Reporting charity care. Hospitals must prepare to comply with new AICPA accounting rules.

To comply with new accounting rules issued by the American Institute of Certified Public Accountants (AICPA), hospitals will have to change the way they report charity care in the financial statements they prepare for fiscal years ending mid-July 1991 and later. In the past, those hospitals which did report charity care information usually lumped it with bad debts under a caption such as "uncompensated services" or disclosed a specific amount of charity care to comply with Hill-Burton or other governmental programs. From now on, however, providers' financial statements must distinguish bad debt from charity care, not report gross patient revenues in the income statement, not imply that charity services generate revenue or receivables, make specific disclosures about the level of charity care provided, and report bad debts as an expense, rather than as a deduction from revenue. Distinguishing bad debts from charity care will be difficult. The AICPA defines bad debts as actual or expected uncollectibles resulting from an extension of credit, and charity care as services for which the provider does not expect payment. The AICPA believes that facilities which establish a definitive management policy on charity care should be able to distinguish between the two. To collect the data necessary to meet the AICPA requirements, hospitals need to establish a method to catalog the charity services they provide. Facilities should also ensure that patients and staff are familiar with their charity care policies.