Post-effective amendment to a registration statement that is not immediately effective upon filing

Significant Accounting Policies (Policies)

v3.22.2.2
Significant Accounting Policies (Policies)
6 Months Ended 11 Months Ended 12 Months Ended
Jun. 30, 2022
Dec. 02, 2021
Dec. 31, 2021
Management's Use of Estimates  

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the private warrant liabilities. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.

 
Earnings (Loss) per Share and Member Unit  

Net Loss Per Common Share

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share.

The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 10,819,167 shares in the calculation of diluted loss per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.

The following table reflects the calculation of basic and diluted net loss per common share (in dollars, except per share amounts):

For the Period from

 

For the Period from January 1,

 

August 20, 2020 (Inception)

 

2021 through

 

through

 

December 2, 2021

 

December 31, 2020

    

Class A

    

Class B

    

Class A

    

Class B

Basic and diluted net loss per common stock

 

  

 

  

 

  

 

  

Numerator:

 

  

 

  

 

  

 

  

Allocation of net loss, as adjusted

$

(24,805,124)

$

$

$

(2,286)

Denominator:

 

  

 

  

 

  

 

  

Basic and diluted weighted average stock outstanding

 

29,692,013

 

 

 

6,875,000

Basic and diluted net loss per common stock

$

(0.84)

$

$

$

(0.00)

 
Fair Value Measurements  

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

 
P3 Health Partners Inc.      
Principles of Consolidation

Principles of Consolidation

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company, and its subsidiaries, all of which are controlled by the Company through majority voting control, and variable interest entities for which the Company is the primary beneficiary. As more fully described in Note 25 “Variable Interest Entities”, the Company is the primary beneficiary of the following physician practices (“Network”):

Kahan, Wakefield, Abdou, PLLC (“KWA”)
Bacchus, Wakefield, Kahan, PC (“BACC”)
P3 Health Partners Professional Services PC
P3 Medical Group, P.C.
P3 Health Partners California, P.C.

All intercompany accounts and transactions have been eliminated in consolidation.

 

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company, and its subsidiaries, all of which are controlled by the Company through majority voting control and variable interest entities for which the Company is the primary beneficiary. As more fully described in Note 28 “Variable Interest Entities”, the Company is the primary beneficiary of the following physician practices (the “Network”):

Kahan, Wakefield, Abdou, PLLC (“KWA”)
Bacchus, Wakefield, Kahan, PC (“BACC”)
P3 Health Partners Professional Services, P.C.
P3 Medical Group, P.C.
P3 Health Partners California, P.C.

All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities ("VIE" or "VIEs")

Variable Interest Entities (“VIE” or “VIEs”)

Management analyzes whether the Company has any financial interests in VIEs. This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), requires a reporting entity to consolidate a VIE when that reporting entity has a variable interest that provides it with a controlling financial interest in the VIE. The entity which consolidates a VIE is referred to as the primary beneficiary of the VIE. See Note 25 “Variable Interest Entities”.

 

Variable Interest Entities (“VIE” or “VIEs”)

Management analyzes whether the Company has any financial interests in VIEs. This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. ASC 810, requires a reporting entity to consolidate a VIE when that reporting entity has a variable interest that provides it with a controlling financial interest in the VIE. The entity which consolidates a VIE is referred to as the primary beneficiary of the VIE. See Note 28 “Variable Interest Entities”.

Segment Reporting

Segment Reporting

The Company presents the financial statements by segment in accordance with ASC Topic No. 280, Segment Reporting (“ASC 280”) to provide investors with transparency into how the chief operating decision maker (“CODM”) manages the business. The Company determined the CODM is its Chief Executive Officer. The Company’s CODM manages the operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess overall corporate profitability based on consolidated revenues

and adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as defined in the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company has one reportable segment, which reflects how the CODM manages the Company.

 

Segment Reporting

The Company presents the financial statements by segment in accordance with Accounting Standard Codification Topic No. 280, Segment Reporting (“ASC 280”) to provide investors with transparency into how the chief operating decision maker (“CODM”) manages the business. The Company determined the CODM is its Chief Executive Officer. The Company’s CODM manages the operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess overall corporate profitability based on consolidated revenues and adjusted EBITDA, as described further in Note 25 “Segment Reporting.” The Company has one reportable segment.

Management's Use of Estimates

Management’s Use of Estimates

Preparation of these condensed consolidated financial statements and accompanying footnotes, in conformity with U.S. GAAP, requires Management to make estimates and assumptions that could affect amounts reported here. Management bases its estimates on the best information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of COVID 19. See Note 23 “Commitments and Contingencies” for further discussion on the impact of COVID-19.

The areas where significant estimates are used in these accompanying condensed consolidated financial statements include revenue recognition, the liability for unpaid claims, unit-based and share-based compensation, premium deficiency reserves (“PDR”), fair value and impairment recognition of long-lived assets (including intangibles and goodwill), fair value of acquired assets and liabilities in Business Combinations, fair value of liability classified instruments and judgments related to deferred income taxes. Actual results could differ from those estimates.

