ASC

ASC 605-954

Health Care Entities

605 Revenue Recognition

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In brief

IntermediateRevenueRecognitionDisclosureNot-for-profit

After ASU 2014-09 superseded most of its content, ASC 605-954 retains only two pieces of health care recognition guidance: charity care and distributions from financially interrelated fundraising (recipient) entities. Charity care is never recognized as revenue, and distributions from a related fundraising foundation are generally a reduction of the health care entity's interest in that recipient entity rather than contribution revenue. Revenue from contracts with patients and other customers is now governed by Topic 606.

Key points (7)
  • Topic 606 now provides the revenue recognition guidance for health care entities' contracts with customers; this Subtopic covers only charity care and related fundraising entities (605-954-05-1; 605-954-25-1).
  • Charity care does not qualify for recognition as revenue, and only the portion of a patient's account meeting the entity's charity care criteria may be treated as charity; distinguishing charity care from bad-debt expense requires judgment (605-954-25-10).
  • The charity care determination need not be made at admission or registration, but at some point the entity must determine the individual meets its established charity care criteria (605-954-25-11).
  • Distributions from a financially interrelated recipient entity to the nongovernmental health care entity it supports are generally reported as a reduction of the health care entity's interest in the recipient entity (605-954-25-12).
  • If the distribution comes from net assets not includable in that interest (because the recipient entity controls to whom assets are distributed), the health care entity reports a contribution from the related recipient entity (605-954-25-12).
  • Financial statements must disclose management's charity care policy and the level of charity care provided, measured at the provider's direct and indirect costs, plus the method used to identify or estimate those costs (605-954-50-3).
  • Funds received to offset or subsidize charity care, such as restricted gifts, grants, or uncompensated care fund amounts, must be separately disclosed (605-954-50-3).

For students. Exam traps: charity care is never revenue (and therefore is not a bad-debt expense either), and the required disclosure is at cost, not at gross charges. Also remember that most of this Subtopic was superseded by ASU 2014-09 — patient service revenue questions now go to Topic 606.

charity carebad-debt expensecost of charity care disclosurefinancially interrelated entitiesrecipient entity distributionsinterest in recipient entitycontribution revenuehealth care entities

Machine-generated study aid for ASC 605-954. Check the source paragraphs below.

605-954-00Status

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605-954-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Capitation Fee Superseded Accounting Standards Update No. 2014-09 05/28/2014
Conditional Contribution Added Accounting Standards Update No. 2018-08 06/21/2018
Conduit Debt Security Added Maintenance Update 2014-20 (PDF) 09/29/2014
Contract Added Accounting Standards Update No. 2014-09 05/28/2014
Contribution Amended Accounting Standards Update No. 2018-08 06/21/2018
Contribution Amended Accounting Standards Update No. 2010-07 01/28/2010
Customer Added Accounting Standards Update No. 2014-09 05/28/2014
Diagnosis-Related Group Superseded Accounting Standards Update No. 2014-09 05/28/2014
Donor-Imposed Condition Added Accounting Standards Update No. 2018-08 06/21/2018
Nonpublic Entity (Def. 1) Amended Maintenance Update 2014-20 (PDF) 09/29/2014
Nonpublic Entity Added Accounting Standards Update No. 2011-07 07/25/2011
Prepaid Health Care Plan Superseded Accounting Standards Update No. 2014-09 05/28/2014
Promise to Give Added Accounting Standards Update No. 2018-08 06/21/2018
Prospective Rate Setting Superseded Accounting Standards Update No. 2014-09 05/28/2014
Public Entity Amended Maintenance Update 2014-20 (PDF) 09/29/2014
Public Entity Added Accounting Standards Update No. 2011-07 07/25/2011
Retrospective Rate Setting Superseded Accounting Standards Update No. 2014-09 05/28/2014
Revenue Added Accounting Standards Update No. 2014-09 05/28/2014
954-605-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
954-605-05-2 through 05-14
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-05-2 Amended Accounting Standards Update No. 2012-04 10/01/2012
954-605-05-4 Amended Accounting Standards Update No. 2012-04 10/01/2012
954-605-25-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
954-605-25-2 through 25-9
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-25-4 Amended Accounting Standards Update No. 2011-07 07/25/2011
954-605-35-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-45-1 through 45-5
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-45-4 Added Accounting Standards Update No. 2011-07 07/25/2011
954-605-45-5 Added Accounting Standards Update No. 2011-07 07/25/2011
954-605-50-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-50-2 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-50-3 Amended Accounting Standards Update No. 2010-23 08/26/2010
954-605-50-4 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-50-4 Added Accounting Standards Update No. 2011-07 07/25/2011
954-605-55-1 through 55-4
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
954-605-55-1 through 55-4
 Added Accounting Standards Update No. 2011-07 07/25/2011
954-605-65-1 Added Accounting Standards Update No. 2010-23 08/26/2010
954-605-65-2 Added Accounting Standards Update No. 2011-07 07/25/2011

