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, 2017, through June 30, 2018. Between July 1, 2017 and December 31, 2017, the hospital provides services that, at its standard rates, would bill at $5.1 million. Between January 1, 2017, and June 30, 2018, it provides services that it would bill at $4.2 million. For the year ending December 31, 2017, the hospital should recognize capitation revenue of

Question

Quizplus · Accepted Answer

Capitation revenue is recognized evenly over the period of the contract because it is a fixed prepayment for services to be provided over a specific period, regardless of the actual services rendered. The contract spans a year, so for the six months ending December 31, 2017, half of the $9 million, or $4.5 million, should be recognized as revenue.

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