A not-for-profit hospital signs a contract with an insurance company in which the company agrees to pay the hospital $9 million in capitation fees for the year July 1,2014,through June 30,2015.Between July 1,2011 and December 31,2011,the hospital provides services that,at its standard rates,would bill at $5.1 million.Between January 1,2011,and June 30,2012,it provides services that it would bill at $4.2 million.For the year ending December 31,2011,the hospital should recognize capitation revenue of

Question

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Capitation revenue is recognized over the period of time during which services are provided, rather than when payment is received. Therefore, the hospital should recognize 50% of the $9 million capitation fee for the period July 1, 2014, through December 31, 2014, and the remaining 50% for the period January 1, 2015, through June 30, 2015. For the period July 1, 2011, through December 31, 2011, the hospital provided services that, at its standard rates, would bill at $5.1 million. Therefore, it should recognize 50% of $5.1 million, or $2.55 million, as capitation revenue for the year ending December 31, 2011.

A Not-For-Profit Hospital Signs a Contract with an Insurance Company