After years of working alongside healthcare providers and medical groups, one reality stands out, IFRS 9 is rarely as straightforward in practice as it appears in theory. What is often viewed as a standard credit risk exercise quickly becomes more complex once it is applied to the day-to-day dynamics of the healthcare sector.
Unlike many other industries, healthcare organizations operate within a multi-payer environment. Receivables typically arise from patients, private insurers, and government bodies, each with its own payment patterns and risk profile. Patient balances are often the most unpredictable, influenced by affordability and collection practices. Insurer receivables, while generally more stable, can still be affected by contractual terms and administrative delays. Government-related balances add another layer of complexity, while they are usually considered low risk from a default perspective, delays, rejections, or disputes are not uncommon and can complicate the assessment of expected credit losses. In this context, applying a single provisioning approach across all receivables is rarely appropriate and often difficult to support.
Judgment is particularly important when assessing government exposures. In practice, collection timelines can vary widely depending on funding cycles, internal processes, and broader system constraints. The challenge is not simply estimating whether amounts will be collected, but understanding when. Distinguishing between a deterioration in credit risk and a delay inherent in the system requires a careful review of historical trends and a consistent application of assumptions.
At the same time, many healthcare organizations continue to face limitations in their data and systems. Billing and collection processes are often spread across multiple platforms, not all of which are designed to support forward-looking credit loss models. As a result, finance teams frequently rely on manual adjustments or overlays to arrive at their provisions. Without clear documentation and governance, these adjustments can attract scrutiny during the audit process. Issues such as inconsistent data, limited audit trails, and weak integration between operational and financial systems can all affect the reliability of the ECL calculation.
In practice, the organizations that navigate IFRS 9 most effectively are not necessarily those with the most complex models, but those with the most disciplined approach. Ultimately, IFRS 9 in healthcare goes beyond compliance. When approached properly, it provides valuable insight into how cash is collected across different payer groups and highlights areas of underlying risk. Organizations that invest the time to get this right tend to benefit from stronger financial reporting, better visibility over cash flows, and a more informed view of their overall financial position.
As Baker Tilly, amongst all the expected services we can provide to Entities of the sector like Audit, Tax, Consulting, we support healthcare organizations in navigating IFRS 9 through practical, tailored solutions, with an understanding of sector-specific challenges. If you would like to explore our tailored solutions, please contact our Life Sciences & Healthcare Industry Deputy, Moisis Aristidou, Partner at Baker Tilly Cyprus, at: [email protected]
