Acute Care Revenue and Allowance for Doubtful Accounts

6 Months Ended

Mar. 31, 2012

Acute Care Revenue and Allowance for Doubtful Accounts [Abstract]

ACUTE CARE REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

2. ACUTE CARE REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Acute Care Revenue

The Company’s healthcare facilities have entered into agreements with third-party payors, including government programs and managed care health plans, under which the facilities are paid based upon established charges, the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from established charges. Additionally, the Company offers discounts through its uninsured discount program to all uninsured patients receiving healthcare services who do not qualify for assistance under state Medicaid, other federal or state assistance plans, or charity care.

Acute care revenue is reported at the estimated net realizable amounts from third-party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and are adjusted, if necessary, in future periods when final settlements are determined. The Company also records a provision for bad debts related to uninsured accounts to reflect its self-pay accounts receivable at the estimated amounts expected to be collected. The sources of the Company’s acute care revenue by payor are summarized as follows, and are reflected before the provision for bad debts:

	Quarter Ended March  31,						Six Months Ended March  31,
	2012			2011			2012			2011
Medicare		22.6	%		24.7	%		23.8	%		24.4	%
Managed Medicare		9.7	%		8.0	%		8.6	%		8.2	%
Medicaid and managed Medicaid		13.3	%		14.3	%		14.9	%		14.3	%
Managed care and other		37.1	%		39.3	%		37.7	%		39.9	%
Self-pay		17.3	%		13.7	%		15.0	%		13.2	%
Total		100	%		100	%		100	%		100	%

Reimbursement Settlements

On April 5, 2012, a settlement agreement (the “Rural Floor Settlement”) was signed between the Centers for Medicare and Medicaid Services (“CMS”) and a large number of healthcare service providers, including the Company’s hospitals. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS’ calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 for federal fiscal year 1998 through and including federal fiscal year 2011. As a result of the Rural Floor Settlement, the Company recognized $15.4 million of additional acute care revenue during the quarter ended March 31, 2012.

During the quarter ended March 31, 2012, acute care revenue included an unfavorable adjustment of $4.3 million related to the newly issued Supplemental Security Income (“SSI”) ratios utilized for calculating Medicare Disproportionate Share Hospital reimbursement for federal fiscal years 2006 through 2009.

Allowance For Doubtful Accounts

The provision for bad debts and the associated allowance for doubtful accounts relate primarily to amounts due directly from patients. The Company’s estimation of the allowance for doubtful accounts is based primarily upon the type and age of the patient accounts receivable and the effectiveness of collection efforts. The Company’s policy is to reserve a portion of all self-pay receivables, including amounts due from the uninsured and amounts related to co-payments and deductibles, as these charges are recorded. The Company monitors accounts receivable balances and the effectiveness of reserve policies on a monthly basis and reviews various analytics to support the basis for its estimates. These efforts primarily consist of reviewing the following:

• Historical write-off and collection experience using a hindsight or look-back approach;

• Revenue and volume trends by payor, particularly the self-pay components;

• Changes in the aging and payor mix of accounts receivable, including increased focus on accounts due from the uninsured and accounts that represent co-payments and deductibles due from patients;

• Cash collections as a percentage of net patient revenue less bad debt expense;

• Trending of days revenue in accounts receivable; and

• Various allowance coverage statistics.

The Company regularly performs hindsight procedures to evaluate historical write-off and collection experience throughout the year to assist in determining the reasonableness of the process for estimating the allowance for doubtful accounts. The Company does not pursue collection of amounts related to patients who qualify for charity care under the Company’s guidelines. Charity care accounts are deducted from gross revenue and do not affect the provision for bad debts.

At March 31, 2012 and September 30, 2011, the Company’s self-pay receivables, including amounts due from uninsured patients and co-payment and deductible amounts due from insured patients, were $274.9 million and $241.1 million, respectively. At March 31, 2012 and September 30, 2011, the Company’s allowance for doubtful accounts was $218.2 million and $185.5 million, respectively, representing 79.2% and 76.9%, respectively, coverage of the Company’s self-pay receivables . The increase in the allowance for doubtful accounts is due primarily to an increase in self-pay volume and revenue.