Revenue recognition

On January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (Topic 606) using the cumulative effect method for those contracts that were not substantially completed as of January 1, 2018. Results for reporting periods beginning on and after January 1, 2018 are presented under Topic 606, while prior period amounts continue to be presented in accordance with the Company's historical accounting under Revenue Recognition (Topic 605).

The adoption of this new standard primarily changed the Company’s presentation of revenues, provision for uncollectible accounts and allowance for doubtful accounts. Topic 606 requires revenue to be recognized based on the Company’s estimate of the transaction price the Company expects to collect as a result of satisfying its performance obligations. Accordingly, for performance obligations satisfied after the adoption of Topic 606, the Company no longer separately presents a provision for uncollectible accounts on the consolidated income statement and no longer presents the related allowance for doubtful accounts on the consolidated balance sheet. However, as a result of the Company’s election to apply Topic 606 only to contracts not substantially completed as of January 1, 2018, the Company continues to maintain an allowance for doubtful accounts related to performance obligations satisfied prior to the adoption of Topic 606. Net collections or write-offs of accounts receivable generated prior to January 1, 2018, beyond amounts previously reserved thereon, are presented in the provision for uncollectible accounts on the consolidated income statement in accordance with Topic 605.

The Company’s allowance for doubtful accounts related to performance obligations satisfied prior to the adoption of Topic 606 was $71,108 and $218,399 as of September 30, 2018 and December 31, 2017, respectively.

There are significant risks associated with estimating revenue, which generally take several years to resolve. These estimates are subject to ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, as well as patient issues including determining applicable primary and secondary coverage, changes in patient coverage and coordination of benefits. As these estimates are refined over time, both positive and negative adjustments to revenue are recognized in the current period. As a result of changes in these estimates, additional revenue was recognized during the three and nine months ended September 30, 2018 associated with performance obligations satisfied in years prior to the adoption of Topic 606 of $1,246 and $77,473, respectively, which includes a benefit of $36,000 for the nine months ended September 30, 2018 from electing to apply Topic 606 only to contracts not substantially completed as of January 1, 2018.

The following table summarizes the Company's segment revenues by primary payor source:



	For the three months ended
	September 30, 2018									September 30, 2017⁽¹⁾
	U.S. dialysis and related lab services			Other - Ancillary services and strategic initiatives			Consolidated			U.S. dialysis and related lab services			Other - Ancillary services and strategic initiatives			Consolidated
Patient service revenues:
Medicare and Medicare Advantage	$	1,513,191		$			$	1,513,191		$	1,338,155		$			$	1,338,155
Medicaid and Managed Medicaid	159,165						159,165			155,113						155,113
Other government	113,043			80,915			193,958			89,243			72,681			161,924
Commercial	786,470			31,364			817,834			783,171			17,334			800,505
Other revenues:
Medicare and Medicare Advantage				130,746			130,746						232,251			232,251
Medicaid and Managed Medicaid				12,042			12,042						17,142			17,142
Commercial				20,205			20,205						27,222			27,222
Other⁽²⁾	4,932			29,042			33,974			4,792			47,438			52,230
Eliminations of intersegment revenues	(25,424		)	(8,361		)	(33,785		)	(13,475		)	(5,996		)	(19,471		)
Total	$	2,551,377		$	295,953		$	2,847,330		$	2,356,999		$	408,072		$	2,765,071


(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. In this table, the Company's dialysis and related lab services revenues for the three months ended September 30, 2017 has been presented net of the provision for uncollectible accounts of $119,321 to conform to the current period presentation.


(2)	Other consists of management fees and revenue from the Company's ancillary services and strategic initiatives.



