Skip to content


Defining Charity Care

What Counts as Charity Care

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) say that charity care “represents health care services that are provided but are never expected to result in cash flows. Charity care is provided to a patient with demonstrated inability to pay. Each entity establishes its own criteria for charity care consistent with its mission statement and financial ability.” In layman’s terms: free care. Application will differ from entity to entity. It is important that entities have a consistent policy applied that clearly identifies charity care due to it being disclosed in the financial statements. Generally Accepted Accounting Principles (GAAP) do not include discounts given to uninsured or underinsured patients as charity care. The difference is charity care patients’ balances are not expected to be collected while there is a responsibility of payment for discount recipients. Contractual adjustments from third-party insurance companies, Medicare, Medicaid, or other government programs, do not count as charity care.

How to Formulate a Policy

When creating their policy, entities must take into consideration their mission statement, the patient population they seek to serve, and their own financial ability to provide this type of care. This is essential because there should be no attempt to collect revenue from these individuals. Another consideration is the ability of staff to identify a patient requiring charity care. The determination of whether the service provided or to be provided will fall into this bucket should be made as soon as possible. It is preferable to make the determination before services are rendered. In some cases, it would be difficult or impossible to decide if an individual meets the criteria such as when emergency services are being performed on a patient whom there is no prior history with, and it is impossible to evaluate them before services are rendered. This scenario falls under the definition of “Pending Content” that is mentioned in FASB ASC 606-10-55. In these instances, the entity must assess, evaluate, conclude, and, if necessary, update their conclusions based on information that is subsequently obtained but before collection is attempted.

How to Account for Charity Care

Entities need to take careful consideration when accounting for charity care services. It is measured by both direct and indirect cost of services. If costs are unable to be directly linked to individual patients, then management can estimate the cost using various reasonable techniques which will need to be disclosed in the financial statements. These should be tracked in a separate account, not included in a bad debt expense. Any funds received from gifts or grants to compensate for this type of care must be tracked in a separate account since it will be disclosed separately on the financial statements.

If you have questions about the information outlined above, McKonly & Asbury’s experienced professionals are here to help. Learn more about McKonly & Asbury’s Healthcare Practice by visiting our website or by contacting the Healthcare Practice Director, Janice Snyder, Partner.

About the Author

Jesse Diamond

Related Services

Related Industries

Subscribe to Our Newsletter

Contact Us