HCA Holdings 2011 Annual Report Download - page 117

HCA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 1 — ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with a maturity of three months or less when
purchased. Our insurance subsidiaries’ cash equivalent investments in excess of the amounts required to pay
estimated professional liability claims during the next twelve months are not included in cash and cash
equivalents as these funds are not available for general corporate purposes. Carrying values of cash and cash
equivalents approximate fair value due to the short-term nature of these instruments.
Our cash management system provides for daily investment of available balances and the funding of
outstanding checks when presented for payment. Outstanding, but unpresented, checks totaling $382 million and
$384 million at December 31, 2011 and 2010, respectively, have been included in “accounts payable” in the
consolidated balance sheets. Upon presentation for payment, these checks are funded through available cash
balances or our credit facility.
Accounts Receivable
We receive payments for services rendered from federal and state agencies (under the Medicare and
Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. We
recognize that revenues and receivables from government agencies are significant to our operations, but do not
believe there are significant credit risks associated with these government agencies. We do not believe there are
any other significant concentrations of revenues from any particular payer that would subject us to any
significant credit risks in the collection of our accounts receivable.
Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts.
Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent
recoveries are added. The amount of the provision for doubtful accounts is based upon management’s assessment
of historical and expected net collections, business and economic conditions, trends in federal, state and private
employer health care coverage and other collection indicators. The provision for doubtful accounts and the
allowance for doubtful accounts relate to “uninsured” amounts (including copayment and deductible amounts
from patients who have health care coverage) due directly from patients. Accounts are written off when all
reasonable internal and external collection efforts have been performed. We consider the return of an account
from the secondary external collection agency to be the culmination of our reasonable collection efforts and the
timing basis for writing off the account balance. Writeoffs are based upon specific identification and the writeoff
process requires a writeoff adjustment entry to the patient accounting system. Management relies on the results
of detailed reviews of historical writeoffs and recoveries at facilities that represent a majority of our revenues and
accounts receivable (the “hindsight analysis”) as a primary source of information to utilize in estimating the
collectibility of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-
months accounts receivable collection and writeoff data. At December 31, 2011 and 2010, the allowance for
doubtful accounts represented approximately 92% and 93%, respectively, of the $4.478 billion and
$4.249 billion, respectively, patient due accounts receivable balance. The patient due accounts receivable balance
represents the estimated uninsured portion of our accounts receivable. The estimated uninsured portion of
Medicaid pending and uninsured discount pending accounts is included in our patient due accounts receivable
balance. Days revenues in accounts receivable were 53 days, 50 days and 50 days at December 31, 2011, 2010
and 2009, respectively. Adverse changes in general economic conditions, patient accounting service center
operations, payer mix or trends in federal or state governmental health care coverage could affect our collection
of accounts receivable, cash flows and results of operations.
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