Express Scripts 2012 Annual Report Download - page 42

Express Scripts 2012 Annual Report40
REBATE ACCOUNTING
ACCOUNTING POLICY
We administer ESI’s rebate program through which we receive rebates and administrative fees from
pharmaceutical manufacturers. The portion of rebates and administrative fees payable to clients is estimated based on
historical and/or anticipated sharing percentages. In connection with the Merger, we are administering Medco’s market
share performance rebate program. Estimates for rebates receivable are accrued monthly based on the terms of the
applicable contract, historical data, and current utilization. These estimates are adjusted to actual when amounts are paid to
clients.
FACTORS AFFECTING ESTIMATE
The factors that could 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 expirations
 changes in drug utilization patterns
INCOME TAXES
ACCOUNTING POLICY
Deferred tax assets and liabilities are recorded based on temporary differences between the financial statement
basis and the tax basis of assets and liabilities using presently enacted tax rates. We evaluate tax positions to determine
whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of
the tax position.
FACTORS AFFECTING ESTIMATE
The factors that could impact our estimates of deferred tax assets and liabilities are as follows:
 likelihood of being sustained upon audit based on the technical merits of the tax position
 assumed interest and penalties associated with uncertain tax positions
OTHER ACCOUNTING POLICIES
We consider the following information about revenue recognition policies important for an understanding of our
results of operations:
PRESCRIPTION DRUG REVENUES
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.
REBATES AND ADMINISTRATIVE FEES
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 claims 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.