HFMA Business of Health Care Practice Test

The change in accounting standards for bad debt expense effective after December 15, 2018, is that bad debt expense is now expected to be recognized based on the estimate of collectible amounts from patients and payers. This means that instead of simply writing off debts that are deemed uncollectible, organizations must use a more systematic and rational approach.

The correct focus on patients who experience adverse events reflects the new requirement to only recognize bad debt when there is clear evidence that payment is unlikely. This aligns with a more proactive approach to revenue recognition and emphasizes the importance of understanding patient circumstances rather than just categorizing all uncollected amounts as bad debt.

This method is more consistent with generally accepted accounting principles (GAAP), as it requires organizations to apply a consistent and systematic methodology for estimating collectibility, recognizing that some patients may face circumstances that adversely affect their ability to pay. It encourages health care organizations to evaluate their accounts receivable policies continually and improves the accuracy of financial reporting regarding revenue.

Organizations will still have to adhere to proper revenue recognition that reflects the true economic conditions rather than merely applying simple formulas. This enhances financial reporting and provides a clearer picture of a healthcare entity's operational efficiencies and financial health.