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Revenue

9 Months Ended

Sep. 30, 2019

3. Revenue

The Company provides technology-enabled solutions tailored toward the specific needs of the healthcare organizations that it serves. These solutions can be integrated or provided on a standalone basis. Contracts generally have a term of one to five years and in some cases automatically renew at the end of the initial term. In most cases, clients may terminate their contracts with a notice period ranging from 0 to 180 days without cause, thereby limiting the term in which the Company has enforceable rights and obligations. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the goods or services. The Company uses the practical expedient not to account for significant financing components because the period between recognition and collection does not exceed one year for most of the Company’s contracts.

Product Revenue

MRM prescription fulfillment services. The Company has a stand ready obligation to provide prescription fulfillment pharmacy services, including dispensing and delivery of an unknown mix and quantity of medications, directly to healthcare organizations. Revenue from MRM prescription fulfillment services is generally recognized when medications are delivered and control has passed to the client and is generally billed monthly. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments.

Service Revenue

MRM services. The Company provides an array of MRM services. These services include identification of high risk individuals, patient engagement, medication regimen reviews, and software for pharmacists to track clinical interventions regarding optimizing medication therapy, including dosing, and methodologies to increase adherence. Revenue related to these performance obligations primarily consists of per member per month fees, monthly subscription fees, and per comprehensive medication review fees. MRM per member per month fees and monthly subscription fees are recognized based on their relative stand-alone selling prices as the services are provided. Additionally, certain of the Company’s MRM service contracts include a performance guarantee based on the number of comprehensive medication reviews completed and guarantees by the Company for specific service level performance. For these contracts, revenue is recognized as comprehensive medication reviews are completed at their relative stand-alone selling price which is estimated based on the Company’s assessment of the total transaction price under each contract. The stand-alone selling price and amount of variable consideration recognized are adjusted as necessary at the end of each reporting period. If client performance guarantees are not being realized, the Company records, as a reduction to revenue, an estimate of the amount that will be due at the end of the respective client’s contractual period. Fees for these services are generally billed monthly.

Health plan management services. The Company has a stand ready obligation to provide risk adjustment services, electronic health records solutions, and third party administration services, which the Company collectively refers to as health plan management services. The performance obligations are a series of distinct services that are substantially the same and have the same pattern of transfer. Revenue related to these performance obligations primarily consists of setup fees, per member per month fees, and in certain contracts a gain-share component. Revenue from these contracts is recognized monthly as the health plan management services are provided. The revenue includes the contractual per member per month rate and an estimated gain earned during each reporting period. Fees for these services are generally billed monthly. Set-up fees related to health plan management contracts represent an upfront fee from the client to compensate the Company for its efforts to prepare the client and configure its system for the data collection process. Set-up activities that do not have value apart from the broader health plan management services provided to the client and that do not represent a separate performance obligation are recognized over the contract term as services are provided. Set-up activities that have value apart from the services provided to the client represent a separate performance obligation and as such, are recognized as performed.

Pharmacy cost management services. The Company has a stand ready obligation to provide monthly pharmacy cost management services which include adjudication, pricing validation, utilization analysis and pharmacy transaction review services. The performance obligation is a series of distinct services that are substantially the same and have the same pattern of transfer. Revenue related to this performance obligation primarily consists of subscription fees based on a monthly flat fee or as a percentage of monthly transactions incurred and revenue generated from drug manufacturers for the sale of drug utilization data. Revenue from these services is recognized monthly as the pharmacy cost management services are provided at the contractual subscription fee rate and when the data is submitted to the drug manufacturers based on the estimated fair value of the data. The drug utilization fees recognized are estimated using historical data, and are adjusted as necessary to reflect new information. Drug utilization data is generally submitted monthly and fees from the sale of drug utilization data are collected 180 days after submission.

Disaggregation of revenue

In the following table, revenue is disaggregated by major service line. The Company manages its operations and allocates its resources as a single reportable segment. The Company's MRM and health plan management clients consist primarily of healthcare payors, providers, and pharmacies. The Company’s pharmacy cost management clients consist primarily of post-acute care facilities. Substantially all of the Company’s revenue is recognized in the United States (“U.S.”) and substantially all of the Company’s assets are located in the U.S.


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
			2019			2018			2019			2018
Major service lines:
MRM prescription fulfillment services		$	34,966		$	28,045		$	99,320		$	82,603
MRM services			25,810			15,467			75,010			45,821
Health plan management services			8,905			5,383			27,205			10,220
Pharmacy cost management services			4,557			5,412			9,803			8,073
Other services			32			111			146			243
		$	74,270		$	54,418		$	211,484		$	146,960

Contract balances

Assets and liabilities related to the Company’s contracts are reported on a contract-by-contract basis at the end of each reporting period. The following table provides information about the Company’s contract assets and contract liabilities from contracts with clients as of September 30, 2019 and December 31, 2018.


		September 30,			December 31,
		2019			2018
Contract assets		$	6,168		$	3,075
Contract liabilities			4,667			1,733

Contract assets as of September 30, 2019 consisted of $4,267 related to data analytics contract assets, $984 related to consideration for performance obligations completed related to MRM service contracts but which the Company does not have an unconditional right to the consideration, and $917 related to the gain-share component of completed health plan management services contracts. Contract assets as of December 31, 2018 consisted of $2,913 related to data analytics contract assets and $162 related to the gain-share component of completed health plan management services contracts. Contract assets are included in other current assets on the Company’s consolidated balance sheets. The contract assets are transferred to receivables when the rights to the additional consideration becomes unconditional.

The contract liabilities as of September 30, 2019 consisted of $1,735 related to acquired performance obligations for software services contracts associated with the Company’s acquisitions of DoseMe and PrescribeWellness in the first quarter of 2019 (see Note 5), $1,395 related to advanced billings for prescription medications not yet fulfilled or dispensed, $765 related to performance obligations with respect to software maintenance contracts for electronic health records solutions, $602 related to advanced payments received for service obligations on MRM performance guaranteed contracts, and $170 related to unamortized setup fees on health plan management contracts. The contract liabilities as of December 31, 2018 consisted of $858 related to advanced billings for prescription medications not yet fulfilled or dispensed, $730 related to performance obligations with respect to software maintenance contracts for electronic health records solutions, and $145 related to unamortized setup fees on health plan management contracts.

Contract liabilities are included in accrued expenses and other current liabilities and in other long-term liabilities on the Company’s consolidated balance sheets. The Company anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within a year.

Significant changes in the contract assets and the contract liabilities balances during the nine months ended September 30, 2019 are as follows:


		September 30,
		2019
Contract assets:
Contract assets, beginning of period		$	3,075
Decreases due to cash received			(5,499)
Changes to the contract assets at the beginning of the year as a result of changes in estimates			1,547
Increases, net of reclassifications to receivables			7,045
Contract assets, end of period		$	6,168

Contract liabilities:
Contract liabilities, beginning of period		$	1,733
Revenue recognized that was included in the contract liabilities balance at the beginning of the period			(1,497)
Increases due to cash received, excluding amounts recognized as revenue during the period			2,910
Increases due to business combinations, excluding amounts recognized as revenue during the period			1,521
Contract liabilities, end of period		$	4,667

During the nine months ended September 30, 2018, the Company recognized $1,278 of revenue that was included in the December 31, 2017 contract liability balance of $1,350.