Express Scripts 2011 Annual Report Download - page 46

Express Scripts 2011 Annual Report
44
OTHER ACCOUNTING POLICIES
We consider the following information about revenue recognition policies important for an understanding of our
results of operations:
Revenues from the sale of prescription drugs by retail pharmacies are recognized when the claim is
processed. When we independently have a contractual obligation to pay our network pharmacy providers
for benefits provided to our clients’ members, we act as a principal in the arrangement and we include the
total prescription price (ingredient cost plus dispensing fee) we have contracted with these clients as
revenue, including member co-payments to pharmacies.
Revenues from dispensing prescriptions from our home delivery and specialty pharmacies are recorded
when prescriptions are shipped. These revenues include the co-payment received from members of the
health plans we serve. At the time of shipment, we have performed substantially all of our obligations under
the customer contracts and do not experience a significant level of reshipments or returns.
When we merely administer a client’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 the corresponding amount to the pharmacies in the client’s network. In these transactions,
drug ingredient cost is not included in our revenues or in our cost of revenues.
Gross rebates and administrative fees earned for the administration of our rebate programs, performed in
conjunction with claim processing services provided to clients, are recorded as a reduction of cost of
revenue and the portion of the rebate payable to customers is treated as a reduction of revenue.
When we earn rebates and administrative fees in conjunction with formulary management services, but do
not process the underlying claims, we record rebates received from manufacturers, net of the portion
payable to customers, in revenue.
We distribute pharmaceuticals in connection with our management of patient assistance programs and earn
a fee from the manufacturer for administrative and pharmacy services for the delivery of certain drugs free
of charge to doctors for their low income patients.
We earn a fee for the distribution of consigned pharmaceuticals requiring special handling or packaging
where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network.
Discounts and contractual allowances related to our specialty revenues are estimated based on historical
collections over a recent period for the sales 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 year payment is received.
Differences may result in the amount and timing of revenues for any period if actual performance varies
from estimates. Allowances for returns are estimated based on historical return trends. The discounts,
contractual allowances, allowances for returns and any differences between estimates and actual amounts do
not have a material effect on our consolidated financial statements.
EM product revenues include revenues earned through the distribution of pharmaceuticals and medical
supplies to providers and clinics.
EM service revenues include revenues earned through product support to pharmaceutical manufacturers and
medical device companies, revenues derived from our group purchasing organization, and healthcare
administration and implementation of consumer-directed healthcare solutions.