Billing and ASC 606 IFRS 15 for Healthcare Entities

Billing and ASC 606 / IFRS 15 for Healthcare Entities

Compliance challenges have become common in billing and ASC 606 and IFRS 15 for the healthcare industry. The standard, ASC 606 outlines a single, comprehensive model for accounting for revenue from contracts with customers, or for the healthcare vertical, with patients, requiring healthcare entities to carefully evaluate how, when, and in what amount they recognize revenue, specifically regarding contracts with third-party payers and self-pay revenue (and resulting bad debts).

Healthcare entities and providers are most notably unique in the accounting world for the complexities surrounding the revenue cycle (billing and collecting for services provided).

To note, ASC 606 has a five-step process for revenue recognition:

  1. Identify the contract with the customer.
  2. Identify the performance obligations in the contract.
  3. Determine the overall transaction price for the contract.
  4. Allocate the transaction price to the performance obligations.
  5. Recognize revenue when performance obligations are satisfied.

ASC 606 / IFRS 15 Challenges for the Healthcare Industry

There are additional challenges the healthcare industry faces in compliance under ASC 606:

  • Existence of a Contract – Under the revenue recognition standard, healthcare companies may need to consider the customer’s ability and intention to pay the amount to which the companies are entitled to in determining if a contract exists, and if revenue can be recognized.
  • Transaction price calculations – Total consideration that the entity expects to be entitled to from the customer over the contract term (i.e., transaction price) may need to be estimated at contract inception and throughout the contract term. Healthcare companies need methods to calculate or estimate the transaction price.
  • Contract combination requirements – Adjustments related to contract modifications may be required. These changes require some companies to enhance their contract management systems and tools.
  • Disclosures – The disclosure requirements under the standard are significant and typically require modification to financial management reporting processes and systems

At the same time, billing of these services can become quite complex. These complexities may include the need to bill on a milestone-based schedule for treatments provided over time. Additionally, the industry is noted for the need to process bill modifications, whether they be credits, cancelations, or other modifications to the bill.

Solutions for Billing and ASC 606 / IFRS 15 for the Healthcare Industry

Given the combination of contracts, price calculations, and revenue recognition requirements, ASC 606 reporting for healthcare companies will need to move beyond separate systems, add-on Excel reporting, and different applications. The best solution is one system handling revenue recognition contract combinations, variable consideration, transaction price calculations, and disclosure requirements as well as the billing complexity.

Revenue Recognition Software for Healthcare Entities

SOFTRAX is the only vendor that provides an option to deploy revenue recognition for ASC 606 as an independent application, or as a complete Revenue Management System (RMS), combining support for complex billing and revenue recognition against ASC 606/IFRS 15 in a single system.

Contact us to learn how SOFTRAX can help with complex revenue management requirements in the healthcare industry.

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