 

Management’s Use of Estimates

Preparation of these consolidated financial statements and accompanying footnotes, in conformity with GAAP, requires Management to make estimates and assumptions that could affect amounts reported here. Management bases its estimates on the best information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of COVID-19. See Note 26 “Commitments and Contingencies” for further discussion on the impact of COVID-19.

The areas where significant estimates are used in these accompanying consolidated financial statements include revenue recognition, the liability for unpaid claims, unit-based compensation, premium deficiency reserves, fair value and impairment recognition of long-lived assets (including intangibles and goodwill), fair value of acquired assets and liabilities in business combinations, share-based compensation, fair value of liability classified instruments and judgments related to deferred income taxes. Actual results could differ from those estimates.

Earnings (Loss) per Share and Member Unit

Earnings (Loss) per Share and Member Unit

Basic and diluted net loss per share attributable to common stockholders in the Successor Period is presented in conformity with the two-class method required for participating securities. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of Public Warrants, Private Placement Warrants, restricted shares and escrow shares. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

The Company analyzed the calculation of net loss per member unit for the Predecessor Period and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, net loss per member unit information has not been presented for the Predecessor Periods.

 

Earnings (Loss) per Share and Member Unit

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of Public Warrants, Private Placement Warrants, restricted shares and escrow shares. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

The Company analyzed the calculation of net loss per member unit for Predecessor Periods and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, net loss per member unit information has not been presented for Predecessor Periods.

Cash and Restricted Cash

Cash and Restricted Cash

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at banks. Accounts at each institution are insured up to $250,000 by the Federal Deposit Insurance Corporation (“FDIC”). At June 30, 2022 and December 31, 2021, the Company maintained its cash in bank deposit accounts that, at times, may have exceeded FDIC insured limits. Management does not expect any losses to occur on such accounts.

At June 30, 2022 and December 31, 2021, the Company had unrestricted cash of $63,145,379 and $140,477,586, respectively, deposited at banking institutions which are subject to the FDIC insured limit.

Successor

    

June 30, 2022

    

December 31, 2021

Unrestricted

$

63,145,379

$

140,477,586

Restricted

 

753,920

 

356,286

Total Cash Balances

$

63,899,299

$

140,833,872

Restricted Cash is that which is held for a specific purpose (such as payment of partner distributions and legal settlements) and is thus not available to the Company for immediate or general business use. Restricted Cash appears as a separate line item on the Company’s condensed consolidated balance sheets.

The following table provides a reconciliation of cash and restricted cash reported on the condensed consolidated balance sheet at June 30, 2021, that sum to the total of these items reported in the condensed consolidated statements of cash flows.

Predecessor

    

June 30, 2021

Unrestricted

$

16,322,893

Restricted

 

223,872

Total Cash Balances

$

16,546,765

 

Cash and Restricted Cash

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at banks. Accounts at each institution are insured up to $250,000 by the Federal Deposit Insurance Corporation (“FDIC”). In 2021 and

2020, the Company maintained its cash in bank deposit accounts that, at times, may have exceeded FDIC insured limits. Management does not expect any losses to occur on such accounts.

At December 31, 2021 and 2020, the Company had unrestricted cash of $140,477,586 and $36,261,104, respectively, deposited at banking institutions which are subject to the FDIC insured limit.

Successor

  

  

Predecessor

December 31, 

December 31, 

    

2021

  

  

2020

Checking

$

140,477,586

$

36,261,104

Restricted

 

356,286

 

3,641,843

Total Cash Balances

$

140,833,872

$

39,902,947

Restricted Cash is that which is held for a specific purpose (such as payment of partner distributions and legal settlements) and is thus not available to the Company for immediate or general business use. Restricted Cash appears as a separate line item on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash and restricted cash on the balance sheet of the predecessor period at December 2, 2021, December 31, 2020, and December 31, 2019 that sum to the total of these items reported in the statement of cash flows.

Predecessor

December 2,

December 31,

December 31,

    

2021

    

2020

    

2019

Checking

$

5,300,842

$

36,261,104

$

32,592,496

Restricted

 

54,095

 

3,641,843

 

312,352

Total Cash Balances

$

5,354,937

$

39,902,947

$

32,904,848

Revenue Recognition and Revenue Sources

Revenue Recognition and Revenue Sources

The Company categorizes revenue based on various factors such as the nature of contracts and order to billing arrangements as follows:

Successor

Predecessor

 

 

 

Three Months Ended

Three Months Ended

June 30, 2021

Revenue Type

    

June 30, 2022

    

% of Total

    

    

(As Restated)

    

% of Total

Capitated Revenue

$

267,102,466

 

99.1

%  

$

141,560,867

 