	For the nine months ended
	September 30, 2018									September 30, 2017⁽¹⁾
	U.S. dialysis and related lab services			Other - Ancillary services and strategic initiatives			Consolidated			U.S. dialysis and related lab services			Other - Ancillary services and strategic initiatives			Consolidated
Patient service revenues:
Medicare and Medicare Advantage	$	4,524,449		$			$	4,524,449		$	3,924,255		$			$	3,924,255
Medicaid and Managed Medicaid	466,948						466,948			450,984						450,984
Other government	330,500			250,048			580,548			271,947			183,050			454,997
Commercial	2,366,182			70,156			2,436,338			2,304,745			46,537			2,351,282
Other revenues:
Medicare and Medicare Advantage				427,532			427,532						682,964			682,964
Medicaid and Managed Medicaid				43,991			43,991						54,757			54,757
Commercial				77,633			77,633						79,241			79,241
Other⁽²⁾	14,965			103,014			117,979			14,951			139,337			154,288
Eliminations of intersegment revenues	(63,943		)	(27,748		)	(91,691		)	(38,559		)	(18,488		)	(57,047		)
Total	$	7,639,101		$	944,626		$	8,583,727		$	6,928,323		$	1,167,398		$	8,095,721


(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. In this table, the Company's dialysis and related lab services revenues for the nine months ended September 30, 2017 has been presented net of the provision for uncollectible accounts of $335,979 to conform to the current period presentation.


(2)	Other consists of management fees and revenue from the Company's ancillary services and strategic initiatives.

Dialysis and related lab patient service revenues

Dialysis and related lab services patient service revenues are recognized in the period services are provided. Revenues consist primarily of payments from Medicare, Medicaid and commercial health plans for dialysis and related lab services provided to patients. A usual and customary fee schedule is maintained for the Company’s dialysis treatments and related lab services; however, actual collectible revenue is normally recognized at a discount from the fee schedule.

Revenues associated with Medicare and Medicaid programs are estimated based on: (a) the payment rates that are established by statute or regulation for the portion of payment rates paid by the government payor (e.g., 80% for Medicare patients) and (b) for the portion not paid by the primary government payor, estimates of the amounts ultimately collectible from other government programs paying secondary coverage (e.g., Medicaid secondary coverage), the patient’s commercial health plan secondary coverage, or the patient. The Company’s reimbursements from Medicare are subject to certain variations under Medicare’s single bundled payment rate system, whereby reimbursements can be adjusted for certain patient characteristics and other factors. The Company’s revenue recognition is estimated based on its judgment regarding its ability to collect, which depends upon its ability to effectively capture, document and bill for Medicare’s base payment rate as well as these other variable factors.

Under Medicare’s bundled payment rate system, services covered by Medicare are subject to estimating risk, whereby reimbursements from Medicare can vary significantly depending upon certain patient characteristics and other variable factors. Even with the bundled payment rate system, Medicare payments for bad debt claims as established by cost reports require evidence of collection efforts. As a result, billing and collection of Medicare bad debt claims can be delayed significantly and final payment is subject to audit.

Medicaid payments, when Medicaid coverage is secondary, can also be difficult to estimate. For many states, Medicaid payment terms and methods differ from Medicare, and may prevent accurate estimation of individual payment amounts prior to billing.

Revenues associated with commercial health plans are estimated based on contractual terms for the patients under healthcare plans with which the Company has formal agreements, non-contracted health plan coverage terms if known, estimated secondary collections, historical collection experience, historical trends of refunds and payor payment adjustments (retractions), inefficiencies in the Company’s billing and collection processes that can result in denied claims for payments, and regulatory compliance matters.

Commercial revenue recognition also involves significant estimating risks. With many larger, commercial insurers the Company has several different contracts and payment arrangements, and these contracts often include only a subset of the Company’s centers. In certain circumstances, it may not be possible to determine which contract, if any, should be applied prior to billing. In addition, for services provided by non-contracted centers, final collection may require specific negotiation of a payment amount, typically at a significant discount from the Company’s usual and customary rates.

Other revenues

Other revenues consist of the revenues associated with the ancillary services and strategic initiatives, management and administrative support services that are provided to outpatient dialysis centers that the Company does not own or in which the Company owns a noncontrolling interest, and administrative and management support services to certain other non-dialysis joint ventures in which the Company owns a noncontrolling interest. Revenues associated with pharmacy services are estimated as prescriptions are filled and shipped to patients. Revenues associated with dialysis management services, disease management services, clinical research programs, physician services, end stage renal disease (ESRD) seamless care organizations, and comprehensive care are estimated in the period services are provided. Revenues associated with direct primary care are estimated over the membership period.