Starting with fiscal year 2012, healthcare providers are required to adopt a new accounting standard update that alters how bad debt expenses are logged. Previously, hospitals recorded bad debt as an operating expense, but the update requires hospitals to record it as a reduction to net revenue.
Although Fitch analysts said the update “did not fully address the problems presented by healthcare companies’ diverse revenue recognition policies,” it still gives hospitals and other providers a net revenue number that is closer to what they actually collect, which allows for better benchmarking and comparability.
Fitch also said the new accounting methodology “results in growth in reported revenue that is more closely aligned with underlying trends in payor reimbursement rates and acuity,” according to the report.
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