Should CPA firm add services for Health Care Organizations?

Solution Preview

Comparison of Not-for-Profit (NFP), Governmental and Private Health Care Accounting and Reporting

BACKGROUND

In order to expand our client base, we are considering offering accounting services to health care organizations. The auditing standards require that we staff all engagement with those having the proper expertise for the job. If we obtain a healthcare client, we will need to know the fundamental of healthcare accounting, including for-profit (FP), not-for-profit (NFP) and governmental accounting (GOV) and reporting requirements.

CURRENT SITUATION

Similarities

Healthcare firms, whether governmental, NFP, FP or GOV, have similarities. They all provide health services, have similar revenue recognition issues, have costs and cash flows. They also have either owners, constituents or authorities to which they are accountable and must report the results of activity for the year, and the resources/liabilities/commitments at year-end. We will have to record transactions, verify balances, count inventory and so forth, as with any client with customers, vendors and employees. They all also have special accounts and transactions that are healthcare specific. For instance, they all offer some level of indigent care which must be disclosed so the accounts must track revenue deductions related to indigent care versus other types of write offs.

All the firms have contractual adjustments to revenue based on insurance and contract prices. They also may have discounts and uncollectible accounts that are larger and more varied that commercial clients that preauthorize customers based on their credit worthiness. Also, collections are more complicated since they often get part of the payment from one or more insurance firms and the rest from the patient.

Differences

Although these organization might appear to offer similar services, they are likely offering a different product mix. ...