The Multiple Sources of GAAP for Health Care Organizations: Current and Future
Wilder, W. Mark, Mauldin, D. Shawn, The Government Accountants Journal
Health care organizations exist to serve a variety of purposes and make use of many ownership arrangements. Examples of health care organizations include: hospitals, health maintenance organizations, continuing care retirement communities, nursing homes, home health agencies and many others. Such organizations have evolved to meet the demands of the constantly changing health care environment.
Health care entities are organized in many forms, including nongovernment, profit-seeking enterprises; nongovernment, nonprofit organizations; and government-owned entities, which normally are considered self-supporting, but which do not exist to maximize profit. Regardless of whether these organizations are profit-seeking, nonprofit or governmental, they are typically business oriented. Specifically, the majority of thier resources are attained through user chages (including revenue from patients) although some support from grants and/or contribution may be received. A fourth type of health care organization is one that does not operate like a business. This type of organization receives its primary support through contribution and grants. Such a nonbusiness healyh care entity is typically considered a voluntary health and welfare organization (VHWO). VHWOs are ordinarily nongovermental, nonprofit entities since they are voluntary in nature.
Several organization have been instrumental in establishing generally accepted accounting principles (GAAP) for health care entities. Over time, GAAP for health care institutions has evolved from the efforts of the Health Care Financial Management Association (HFMA), the American Hospital Association (AHA) and the American Institute of Certified Public Accountants (AICPA). Recently, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) have greatly influenced health care GAAP through the issuance of various accounting standards.
The sources of GAAP for health care organizations depend on how the entity is organized. In particular, for-profit health care entities are subject to FASB guidance directed to for-profit businesses. Nongovernment, nonprofit organizations (whether they are business oriented or not) are also subject to FASB guidance, but must adhere to FASB standards specifically applying to nonprofit entities. GASB has standard-setting jurisdiction over government-related health care organizations. In addition, the AICPA has developed an accounting and audit guide that applies to all businessoriented health care organizations. This audit guide incorporates relevant requirements from FASB, GASB and other sources. FASB and GASB pronouncements are considered to be Category A GAAP, while the AICPA audit guide for health care organizations is Category B GAAP. The AICPA has developed a separate audit guide that applies to VHWOs, including nonbusiness-oriented health care entities.
Historically, the financial statements of health care entities were generally comparable. In particular, these entities applied similar sets of accounting rules without regard to their legal structure. Whether health care organizations were for-profit, nonprofit or governmentowned, they were considered to be in the same industry and thus the applicable accounting procedures were similsr, therefore enhancing comparability However, the current standard-setting environment requires similar entities to apply different sets of accounting standards. This means that similar transactions are accounted for differently, with the end result being financial statements that are not directly comparable. This reduced comparability is problematic for the financial report user.
A significant user of health care financial reports is the financial community. This community includes investors, creditors, bond rating agencies and investment bankers. Other users include funding agencies and potential donors. To the extent that financial reports of various health care entities are not directly comparable, this puts a costly burden on the user to acquire additional information so that relevant analyses can be made across different types of entities. …