Rite Aid 2016 Annual Report Download - page 89

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 27, 2016, February 28, 2015 and March 1, 2014
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies (Continued)
(i) the portion of the price the client pays directly to the Pharmacy Services segment, net of any
volume-related or other discounts paid back to the client (see ‘‘Drug Discounts’’ below), (ii) the price
paid to the Pharmacy Services segment by client plan members for mail order prescriptions (‘‘Mail
Co-Payments’’), (iii) customer copayments made directly to the retail pharmacy network, and
(iv) administrative fees. Sales taxes are not included in revenue. Revenue is recognized when:
(i) persuasive evidence that the prescription drug sale has occurred or a contractual arrangement exists,
(ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or
determinable, and (iv) collectability is reasonably assured. The following revenue recognition policies
have been established for the Pharmacy Services segment:
• Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy
Services segment’s retail pharmacy network and associated administrative fees are recognized at
the Pharmacy Services segment’s point-of-sale, which is when the claim is adjudicated by the
Pharmacy Services segment’s online claims processing system.
• Revenues generated from prescription drugs sold by the Pharmacy Services segment’s mail
service dispensing pharmacy are recognized when the prescription is delivered. At the time of
delivery, the Pharmacy Services segment has performed substantially all of its obligations under
its client contracts and does not experience a significant level of returns or reshipments.
• Revenues generated from administrative fees based on membership or claims volume are
recognized monthly upon active membership in the plan or actual claims volume.
In the majority of its contracts, the Pharmacy Services segment has determined it is the principal
due to it: (i) being the primary obligor in the arrangement, (ii) latitude in establishing price,
(iii) performs part of the service, (iv) having discretion in supplier selection and v) having involvement
in the determination of product or service specifications. The Pharmacy Services segment’s obligations
under its client contracts for which revenues are reported using the gross method are separate and
distinct from its obligations to the third party pharmacies included in its retail pharmacy network
contracts. Pursuant to these contracts, the Pharmacy Services segment is contractually required to pay
the third party pharmacies in its retail pharmacy network for products sold after payment is received
from its clients. The Pharmacy Services segment’s responsibilities under its client contracts typically
include validating eligibility and coverage levels, communicating the prescription price and the
co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for
the pharmacist to address with the prescriber prior to dispensing, suggesting generic alternatives where
clinically appropriate and approving the prescription for dispensing. Although the Pharmacy Services
segment does not have credit risk with respect to its pharmacy benefit manager operations and retail
co-payments, management believes that all of the other applicable indicators of gross revenue reporting
are present.
Drug Discounts—The Pharmacy Services segment deducts from its revenues that are generated
from prescription drugs sold by third party pharmacies any rebates, inclusive of discounts and fees,
earned by its clients. Rebates are paid to clients in accordance with the terms of client contracts.
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