| Revenue Recognition | Revenue Recognition We recognize revenue in accordance with ASC 606 - Revenue from Contracts with Customers (“ ASC 606 ”), which requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration that a company expects to receive in exchange for those goods or services. Disaggregation of Revenue We disaggregate revenue from contracts with customers by payor type and major service line. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, amount, timing and uncertainty of our revenue streams. During the second quarter of 2020, we received Relief Funds distributed by HHS that represent reimbursements for a portion of our lost revenue and are recognized as other revenue in our consolidated statements of operations as cash was received and we have met the requisite funding requirements based on available guidance. Other revenue is outside of the scope of ASC 606. Disaggregated revenue by payor type and major service line was as follows: Three Months Ended September 30, 2020 Reporting Segment Corporate and Other Total (in thousands) Healthcare Research Payor/Service Line Remote cardiac monitoring services - Medicare $ 41,417 $ — $ — $ 41,417 Remote cardiac monitoring services - commercial payors 57,051 — — 57,051 Clinical trial support and related services — 12,117 — 12,117 Technology devices, consumables and related services — — 4,070 4,070 Total revenue $ 98,468 $ 12,117 $ 4,070 $ 114,655 Three Months Ended September 30, 2019 Reporting Segment Corporate and Other Total (in thousands) Healthcare Research Payor/Service Line Remote cardiac monitoring services - Medicare $ 39,537 $ — $ — $ 39,537 Remote cardiac monitoring services - commercial payors 54,336 — — 54,336 Clinical trial support and related services — 14,236 — 14,236 Technology devices, consumables and related services — — 3,182 3,182 Total revenue $ 93,873 $ 14,236 $ 3,182 $ 111,291 Nine Months Ended September 30, 2020 Reporting Segment Corporate and Other Total (in thousands) Healthcare Research Payor/Service Line Remote cardiac monitoring services - Medicare $ 114,826 $ — $ — $ 114,826 Remote cardiac monitoring services - commercial payors 154,029 — — 154,029 Clinical trial support and related services — 37,396 — 37,396 Technology devices, consumables and related services — — 10,842 10,842 Subtotal 268,855 37,396 10,842 317,093 Other revenue 9,702 — — 9,702 Total revenue $ 278,557 $ 37,396 $ 10,842 $ 326,795 Nine Months Ended September 30, 2019 Reporting Segment Corporate and Other Total (in thousands) Healthcare Research Payor/Service Line Remote cardiac monitoring services - Medicare $ 114,573 $ — $ — $ 114,573 Remote cardiac monitoring services - commercial payors 162,313 — — 162,313 Clinical trial support and related services — 41,079 — 41,079 Technology devices, consumables and related services — — 9,108 9,108 Total revenue $ 276,886 $ 41,079 $ 9,108 $ 327,073 Remote Cardiac Monitoring Services Revenue (Healthcare segment) Healthcare segment revenue is generated by remote cardiac monitoring to identify cardiac arrhythmias or heart rhythm disorders and monitoring the functionality of implantable cardiac devices. We offer cardiologists, electrophysiologists, neurologists and primary care physicians a full spectrum of solutions, which provides them with a single source of cardiac monitoring services. Performance obligations are determined based on the nature of the services provided. With our remote cardiac monitoring services, the patient receives the benefits of the service over time, resulting in revenue recognition over time based on the output method. We believe that this method provides an accurate depiction of the transfer of value over the term of the performance obligation because the level of effort in providing these services is consistent during the service period. A summary of the payment arrangements with payors is as follows: • Contracted payors (including Medicare) : We determine the transaction price based on negotiated prices for services provided, on a case rate basis, as provided for under the relevant Current Procedural Terminology (“ CPT ”) codes. • Non-contracted payors: Non-contracted commercial and government insurance carriers often reimburse out-of-network rates provided for under the relevant CPT codes on a case rate basis. Our transaction price includes implicit price concessions based on our historical collection experience for non-contracted payors. We are utilizing the portfolio approach practical expedient in ASC 606 for our payor contracts in the Healthcare segment. We account for the contracts within each portfolio as a collective group, rather than individual contracts. Based on our history with these portfolios and the similar nature and characteristics of the payors within each portfolio, we have concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis. For the contracted portfolio, we have historical experience of collecting substantially all of the negotiated contractual rates and determined at contract inception that these customers have the intention and ability to pay the promised consideration. We have also concluded that historical information is largely representative of forward-looking information. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense. For our non-contracted portfolio, we are providing an implicit price concession because we do not have a contract with the underlying payor, the result of which requires us to estimate our transaction price based on historical cash collections utilizing the expected value method. Subsequent adjustments to the transaction price are recorded as an adjustment to Healthcare segment revenue and not as credit loss expense. We have not made any significant changes to judgments in applying ASC 606 to the Healthcare segment during the three and nine months ended September 30, 2020 and 2019. Clinical Trial Support and Related Services Revenue (Research segment) Research segment revenue is generated by providing centralized core laboratory services, including cardiac monitoring, imaging services, scientific consulting and data management services for drug and medical device trials. These amounts are due from pharmaceutical companies and contract research organizations. We bill our customers on a fee-for-service basis. Under a typical contract, some customers pay us a portion of our fee upon contract execution as an upfront refundable deposit. Upfront deposits are deferred and then recognized