HCA Holdings 2012 Annual Report Download - page 71

HCA HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Provision for Doubtful Accounts and the Allowance for Doubtful Accounts
The collection of outstanding receivables from Medicare, managed care payers, other third-party payers and
patients is our primary source of cash and is critical to our operating performance. The primary collection risks
relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid
the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and
copayments) remain outstanding. The provision for doubtful accounts and the allowance for doubtful accounts
relate primarily to amounts due directly from patients. An estimated allowance for doubtful accounts is recorded
for all uninsured accounts, regardless of the aging of those accounts. Accounts are written off when all
reasonable internal and external collection efforts have been performed. Our collection policies include a review
of all accounts against certain standard collection criteria, upon completion of our primary internal collection
efforts. Accounts determined to possess positive collectibility attributes are forwarded to a secondary internal or
external collection agency and the other accounts are written off. The accounts that are not collected by the
secondary collection agency are written off when secondary collection efforts are completed (usually within
12 months). Writeoffs are based upon specific identification and the writeoff process requires a writeoff
adjustment entry to the patient accounting system. We do not pursue collection of amounts related to patients that
meet our guidelines to qualify as charity care.
During 2011, we adopted the provisions of Accounting Standards Update No. 2011-07, Presentation and
Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for
Certain Health Care Entities (“ASU 2011-07”). ASU 2011-07 requires health care entities to change the
presentation of the statement of operations by reclassifying the provision for doubtful accounts from an operating
expense to a deduction from patient service revenues. The amount of the provision for doubtful accounts is based
upon management’s assessment of historical writeoffs and expected net collections, business and economic
conditions, trends in federal, state, and private employer health care coverage and other collection indicators.
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 in estimating the collectibility of our accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our
quarterly updates to the estimated allowance for doubtful accounts at each of our hospital facilities provide
reasonable valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted
in material adjustments to our allowance for doubtful accounts, provision for doubtful accounts or period-to-
period comparisons of our results of operations. At December 31, 2012 and 2011, the allowance for doubtful
accounts represented approximately 93% and 92%, respectively, of the $5.228 billion and $4.478 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.
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