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 $110,962 and $218,399 as of June 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 six months ended June 30, 2018 associated with performance obligations satisfied in years prior to the adoption of Topic 606 of $8,817 and $76,227, respectively, which includes a benefit of $12,000 and $36,000 for those respective periods 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
	June 30, 2018									June 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	$	1,526,066		$			$	1,526,066		$	1,313,504		$			$	1,313,504
Medicaid and Managed Medicaid	150,288						150,288			151,286						151,286
Other government	110,338			86,530			196,868			90,712			62,604			153,316
Commercial	796,732			19,139			815,871			764,864			15,324			780,188
Other revenues:
Medicare and Medicare Advantage				154,028			154,028						225,511			225,511
Medicaid and Managed Medicaid				16,158			16,158						19,020			19,020
Commercial				17,006			17,006						26,812			26,812
Other⁽²⁾	4,919			35,034			39,953			4,849			44,322			49,171
Eliminations of intersegment revenues	(20,096		)	(9,189		)	(29,285		)	(13,285		)	(6,124		)	(19,409		)
Total	$	2,568,247		$	318,706		$	2,886,953		$	2,311,930		$	387,469		$	2,699,399


(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. The Company's dialysis and related lab services revenues for the three months ended June 30, 2017 has been presented net of the provision for uncollectible accounts of $109,600 in this table 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 six months ended
	June 30, 2018									June 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	$	3,011,258		$			$	3,011,258		$	2,586,100		$			$	2,586,100
Medicaid and Managed Medicaid	307,783						307,783			295,871						295,871
Other government	217,458			169,068			386,526			182,704			110,366			293,070
Commercial	1,579,711			38,857			1,618,568			1,521,574			29,206			1,550,780
Other revenues:
Medicare and Medicare Advantage				296,786			296,786						450,713			450,713
Medicaid and Managed Medicaid				31,949			31,949						37,615			37,615
Commercial				57,427			57,427						52,020			52,020
Other⁽²⁾	10,033			73,973			84,006			10,159			91,899			102,058
Eliminations of intersegment revenues	(38,519		)	(19,387		)	(57,906		)	(25,084		)	(12,493		)	(37,577		)
Total	$	5,087,724		$	648,673		$	5,736,397		$	4,571,324		$	759,326		$	5,330,650


(1)	As noted above, prior period amounts have not been adjusted under the cumulative effect method. The Company's dialysis and related lab services revenues for the six months ended June 30, 2017 has been presented net of the provision for uncollectible accounts of $216,658 in this table 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 patient 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, medical consulting 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.