Healthcare intangibles may face a new round of impairment testing

Accounting Standard Codification 350 - Intangibles, Goodwill and Other Indefinite Lived Assets governs the accounting treatment for goodwill and indefinite-lived intangible assets previously accounted for in a business combination, and increased M&A in healthcare has served to focus more attention on the intangible assets recognized on companies' financial statements. In the opinion of Andrew Galbraith, changes in the economic and regulatory environment within the healthcare industry have expanded the necessity for the impairment testing of indefinite-lived intangible assets, under ASC 350.

Triggering events that cause testing on an interim basis might include the following:

1. Adverse changes in legal factors or in business climate;
2. Adverse regulatory actions;
3. New competitors;
4. Loss of key personnel; and
5. Expectation of the disposal of a reporting unit.

Galbraith, of HealthCare Appraisers, believes the current economy may trigger number 1 above, and number 2 may well be invoked at Medicare Advantage companies as a result of new legislation that changes the way such companies are funded.