COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date for the Company until annual periods beginning after December 15, 2018. Earlier adoption is permitted subject to certain limitations. The amendments in this update are required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
Accounting for Leases
In February 2016, the FASB issued ASU2016-02, “Accounting for Leases,” which applies aright-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the consolidated and combined statement of cash flows, differs depending on the lease classification. In addition, lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU2018-11, “Leases (Topic 842): Targeted Improvements,” which provides for a prospective transition method for the recognition and disclosure requirements under the new guidance. The ASU is effective for fiscal years beginning after December 15, 2019. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
4. Net Patient Service Revenue and Third-Party Reimbursement
Hospice Medicare Revenue
Revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated reimbursement rates. The estimated reimbursement rates are daily or hourly rates for each of the four levels of care delivered by the Company: routine care, general inpatient care, continuous home care and respite care. Beginning January 1, 2016, the Center for Medicare and Medicaid Services (CMS) has provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, beginning January 1, 2016, Medicare is also reimbursing for a service intensityadd-on (SIA). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The Company adjusts Medicare revenue for an inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. These amounts are estimated based on historical experience inclusive of the Company’s historical collection rate on Medicare claims, and are recorded during the period services are rendered as an estimated revenue adjustment and as a reduction to net patient accounts receivable.
Additionally, Medicare hospice is subject to an inpatient cap limit and an overall payment cap for each of their provider numbers. The Company monitors these caps and estimates amounts due back to Medicare if a cap has been exceeded. These amounts are reported as a reduction to revenue and an increase to amounts due to third-party payors. As of September 30, 2018 and December 31, 2017, the Company has recorded $2,528,029 and $2,706,275, respectively, related to the Medicare cap liability.
In addition to the Medicare cap liability, amounts related to government settlements are also recorded as a reduction to revenue and an increase to amounts due to third-party payors. As of September 30, 2018 and December 31, 2017, the Company has recorded $6,868,929 and $9,234,048, respectively, related to government settlements.
HospiceNon-Medicare Revenue
The Company records revenue on an accrual basis based upon the date of service at amounts equal to our established rates or estimated per day rates, as applicable. Contractual adjustments are recorded for the difference between the Company’s established rates and the amounts estimated to be realizable from patients, third parties and others for services provided and are deducted from the gross revenue to determine net patient service revenue and net patient accounts receivable.
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