Community Health Systems 2015 Annual Report Download - page 116

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
in amortization expense. Other assets also include capitalized internal-use software costs, which are expensed
over the expected useful life, which is generally three years for routine software and eight to ten years for major
software projects, and included in amortization expense.
Third-Party Reimbursement. Net patient service revenue is reported at the estimated net realizable amount
from patients, third-party payors and others for services rendered. Operating revenues include amounts estimated
by management to be reimbursable by Medicare and Medicaid under prospective payment systems, provisions of
cost-reimbursement and other payment methods. Approximately 35.3%, 35.5% and 34.5% of operating revenues,
net of contractual allowances and discounts (but before the provision for bad debts), for the years ended
December 31, 2015, 2014 and 2013, respectively, are related to services rendered to patients covered by the
Medicare and Medicaid programs. Revenues from Medicare outlier payments are included in the amounts
received from Medicare and were approximately 0.28%, 0.41% and 0.46% of operating revenues, net of
contractual allowances and discounts (but before the provision for bad debts), for the years ended December 31,
2015, 2014 and 2013, respectively. In addition, the Company is reimbursed by non-governmental payors using a
variety of payment methodologies. Amounts received by the Company for treatment of patients covered by such
programs are generally less than the standard billing rates. The differences between the estimated program
reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are
deducted from gross revenues to arrive at operating revenues (net of contractual allowances and discounts).
These net operating revenues are an estimate of the net realizable amount due from these payors. The process of
estimating contractual allowances requires the Company to estimate the amount expected to be received based on
payor contract provisions. The key assumption in this process is the estimated contractual reimbursement
percentage, which is based on payor classification and historical paid claims data. Due to the complexities
involved in these estimates, actual payments the Company receives could be different from the amounts it
estimates and records. Final settlements under some of these programs are subject to adjustment based on
administrative review and audit by third parties. Adjustments to previous program reimbursement estimates are
accounted for as contractual allowance adjustments and reported in the periods that such adjustments become
known.
Amounts due to third-party payors were $112 million and $147 million as of December 31, 2015 and 2014,
respectively, and are included in accrued liabilities-other in the accompanying consolidated balance sheets.
Amounts due from third-party payors were $213 million and $183 million as of December 31, 2015 and 2014,
respectively, and are included in other current assets in the accompanying consolidated balance sheets.
Substantially all Medicare and Medicaid cost reports are final settled through 2011.
Net Operating Revenues. Net operating revenues are recorded net of provisions for contractual allowance of
approximately $95.3 billion, $84.4 billion and $52.6 billion for the years ended December 31, 2015, 2014 and
2013, respectively. Net operating revenues are recognized when services are provided and are reported at the
estimated net realizable amount from patients, third-party payors and others for services rendered. Also included
in the provision for contractual allowance shown above is the value of administrative and other discounts
provided to self-pay patients eliminated from net operating revenues which was $3.0 billion, $2.8 billion and
$1.3 billion for the years ended December 31, 2015, 2014 and 2013, respectively.
In the ordinary course of business, the Company renders services to patients who are financially unable to pay
for hospital care. The Company’s policy is to not pursue collections for such amounts; therefore, the related
charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement
from a governmental program are not reported in net operating revenues or in the provision for bad debts, and are
thus classified as charity care. The Company determines amounts that qualify for charity care primarily based on
the patient’s household income relative to the federal poverty level guidelines, as established by the federal
government.
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