Express Scripts 2012 Annual Report Download - page 41

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Express Scripts 2012 Annual Report 39
The key assumptions included in our income approach include, but are not limited to, earnings growth rates,
discount rates and inflation rates. Assessment of these factors could be impacted by internal factors and/or external
economic conditions. We performed various sensitivity analyses on the key assumptions which did not indicate any
potential impairment.
CONTRACTUAL GUARANTEES
ACCOUNTING POLICY
Many of our contracts contain terms whereby we make certain financial and performance guarantees, including the
minimum level of discounts or rebates a client may receive, generic utilization rates and various service guarantees. These
clients may be entitled to performance penalties if we fail to meet a financial or service guarantee. Actual performance is
compared to the guarantee for each measure throughout the period, and accruals are recorded if we determine that our
performance against the guarantee indicates a potential liability. These estimates are adjusted to actual when the guarantee
period ends and we have either met the guaranteed rate or paid amounts to clients.
FACTORS AFFECTING ESTIMATE
The factors that could impact our estimates of guarantees expense and guarantees payable are as follows:
differences between the rates guaranteed by us to clients and rates contracted by us with pharmacies in our
retail networks or with pharmaceutical manufacturers for drugs dispensed from our home delivery
pharmacies
changes in drug utilization patterns, including the mix of brand and generic drugs as well as utilization of
our home delivery pharmacy
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ACCOUNTING POLICY
We provide an allowance for doubtful accounts equal to estimated uncollectible receivables. This estimate is based on
the current status of each customer’s receivable balance.
FACTORS AFFECTING ESTIMATE
We record allowances for doubtful accounts based on a variety of factors including the length of time the receivables
are past due, the financial health of the customer and historical experience. Our estimate could be impacted by changes in
economic and market conditions as well as changes to our customers’ financial condition.
SELF-INSURANCE ACCRUALS
ACCOUNTING POLICY
We record self-insurance accruals based upon estimates of the aggregate liability of claim costs in excess of our
insurance coverage which are probable and estimable. Accruals are estimated using certain actuarial assumptions followed in
the insurance industry and our historical experience. The majority of these claims are legal claims and our liability estimate is
primarily related to the cost to defend these claims. We do not accrue for settlements, judgments, monetary fines or penalties
until such amounts are probable and estimable. Under authoritative Financial Accounting Standards Board (“FASB”) guidance,
if the range of possible loss is broad, and no amount within the range is more likely than any other, the liability accrual is based
on the lower end of the range.
FACTORS AFFECTING ESTIMATE
Self-insurance accruals are based on management’s estimates of the costs to defend legal claims. We do not have
significant experience with certain of these types of cases. As such, differences between actual costs and management’s
estimates could be significant. Actuaries do not have a significant history with the PBM industry. Therefore, changes to
assumptions used in the development of these accruals can affect net income in a given period. In addition, changes in the legal
environment and the number and nature of claims could impact our estimate. The self-insurance accruals and changes in those
estimates have not been material to the financial statements for the periods presented herein.