97.9

%

Other Patient Service Revenue:

 

  

 

  

 

  

 

  

Clinical Fees & Insurance Revenue

 

264,624

 

0.1

%  

 

1,286,863

 

0.9

%

Shared Risk Revenue

 

55,154

 

0.0

%  

 

202,011

 

0.1

%

Care Coordination / Management Fees

 

762,067

 

0.3

%  

 

971,605

 

0.7

%

Incentive Fees

 

1,269,660

 

0.5

%  

 

565,098

 

0.4

%

Total Other Patient Service Revenue

 

2,351,505

 

0.9

%  

 

3,025,577

 

2.1

%

Total Revenue

$

269,453,971

 

100

%  

$

144,586,444

 

100

%

Successor

Predecessor

 

 

  

  

Six Months Ended

Six Months Ended

June 30, 2021

Revenue Type

    

June 30, 2022

    

% of Total

    

(As Restated)

    

% of Total

Capitated Revenue

$

536,787,281

 

98.9

%  

$

290,525,057

 

98.2

%

Other Patient Service Revenue:

 

  

 

  

 

Clinical Fees & Insurance Revenue

 

2,146,877

 

0.4

%  

 

2,108,627

 

0.7

%

Shared Risk Revenue

 

55,154

 

0.0

%  

 

202,011

 

0.1

%

Care Coordination / Management Fees

 

2,683,173

 

0.5

%  

 

1,848,400

 

0.6

%

Incentive Fees

 

1,325,820

 

0.2

%  

 

1,200,291

 

0.4

%

Total Other Patient Service Revenue

 

6,211,024

 

1.1

%  

 

5,359,329

 

1.8

%

Total Revenue

$

542,998,305

 

100

%  

$

295,884,386

 

100

%

The following table depicts the health plans from which the Company has a concentration of revenue that is 10.0% or more:

Successor

Predecessor

 

 

  

  

Three Months Ended

Three Months Ended

June 30, 2021

Plan Name

    

June 30, 2022

    

% of Total

    

    

(As Restated)

    

% of Total

Health Plan C

$

54,392,897

 

20.2

%  

$

18,412,847

 

12.7

%

Health Plan B

 

45,818,789

 

17.0

%  

 

33,449,667

 

23.2

%

Health Plan A

 

48,047,307

 

17.8

%  

 

39,119,191

 

27.1

%

Health Plan D

 

36,013,196

 

13.4

%  

 

27,231,621

 

18.8

%

All Other

 

85,181,782

 

31.6

%  

 

26,373,118

 

18.2

%

Total Revenue

$

269,453,971

 

100

%  

$

144,586,444

 

100

%

Successor

Predecessor

 

 

 

Six Months Ended

Six Months Ended

June 30, 2021

Plan Name

    

June 30, 2022

    

% of Total

  

    

(As Restated)

    

% of Total

Health Plan C

$

109,714,073

 

20.2

%  

$

37,693,084

 

12.7

%

Health Plan B

 

93,838,172

 

17.3

%  

 

67,034,039

 

22.7

%

Health Plan A

 

93,285,372

 

17.2

%  

 

77,813,676

 

26.3

%

Health Plan D

 

72,876,157

 

13.4

%  

 

54,925,880

 

18.6

%

All Other

 

173,284,531

 

31.9

%  

 

58,417,707

 

19.7

%

Total Revenue

$

542,998,305

 

100

%  

$

295,884,386

 

100

%

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity’s performance obligation is complete, and revenue is earned, upon the transfer of a promise to deliver services to customers commensurate with consideration to which it would expect to be received in exchange for the actual delivery of those services. The terms of the contract and all relevant facts and circumstances should be considered when applying this guidance. This includes application of a practical expedient (a “portfolio approach”) to contracts with similar characteristics and circumstances. Specific revenue streams are described in more detail below.

Capitated Revenue

The Company contracts with health plans using an at-risk (shared savings) model. Under the at-risk model, the Company is responsible for the cost of all covered services provided to members assigned by the health plans to the Company in exchange for a fixed premium payment, which generally is a percentage of the payment based on health plans’ premiums received from CMS. Through this capitation arrangement, the Company stands ready to provide assigned Medicare Advantage beneficiaries all their medical care via the Company’s directly employed and affiliated physician/specialist network.

The premiums health plans receive are determined via a competitive bidding process with CMS and are based on the costs of care in local markets and the average utilization of services by patients enrolled. Medicare pays capitation using a “risk adjustment model”, which compensates providers based on the health status (acuity) of each individual patient. Medicare Advantage plans with higher acuity patients receive higher premiums. Conversely, Medicare Advantage plans with lower acuity patients receive lesser premiums. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after final data is compiled. The Company generally estimates transaction prices using the most likely methodology. Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is, furthermore, resolved. In certain contracts, PMPM fees also include adjustments for items such as performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors.

