by Darcey Trescone, RN
Revenue recognition guidance varies under PDGM among CPAs and consultants. You may recall similar issues during previous payment reform models. I remember that best-practice for revenue recognition under PPS was a major topic of discussion among software vendors because the inability to accommodate a particular requested model lead to lost sales. Here we go again!
We know under PDGM the episode of care is 60 days, divided into two 30-day payment episodes. Dedicated home healthcare CPAs and consultants have been discussing the pros and cons of recognizing revenue on a 1/30th basis over each 30-day period, in line with payments, ever since NAHC's PDGM roadshow last year. Recently, we learned that some of the Big Four accounting firms are recommending revenue recognition occur on a 1/60th basis over a 60-day period which is in line with the full episode length. Who is right?
CPAs and consultants involved in NAHC are presently reviewing the generally accepted accounting principles (GAAP) in relation to PDGM to ensure they are following FASB Accounting Standards. Specifically, it is the interpretation of Accounting Standards Updated (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) that is in question. A copy of the 156-page document can be found on the Financial Accounting Standards Board website (www.fasb.org).
According to ASU 2014-09, Revenue from Contracts with Customers (Topic 606), "The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services."
The accounting standards (ASU 2014-09, Topic 606) continue, "To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation."
Applying these steps with a focus only on the 60-day episode of care does not consider the change to 30-day payment periods under PDGM as of 1/1/2020. It is logical thinking that, with the change to 30-day payments, we should re-evaluate how we are recognizing revenue under PDGM.
One CPA firm that specializes in home healthcare is leaning toward and continuing to analyze the 1/30th revenue recognition model for each of the two payment periods in the 60-day episode under PDGM. Their perspective is, this change supports revenue being recognized consistent with the contractual obligation of the 60-day episode while the computation for revenue recognition is broken into a two-step pro-ration on the 1/30th basis, using each specific payment period for better accuracy of revenues. They also suggest this approach better recognizes revenue as the patient receives the benefits from the care while continuing to be consistent with the way in which expenses are incurred. Such a solid perspective makes sense but still may not coincide with the perspectives of the Big Four accounting firms.
The questions home healthcare organizations should be asking now are:
Ensuring that your EMR can support your chosen revenue recognition accounting methodology will be an important step toward keeping your accountants happy while moving forward under PDGM. Your first PDGM episodes began one week ago. If you haven't already, this might be a good time to ask that question of your EMR vendor.
Darcey Trescone, RN, is a Healthcare IS and Business Development Consultant in the Post-Acute Healthcare Market with a strong background working with both providers and vendors specific to Home Care and Hospice. She has worked as a home health nurse and held senior operational, product management and business development positions with various post-acute software firms, where her responsibilities included new and existing market penetration, customer retention and oversight of teams across the U.S., Canada and Australia. Contact Darcey at firstname.lastname@example.org.
©2020 by Rowan Consulting Associates, Inc., Colorado Springs, CO. All rights reserved. This article originally appeared in Tim Rowan's Home Care Technology Report. homecaretechreport.com One copy may be printed for personal use; further reproduction by permission only. email@example.com