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corporate offices in Nashville. Petitioners' hospitals are
required to follow HCA's chart of accounts in recording all
revenue and expense items. The revenue and expense center
section of the chart of accounts lists the functions that
normally are performed in a hospital. Each hospital is expected
to establish a functional cost center for each material function
that it performs. The HCA chart of accounts gives individual
hospitals a certain degree of flexibility in selecting which
accounts to use to track costs and revenue. Hospitals are
permitted to establish separate, more detailed, accounts within
ranges prescribed by the chart of accounts. For example,
hospitals might establish separate accounts, within the
prescribed range, to record revenue and expenses related to the
use of medical supplies in the operating room, the emergency
room, and other areas of the hospital.
The HCA chart of accounts is based upon the Chart of
Accounts for Hospitals published by the American Hospital
Association (AHA). The AHA strongly recommends to its member
hospitals the use of an accrual method of accounting for
financial accounting purposes to insure completeness, accuracy,
and meaningfulness of accounting data.
Accounting Methods Used by Petitioners and in the Hospital
Industry
Before 1987, for financial reporting purposes, many non-
profit and for-profit hospitals used an accrual method of
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