Express Scripts 2009 Annual Report Download - page 50

Express Scripts 2009 Annual Report 48
estimates could be significant
.
A
ctuaries do not have a significant history with the PBM industry
.
Therefore, changes to
assumptions used in the development of these reserves can affect net income in a given period
.
I
n addition, changes in the
l
egal e
n
v
ir
o
nm
e
nt an
d
th
e
n
u
m
be
r an
d
nat
u
r
e
o
f
c
laim
s
cou
l
d
impact our estimate. The self
-
ff
i
nsurance reserves and changes
i
n those estimates have not been material to the financial statements for the periods presented herei
n
.
O
THER A
CCOU
NTIN
G
P
O
LI
C
IE
S
W
e
c
onsider the following information about revenue recognition policies important for an understanding of our results of
o
perations
:
Revenues from dispensing pre
s
c
riptions from our home delivery and specialt
y
pharmacies are recorded when
prescriptions are
s
h
ipped. These revenues include the co
-
payment received from members of the health plans we
se
r
ve.
A
t the time of shipment, we have performed substantially all of our obligations under the custome
r
c
ontracts and do not experience a significant level of r
e
s
hipments.
Revenues from the sale of prescription drugs by retail pharmacies are recognized when the claim is processed.
W
hen we independently have a contractual obligation to pay our network pharmacy providers for benefits
provided to our clients’ mem
b
er, we act as a principal in the arrangement and we include the total prescriptio
n
pric
e
(ingredient cost plus dispensing fee) we have contracted with these clients as revenue, including member co
-
payments to pharmacies
.
W
hen we merely administer a
c
lient’s network pharmacy contracts to which we are not a party and under which
we do not assume credit risk, we earn an administrative fee for collecting payments from the client and remitting
t
he corresponding amount to the pharmacies in the client’s network. In these transactions, drug ingredient cost is
no
t in
c
l
uded
in
ou
r r
eve
n
ues or in our cost of revenues.
n
Gross rebates and administrative fees earned for the administration of our rebate programs, performed i
n
c
onjunction with claim processing services provided to clients, are recorded as a reduction of cost of revenue and
t
he portion of the rebate payable to customers is treated as a reduction of revenue.
W
hen we earn rebates and administrative fees in conjunction with formulary management service
s
,
but do not
process the underlying claims, we record rebates received from manufacturers, net of the portion payable to
c
ustomers
,
in revenue
.
W
e distribute pharmaceuticals in connection with our management of patient assistance programs and earn a fee
fr
o
m the manufacturer for administrative and pharmacy services for the delivery of certain drugs free of charge to
doctors for their low income patients
.
W
e earn a fee for the distribution of consigned pharmaceuticals requiring special handling or packaging
w
h
e
r
e
we
h
ave been selected by the pharmaceutical manufacturer as part of a limited distribution network
.
Di
scou
nt
s
an
d
co
ntra
c
tual allowances related to our specialt
y
reve
n
ues
ar
e
es
timat
ed
b
a
sed
o
n hi
s
t
o
ri
c
al
c
ollections over a recent period for the sal
e
s
that are recorded at gross amounts. The percentage is applied to the
applicable accounts receivable balance that contains gross amounts for each period. Any differences between the
estimates and actual collections are reflected in operations in the yea
r
payment is received. Differences may result
i
n the amount and timing of revenues for any period if actual performance varies from estimates. Allowances fo
r
r
eturns are estimated based on historical return trends. The discounts
,
contractual allowances
,
all
ow
an
ces
f
or
r
eturns and any differences between
e
s
timat
es
an
d
a
c
t
u
al am
ou
nt
s
do
n
o
t ha
ve
a mat
e
rial
e
ff
ec
t
o
n
our
co
n
so
li
d
at
ed
finan
c
ial
s
tat
e
m
e
nt
s.
EM product revenues include revenues earned through th
e
distribution of pharmaceuticals and medical supplies to
providers and clinics, distribution of sample units to physicians and verification of practitioner lic
e
nsu
r
e
an
d
fertility se
r
v
ices to providers and patients.
EM
s
ervice revenues include revenues earned through product support
t
o pharmaceutical
m
an
uf
a
c
t
u
r
e
r
s
an
d
m
edical device companies, revenues derived from our group purchasing organization, a
d
mini
s
trati
ve
f
ees
f
o
r th
e
ve
rifi
c
ati
o
n
of practitioner licensure,
t
he distribution of consigned drug samples to doctors based on orders
r
eceived from pha
r
m
a
ceu
ti
c
al
s
a
l
es representatives and healthcare administration and implementation of
co
n
su
m
er
-
d
ir
ec
t
ed
h
e
alth
c
ar
e
so
l
u
ti
o
n
s.