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Revenue Recognition and Contractual Adjustments | 3 Months Ended
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Mar. 31, 2018
Revenue Recognition [Abstract] |
Revenue Recognition and Contractual Adjustments | Revenue Recognition and Contractual Adjustments The Company has two operating segments for which it recognizes revenue; Clinical Services and Pharma Services. Our clinical services segment provides various clinical testing services to community-based pathology practices, hospital pathology labs and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government, and patients. Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research. Clinical Services Revenue The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic equivalent. The performance obligation is satisfied and revenues are recognized once the diagnostic services have been performed and the results have been delivered to the ordering physician. These diagnostic services are billed to various payers, including Medicare, commercial insurance companies, other directly billed healthcare institutions such as hospitals and clinics, and individuals. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials. Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing for commercial insurance, Medicare and other governmental and self-pay payers and within 60 to 90 days of billing for client payers. Pharma Services Revenue The Company’s Pharma Services Division generally enters into contracts with pharmaceutical and biotech customers as well as other CROs to provide research and clinical trial services ranging in duration from one month to several years. The Company records revenue on a unit-of-service basis based on number of units completed and the total expected contract value. The total expected contract value is estimated based on historical experience of total contracted units compared to realized units as well as known factors on a specific contract-by-contract basis. Certain contracts include upfront fees, final settlement amounts or billing milestones that may not align with the completion of performance obligations. The value of these upfront fees or final settlement amounts is usually recognized over time based on the number of units completed, which aligns with the progress of the Company towards fulfilling its obligations under the contract. The Company also enters into other contracts, such as validation studies, for which the sole deliverable is a final report that is sent to sponsors at the completion of contracted activities. For these contracts, revenue is recognized at a point in time upon delivery of the final report to the sponsor. Any contracts that contain multiple performance obligations and include both units-of-service and point in time deliverables are accounted for as separate performance obligations and revenue is recognized as previously disclosed. The Company negotiates billing schedules and payment terms on a contract-by-contract basis. While the contract terms generally provide for payments based on a unit-of-service arrangement, the billing schedules, payment terms and related cash payments may not align with the performance of services and, as such, may not correspond to revenue recognized in any given period. Amounts collected in advance of services being provided are deferred as contract liabilities on the balance sheet. The associated revenue is recognized and the contract liability is reduced as the contracted services are subsequently performed. Contract assets are established for revenue that has been recognized but not yet billed. These contract assets are reduced once the customer is invoiced and a corresponding account receivable is recorded. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of the contract. Amounts capitalized for contracts with an initial contract term of twelve months or less are classified as current assets and all others are classified as non-current assets. Most contracts are terminable by the customer, either immediately or according to advance notice terms specified within the contracts. All contracts require payment of fees to the Company for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract. The following table summarizes the values of contract assets, capitalized commissions and contract liabilities as of March 31, 2018 and December 31, 2017 (in thousands):
| March 31, |  | December 31,
| 2018 |  | 2017
Current pharma contract asset | $ | 821 |  |  | $ | 541 |
Long-term pharma contract asset | 140 |  |  | 31 |
Total pharma contract asset | $ | 961 |  |  | $ | 572 |
Current pharma capitalized commissions | $ | 436 |  |  | $ | 371 |
Long-term pharma capitalized commissions | 213 |  |  | 171 |
Total pharma capitalized commissions | $ | 649 |  |  | $ | 542 |
Current pharma contract liability | $ | 2,193 |  |  | $ | 1,406 |
Long-term pharma contract liability | 522 |  |  | 283 |
Total pharma contract liability | $ | 2,715 |  |  | $ | 1,689 |
There were no significant changes to the contract assets and capitalized commissions for the three months ended March 31, 2018 and related amortization for the periods presented was not significant. Pharma contract liabilities increased $1.0 million from December 31, 2017, or 61%, primarily due to an increase in volume of Pharma contracts in process. Revenue recognized for the three months ended March 31, 2018 and March 31, 2017 related to pharma contract liability balances outstanding at the beginning of the period were $0.9 million and $0.3 million, respectively. The amount of existing performance obligations under long-term contracts as defined by ASC 606, which were unsatisfied as of March 31, 2018, was $51.1 million. We expect to recognize approximately 45% of these remaining performance obligations as revenue in the next 12 months and the balance thereafter. The Company applied the practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The unsatisfied existing performance obligations under long-term contracts as defined by ASC 606 differs from backlog in that it does not include wholly unperformed contracts where the promised consideration is variable and/or the application of other practical expedients. Disaggregation of Revenue The Company considered various factors for both its Clinical Services and Pharma Services segments in determining appropriate levels of homogenous data for its disaggregation of revenue, including the nature, amount, timing and uncertainty of revenue and cash flows. For Clinical Services, the categories identified align with our type of customer due to similarities of billing method, level of reimbursement and timing of cash receipts at this level. Pharma Services revenue was not further disaggregated as substantially all of our revenue relates to contracts with large pharmaceutical and biotech customers as well as other CROs for which the nature, timing and uncertainty of revenue and cash flows is similar and primarily driven by individual contract terms. The following table details the disaggregation of revenue for both the Clinical and Pharma Services Segments (in thousands):
|  | Three Months Ended March 31,
|  | 2018 |  | 2017
Clinical Services: |  |  |  |
Client direct billing |  | $ | 38,530 |  |  | $ | 33,630 |
Commercial Insurance |  | 10,326 |  |  | 11,436 |
Medicare and Medicaid |  | 8,084 |  |  | 7,818 |
Self-Pay |  | 31 |  |  | 22 |
Total Clinical Services |  | $ | 56,971 |  |  | $ | 52,906 |
Pharma Services: |  | 6,452 |  |  | 4,521 |
Total Revenue |  | $ | 63,423 |  |  | $ | 57,427 |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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