as the services are performed. If a contract is canceled prior to service being provided, the upfront deposit is refunded. Performance obligations are determined based on the nature of the services provided. Our core laboratory services are provided over time as the customer receives benefits resulting in revenue recognition over the term of the contract. Our research customer contracts have legally enforceable terms that are predominately thirty days due to termination for convenience clauses, which are held by the customer with no significant penalty. Given the short-term nature of these contracts and the structure of our billing practices, our billing practices approximate our performance if measured by an output method, where each output is an individual occurrence of each performance obligation. Accordingly, we utilize the invoice practical expedient as defined in ASC 606, resulting in recognition of revenue in the amount that we have the right to invoice. We have historical experience of collecting substantially all of the fees for services performed and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense. We have not made any significant changes to judgments in applying ASC 606 to the Research segment during the three and nine months ended September 30, 2020 and 2019. Technology Device, Consumable and Related Service Revenue (Corporate and Other category) Our Corporate and Other category revenue is primarily derived from the sale of non-invasive cardiac monitors to healthcare companies, wireless blood glucose meters and test strips to wholesale distributors of diabetes supplies and diabetic patients, population health management products and services to patients, payors and physicians, as well as product repairs. Performance obligations are primarily the sale of devices, related goods, services and repairs provided by us. These contracts transfer control to a customer at a point in time based on the transfer of title for the underlying good or service. We provide standard warranty provisions. We determine the transaction price based on fixed consideration in our contractual agreements with our customers and allocate the transaction price to each performance obligation based on the relative stand-alone selling price. We determine the relative stand-alone selling price utilizing our observable prices for the sale of the underlying goods. We have historical experience of collecting substantially all of the transaction price and thus believe that no material loss has been incurred as of the measurement date. As such, we are not providing an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as credit loss expense. We have not made any significant changes to judgments in applying ASC 606 to the Corporate and Other category during the three and nine months ended September 30, 2020 and 2019. Contract Assets and Contract Liabilities ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer. As of September 30, 2020 and December 31, 2019, we had contract assets of $13.1 million and $15.1 million, respectively, related to cardiac monitoring services, which are included as a component of Healthcare accounts receivable on our consolidated balance sheets. As of September 30, 2020 and December 31, 2019, we also had contract assets of $1.8 million and $1.7 million, respectively, related to our Corporate and Other category revenue contracts, which are included as a component of other accounts receivable on our consolidated balance sheets. As of September 30, 2020 and December 31, 2019, we had total contract liabilities of $25.3 million and $1.6 million, respectively. Generally, our contract liabilities primarily relate to the Research segment where customers paid upfront deposits upon contract execution for future services to be performed by us; however, during the second quarter of 2020, we received and held $23.7 million of advanced payments from CMS under their Accelerated and Advance Payment Program for our future services related to our Healthcare segment, of which $16.6 million are recorded within accrued liabilities, with the remaining $7.1 million recorded as a component of other long-term liabilities. The classification of those amounts was determined by estimating the volume of newly submitted claims, which will offset the advance payments previously received, in accordance with the guidelines of the Continuing Appropriations Act, 2021 and Other Extensions Act (H.R. 8337), signed into law on October 1, 2020. In addition, we had approximately $1.5 million of Research segment upfront deposits as of September 30, 2020. If the Research contract is canceled, those upfront deposits are refundable if service was not yet provided. Our contract liabilities are included as a component of accrued liabilities on our consolidated balance sheets. For the three months ended September 30, 2020, the amount recognized as revenue from the contract liabilities balance as of June 30, 2020 was $0.8 million, while for the nine months ended September 30, 2020, the amount recognized as revenue from the contract liabilities as of December 31, 2019 was $1.2 million. Similarly, for the three months ended September 30, 2019, the amount recognized as revenue from the contract liabilities balance as of June 30, 2019 was $0.6 million, while for the nine months ended September 30, 2019, the amount recognized as revenue from the contract liabilities as of December 31, 2018 was $1.9 million. There were no significant changes or impairment losses incurred related to contract balances during the nine months ended September 30, 2020. Allowance For Credit Losses We record an allowance for credit losses based on historical collection trends, the current state of the healthcare market and current and projected future industry trends. Disaggregated allowance by portfolio was as follows: Three Months Ended September 30, 2020 Portfolio Total (in thousands) Healthcare Other Beginning balance $ 37,530 $ 542 $ 38,072 Current period credit loss expense * 6,451 14 6,465 Write-offs (6,643) — (6,643) Ending Balance $ 37,338 $ 556 $ 37,894 Nine Months Ended September 30, 2020 Portfolio Total (in thousands) Healthcare Other Beginning balance $ 31,780 $ 201 $ 31,981 Cumulative effect of change in accounting principle — 347 347 Current period credit loss expense * 18,576 75 18,651 Write-offs (13,198) (67) (13,265) Recoveries collected 180 — 180 Ending Balance $ 37,338 $ 556 $ 37,894 * formerly bad debt expense |
