FASB reaches consensus on physician practice consolidation - Financial Accounting Standards Board

Healthcare Financial Management, Feb, 1998

FASB's Emerging Issues Task Force (EITF) has agreed upon a

list of criteria for physician practice management companies (PPMCs) that,

when applied to contractual arrangements between PPMCs and medical

practices, will determine whether the PPMC should consolidate the assets

and operations of the medical practice. This and other issues are addressed

in Issue 97-2, "Application of FASB Statement No. 94, Consolidation of All

Majority-Owned Subsidiaries, and APB Opinion No. 16, Business Combinations,

to Physician Practice Management Entities."

According to the task force, if a contractual arrangement meets all the

criteria, the PPMC must consolidate the medical practice. A PPMC (or

entities with similar structures) will have the option of either retroactive

restatement, prospective application for all new arrangements, or

modifications to existing arrangements after November 20, 1997. This option

will let PPMCs modify their existing arrangements, if necessary, to preserve

their current reporting status as a consolidator or nonconsolidator. This

option will be available only for a limited time, because where there are

existing agreements that have not been modified, the guidance must be

applied retroactively in financial statements for fiscal years ending after

December 15, 1998. A PPMC need not change its accounting for

pooling-of-interests business combinations completed before November 20,

1997, assuming consolidation is still appropriate.

The draft consolidation criteria include the following:

* The contract between the PPMC and the medical practice is for at least

10 years.

* The PPMC has exclusive authority over all decision making related to

ongoing, major, or central operations of the physician practice, except the

dispensing of medical services.

* The PPMC has exclusive authority over all decision making related to

total practice compensation of licensed medical professionals and the

ability to establish and implement guidelines for selecting, hiring, and

firing them.

* The PPMC must have a significant financial interest in the physician

practice that is unilaterally salable or transferable.

The EITF's abstract was scheduled to be published in January. To order a

copy of the abstract, call FASB's order department, (203) 847-0700, ext.

555.