Charity Care and Bad Debt in a healthcare environment
For accounting purposes in healthcare, uncompensated services offered to the patients are classified as either bad debts or charity care. They are entirety encumbrance of unreimbursed care offered to patients who are poor, needy of medical help and underinsured individuals. This is in exclusions of discounts allowed to private payers and underpayments from institutions such as Medicare. Charity care refers to healthcare services values that were never expected to generate any cash inflows (Weissman, 2005). Charity care is as a consequential of a provider’s policy to offer healthcare services without attaching any costs to certain people who meets different specific financial status. Hospitals offer charity care after determining that certain patients would be unable to meet costs for their bills. Here the provider do not receive or did not expect any payment from patients for services offered. On the other hand, bad debt refers to current period charge for actual or expected doubtful accounts which results from extending credit services to patients. The hospital expected to receive payments from these services but end up not being paid for. The cost is incurred as a result of patients being unable to pay or could be unwilling to pay for their hospital bills (Needles, Powers, & Crosson, 2012).
Hospitals provide different categories of charity care, which ought to be factored in their budgets. These charity cares are met by the hospitals depending on their mission, financial status, or patient’s economic conditions. These unreimbursed costs lack uniform classification such that the other (Needles et al, 2012), could categorize charity care provided by one provider as bad debts. Bad debts are classified after an extensive effort to ensure their payments turn out to be unsuccessful. They are authorized by the senior management level after continuous procedures to ensure their payment have been carried out fail or after registering them to a collection agency. Provisions for bad debts in healthcare could be computed using the past data of local patient’s mode of payments (Weissman, 2005).
Assistance of Patient Financial Services Personnel in Categorizing Uncollectable Debts
The patient financial services helps patient to access their billing statements and payments. These services also take the initiatives of persuading patients to pay their bills or their guarantors on patient’s behalf. This is in case of young adults and children below 18 years of age. The patients falling under this category could be underinsured or medically indigent. The personnel could categorize the debts in amount and duration of payment, which could be by installments. Failure to meet these installments, patients financial services could categorize the debts as bad irrecoverable if all procedures to ensure successful collection of could not succeed. The personnel have information to do with patients’ financial status and its changes due to house hold incomes compared to billing needs. As a result, patient financial services personnel could be used to determine patients who are unable to pay due to their gross household income constrains, financial status changes, bankruptcy or unwilling to pay (Needles et al, 2012).
Financial Implications of Gross Uncollectible
Gross uncollectible costs results to reduced cash inflows of health care institutions, and could result to financial difficulties if not controlled. Charity care need to be budgeted for to avoid financial challenges when meeting them and provisions for doubtful debts are also necessary since not all bills have full and equal chances of being paid for by patients. Charity care is not reported item in the financial statements but bad debt are reported as expenses. Bad debts reduce the receivables in the financial position statement and add to expenses in statement of comprehensive income. Charity care is disclosed as footnotes but do not reflect on the statement of income and expenses (Weissman, 2005).
Needles, B., Powers, M., & Crosson, S. (2012). Principles of accounting. Boston, Massachusetts: Cengage Learning.
Weissman, J. S. (2005). The trouble with uncompensated hospital care. New England Journal of Medicine, 352(12), 1171-1173.