Capitated revenues are recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g. month) and is recognized net of projected acuity adjustments and performance incentives or penalties as Management cannot reasonably estimate the ultimate PMPM payment of those contracts. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term. The capitation amount is subject to possible

retroactive premium risk adjustments based on the member’s individual acuity. There were no premium risk adjustments recorded in 2021 or the first two quarters in 2022 as related to prior years. As the period between the time of service and time of payment is typically one year or less, Management elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care. The combination of those services is offered as one “single solution” (“bundle”). Capitation contracts have a single performance obligation that is a stand ready obligation to perform healthcare services to the population of enrolled members and constitutes a series for the provision of managed healthcare services for the term of the contract, which is deemed to be one month since the mix of patients-customers can change month over month. The Company does not offer nor price each individual function as a standalone a la carte service to health plans. However, the addition or exclusion of certain services may be negotiated and reflected in each health plan’s specific total percent of the premium (“POP”).

At June 30, 2022 and December 31, 2021, the Company had POP contracts in effect with 20 health plans (across 5 states) and 17 health plans (across 4 states), respectively.

Each month, in accordance with contractual obligations (for non-delegated health plans; e.g. - those for which the Company has not been delegated for claims processing), each plan funds a medical claims payment reserve equal to a defined percentage of premium attributable to members assigned to the Company. In turn, the Company administers and funds medical claims for contractually covered services, for assigned health plan members, from that health plan’s reserve. On a quarterly or monthly basis, health plans conduct a settlement of the reserve to determine any surplus or deficit amount. The reconciliation and distribution of the reserve occur within 120 days following the end of each quarter. An annual settlement reconciliation and distribution from all funds occurs within twenty-one months following each year-end.

At June 30, 2022, and December 31,2021, health plan receivables  and health plan settlement payables , by health plan, by year, were as follows:

    

Health Plan Receivables

Successor

June 30, 2022

December 31, 2021

Health Plan A

$

4,296,896

$

4,695,712

Health Plan B

 

24,371,497

 

15,473,828

Health Plan C

 

32,543,742

 

1,380,752

Health Plan D

 

13,749,578

 

6,651,586

Health Plan E

 

517,654

 

2,439,046

Health Plan F

 

1,435,258

 

2,925,751

Health Plan G

 

19,890

 

239,375

Health Plan H

 

3,795,423

 

2,185,619

Health Plan I

 

1,504,353

 

1,134,750

Health Plan J

 

317,704

 

149,915

Health Plan K

 

666,312

 

2,705,147

Health Plan L

 

260,317

 

899,560

Health Plan M

 

3,310,581

 

1,747,116

Health Plan N

 

1,596,377

 

974,092

Health Plan O

 

2,696,375

 

666,291

Health Plan P

 

415,688

 

106,162

Health Plan Q

 

351,090

 

61,990

Health Plan R

 

4,426,655

 

3,578,682

Health Plan S

 

600,639

 

Health Plan T

 

2,198,285

 

2,175,324

Health Plan U

 

723,797

 

60,306

Health Plan W

 

8,299

 

Total Health Plan Receivables

$

99,806,410

$

50,251,004

    

Health Plan Settlement Payables

Successor

June 30, 2022

December 31, 2021

Health Plan A

$

109,085

$

Health Plan B

 

11,700,274

 

11,700,274

Health Plan D

 

 

3,882,250

Health Plan F

 

5,144,469

 

6,085,425

Health Plan G

 

885,194

 

776,164

Health Plan I

 

(147,868)

 

(215,626)

Health Plan O

 

16,552

 

(39,151)

Health Plan U

 

226,209

 

226,209

Health Plan V

 

88,480

 

133,149

Total Health Plan Settlement Payables

$

18,022,395

$

22,548,694

At June 30, 2022, and December 31, 2021, Management has deemed the Company’s settlement receivables to be fully collectible from those health plans where the Company is not delegated for claims processing. Accordingly, a constraint on the variable consideration associated with settlement receivables is not necessary.

Other Patient Service Revenue(s) - Clinical Fees and Insurance Revenue

Clinic fees and insurance revenues relate to net patient fees received from various payers and direct patients (“self-payers”) under contracts in which the Company’s sole performance obligation is to provide healthcare services through the operation of medical clinics. The Company recognizes clinic fees and insurance revenue in the period in which services are provided, on the date of service, under FFS payment arrangements, revenue is recognized on the date of service. The Company’s performance obligations are typically satisfied in the same day services are provided. All the Company’s contracts with its customers under these arrangements include a single performance obligation.

The Company’s contractual relationships with patients, in most cases, also involve third-party payers (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through state-sponsored health insurance exchanges). Transaction prices for services provided are dependent upon specific rules in place with third party payers - specifically, Medicare/Medicaid and pre-negotiated rates with managed care health plans and commercial insurance companies. Contractual arrangements with third parties typically include payments at amounts which are less than standard charges. These charges generally have predetermined rates for diagnostic service codes or discounted FFS rates. Management perpetually reviews the Company’s contractual estimation processes to consider and incorporate updates to laws, regulations and frequent changes in the managed care system. Contractual terms are negotiated and updated accordingly upon renewal.

