recognized when it is probable that expected future health care costs and maintenance costs under a group of existing contracts will exceed anticipated future premiums and stop-loss insurance recoveries on those contracts. To determine the need to recognize a loss, contracts shall be grouped in a manner consistent with the provider's method of establishing premium rates, for example, by community rating practices, geographical area, or statutory requirements, to determine whether a loss has been incurred.