Note 7. – Revenue Recognition and Accounts Receivables

The Company’s subsidiaries recognize revenues in the period in which services are provided. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s subsidiaries’ ability to collect outstanding receivables is critical to their results of operations and cash flows. Amounts the Company’s subsidiaries receive for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”) and other private insurers are generally less than the Company’s subsidiaries’ established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future an allowance for doubtful accounts is established to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the accompanying unaudited condensed consolidated financial statements are recorded at the net amount expected to be received.

Revenues by payor were as follows for the three and nine months ended March 31, 2018 and 2017:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017
Healthcare Facilities Segment:
Medicare	$	2,485		$	2,079		$	7,167		$	6,447
Medicaid		2,091			2,285			6,328			7,185
Self-pay		91			86			532			356
Managed Care & Other Insurance		793			871			2,278			2,248
Other		330			364			1,091			1,139

Revenues before provision for doubtful accounts		5,790			5,685			17,396			17,375
Provision for doubtful accounts		(133	)		(184	)		(363	)		(321	)

Healthcare Facilities Segment Net Revenues		5,657			5,501			17,033			17,054
Pharmacy Segment Net Revenues		7,760			8,198			23,625			23,946

Total Net Revenues	$	13,417		$	13,699		$	40,658		$	41,000

The net revenues of the Pharmacy Segment are presented net of contractual adjustments. The provision for bad debts of the Pharmacy Segment is presented as a component of operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss).

Summary information for accounts receivable is as follows:


	March 31, 2018			June 30, 2017
Accounts receivable (net of contractual allowances)	$	6,453		$	6,458
Less allowance for doubtful accounts		(569	)		(552	)

Patient accounts receivable – net	$	5,884		$	5,906

The following is a summary of the activity in the allowance for doubtful accounts for the Healthcare Services Segment and the Pharmacy Segment for the three and nine months ended March 31, 2018 and 2017:


	Healthcare Services			Pharmacy			Total
Three Months Ended March 31, 2018
Balance at January 1, 2018	$	326		$	219		$	545
Additions recognized as a reduction to revenues:
Continuing Operations		133			237			370
Discontinued Operations		(4	)		0			(4	)
Accounts written off, net of recoveries		(82	)		(260	)		(342	)

Balance at March 31, 2018	$	373		$	196		$	569


	Healthcare Services			Pharmacy			Total
Nine Months Ended March 31, 2018
Balance at July 1, 2017	$	328		$	224		$	552
Additions recognized as a reduction to revenues:
Continuing Operations		363			445			808
Discontinued Operations		2			0			2
Accounts written off, net of recoveries		(320	)		(473	)		(793	)

Balance at March 31, 2018	$	373		$	196		$	569


	Healthcare Services			Pharmacy			Total
Three Months Ended March 31, 2017
Balance at January 1, 2017	$	332		$	400		$	732
Additions recognized as a reduction to revenues:
Continuing Operations		184			126			310
Discontinued Operations		(14	)		0			(14	)
Accounts written off, net of recoveries		(180	)		(138	)		(318	)

Balance at March 31, 2017	$	322		$	388		$	710


	Healthcare Services			Pharmacy			Total
Nine Months Ended March 31, 2017
Balance at July 1, 2016	$	624		$	367		$	991
Additions recognized as a reduction to revenues:
Continuing Operations		321			342			663
Discontinued Operations		378			0			378
Accounts written off, net of recoveries		(1,001	)		(321	)		(1,322	)

Balance at March 31, 2017	$	322		$	388		$	710

New Accounting Pronouncement for Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which outlines a single comprehensive model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. This ASU provides companies the option of applying a full or modified retrospective approach upon adoption. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The Company expects to adopt this ASU on July 1, 2018 and is currently implementing its plan for adoption and evaluating the impact on its revenue recognition policies, procedures and control framework and the resulting impact on its consolidated financial position, results of operations and cash flows. A significant element of executing this plan is the process of reviewing sources of revenue and evaluating the patient account population to determine the appropriate distribution of patient accounts into portfolios with similar collection experience that, when evaluated for collectability, will result in a materially consistent revenue amount for such portfolios as if each patient account was evaluated on a contract-by-contract basis. The Company is currently evaluating the appropriate portfolios to apply in its collectability analysis and is considering the impact of applying the new standard when its patient accounts are evaluated in those portfolios. The Company expects this process will be completed later in 2018.

Additionally, the adoption of the new accounting standard will impact the presentation on the Company’s statement of operations for a significant component of its provision for bad debts. After adoption of the new standard, the majority of what is currently classified as the provision for bad debts will be reflected as an implicit price concession as defined in the standard and therefore an adjustment to net patient revenue. The Company will continue to evaluate certain changes in collectability on its self-pay patient accounts receivable resulting from certain credit and collection issues not assessed at the date of service, including bankruptcy, and recognize such amounts in the provision for bad debts included in operating expenses on the statement of operations. The Company cannot reasonably estimate at this time the quantitative impact that the adoption of this accounting standard will have on the financial statements of the Company.