The Company’s revenue is based upon the estimated amounts Management expects to receive from patients and third-party payers. Estimates of explicit price concessions under managed care and commercial insurance plans are tied to payment terms specified in related contractual agreements. Retroactively calculated explicit price concessions tied to reimbursement agreements with third-party payers are recognized on an estimated basis in the period related services are rendered and adjusted in future periods as final payments are received. Revenue related to uninsured patients, uninsured co-payments, and deductibles (for patients with healthcare coverage) may also be discounted. The Company records implicit price concessions (based on historical collection experience) related to uninsured accounts to recognize self-pay revenues at their most likely amounts to be collected.

The Company deems FFS revenue to be variable consideration and that its estimates of associated transaction prices will not result in a significant revenue reversal in the future.

Based on satisfaction of single performance obligations occurring on the dates of service, revenue is recognized as of the date services are provided. The Company, therefore, applies a portfolio approach to recognizing revenue from its FFS contracts.

Management has elected two of the available practical expedients provided for by ASC 606. First, the Company did not adjust the transaction price for any financing components as those were deemed to be insignificant. Additionally, the Company expensed all incremental customer contract acquisition costs as incurred as such costs are not material and would be amortized over a period less than one year.

Other Patient Service Revenue(s) - Shared Risk Revenue

P3 LLC (via one of its wholly owned subsidiaries - P3 Health Partners ACO, LLC “AzCC”) receives 30% of the shared risk savings from parties with whom it contracts under four separate arrangements. These arrangements are driven solely by medical cost containment year-over-year (“YoY”) expense reductions. This key performance indicator (“KPI”) is measured by the aggregate change in per member per year (“PMPY”) medical costs. If the sequential YoY PMPY aggregate change yields a reduction, the Company receives 30% of the associated total cost savings for that year. Conversely, if the sequential YoY PMPY aggregate change yields an increase in medical costs, no monies are due the Company that year. This KPI is compiled and reviewed on a calendar year basis. The Company recognizes shared risk revenue only upon the receipt of cash. Therefore, the likelihood of any significant revenue reversal in the future is non-existent.

Other Patient Service Revenue(s) - Care Coordination Fees and Management Fees

The Company’s delegated health plans may also pay a Care Coordination Fee (“CCF”) or Management Fee to the Company. CCFs and Management Fees are intended to fund the costs of delegated services provided to certain health plans. CCFs are specifically identified and separated in each monthly capitation payment the Company receives from these parties. None of the Company’s other health plans bifurcate CCFs nor are any of them contractually required to do so.

The Company uses a portfolio approach to account for CCFs and Management Fees. Based on similarities of the terms of the care coordination and administrative services, Management believes that revenue recognized by utilizing the portfolio approach approximates that which it would have realized if an individual contract approach were applied.

Patient Fees Receivable

Substantially, all client fees and insurance receivables are due under FFS contracts with third party payors, such as commercial insurance companies (“Commercial”), government-sponsored healthcare programs (“Medicare/ Medicaid”) or directly from patients (“Self-Pay”). Management continuously monitors activities from payors (including patients) and records an estimated price concession based on specific contracts and actual historical collection patterns. Patient fees receivable, where a third-party payor is responsible for the amount due, are carried at amounts determined by the original charges for services provided less implicit and explicit price concessions. Price concessions represent amounts made for contractual adjustments (discounts). Patient fees receivable is included in Clinic Fees and Insurance Receivables in the Company’s condensed consolidated balance sheets and are recorded net of contractual allowances.

Patient fees receivable are recorded at the invoiced amount, net of any expected contractual adjustments and implicit price concessions, and do not bear interest. The Company has agreements with third-party payors that provide for payments at amounts different from the established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Patient service revenues are reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Contractual adjustments arising under reimbursement arrangements with third- party payors are accrued on an estimated basis in the period the related services are rendered and are adjusted in future periods as final settlements are determined. Implicit price concessions are taken based on historical collection experience and reflect the estimated amounts the Company expects to collect.

