Question-and-Answer Session
Operator
(Operator instructions) Our first question is coming from Bob Labick with CJS Securities.
Bob Labick - CJS Securities
Good morning.
Steve Zarrilli
Hi Bob.
Bob Labick - CJS Securities
Hi. I recognized that you have just mentioned you had a very long 90-minute call for Clarient last night. I was hoping to ask a quick question to kind of summarize that call if you could help us understand, it sounds like there was a change in the reimbursement rate recognition. If you could elaborate on the changes made and just tell us has everything been done now, is it behind them and what kind of impact did the changes or will the changes made have on a go-forward growth or collections for the company?
Peter Boni
Okay, thanks Bob for the question. Steve, would you take that one?
Steve Zarrilli
Sure. So Bob, it really was more of a refinement of their processes internally and looking at data that had now become available to them through the further sophistication of their billing system, that allows them to look at two things
a, what has been the historical track record of cash collections for certain payor groups and, b, that cash collection history, how was it to be used in estimating future potential non-collectible scenarios within the existing receivables that they had.
The revenue adjustment that Clarient spoke to last night was the result of a change in estimate and that change in estimate was basically the reversal of approximately $1.9 million worth of revenue, which represented revenue that had accumulated over the course of about three to four quarters wherein management looked at the cash collections related to certain payors and made a determination that that revenue probably should be recognized when received rather than when the services are billed. And they are going to use that history now going forward to apply the same principles on a quarter-by-quarter basis.
So our expectations based upon our in-depth conversations with management is that the volatility that you saw in this quarter should not continue to persist in future quarters and the primary reason being they are now in a position with 15 months of historical data to be able to apply this precision, if you will, to both their revenue recognition and their bad debt allowance in a way that they have never really had the opportunity to in the past, especially when you think about the world that Clarient lived in when they were completely outsourcing their billion in collection processes. So, they are better shaped with better information with the ability to now look at both revenue recognition and bad debt allowances at a level of detail that they have not had available to them in the past.
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