ParenteBeard Healthcare Business Services

MA Modernization Act

April 2011


As most providers are aware, based on information provided by The Hospital & Healthsystem Association of Pennsylvania (“HAP”) and The Pennsylvania Department of Public Welfare (“DPW”), regarding Pennsylvania ACT 49 (Medicaid Modernization Act), healthcare providers in Pennsylvania are now subject to a statewide hospital assessment known as the Quality Care Assessment subject to the conditions and requirements specified in the Act during the three year period July 1, 2022 through June 30, 2013. The hospital assessment has the following goals: providing savings to the Commonwealth, providing for payments to the hospitals, and funding the All Patient Refined-Diagnostic Related Groups (APR-DRG) prospective payment system.

Revenues generated from the assessment under the Act require DPW to use a new prospective payment system (APR-DRG) to pay hospitals in the Medical Assistance fee-for-service program for inpatient services provided on or after July 1, 2010. In addition, it requires DPW to make supplemental payments to hospitals, such as inpatient disproportionate share and medical and health professional education hospitals, in accordance with the state plan approved by the federal government.

As providers received this information they were also informed of the timeline of key dates, details of implementation, establishment of the harm minimization process through HAP, forecasts of projected financial impact by provider for year one of the program, specific contractual agreements, and other applicable information.

Effect on Accounting

Based on our preliminary understanding, it is expected that all assessments and supplemental payments for the fiscal year ended June 30, 2022 should be completed prior to year-end which would leave no estimated liabilities or receivables at June 30, 2011.  However, if there is a timing issue that extends past the cut-off date that result in liabilities/receivables at June 30, 2011, these amounts should be fairly simple to validate based on the information that would have been provided to the hospitals prior to year-end from HAP.

The revenues recorded which estimate the increased MA payments for the period of July 1, 2022 – June 30, 2022 should be recorded as a component of net patient service revenues as these payments relate to the delivery of healthcare services with any corresponding receivable/payable being recorded as an estimated third-party payor settlement.

The estimated assessment liability, if applicable should be recorded as a liability with the corresponding expense recorded to operating expenses. If significant enough, the provider should consider creating a separate line item for reporting purposes.  Since this assessment is not a component of the contractual relationship for providing healthcare services, this should not be included as a component of net patient service revenues or the contractual allowance. It should be noted however that in accordance with the Act, these assessment payments can be reported as a community benefit by the covered hospital.

Additionally, it is noted that there is a Mitigation Contribution Amount that providers will be liable for through a separate contract with HAP.  As stated previously, this was set up by HAP to ensure no providers realize a net loss on the MA Modernization program.  The timing and extent of the payments from the providers to HAP which will be redistributed to providers with a net loss, is indeterminate at this time.  The payments should be recorded consistent with what is recorded for the assessment payments made to DPW (i.e. expense to general and administrative, miscellaneous, et al).  Any known liabilities or estimated liabilities for these payments should be accrued as an accrued expense or other current liability.  For providers that would be receiving the Mitigation Contribution Amounts from HAP, an estimated receivable should be recorded as “Other Current Assets or Receivables,” with the corresponding revenue either offsetting a portion of the assessment expense or recorded as an “other operating revenue” amount.

Additional Disclosure Requirements

Based on the materiality of such assessments and increased MA payments, providers should disclose the significant provisions of this program within their Net Patient Service Revenue footnote accordingly.  It is most likely not necessary to create a separate footnote for this program.

In addition, since this is currently only a three-year program, additional disclosure of a contingency may be required depending on the materiality of the net impact to the hospital.

Additional Information

For more information on the Act, or specific questions regarding the impact on accounting and financial reporting, or for additional assistance on disclosure requirements, please contact your lead client service professional at ParenteBeard LLC.

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Lou Feuerstein

Debra Bowes

Walter Brasch

Albert Deana

Robert J. Radics

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Steve Repko