(11) Revenue

In May 2014 and March 2016, the FASB issued ASU 2014-09 and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)” and “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, respectively, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Under the new standards, our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue. However, subsequent changes in estimate of collectability due to a change in the financial status of a payor, for example a bankruptcy, will be recognized as bad debt expense in operating charges.

The performance obligation is separately identifiable from other promises in the customer contract. As the performance obligations are met (i.e.: room, board, ancillary services, level of care), revenue is recognized based upon allocated transaction price. The transaction price is allocated to separate performance obligations based upon the relative standalone selling price. In instances where we determine there are multiple performance obligations across multiple months, the transaction price will be allocated by applying an estimated implicit and explicit rate to gross charges based on the separate performance obligations.

In assessing collectability, we have elected the portfolio approach. This portfolio approach is being used as we have large volume of similar contracts with similar classes of customers. We reasonably expect that the effect of applying a portfolio approach to a group of contracts would not differ materially from considering each contract separately. Management’s judgment to group the contracts by portfolio is based on the payment behavior expected in each portfolio category. As a result, aggregating all of the contracts (which are at the patient level) by the particular payor or group of payors, will result in the recognition of the same amount of revenue as applying the analysis at the individual patient level.

On January 1, 2018, we adopted the new accounting standard using the modified retrospective method. The information in comparative periods have not been restated and continues to be reported under the accounting standards in effect for those periods. In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated income statement was as follows (in thousands):

			Balances
			Without
	As		Adoption		Effect
For the three months ended June 30, 2018:	Reported		ASC 606		of Change
Net Revenue before provision for doubtful accounts			$	2,953,398
Less: Provision for doubtful accounts				276,160
Net Revenues	$	2,681,353	$	2,677,238	$	4,115

Other operating expenses	$	624,484	$	620,369	$	4,115


			Balances
			Without
	As		Adoption		Effect
For the six months ended June 30, 2018:	Reported		ASC 606		of Change
Net Revenue before provision for doubtful accounts			$	5,884,925
Less: Provision for doubtful accounts				522,703
Net Revenues	$	5,368,869	$	5,362,222	$	6,647

Other operating expenses	$	1,245,303	$	1,238,656	$	6,647

We group our revenues into categories based on payment behaviors. Each component has its own reimbursement structure which allows us to disaggregate the revenue into categories that share the nature and timing of payments. The other patient revenue consists primarily of self-pay, government-funded non-Medicaid, and other.

The following table disaggregates our revenue by major source for the three and six month periods ended June 30, 2018 and 2017 (in thousands):

	For the three months ended June 30, 2018
	Acute Care				Behavioral Health				Other		Total
Medicare	$	305,471	22	%	$	146,643	12	%			$	452,114	17	%
Managed Medicare		174,196	12	%		51,043	4	%				225,239	8	%
Medicaid		109,225	8	%		175,966	14	%				285,191	11	%
Managed Medicaid		138,346	10	%		247,276	19	%				385,622	14	%
Managed Care (HMO and PPOs)		512,631	37	%		361,047	28	%				873,678	33	%
UK Revenue		0	0	%		119,457	9	%				119,457	4	%
Other patient revenue		63,950	5	%		121,392	10	%				185,342	7	%
Other non-patient revenue		100,172	7	%		51,259	4	%		3,279		154,710	6	%
Total Net Revenue	$	1,403,991	100	%	$	1,274,083	100	%	$	3,279		2,681,353	100	%

	For the six months ended June 30, 2018
	Acute Care				Behavioral Health				Other		Total
Medicare	$	661,228	23	%	$	289,170	12	%			$	950,398	18	%
Managed Medicare		363,294	13	%		96,038	4	%				459,332	9	%
Medicaid		219,004	8	%		353,302	14	%				572,306	11	%
Managed Medicaid		268,285	9	%		478,052	19	%				746,337	14	%
Managed Care (HMO and PPOs)		1,028,609	36	%		719,109	29	%				1,747,718	33	%
UK Revenue		0	0	%		234,198	9	%				234,198	4	%
Other patient revenue		110,840	4	%		238,377	9	%				349,217	7	%
Other non-patient revenue		198,363	7	%		103,833	4	%		7,167		309,363	6	%
Total Net Revenue	$	2,849,623	100	%	$	2,512,079	100	%	$	7,167		5,368,869	100	%

	For the three months ended June 30, 2017
	Acute Care				Behavioral Health				Other		Total
Medicare	$	286,524	21	%	$	147,437	12	%			$	433,961	17	%
Managed Medicare		150,510	11	%		42,713	3	%				193,223	7	%
Medicaid		121,318	9	%		182,678	15	%				303,996	12	%
Managed Medicaid		120,223	9	%		223,219	18	%				343,442	13	%
Managed Care (HMO and PPOs)		474,876	35	%		359,839	29	%				834,715	32	%
UK Revenue		0	0	%		106,390	9	%				106,390	4	%
Other patient revenue		94,826	7	%		120,211	10	%				215,037	8	%
Other non-patient revenue		118,180	9	%		60,074	5	%		3,338		181,592	7	%
Total Net Revenue	$	1,366,457	100	%	$	1,242,561	100	%	$	3,338		2,612,356	100	%

	For the six months ended June 30, 2017
	Acute Care				Behavioral Health				Other		Total
Medicare	$	614,461	22	%	$	294,082	12	%			$	908,543	17	%
Managed Medicare		302,868	11	%		79,387	3	%				382,255	7	%
Medicaid		218,180	8	%		363,627	15	%				581,807	11	%
Managed Medicaid		247,518	9	%		440,864	18	%				688,382	13	%
Managed Care (HMO and PPOs)		966,484	35	%		715,177	29	%				1,681,661	32	%
UK Revenue		0	0	%		206,412	8	%				206,412	4	%
Other patient revenue		167,049	6	%		245,009	10	%				412,058	8	%
Other non-patient revenue		239,444	9	%		116,125	5	%		8,527		364,096	7	%
Total Net Revenue	$	2,756,004	100	%	$	2,460,683	100	%	$	8,527		5,225,214	100	%