 

Revenue Recognition and Revenue Sources

The Company categorizes revenue based on various factors such as the nature of contracts and order to billing arrangements as follows:

Successor

Predecessor

December 3, 2021

January 1, 2021

Year Ended

Year Ended

through December 31,

through December 2,

December 31,

December 31,

Revenue Type

    

2021

    

% of Total

  

  

2021

    

% of Total

2020

    

% of Total

    

2019

    

% of Total

  

Capitated Revenue

$

57,224,539

97

%

$

567,735,297

98

$

480,739,577

98

$

139,332,707

96

%

Other Patient Service Revenue:

Clinical Fees & Insurance Revenue

 

750,675

2

%

 

 

4,318,074

 

1

3,364,504

 

1

3,312,107

 

2

%

Shared Risk Revenue

 

180,558

0

%

 

 

601,509

 

0

1,111,466

 

0

932,301

 

1

%

Care Coordination / Management Fees

600,175

1

%

5,880,397

1

5,614,539

1

1,893,553

1

%

Incentive Fees

 

6,450

0

%

 

 

67,141

 

0

233,439

 

0

11,444

 

0

Total Other Patient Service Revenue

 

1,537,858

3

%

 

 

10,867,121

 

2

10,323,948

 

2

6,149,405

 

4

%

Total Revenue

$

58,762,397

100

%

$

578,602,418

 

100

$

491,063,525

 

100

$

145,482,112

 

100

%

The following table depicts the health plans from which the Company has a concentration of revenue that is 10.0% or more:

Successor

Predecessor

December 3, 2021

January 1, 2021

Year Ended

Year Ended

through December 31,

through December 2,

December 31,

December 31,

Plan Name

    

2021

    

% of Total

  

2021

    

% of Total

2020

    

% of Total

    

2019

    

% of Total

Health Plan A

 

$

11,664,112

20

%

 

$

139,289,079

24

$

147,906,495

30

$

 

Health Plan B

 

12,757,714

22

%

 

126,460,232

22

112,384,330

23

13,557,771

9

%

Health Plan C

 

6,156,558

10

%

 

71,061,602

12

66,237,074

13

27,788,287

19

%

Health Plan D

 

10,337,160

18

%

 

114,496,751

20

62,683,829

13

6,106,544

4

%

Health Plan E

 

1,820,518

3

%

 

22,249,245

4

28,880,247

6

39,265,322

27

%

Health Plan F

 

2,446,094

4

%

 

26,670,388

5

24,521,349

5

26,703,364

18

%

Health Plan G

 

%

 

264,006

22,646,251

5

20,157,166

14

%

All Other

 

13,580,241

23

%

 

78,111,115

13

25,803,950

5

11,903,658

9

%

Total Revenue

$

58,762,397

100

%

$

578,602,418

100

$

491,063,525

100

$

145,482,112

100

%

Revenue Recognition

The Company follows the accounting requirements of ASC 606, Revenue from Contracts with Customers (“ASC 606”), to recognize revenue. The core principle of ASC 606 is that an entity’s performance obligation is complete, and revenue is earned, upon the transfer of a promise to deliver services to customers commensurate with consideration to which it would expect to be received in exchange for the actual delivery of those services. The terms of the contract and all relevant facts and circumstances should be considered when applying this guidance. This includes application of a practical expedient (a “portfolio approach”) to contracts with similar characteristics and circumstances. The Company used the portfolio approach to account for any ASC 606 transition adjustments for revenue from its Medicare Advantage contracted health plans.

The principles of ASC 606 are generally applied using the following five steps:

1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when (or as) the entity satisfies a performance obligation.

The guidance requires disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. The Company initially applied the standard on January 1, 2019, using the modified retrospective adoption method, and elected to apply the modified retrospective method only to contracts that were not completed as of this date. Additionally, the Company utilized the portfolio approach to group contracts together with similar characteristics for the adoption analysis.

Capitated Revenue

The Company contracts with health plans using an at-risk (shared savings) model. Under the at-risk model, the Company is responsible for the cost of all covered services provided to members assigned by the health plans to the Company in exchange for a fixed premium payment, which generally is a percentage of the payment (“POP”) based on health plans’ premiums received from CMS. Through this capitation arrangement, the Company stands ready to provide assigned Medicare Advantage beneficiaries all their medical care via the Company’s directly employed and affiliated physician/specialist network.

The premiums health plans receive are determined via a competitive bidding process with CMS and are based on the costs of care in local markets and the average utilization of services by patients enrolled. Medicare pays capitation using a “risk adjustment model”, which compensates providers based on the health status (acuity) of each individual patient. Medicare Advantage plans with higher acuity patients receive higher premiums. Conversely, Medicare Advantage plans with lower acuity patients receive lesser premiums. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after final data is compiled. The Company generally estimates transaction prices using the most likely methodology. Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is, furthermore, resolved. In certain contracts, PMPM fees also include adjustments for items such as performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors.

Capitated revenues are recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g. month) and is recognized net of projected acuity adjustments and performance incentives or penalties as Management cannot reasonably estimate the ultimate PMPM payment of those contracts. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term. The capitation amount is subject to possible retroactive premium risk adjustments based on the member’s individual acuity. In 2019, the Company recorded $150,681 of additional revenue related to prior year premium risk adjustments. There were no premium risk adjustments recorded in 2021 and 2020 as related to prior years. As the period between the time of service and time of payment is typically one year or less, Management elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care. The combination of those services is offered as one “single solution” (“bundle”). Capitation contracts have a single performance obligation that is a stand ready obligation to perform healthcare services to the population of enrolled members and constitutes a series for the provision of managed healthcare services for the term of the contract, which is deemed to be one month since the mix of patients-customers can change month over month The Company does not offer nor price each individual function as a standalone a la carte service to health plans. However, the addition or exclusion of certain services may be negotiated and reflected in each health plan’s specific total POP.

