Bundled care packages: identifying single versus multiple performance obligations

Global surgical/maternity packages are priced as one number but almost always contain services delivered at different times to different degrees of interdependency; recognizing the whole fee at the main procedure date pulls forward revenue for follow-up care not yet delivered, which both misstates period profit and can understate the entity's remaining performance obligations to patients.

Can the patient benefit from each component of the package, such as the surgeon fee, facility fee and follow-up visits, either on its own or together with other readily available resources? Is the hospital merely delivering separate promises, or providing a significant integration service that combines the components into one transformed output? Does the package price bundle services delivered at clearly different points in time, such as a global surgical fee covering 90 days of follow-up, requiring separate recognition patterns?

1) List every promised good/service within the bundled package (surgeon fee, facility fee, anesthesia, imaging, follow-up visits). 2) For each, assess whether the patient can benefit from it on its own or with other readily available resources (capable of being distinct) and whether it is separately identifiable from other promises in the contract (distinct within the context of the contract, i.e. not a significant integration/customization service). 3) Where components are distinct, allocate the package price to each performance obligation based on relative standalone selling prices and recognize each as it is satisfied, point in time for the procedure, over time for included follow-up care. 4) Where the hospital's role is to integrate the components into a single combined output (e.g. a true global surgical episode fee), recognize revenue over the episode using an appropriate output measure instead. 5) Exclude from the hospital's revenue any component delivered by an independent party the hospital does not control (e.g. an independently billing surgeon). 6) Document the standalone selling price sources used (observable prices for the same service sold separately, or an estimation approach) for each allocation.

Estimate standalone selling prices for allocation using observable prices for the same or similar services sold separately (e.g. surgeon-only fees, facility-only day-case rates); where a residual or expected cost-plus-margin approach is needed for a component with no observable standalone price, document the basis and apply it consistently across similar packages; reassess allocation only if the contract is modified, not routinely thereafter.

Disclose the policy for identifying performance obligations within bundled packages and the method used to allocate the transaction price; disclose the standalone selling price estimation approach where prices are not directly observable; disclose the amount of revenue recognized in the period from contract liabilities related to unfulfilled package components; disclose significant judgments where allocation between components is material to common package types.

• Recognizing the entire bundled package fee at the point of the main procedure without allocating a portion to distinct follow-up care that is delivered later, pulling revenue forward inappropriately
• treating naturally distinct services (e.g. an independent surgeon billing separately) as part of the hospital'
• s bundle when the hospital does not control that service
• using an arbitrary allocation not based on standalone selling prices, distorting the timing of revenue across components
• failing to recognize a contract liability for the unfulfilled follow-up portion at period end.