AbbVie 2014 Annual Report Download - page 55

13NOV201221352027
for each type of rebate, management uses both internal and external data to estimate the level of
inventory in the distribution channel and the rebate claims processing lag time for that rebate. External
data sources used to estimate the inventory in the distribution channel include inventory levels periodically
reported by wholesalers. Management estimates the processing lag time based on periodic sampling of
claims data. To estimate the rebate percentage or net price, systems and calculations are used to track
sales by product and by customer or payer and to estimate the contractual or statutory rebate or net price.
AbbVie believes its systems and calculations are reliable.
The following table is an analysis of the three largest rebate accruals and chargeback allowances,
which comprise approximately 82 percent of the total consolidated rebate provisions charged against
revenues in 2014. Remaining rebate provisions charged against gross sales are not significant in the
determination of operating earnings.
Medicaid
and Managed
Medicare Care Wholesaler
(in millions) Rebates Rebates Chargebacks
Balance at December 31, 2011 $ 720 $ 506 $ 171
Provisions 1,077 830 1,645
Payments (990) (840) (1,592)
Balance at December 31, 2012 807 496 224
Provisions 1,028 846 2,362
Payments (1,168) (883) (2,374)
Balance at December 31, 2013 667 459 212
Provisions 1,015 970 2,825
Payments (970) (953) (2,784)
Balance at December 31, 2014 $ 712 $ 476 $ 253
Historically, adjustments to prior years’ rebate accruals have not been material to net income. AbbVie
employs various techniques to verify the accuracy of claims submitted to it, and where possible, works with
the organizations submitting claims to gain insight into changes that might affect the rebate amounts. For
Medicaid, Medicare, and other government agency programs, the calculation of a rebate involves
interpretations of relevant regulations, which are subject to challenge or change in interpretation.
Cash Discounts and Returns
Cash discounts can be reliably estimated. Product returns can be reliably estimated because AbbVie’s
historical returns are low, and because sales return terms and other sales terms have remained relatively
unchanged for several periods.
Pension and Post-Employment Benefits
AbbVie engages outside actuaries to assist in the determination of the obligations and costs under the
plans that are direct obligations of AbbVie. The valuation of the funded status and the net periodic benefit
cost for these plans are calculated using actuarial assumptions. The significant assumptions, which are
reviewed annually, include the discount rate, the expected long-term rate of return on plan assets, and the
health care cost trend rates. The significant assumptions used in determining these calculations are
disclosed in Note 11 to the consolidated financial statements.
The discount rate is selected based on current market rates on high-quality, fixed-income investments
at December 31 each year. AbbVie employs a yield-curve approach for countries where a robust bond
market exists. The yield curve is developed using high-quality bonds. The discount rate is the single rate
that equates the discounted cash flows to the rates utilizing the yield curve. As a result, the yield-curve
2014 Form 10-K 49