At December 31, 2021, 2020 and 2019, the Company had POP contracts in effect with 17 health plans (across 4 states), 12 health plans (across 4 states) and 7 health plans (across 2 states), respectively.

Each month, in accordance with contractual obligations (for non-delegated health plans; e.g. those for which the Company has not been delegated for claims processing), each plan funds a medical claims payment reserve equal to a defined percentage of premium attributable to members assigned to the Company. In turn, the Company administers and funds medical claims for contractually covered services, for assigned health plan members, from that health plan’s reserve. On a quarterly or monthly basis, health plans conduct a settlement of the reserve to determine any surplus or deficit amount. The reconciliation and distribution of the reserve occur within 120-days following the end of each quarter. An annual settlement reconciliation and distribution from all funds occurs within twenty-one months following each year-end.

As of December 31, health plan receivables and health plan settlement payables, by health plan, by year, were as follows:

Health Plan Receivables

Successor

Predecessor

December 31, 

December 31, 

Health Plan Name

    

2021

  

    

2020

Health Plan A

$

4,695,712

$

5,732,221

Health Plan B

 

15,473,828

 

15,316,696

Health Plan C

 

1,380,752

 

7,332,687

Health Plan D

 

6,651,586

 

6,863,270

Health Plan E

 

2,439,046

 

2,194,209

Health Plan F

 

2,925,751

 

3,222,247

Health Plan G

 

239,375

 

2,735,562

Health Plan H

 

2,185,619

 

878,866

Health Plan I

 

1,134,750

 

17,908

Health Plan J

 

149,915

 

285,730

Health Plan K

 

2,705,147

 

4,569

Health Plan L

 

899,560

 

378,822

Health Plan M

1,747,116

Health Plan N

974,092

Health Plan O

666,291

Health Plan P

106,162

Health Plan Q

61,990

Health Plan R

3,578,682

Health Plan T

2,175,324

Health Plan U

60,306

Total Health Plan Receivables

$

50,251,004

$

44,962,787

Health Plan Settlement Payables

Successor

Predecessor

December 31, 

December 31, 

Health Plan Name

    

2021

  

  

2020

Health Plan B

$

11,700,274

$

Health Plan C

1,928,414

Health Plan D

 

3,882,250

 

4,680,185

Health Plan F

 

6,085,425

 

6,125,681

Health Plan G

776,164

1,008,495

Health Plan I

(215,626)

Health Plan O

(39,151)

Health Plan U

226,209

Health Plan V

 

133,149

 

Total Health Plan Settlement Payables

$

22,548,694

$

13,742,775

At December 31, 2021 and 2020, Management has deemed the Company’s settlement receivables to be fully collectible from those health plans where the Company is not delegated for claims processing. Accordingly, a constraint on the variable consideration associated with settlement receivables was not necessary.

Other Patient Service Revenue(s) – Clinical Fees and Insurance Revenue

Clinic fees and insurance revenues relate to net patient fees received from various payers and direct patients (“self-payers”) under contracts in which the Company’s sole performance obligation is to provide healthcare services through the operation of medical clinics. The Company recognizes clinic fees and insurance revenue in the period in which services are provided. Under FFS payment arrangements, revenue is recognized on the date of service. The Company’s performance obligations are typically satisfied in the same day services are provided. All the Company’s contracts with its customers under these arrangements include a single performance obligation.

The Company’s contractual relationships with patients, in most cases, also involve third-party payers (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through state-sponsored health insurance exchanges). Transaction prices for services provided are dependent upon specific rules in place with third party payers – specifically, Medicare/Medicaid and pre-negotiated rates with managed care health plans and commercial insurance companies. Contractual arrangements with third parties typically include payments at amounts which are less than standard charges. These charges generally have predetermined rates for diagnostic service codes or discounted FFS rates. Management perpetually reviews the Company’s contractual estimation processes to consider and incorporate updates to laws, regulations and frequent changes in the managed care system. Contractual terms are negotiated and updated accordingly upon renewal.

The Company’s revenue is based upon the estimated amounts Management expects to receive from patients and third-party payers. Estimates of explicit price concessions under managed care and commercial insurance plans are tied to payment terms specified in related contractual agreements. Retroactively calculated explicit price concessions tied to reimbursement agreements with third-party payers are recognized on an estimated basis in the period related services are rendered and adjusted in future periods as final payments are received. Revenue related to uninsured patients, uninsured co-payments, and deductibles (for patients with healthcare coverage) may also be discounted. The Company records implicit price concessions (based on historical collection experience) related to uninsured accounts to recognize self-pay revenues at their most likely amounts to be collected.

