Express Scripts 2009 Annual Report Download - page 48

Express Scripts 2009 Annual Report 46
EXE
CU
TI
V
E
SU
MMARY A
N
D TRE
N
D FA
C
T
O
R
S
AFFE
C
TI
NG
THE B
US
I
N
E
SS
O
ur results in 20
0
9
r
eflect the successful execution of our business model which emphasizes the alignment of ou
r
financial interests with those of our clients through greater use of generic
s
an
d
l
ow
-
cos
t
b
ran
ds
,
home delivery and specialt
y
pharmacy
.
I
n
2
00
9
,
we
be
n
e
fit
ed
fr
om
better management of ingredient costs through actions such as renegotiation of
s
upplier contracts, increased competition among generic manufactur
e
r
s
,
h
igher generic utilization (
6
8
.3
%
in 20
0
9
c
ompared to
6
6.
1
%
in 20
0
8
)
and other actions which helped to
r
educe ingredient cost
s
.
I
n addition, through the research
performed b
y
u
s and guided b
y
our
C
ente
r
f
or
C
ost
-
Effective Consumerism
,
we are providing our clients with additional
t
ools designed to generate higher generic fill rates and further increase the use of our home delivery and specialty pharmac
y
se
r
v
i
ces
an
d
d
ri
ve
g
reater adherenc
e
.
W
hile we believe we are well positioned fro
m
a business and financial perspective,
we are subject to the current adverse economic environment. Th
ese
co
n
d
iti
o
n
s
cou
l
d
aff
ec
t
ou
r
bus
in
ess
in a n
u
m
be
r
o
f
direct and indirect ways
.
A
dditionally, we have entered into
new
l
on
g
-
te
r
m
co
ntra
c
t
s
w
ith
W
ellPoi
n
t
and the DoD.
W
e
expect to have a highe
r
c
oncentration of revenues amon
g
t
h
ese
c
li
e
nt
s.
W
e b
e
l
ieve the positive trends we saw
i
n 2
00
9
,
including lower drug purchasing cost
s
and increased generic usag
e
,
s
hould continue to offset the negative impact
of
v
a
r
ious marketplace forces affecting pricing and plan structure, among
o
ther factors, and thus continue to generate improvements in our results of operations in the future.
C
RITI
C
AL A
CCOUN
TI
NG
P
O
LI
C
IE
S
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions
w
hi
c
haffect the reported amounts of assets and liabilities
at th
e
d
at
e
o
f th
e
fi
n
ancial statements and the reported amounts of revenues and expenses during the reporting period. Ou
r
estimates and assumptions are based upon a combination of historical information and various other assumptions believed
t
o be reasonable under the particu
l
ar circumstances. Actual results may differ from our estimates. Certain of the accounting
policie
s
w
hi
c
h
m
ost impact our consolidated financial statements and that require our management to make difficult,
s
ubjective or complex judgments are described bel
o
w. This should be read in conju
n
c
tion with Note 1, “Summary of
s
ignificant accounting p
o
li
c
i
es
” an
d
w
ith th
e
o
th
e
r n
o
t
es
t
o
th
e
co
n
so
li
d
at
ed
finan
c
ial
s
tat
e
m
e
nt
s.
R
EBATE A
CCOU
NTIN
G
ACCOU
NTIN
G
P
O
LI
C
Y
W
e administer a rebate program through which we recei
v
e rebates and administrative fees from pharmaceutical
m
anufacturers. The portion of rebates payable to clients is estimated based on historical and/or anticipated sharing
percentages. These estimates are adjusted to actual when amounts are paid to clie
n
ts.
FA
C
T
O
R
S
AFFE
C
TIN
G
E
S
TIMATE
Th
e
fa
c
t
o
r
s
t
h
a
t
c
ould impact our estimates of rebates, rebates receivable and rebates payable are as follows
:
Differences between estimated allocation percentages and actual rebate allocation percentages;
Drug patent expi
r
ations
;
and
C
hanges in drug utilization patterns
.
Historically, adjustments to our original estimates have bee
n
r
elativel
y
i
mmat
e
rial
.
ALL
OW
AN
C
E F
O
R D
OU
BTF
U
L A
CCOU
NT
S
ACCOU
NTIN
G
P
O
LI
C
Y
W
e provide an allowance for doubtful accounts equal to estimated
u
n
co
ll
ec
ti
b
l
e
r
ece
i
v
a
b
l
es.
Thi
s
es
timat
e
i
s
b
a
sed
o
n th
e
cu
rr
e
nt
s
tat
us
o
f
e
a
c
h
cus
t
o
m
e
r’
s
r
ece
i
v
a
b
l
e
b
alan
ce.
FA
C
T
O
R
S
AFFE
C
TIN
G
E
S
TIMATE
W
e record allowances for doubtful accounts based on a variety of factors including the length of time the
rece
i
v
a
b
l
e
s
are past due, the financial health of the customer and historical experience. Our estimate could be impacted b
y
c
hanges in economic and market conditions as well as changes to our customers’ financial condition
.