# ASC 450-954: Contingencies — Health Care Entities Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/450/954/) 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): 2026-09-10T00:28:27.303Z to 2026-09-10T00:28:57.040Z Record version: sha256:7484ad054d89645883db95fc36fd32a844e4f2461a6a4e844835e44eee586e28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954: Contingencies — Health Care Entities ### Machine-generated study aids ```json { "summary": "This subtopic applies Topic 450 loss-contingency principles to health care entities, principally medical malpractice claims, prepaid health care contract losses, and preferred provider \"stop-loss\" guarantees. Malpractice liabilities must be accrued when the incidents giving rise to the claims occur — including losses from incidents probable of having occurred but not yet reported — based on best estimates of ultimate claim costs, and may not be presented net of anticipated insurance recoveries. Losses on prepaid health care contracts are recognized when it is probable that expected future health care and maintenance costs on a group of existing contracts will exceed anticipated future premiums and stop-loss recoveries.", "key_points": [ "Ultimate costs of malpractice claims and similar contingent liabilities, including litigation and settlement costs, are accrued when the incidents giving rise to the claims occur (450-954-25-2).", "A malpractice liability shall not be presented net of anticipated insurance recoveries; an indemnified entity recognizes an insurance receivable at the same time and on the same basis as the liability, subject to a valuation allowance for uncollectible amounts (450-954-25-2).", "Accruals are based on estimated ultimate losses and settlement costs, not on recommended funding amounts, which improperly include credit for investment income and a margin for risk of adverse deviation (450-954-25-2A); the adverse-deviation factor does not meet the Topic 450 liability recognition criteria (450-954-25-2B(a)).", "Estimated losses from asserted and unasserted claims are accrued individually or on a group basis using all relevant information — industry experience, the entity's own historical experience, existing asserted claims, and reported incidents — and include losses from unreported incidents probable of having occurred before period end (450-954-30-1); estimates are not based on payments to a trust fund (450-954-25-3).", "The greater the volume of operations, the greater the likelihood that the minimum estimate of probable unreported incidents exceeds zero, and industry data must be adjusted for comparability and currency (450-954-30-2).", "Losses under prepaid health care services contracts are recognized when it is probable that expected future health care and maintenance costs (fixed and variable, direct and allocable indirect) under a group of existing contracts will exceed anticipated future premiums and stop-loss insurance recoveries, with contracts grouped consistently with the provider's premium-rating method (450-954-30-3 through 30-4).", "Estimated losses are reviewed and changed at each reporting date, with changes recognized currently as additional expense or a reduction of expense (450-954-35-1); entities must disclose their malpractice insurance program and, if claims are discounted, the discounted carrying amount and the interest rate(s) used (450-954-50-1 through 50-2)." ], "categories": [ "Contingencies and guarantees", "Industry-specific", "Recognition", "Disclosure" ], "audience_level": "intermediate", "student_note": "The classic trap is netting: a health care entity must gross up the malpractice liability and record a separate insurance receivable, never report the liability net of expected recoveries, and must accrue for incurred-but-not-reported incidents rather than only asserted claims. A second trap is confusing an actuary's recommended funding amount (which builds in investment income credit and a risk margin) with the GAAP loss accrual.", "related_topics": [ "450-20", "954-450", "954-720", "944-40", "720-20", "954-810" ], "key_concepts": [ "medical malpractice claims", "incurred but not reported claims", "loss contingency accrual", "gross presentation of insurance recoveries", "insurance receivable", "prepaid health care contract losses", "risk of adverse deviation", "discounting of accrued claims" ] } ``` Source downloaded (UTC): 2026-09-10T00:28:27.303Z to 2026-09-10T00:28:27.303Z Record version: sha256:9c7c00c87f422cd5c94602dd2eaa04247b4667031286d69ad2a98ed2094a7e9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/450/954/#00-status) SEC content: no ##### [450-954-00-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:27.303Z to 2026-09-10T00:28:27.303Z Record version: sha256:23e4f54fda7d6c42651fbc40bee70628290b43086cdd663a9d322b3711ca4564 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
Stop-Loss InsuranceAddedAccounting Standards Update No. 2014-0603/14/2014
954-450-25-1AmendedAccounting Standards Update No. 2014-0603/14/2014
954-450-25-2AmendedAccounting Standards Update No. 2010-2408/27/2010
954-450-25-3AmendedAccounting Standards Update No. 2012-0410/01/2012
954-450-25-3AmendedAccounting Standards Update No. 2010-2408/27/2010
