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Lease Accounting Standards For The Healthcare And Pharmaceutical Industry

Lease accounting standards for the healthcare and pharmaceutical industry

The healthcare industry is evolving, and lease accounting changes scheduled for implementation in year-end 2019 for privately-owned companies could signal critical changes for the future of pharmaceutical, biotech and medical device companies.

The healthcare industry is shifting from treatment to wellness, facing increasing pricing pressures, digital technology expansion, rapidly changing scientific advancements and increased use of real-world data. Not only will this pressure affect how healthcare is carried out, it will also affect how the healthcare industry completes its financial reporting. Finance and accounting personnel within these organizations face complex issues and must exercise significant judgment in applying new accounting rules and related interpretations affecting healthcare companies.

Equipment leasing programs can be inherently difficult to manage because of the wide range and variety of needed equipment and the decentralized nature of leasing programs. Take for example this scenario: A healthcare organization enters into a contract with another entity to lease medical equipment, and it includes a license for intellectual property.  This lease becomes a contract containing lease and non-lease components. The contract would allocate medical equipment as the lease component and the license as the non-lease component. The license would appear as an intangible asset.

A change in lease accounting requires companies to list operating lease liabilities on the balance sheet for the first time at the close in year-end 2019. For a multi-national healthcare company with operations in dozens of countries, collecting and assessing every lease contract including those in other languages can be a significant undertaking. Because of this new standard, manufacturers might end up with more leases with hospitals and other health care facilities than they had previously thought possible.

Know what the top accounting firms recommend for lease accounting software and ask questions of your accounting peers in different organizations. Renewal rates are a good indicator of software quality and customer satisfaction, such as CoStar’s 99 percent renewal rate for its lease accounting software. When researching the right lease accounting software, be aware of any maintenance costs, upgrade fees or hidden charges. Cloud-based systems (SaaS solutions) offered by CoStar can be more cost-effective long term with features like unlimited user models, no software upgrade fees, and pay-per data pricing. The decision to upgrade lease accounting software should not only streamline your accounting processes, but it can also help your organization become more efficient.