605-954-05Overview and Background

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605-954-05-1
Topic 606 on revenue from contracts with customers provides guidance on revenue recognition for contracts with customers for health care entities within the scope of this Topic. This Subtopic provides recognition guidance for:
  1. a
    Charity care
  2. b
    Related fundraising entities.

605-954-15Scope and Scope Exceptions

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Overall Guidance

605-954-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 954-10-15.

605-954-20Glossary

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605-954-25Recognition

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Charity Care

605-954-25-10
Charity care does not qualify for recognition as revenue in the financial statements. Distinguishing charity care from bad-debt expense requires the exercise of judgment. Only the portion of a patient's account that meets the entity's charity care criteria shall be recognized as charity.
605-954-25-11
Although it is not necessary for the entity to make this determination on admission or registration of an individual, at some point the entity must determine that the individual meets the established criteria for charity care.

Related Fundraising Entities

605-954-25-12
Distributions from a financially interrelated recipient entity to a nongovernmental health care entity that it supports shall generally be reported by the health care entity as a reduction of its interest in the recipient entity. However, if the distribution is made from net assets that are not includable in that interest because the health care entity does not have rights to them (that is, the recipient entity can determine to whom the assets will be distributed), the health care entity shall report a contribution from the related recipient entity. See Example 2 in paragraphs
958-20-55-8 through 55-13
for an illustration of a health care foundation and the affiliated entities that it supports.

605-954-35Subsequent Measurement

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605-954-40Derecognition

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605-954-45Other Presentation Matters

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605-954-50Disclosure

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Charity Care

605-954-50-3
Management's policy for providing charity care, as well as the level of charity care provided, shall be disclosed in the financial statements. Such disclosure shall be measured based on the provider's direct and indirect costs of providing charity care services. If costs cannot be specifically attributed to services provided to charity care patients (for example, based on a cost accounting system), management may estimate the costs of those services using reasonable techniques. For example, one such estimation technique might involve calculating a ratio of cost to gross charges, and then multiplying that ratio by the gross uncompensated charges associated with providing care to charity patients. Other reasonable techniques also are permitted. The method used to identify or estimate such costs shall be disclosed. Funds received to offset or subsidize charity services provided, for example, from gifts or grants restricted for charity care or from an uncompensated care fund, also shall be separately disclosed.

605-954-55Implementation Guidance and Illustrations

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605-954-65Transition and Open Effective Date Information

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605-954-65-1
Paragraph superseded on 06/18/2012 after the end of the transition period stated in Accounting Standards Update No. 2010-23, Health Care Entities (Topic 954): Measuring Charity Care for Disclosure.
605-954-65-2
Paragraph superseded on 06/17/2013 after the end of the transition period stated in Accounting Standards Update No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities.

605-954-75GAAP Taxonomy Elements

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Related subtopics