United States

Accounting for CARES Act provisions specific to health care entities

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Among its many provisions, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, established a Provider Relief Fund to be used for economic support of health care entities in connection with health care-related expenses or lost revenues attributable to COVID-19 and the treatment of uninsured COVID-19 patients. Initially, $50 billion of the Provider Relief Fund was allocated for general distribution to a wide range of entities across the U.S. health system (the Phase 1 general distribution allocation). In addition, the CARES Act expanded the availability of advance or accelerated payments from Medicare.

Recently, the American Institute of Certified Public Accountants (AICPA) issued Q&A Section 6400.63 - .70 to answer technical questions regarding the accounting for certain CARES Act provisions specific to health care entities, which are briefly summarized as follows:

  • Sections .64 through .66 address the accounting used by nongovernmental health care entities for the Phase 1 general distribution allocation. Among other guidance provided, these sections conclude that:
    • Not-for-profit health care entities would consider Phase 1 general distribution payments to be conditional contributions and account for them as nonexchange transactions in accordance with the “contributions received” subsections of Financial Accounting Standards Board Accounting Standards Codification (ASC) Section 958-605, “Not-for-Profit Entities – Revenue Recognition.”
    • For-profit health care business entities would account for the Phase 1 general distribution payments as nonexchange transactions. However, there is no explicit guidance within U.S. generally accepted accounting principles for the accounting for government grants to business entities. The AICPA staff has observed that guidance in International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance; ASC 958-605; or ASC 450-30, Contingencies—Gain Contingencies, might be applied by analogy.
    • There will be uncertainties associated with the general distribution payment terms and conditions, and therefore nongovernmental health care entities should consider the appropriate financial statement presentation and disclosure for any liability related to the funds received that may need to be returned to the U.S. Department of Health and Human Services. 
  • Section .67 concludes that Provider Relief Fund payments received by health care entities for the treatment of uninsured COVID-19 patients should be considered patient service revenue. Differences between an uninsured patient’s gross service revenue and the amount payable by the program would be considered contractual allowances.
  • Section .68 addresses how nongovernmental health care entities should account for payments received under the Medicare Accelerated and Advance Payment Program, and Section .69 discusses the accounting for temporary increases in Medicare and Medicaid payments.  
  • Section .70 concludes that not-for-profit health care entities should account for reimbursement received from the Federal Emergency Management Agency for costs associated with eligible emergency medical care activities as nonexchange transactions in accordance with the “contributions received” subsections of ASC 958-605.

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