Quest Diagnostics 2013 Annual Report Download - page 55

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Revenues and accounts receivable associated with DIS
The process for estimating the ultimate collection of receivables associated with our DIS business involves significant
assumptions and judgments. Billings for services reimbursed by third-party payers, including Medicare and Medicaid, are
generally recorded as revenues net of allowances for differences between amounts billed and the estimated receipts from such
payers. Adjustments to the allowances, based on actual receipts from the third-party payers, are recorded upon settlement as an
adjustment to net revenues.
We have a standardized approach to estimate and review the collectibility of our receivables based on a number of
factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an
integral part of the estimation process related to revenues and allowances for doubtful accounts. We believe that most of our
bad debt expense is primarily the result of missing or incorrect billing information on requisitions and the failure of patients to
pay the portion of the receivable that is their responsibility. In addition, we regularly assess the state of our billing operations
in order to identify issues, which may impact the collectibility of receivables or allowance estimates. We believe that the
collectibility of our receivables is directly linked to the quality of our billing processes, most notably those related to obtaining
the correct information in order to bill effectively for the services we provide. As such, we have implemented “best practices”
to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information.
Revisions to the allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within selling,
general and administrative expenses. We believe that our collection and allowance estimation processes, along with our close
monitoring of our billing operations, help to reduce the risk associated with material revisions to reserve estimates. Less than
5% of our net accounts receivable as of December 31, 2013 were outstanding more than 150 days.
The following table shows current estimates of the percentage of our total volume of requisitions and net revenues
associated with our DIS business during 2013 applicable to each payer group:
% of
% of DIS
Volume Revenues
Healthcare Insurers 44% - 48% 48% - 52%
Government Payers 14% - 18% 17% - 21%
Client Payers 34% - 38% 26% - 30%
Patients 1% - 5% 1% - 5%
Healthcare insurers
Reimbursements from healthcare insurers represent approximately one-half of our DIS net revenues. Reimbursements
from healthcare insurers are based on negotiated fee-for-service schedules and on capitated payment rates.
Receivables due from healthcare insurers represent approximately 26% of our DIS net accounts receivable as of
December 31, 2013. Substantially all of the accounts receivable due from healthcare insurers represent amounts billed under
negotiated fee-for-service arrangements. We utilize a standard approach to establish allowances for doubtful accounts for such
receivables, which considers the aging of the receivables and results in increased allowance requirements as the aging of the
related receivables increases. Our approach also considers historical collection experience and other factors. Collection of such
receivables is normally a function of providing complete and correct billing information to the healthcare insurers within the
various filing deadlines. For healthcare insurers, collection typically occurs within 30 to 60 days of billing. Provided we have
billed healthcare plans accurately with complete information prior to the established filing deadline, there has historically been
little to no collection risk. If there has been a delay in billing, we determine if the amounts in question will likely go past the
filing deadline, and if so, we will reserve accordingly for the billing.
Approximately 4% of our DIS net revenues for the year ended December 31, 2013 are reimbursed under capitated
payment arrangements, in which case the healthcare insurers typically reimburse us in the same month services are performed,
essentially giving rise to no outstanding accounts receivable at month-end. If any capitated payments are not received on a
timely basis, we determine the cause and make a separate determination as to whether or not the collection of the amount from
the healthcare insurer is at risk and, if so, would reserve accordingly.