Revenue Recognition and Contractual Adjustments

6 Months Ended

Apr. 30, 2015

Revenue Recognition and Contractual Adjustments

Revenue Recognition and Contractual Adjustments

[4] Revenue Recognition and Contractual Adjustments

Service revenues are principally generated from laboratory testing services including chemical diagnostic tests such as blood analysis, urine analysis and genetic testing among others. Service revenues are recognized at the time the testing services are performed and are reported at their estimated net realizable amounts.

Service revenues before provision for bad debts are determined utilizing gross service revenues net of contractual adjustments and discounts. Even though it is the responsibility of the patient to pay for laboratory service bills, most individuals in the United States have an agreement with a third party payor such as Medicare, Medicaid or a commercial insurance provider to pay all or a portion of their healthcare expenses; the majority of services provided by BRLI are to patients covered under a third party payor contract. In certain cases, the individual has no insurance or does not provide insurance information and in other cases tests are performed under contract to a professional organization (such as physicians, hospitals, and clinics) which reimburse BRLI directly; in the remainder of the cases, BRLI is provided the third party billing information and seeks payment from the third party under the terms and conditions of the third party payor for health service providers like BRLI. Each of these third party payors may differ not only with regard to rates, but also with regard to terms and conditions of payment and providing coverage (reimbursement) for specific tests. Estimated revenues are established based on a series of highly complex procedures and judgments that require industry specific healthcare experience and an understanding of payor methods and trends. We review our calculations on a monthly basis in order to make certain that we are properly allowing for the uncollectable portion of our gross billings due to the contractual adjustments and discounts and that our estimates remain sensitive to variances and changes within our payor groups. The contractual allowance calculation is made on the basis of historical allowance rates for the various specific payor groups on a monthly basis with a greater weight being given to the most recent trends; this process is adjusted based on recent changes in underlying contract provisions and shifts in the testing being performed. This calculation is routinely analyzed by BRLI on the basis of actual allowances issued by payors and the actual payments made to determine what adjustments, if any, are needed. The table below shows the adjustments made to gross service revenues to arrive at net revenues, the amount reported on our statement of operations.

	($)
	Three Months Ended		Six Months Ended
	April 30,		April 30,
	[Unaudited]		[Unaudited]
	2015	2014	2015	2014
Gross Service Revenues	1,175,282	1,017,621	2,240,575	1,927,499

Contractual Adjustments and Discounts:
Medicare/Medicaid Portion	101,262	94,520	195,325	183,439
All Other Third Party Payors*	838,004	706,234	1,587,205	1,330,379
Total Contractual Adjustments and Discounts	939,266	800,754	1,782,530	1,513,818
Service Revenues Net of Contractual Adjustments and Discounts	236,016	216,867	458,045	413,681
Patient Service Revenue Provision for Bad Debts**	12,030	15,501	25,225	31,046
Net Revenues	223,986	201,366	432,820	382,635

* All Other Third Party and Direct Payors consists of almost eight hundred distinct payors, including commercial health insurers and administrators as well as professionally billed accounts such as physicians, hospitals, clinics and other direct billed accounts.

** Represents the amount of Bad Debt Expense that is required to be presented as a deduction from patient service revenue (net of contractual allowances and discounts) pursuant to ASU No. 2011-7.

When new business is received by BRLI, service revenues net of contractual adjustments and discounts are calculated by reducing gross service revenues by the estimated contractual allowance. The Patient Service Revenue Provision for Bad Debts represents the amount of bad debt expense expected to occur on patient service revenue based upon our experience. The remaining bad debt expense is presented as part of operating expenses. The bad debt expense presented as part of operating expense represents the bad debt expense related to receivables from service revenues determined after taking into account our ability to collect on such revenue.

BRLI recognized the amounts in subsequent periods for actual allowances/discounts to gross service revenue; bad debt may have been adjusted over the same periods of time to maintain an accurate balance between net revenues and actual revenues. Management has reviewed the allowances/discounts recognized in subsequent periods and believes the amounts to be immaterial. A number of proposals for legislation or regulation continue to be under discussion which could have the effect of substantially reducing Medicare reimbursements for clinical laboratories or introducing cost sharing to beneficiaries. One such legislation is Protecting Access to Medicare Act of 2014 (Public Law 113—93)(“PAMA”) was signed into law on April 1, 2014. The legislation directed CMS to conduct a market survey and to determine whether Medicare is reimbursing at a commercially reasonable rates. To date, CMS has fallen behind the schedule legislated in PAMA. As the result, the current reimbursement rates remain unchanged, subject to typical annual reviews, until 2017.

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