Are You Ready for New Rev Rec Standards?

1/7/2020 - By Reingruber Alert

ARE YOU READY FOR THE NEW REVENUE RECOGNITION STANDARDS FOR HEALTHCARE PROVIDERS?

The day of reckoning is fast approaching for compliance with the new revenue recognition standard, Revenue from Contracts with Customers, or ASC 606. For Healthcare providers, the standard requires unique considerations for mitigating risk.

Here are some examples of the types of questions and considerations that providers should keep when assessing the new standard's impact:

Has your business gone through a change of ownership or completed an acquisition, or are you considering one?
Does your financial reporting to stakeholders (lenders, investors, debt-issuers, etc.) need to change?
If you have multiple locations, are your contracts with patients consistent across all facilities?
Do you offer care management or care coordination services?
Do you have value-based care contracts and, if so, have you established a clear method for recognizing revenue from these arrangements?
Are you able to accurately audit the clinical and operational metrics underlying your financial reporting?
Are you able to separate out the portions of long-term care contracts that pertain to leasing from those that pertain to care?
Can you consolidate reporting by grouping patient contracts into portfolios to expedite the process?
Are you able to distinguish between services delivered at a specific point in time versus those delivered over time?

If you have questions about any of the items above, then where do you start?

First, it is important to take the time to understand the new standard's requirements, and then confirm your understanding with your auditor.
Assess whether your organization's existing systems, internal controls and processes are adequate or if new systems and tools are required.
Look beyond financial reporting to determine how the new standard may affect other aspects of your business, including marketing, sales and pricing.
Assess the tax implications of the new standard. If your organization uses U.S. GAAP to determine revenue recognition for income tax purposes, the changes in timing of revenue recognition may result in changes to your current taxable income. It may also impact your organization's deferred taxes.
Assess the standard's potential impact on your business, consider possible changes to your organization's standard contracts.
Consider discussing changes with lenders to revise debt covenants impacted by revenue, such as EBITDA and times-interest earned ratios.
Consider possible changes to compensation arrangements driven by revenue, such as sales commissions, if the timing or pattern of your organization's revenue recognition changes under the new guidance.
Revise your documented processes and controls to ensure they are sufficient to prevent or detect misstatements under the new guidance.