954-450-30-4AmendedAccounting Standards Update No. 2014-0905/28/2014
954-450-65-1AddedAccounting Standards Update No. 2010-2408/27/2010
Source downloaded (UTC): 2026-09-10T00:28:29.279Z to 2026-09-10T00:28:29.279Z Record version: sha256:abb21a31027b87879ef02c133dd555c5a9108b1ea384cfdafa6368f84c74ab53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/450/954/#05-overview-and-background) SEC content: no ##### [450-954-05-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:29.279Z to 2026-09-10T00:28:29.279Z Record version: sha256:2c79dcd7d9e5903fe7f1aa750ac6e8d22c18eec993175663d34fa95f5de9fb8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on accounting for contingencies for health care entities within the scope of this Topic. Source downloaded (UTC): 2026-09-10T00:28:32.964Z to 2026-09-10T00:28:32.964Z Record version: sha256:9533dddb8ac7a2c51791640dd709301051c2671902a1bc079002befd6207c92d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/450/954/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [450-954-15-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:32.964Z to 2026-09-10T00:28:32.964Z Record version: sha256:2e1b7ed531e38952de126f2febdedf41265bd163092fbea361db1ee1886b8e0d 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): 2026-09-10T00:28:39.369Z 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. Source downloaded (UTC): 2026-09-10T00:28:42.400Z to 2026-09-10T00:28:42.400Z Record version: sha256:ef9d07bbbdd360e1bf0d3f3b69390df851fd46cf6fa5e4590eba49eb6e6587ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## 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) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:42.400Z to 2026-09-10T00:28:42.400Z Record version: sha256:a9359d88adaf330a31002a1d1bd75ae59b2dd6bb93ffe9de3c398350d619c8ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:42.400Z to 2026-09-10T00:28:42.400Z Record version: sha256:388cca4f1f4849dc1fa7ddba3da95973414a67d4459426349701b8aae32ad630 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:42.400Z to 2026-09-10T00:28:42.400Z Record version: sha256:6d8f1930ea3a55ddd19c697745c3953331fb4a9fcd2e56a150a430d60e9e9862 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:42.400Z to 2026-09-10T00:28:42.400Z Record version: sha256:4d6fd651c5533d7c4bc19367919b59f539bc3b7740ac289b0dd0636aee7dbbe3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Source downloaded (UTC): 2026-09-10T00:28:45.873Z to 2026-09-10T00:28:45.873Z Record version: sha256:b2e4c6e4818b469172896e281cb2bbc756a2ad85c0463b11f960e394aebcda2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/450/954/#35-subsequent-measurement) SEC content: no #### Medical Malpractice Claims ##### [450-954-35-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:45.873Z to 2026-09-10T00:28:45.873Z Record version: sha256:f6faaaea0562204a8e60f514da732b0d109458e00a11a0b1c0c6495c32f7a707 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimated losses are reviewed and changed, if necessary, at each reporting date. The amounts of the changes are recognized currently as additional expense or as a reduction of expense. Source downloaded (UTC): 2026-09-10T00:28:49.716Z to 2026-09-10T00:28:49.716Z Record version: sha256:fd679d972e6c1d01f151f16770605332faa14dee5059d0307c61bfb3b849cb8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/450/954/#50-disclosure) SEC content: no #### Medical Malpractice Insurance ##### [450-954-50-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:49.716Z to 2026-09-10T00:28:49.716Z Record version: sha256:931aea4e508cb28f6ff2a8640fffc8b0ade609ccd6e38d6d9e8cbc7c6e5cb242 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Health care entities shall disclose their program of medical malpractice insurance coverages. ##### [450-954-50-2](https://asc.understandingaccounting.org/asc/450/954/#450-954-50-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:49.716Z to 2026-09-10T00:28:49.716Z Record version: sha256:c861759e0996a8c6f95fdff89c4c157bd8bc3c3e95c1fa07028540e230853190 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Health care entities that discount accrued malpractice claims shall disclose in the notes to the financial statements the carrying amount of accrued malpractice claims that are discounted in the financial statements and the interest rate or rates used to discount those claims. Source downloaded (UTC): 2026-09-10T00:28:53.753Z to 2026-09-10T00:28:53.753Z Record version: sha256:f680f3d8cfa9dc6652b216d621188213127ee8db20ecacd2ee257fab38892c2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 450-954-65: 65 Transition and Open Effective Date Information [Read section](https://asc.understandingaccounting.org/asc/450/954/#65-transition-and-open-effective-date-information) SEC content: no ##### [450-954-65-1](https://asc.understandingaccounting.org/asc/450/954/#450-954-65-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:28:53.753Z to 2026-09-10T00:28:53.753Z Record version: sha256:1e52ca92c334969069c2215d4c4c1a3a917b178dac789d4f3b91091435742a5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 06/18/2012 after the end of the transition period stated in Accounting Standards Update No. 2010-24, _Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries_.