SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2022

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Prepaid expenses and other current assets — Included in prepaid expenses and other current assets are rebates receivable from pharmaceutical and medical supply manufacturers of $47.6 million and $43.0 million as of March 31, 2022 and December 31, 2021, respectively. There were no other items included in prepaid expenses and other current assets that comprised 5% or more of total current assets.

Equity Method Investments — The Company’s investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other noncurrent assets in the accompanying condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, the balance of the investments were $21.4 million and $20.1 million, respectively. The investments are increased to reflect the Company’s capital contributions and equity in earnings of the investees. The investments are decreased to reflect the Company’s equity in losses of the investees and for distributions received that are not in excess of the carrying amount of the investments. The Company’s proportionate share of earnings or losses of the investees are recorded in equity in earnings of joint ventures in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). The Company’s proportionate share of earnings was $1.3 million and $1.2 million for the three months March 31, 2022. and 2021, respectively. Distributions from the investees are treated as cash inflows from operating activities within other adjustments in the unaudited condensed consolidated statements of cash flows. During the three months March 31, 2022 and 2021, the Company did not receive a distribution from the investees. See Footnote 16, Related-Party Transactions, for discussion of related-party transactions with these investees.

Immaterial Error Correction — During the three months ended June 30, 2021, the Company identified prior period misstatements related to the net revenue earned by category of payer for the periods ended September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. Certain individual payers were improperly classified as direct government and instead should have been classified as commercial payers. This error over-stated the Company’s government revenues and under-stated the Company’s commercial revenues in those periods. The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior consolidated financial statements taken as a whole. As a result, the Company has corrected the misstatements as disclosed in the following tables:


	Three Months ended September 30, 2020				Nine Months ended September 30, 2020				Three Months ended December 31, 2020				Twelve Months ended December 31, 2020
	Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue
Commercial:
As Previously Reported	$	644,385	82.4	%	$	1,893,105	85.0	%	$	649,880	80.8	%	$	2,542,985	83.9	%
Adjustment	34,321		4.4	%	34,321		1.5	%	40,806		5.1	%	75,127		2.5	%
As Revised	678,706		86.8	%	1,927,426		86.5	%	690,686		85.9	%	2,618,112		86.4	%

Government:
As Previously Reported	127,435		16.3	%	308,830		13.9	%	141,237		17.6	%	450,067		14.8	%
Adjustment	(34,321)		(4.4)	%	(34,321)		(1.5)	%	(40,806)		(5.1)	%	(75,127)		(2.5)	%
As Revised	93,114		11.9	%	274,509		12.4	%	100,431		12.5	%	374,940		12.3	%


	Three Months ended March 31, 2021				Three Months ended June 30, 2021				Six Months ended June 30, 2021
	Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue
Commercial:
As Previously Reported	$	611,434	80.5	%	$	703,429	81.8	%	$	1,314,862	81.2	%
Adjustment	37,073		4.9	%	43,218		5.0	%	80,292		4.9	%
As Revised	648,507		85.4	%	746,647		86.8	%	1,395,154		86.1	%

Government:
As Previously Reported	134,914		17.8	%	145,799		16.9	%	280,714		17.3	%
Adjustment	(37,073)		(4.9)	%	(43,218)		(5.0)	%	(80,292)		(4.9)	%
As Revised	97,841		12.9	%	102,581		11.9	%	200,422		12.4	%

There was no impact to the Company’s consolidated balance sheets, consolidated statements of comprehensive income (loss) or the consolidated statements of cash flows for any of these periods.

Concentrations of Business Risk — The Company generates revenue from managed care contracts and other agreements with commercial third-party payers. Revenue related to the Company’s largest payer was approximately 15% and 16% for the three months March 31, 2022 and 2021. There were no other managed care contracts that represent greater than 10% of revenue for the periods presented.

For the three months March 31, 2022 and 2021, approximately 13% and 13%, respectively, of the Company’s revenue was reimbursable through direct government healthcare programs, such as Medicare and Medicaid. As of March 31, 2022 and December 31, 2021, approximately 11% and 11%, respectively, of the Company’s accounts receivable was related to these programs. Governmental programs pay for services based on fee schedules and rates that are determined by the related governmental agency. Laws and regulations pertaining to government programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change in the near term.

The Company does not require its patients nor other payers to carry collateral for any amounts owed for goods or services provided. Other than as discussed above, concentration of credit risk relating to trade accounts receivable is limited due to the Company’s diversity of patients and payers. Further, the Company generally does not provide charity care, however, Option Care Health offers a financial assistance program for patients that meet certain defined hardship criteria.

For the three months March 31, 2022, approximately 75% of the Company’s pharmaceutical and medical supply purchases were from four vendors. For the three months March 31, 2021, approximately 67% of the Company’s pharmaceutical and medical supply purchases were from three vendors. Although there are a limited number of suppliers, the Company believes that other vendors could provide similar products on comparable terms. However, a change in suppliers could cause delays in service delivery and possible losses in revenue, which could adversely affect the Company’s financial condition or operating results. Although there remains some uncertainty regarding the COVID-19 pandemic, as of March 31, 2022 the Company has been able to maintain adequate levels of supplies and pharmaceuticals to support its operations.