Revenue Recognition Rule Changes Could Trigger Increased in Fraud Inquiries

A new accounting rule, known as ASC 606, was adopted recently by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board.  This new rule requires fundamental changes to the manner in which health care organizations will report revenue.  The rules go into effect for public companies in 2018 and for all other companies in 2019.  These changes to revenue recognition rules could create an increase in healthcare fraud investigations and prosecutions, as various healthcare industry sectors (including hospitals, physician practices, skilled nursing facilities etc.) transition from fee-for-service to value-based payments.

Upon the effective date of ASC 606, virtually all of the revenue recognition guidance previously applied by health care organizations is superseded.

Industry observers are concerned that health care organizations, in seeking to report on various quality measures under value-based payment methods (i.e., bundled payment arrangements, shared savings arrangements) would be potentially violating the Federal False Claims Act were they to misstate their achievement of certain performance obligations.  Any claim that is submitted with an overestimation of a quality index resulting in  excess reimbursement could be construed as a false claim.  To be sure, processes will need to be agreed upon by providers and payors that will allow for periodic reconciliation of any such estimating errors.

In the recent past, attestations used to garner incentive payments from CMS for the “meaningful use” of electronic health records have been challenged by government enforcement agencies as false claims because the attestations themselves were found to be inaccurate.  It is expected that similar problems could arise for health care organizations in financial reporting for value-based payments under these revenue reporting rules.

These new revenue recognition rules will have a dramatic effect on the already complex world of governmental and non-governmental reimbursements.  Health care organizations will need to evaluate the nature and scope of the changes required to comply with current revenue and financial reporting processes and systems to minimize the risk of false claim allegations.

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