Express Scripts Holding Co. (ESRX)

Receivables, net

The receivables balances primarily include amounts due from clients, third-party payors, members and pharmaceutical manufacturers. Below is a description of Express Scripts’ receivables balances from clients, third-party payors and members. Based on Express Scripts’ revenue recognition policies, certain receivables are unbilled at the end of each period. As of December 31, 2017 and 2016, unbilled receivables were $676.3 million and $705.8 million, respectively. Unbilled receivables are typically billed to PBM clients within 30 days based on the contractual billing schedule agreed upon with the client. Unbilled receivables for medical benefit management services represent amounts due from clients at contracted rates, and are billed once settlement provisions for capitated risk contract terms are met, at least annually.

Express Scripts’ reserves for credit loss in receivables is the allowance for doubtful accounts of $95.3 million and $75.0 million for the years ended December 31, 2017 and 2016, respectively. This estimate is based on the current status of each customer’s receivable balance as well as current economic and market conditions. Express Scripts’ allowance for doubtful accounts also reflects amounts associated with member premiums for the Medicare Part D product offerings. Receivables are written off against the allowances only upon determination such amounts are not recoverable and all collection attempts have failed. Express Scripts regularly reviews and analyzes the adequacy of these allowances based on a variety of factors, including the age of the outstanding receivable and the collection history. When circumstances related to specific collection patterns change, estimates of the recoverability of receivables are adjusted.

As of December 31, 2017 and 2016, Express Scripts has contractual allowances of $206.2 million and $115.2 million, respectively, included in the contractual allowance for certain receivables from third-party payors based upon the payment terms specified in the related contractual agreements with payors. The estimated reimbursement amounts are calculated on a payor-specific basis based on the best information available regarding management’s interpretation of the contract terms and are recorded as a reduction of receivables and revenues at the time revenue is recognized. As of December 31, 2017 and 2016, Express Scripts also has customer credit allowances of $165.1 million and $199.6 million, respectively, which include discounts and claims adjustments issued to the customers in the form of client credits.

Gross receivables have been reduced by 11.1% and 8.5% at December 31, 2017 and 2016, respectively, related to Express Scripts’ allowance for doubtful accounts, contractual allowances for certain receivables from third-party payors, contractual allowances for discounts and claims adjustments issued to the customers in the form of client credits, and contractual allowances for certain rebates receivable with manufacturers.

Source: 10-K (filing date: 2018-02-27).

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-23), 10-K (filing date: 2014-02-20).