Prior to the amendments made in the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2010-23, Measuring Charity Care for Disclosure in August 2010, existing guidance did not prescribe a specific measurement basis for a health care entity to disclose charity care. Health care entities were required to disclose amounts related to their charity care policy, but the methodology for doing so was left up to each entity.

Most often, this was a 'charges foregone for services and supplies' furnished under the entities' charity care policy. The charges foregone amounts were calculated based on each provider's established rates. Even when similar overlying measurements were used, each provider used different rates and comparison between entities was incredibly difficult.

The amendments made in this FASB Update require all health care entities to measure and disclose charity care using a cost measurement basis. This change was designed to enhance comparability between entities by requiring them to use the same measurement basis.

Any funds received to subsidize or offset the costs of providing charity care will not be netted against the gross costs disclosed. These funds, whether they are subsidies from an uncompensated care pool or a gift/grant, will be required to be reported as separate disclosure from the costs.

In the past, the Charity Care field on the Statement of Operations in CreditScope has been populated with charges foregone. The Update is effective for fiscal years beginning after December 15, 2010, but the amendments in the Update are to be applied retrospectively to all prior periods presented in the financial statements.

Merritt has begun to populate Charity Care at cost for the FY2011 columns and will restate the FY2010 value if disclosed. Because health care entities do not pursue collection of amounts determined to qualify as Charity Care, under both the old and the new guidance, charity care was never accounted for as net patient revenue on the financial statements. That being the case, this methodology change will have no effect on the revenues or expenses reported on the face of the financial statements themselves.

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