2. Amend paragraphs 954-450-25-2 and 954-450-25-3, with a link to transition paragraph 954-450-65-1, as follows:

954-450-25-2 The ultimate costs of malpractice claims or similar contingent liabilities, which include costs associated with litigating or settling claims, shall be accrued when the incidents that give rise to the claims occur.

If the

A health care entity

has not transferred risk to an external third party, it should

shall evaluate its exposure to losses arising from

malpractice

claims and recognize a liability, if appropriate. The liability shall not be presented net of anticipated insurance recoveries. An entity that is indemnified for these liabilities shall recognize an insurance receivable at the same time that it recognizes the liability, measured on the same basis as the liability, subject to the need for a valuation allowance for uncollectible amounts. The provisions in Section 720-20-25 and Subtopic 944-40 discuss the accounting for insurance claims costs, including estimates of costs relating to incurred-but-not-reported claims. Subtopic 450-20 discusses the accounting for loss contingencies.

954-450-25-3

In general, estimated

Estimated losses from asserted and unasserted claims shall be accrued and reported, as indicated in paragraphs 954-450-30-1 through 30-2. The estimated losses are not based on payments to the trust fund. See paragraph 954-720-25-5 for guidance concerning

entities

an entity that transfers risk of loss to a common trust fund and forfeits

forfeit

its rights to any excess funding.

However, accounting for a health care entity that participates in a pooled fund depends on the extent to which the associated risks and rewards have been transferred to another party.

See also paragraph 954-810-45-4.

3. Add paragraph 954-450-65-1 and its related heading as follows:

4. Amend paragraphs 954-720-25-1 and 954-720-25-5, with a link to transition paragraph 954-450-65-1, as follows:

954-720-25-1 A health care entity with a retrospectively rated insurance policy whose ultimate premium is based primarily on the health care entity's loss experience shall account for the minimum premium as an expense over the period of coverage under the policy

and shall accrue estimated losses from asserted and unasserted claims in excess of the minimum premium. Such estimated losses, however, shall not be accrued in excess of a stipulated maximum premium

. Insurance recoveries from a retrospectively rated insurance policy whose ultimate premium is based primarily on the health care entity's loss experience shall not be recognized until the estimated losses exceed the stipulated maximum premium.

954-720-25-5 An entity that

transfers its risk of loss to

participates in a common trust fund and forfeits its rights to any excess funding shall expense its contributions and account for its participation in the trust fund based on the type of coverage obtained (for example, occurrence basis, claims-made, or retrospectively rated).

5. Supersede paragraphs 954-720-30-1 through 30-3, with a link to transition paragraph 954-450-65-1, as follows:

954-720-30-1 Paragraph superseded by Accounting Standards Update No. 2010-24.

Paragraph 720-20-30-2 provides guidance for determining the amount of the accrual for a claims-made insurance policy. This estimation is done unless the health care entity has bought tail coverage and included the cost of the premium as an expense in the financial statements for that period

.

6. Supersede paragraph 954-720-35-3 and its related heading, with a link to transition paragraph 954-450-65-1, as follows:

7. Add paragraph 954-450-00-1 as follows:

8. Add paragraph 954-720-00-1 as follows:

BC2. Diversity in practice has developed on how health care entities account for malpractice claims or similar liabilities and related insurance recoveries. Many health care entities have applied industry guidance in Topic 954 (originally from AICPA Audit and Accounting Guide, Health Care Organizations), which permitted the netting of insurance recoveries with an organization's estimated accrual for related claims. Other health care entities have presented the claim liability and related insurance recovery on a gross basis consistent with general GAAP applicable to all entities.

BC3. At the March 18, 2010 EITF meeting, the Task Force reached a consensus-for-exposure on EITF Issue No. 09-K, “Health Care Entities: Presentation of Insurance Claims and Related Insurance Recoveries.” A proposed Accounting Standards Update (proposed Update) was issued on April 16, 2010, with a comment period that ended on May 17, 2010. Five comment letters were received on the proposed Update.

BC4. The Task Force concluded that the accounting requirements for claims and recoveries of health care entities should be aligned with the accounting requirements used by entities in other industries. Furthermore, the Task Force concluded that determining whether assets and liabilities should be presented on a gross or net basis should be consistent with Subtopic 210-20. The Task Force considered that, the health care entity generally remains liable for payment of the claim and retains the risk of loss for that claim. This is true even if an insurance entity is paying for the defense of the claim and ultimately pays for some or all of the award or settlement. The Task Force concluded that gross presentation reflects that the health care entity remains obligated for the claim and that the entity is exposed to credit risk from the insurer.

BC5. The Task Force considered the comments from respondents who did not support the proposed amendments. Those included respondents who stated that reflecting the gross liability overstates the entity's liability for a claim because insurance will reduce the net cash outlay to settle the claim. The Task Force decided that gross presentation of the insurance receivable better reflects the retained credit risk if the insurer is unable to pay the claim. The Task Force noted that in many cases the health care entity is fully covered by insurance and the coverage is not disputed by the carrier. The Task Force noted that a receivable should be recognized when realization of the claim for recovery of a loss recognized in the financial statements is deemed probable and measured at the same amount as the associated claim liability, subject to the need for a valuation allowance for uncollectible amounts or other risk retention. The Task Force noted that consistent with paragraph 450-30-25-1, any potential gains resulting from a recovery of a loss that is not reflected in the financial statements (for example, because the amount recovered from insurance was in excess of a loss recognized in the financial statements) should not be recognized until any contingencies relating to the claim have been resolved.

BC6. The Task Force discussed an informal comment received by the staff that questioned whether additional changes to eliminate industry-specific guidance should be made regarding the accrual of legal fees associated with resolving malpractice claims or similar contingent liabilities. The Task Force considered whether the liability for malpractice claims or similar contingent liabilities should include estimated legal fees to litigate the claim or, if consistent with other industries, whether health care entities should be given the opportunity to make a policy election to expense legal fees as incurred. As a result of those discussions, the Task Force decided to separately address this question in EITF Issue No. 10-F, “Accounting for Legal Costs Associated with Medical Malpractice Claims.”

BC7. The Task Force decided that the amendments in this Update should be effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Task Force decided that early application of the provisions of this Update should be permitted.

BC8. The Task Force decided to require that the amendments in this Update be applied as of the beginning of the period of adoption. The Task Force noted that in prior periods many entities may not have estimated the loss amount of the claim under the guidance for accounting for contingencies and that applying this guidance retrospectively may be difficult. The Task Force expects that in most cases the initial application of the amendments in this Update should result in a gross-up in the balance sheet for recognizing the claim liability and anticipated insurance receivable. However, the Task Force acknowledged that in some rare situations the amounts of the claim liability and insurance receivable may not completely offset. Accordingly, the Task Force concluded that the net effect of applying the amendments in this Update should be recorded as a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) in the period of adoption. The Task Force decided to permit but not require retrospective application of the amendments in this Update.

BC9. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. The Task Force's assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC10. The Task Force anticipates that entities will incur incremental costs to implement the amendments in this Update. Those incremental costs are expected to be associated with estimating the amount of claim liabilities and insurance recoveries if entities had not previously performed such an analysis. The Task Force believes that the benefits of improved disclosure of credit risk and the elimination of industry-specific guidance outweigh those costs.