Policies
Allowances For Contractual Adjustments and Doubtful Accounts
Purpose
Provide each Practice Plan guidelines in establishing appropriate reserves for allowances for contractual allowances, adjustments and doubtful accounts. Due to the significant impact these reserves can have on the overall financial statements of each Practice Plan, each Practice Plan will be required to establish their own specific policy related to this matter.
Policy
The accrued revenues reported on the department's financial statements should be an estimate of how much of the outstanding fee for service account balances are expected to be collected.
The Department's billing service (whether internal or external) should provide an aged accounts receivable by payor on a timely basis. Note that it is important to determine whether the Accounts Receivables are gross or net of contractual adjustments. Financial personnel within the Department then need to review the outstanding Accounts Receivable to determine an appropriate allowance for those monies that will not be collected (i.e. contractual allowances, adjustments, bad debt write-offs). The adjustment is then computed and recorded, bringing Accrued Fee for Service Revenues to the amount that is expected to be collected. This should be reviewed and approved by the department chairperson.
At the time of the annual audit, the Practice Plan's external auditor should review your department's policy and calculations to determine if the department reserves are adequate and properly reflect the anticipated collections based on providers, payors and historical trends. The auditor should not be making these entries or setting policy for the individual Practice Plan departments. It is recommended that the written policy address, but not be limited by the following:
- Description of how current billing system treats contractual adjustments.
- When are contractual adjustments recorded.
- Description of how the allowance for doubtful accounts is determined after contractual adjustments have been determined.
- When changes in billing system or companies take place.
Action Plan Required
Request that each department submit their policy on Allowances For Contractual Adjustment and Doubtful Accounts to COO, Patrick J. DiNicola by Monday, May 15, 2000.