Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

1.           BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of MEDTOX Scientific, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial condition and results of operations have been included.  Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be attained for the entire year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

On January 1, 2012, the Company adopted new accounting guidance on the presentation and disclosure of patient service revenue, provision for bad debts, and the allowance for doubtful accounts for certain health care entities.  This guidance requires certain health care entities to change the presentation of their statement of income by reclassifying the provision for bad debts associated with certain patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts).  Results for the three and six month periods ended June 30, 2011 have been restated in accordance with this new guidance, which resulted in a $990,000 and $1,629,000 decrease in revenues and selling, general and administrative expenses, respectively.

Patient Service Revenue, Accounts Receivable and Allowance for Doubtful Accounts - Patient accounts receivable are reported at realizable value, net of allowance for doubtful accounts.  In evaluating the collectibility of accounts receivable, the Company analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts.  Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts.  For receivables associated with services provided to patients who have third-party coverage, the Company analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary.   For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Company records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.  The difference between the standard rates (or the discounted rates, if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

The Company's allowance for doubtful accounts was 35% of net patient accounts receivable at June 30, 2012, compared to 44% of net patient accounts receivable at December 31, 2011.  The Company's writeoffs, net of recoveries were $1,180,000 and $2,086,000 for the three and six months ended June 30, 2012, respectively, compared to $1,085,000 and $1,390,000 for the same periods of 2011.  The increase in write-offs in the six month period ended June 30, 2012 was the result of writing off claims earlier in the first quarter of 2012 compared to the first quarter of 2011 based on historical collection experience.

The Company's process for determining the appropriate level of the allowance for doubtful accounts involves judgment, and considers such factors as the age of the underlying receivables, specific account reviews, historical collection experience, and other external factors that could affect the collectability of its receivables.  Revisions to the allowance for doubtful accounts are recorded as an adjustment to bad debt expense.   Accounts are written off against the allowance for doubtful accounts when they are deemed to be uncollectible.  Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts.

The Company recognizes net patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered.  For uninsured patients, the Company recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy).

Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:

(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Medicaid	$	1,512	$	1,143	$	3,090	$	2,152
Medicare		1,050		607		2,015		1,151
Blue Cross Blue Shield plans		666		840		1,222		1,425
Self-pay and other third party payors		1,377		1,251		2,715		2,348
Total net patient service revenue	$	4,605	$	3,841	$	9,042	$	7,076