The Company deems FFS revenue to be variable consideration and that its estimates of associated transaction prices will not result in a significant revenue reversal in the future.

Based on satisfaction of single performance obligations occurring on the dates of service, revenue is recognized as of the date services are provided. The Company, therefore, applies a portfolio approach to recognizing revenue from its FFS contracts.

Management has elected two of the available practical expedients provided for by ASC 606. First, the Company did not adjust the transaction price for any financing components as those were deemed to be insignificant. Additionally, the Company expensed all incremental customer contract acquisition costs as incurred as such costs are not material and would be amortized over a period less than one year.

Other Patient Service Revenue(s) – Shared Risk Revenue

P3 LLC (via one of its wholly owned subsidiaries — P3 Health Partners ACO, LLC “AzCC”) receives 30% of the shared risk savings from parties with whom it contracts under four separate arrangements. These arrangements are driven solely by medical cost containment year-over-year (“YoY”) expense reductions. This key performance indicator (“KPI”) is measured by the aggregate change in PMPY (per member, per year medical costs). If the sequential YoY PMPY aggregate change yields a reduction, the Company receives 30% of the associated total cost savings for that year. Conversely, if the sequential YoY PMPY aggregate change yields an increase in medical costs, no monies are due the Company that year. This KPI is compiled and reviewed on a calendar year basis. The Company recognizes shared risk revenue only upon the receipt of cash. Therefore, the likelihood of any significant revenue reversal in the future is low.

Other Patient Service Revenue(s) – Care Coordination Fees and Management Fees

The Company’s delegated health plans may also pay a Care Coordination Fee (“CCF”) or Management Fee to the Company. CCFs and Management Fees are intended to fund the costs of delegated services provided to certain health plans. CCFs are specifically identified and separated in each monthly capitation payment the Company receives from these parties. None of the Company’s other health plans bifurcate CCFs nor are any of them contractually required to do so.

The Company uses a portfolio approach to account for CCFs and Management Fees. Based on similarities of the terms of the care coordination and administrative services, Management believes that revenue recognized by utilizing the portfolio approach approximates that which it would have realized if an individual contract approach were applied.

Patient Fees Receivable

Substantially, all client fees and insurance receivables are due under FFS contracts with third party payors, such as commercial insurance companies (“Commercial”), government-sponsored healthcare programs (“Medicare/ Medicaid”) or directly from patients

(“Self-Pay”). Management continuously monitors activities from payors (including patients) and records an estimated price concession based on specific contracts and actual historical collection patterns. Patient fees receivable, where a third-party payor is responsible for the amount due, are carried at amounts determined by the original charges for services provided less implicit and explicit price concessions. Price concessions represent amounts made for contractual adjustments (discounts). Patient fees receivable is included in Clinic Fees and Insurance Receivables in the Company’s consolidated balance sheets and are recorded net of contractual allowances.

Patient fees receivable are recorded at the invoiced amount, net of any expected contractual adjustments and implicit price concessions, and do not bear interest. The Company has agreements with third-party payors that provide for payments at amounts different from the established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Patient service revenues are reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Contractual adjustments arising under reimbursement arrangements with third- party payors are accrued on an estimated basis in the period the related services are rendered and are adjusted in future periods as final settlements are determined. Implicit price concessions are taken based on historical collection experience and reflect the estimated amounts the Company expects to collect.

Goodwill

Goodwill

In accordance with ASC 350, Intangibles - Goodwill and Other, Management tests goodwill for impairment at the reporting unit level. The Company has one reporting unit for goodwill impairment testing purposes. Goodwill is tested for impairment on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable (a “triggering event”). On the occurrence of a triggering event, an entity has the option to first assess qualitative factors to determine whether a quantitative impairment test is necessary. If it is more likely than not that goodwill is impaired, the fair value of the reporting unit (the Company) is compared with its carrying value. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value, provided, the loss recognized cannot exceed the total amount of goodwill. No goodwill impairment charges were recorded in the first quarter of 2022. Based on Management’s analysis, $851.5 million goodwill impairment charges were recorded in the second quarter of 2022. See Note 11 “Goodwill.”

 

Goodwill

In accordance with ASC 350, Intangibles – Goodwill and Other, Management tests goodwill for impairment at the reporting unit level. The Company has one reporting unit for the goodwill impairment testing purposes. Goodwill is tested for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable (a “triggering event”). On the occurrence of a triggering event, an entity has the option to first assess qualitative factors to determine whether a quantitative impairment test is necessary. If it is more likely than not that goodwill is impaired, the fair value of the reporting unit (the Company) is compared with its carrying value. An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value, provided, the loss recognized cannot exceed the total amount of goodwill. No goodwill impairment charges were recorded in 2021, 2020 and 2019. See Note 11 “Goodwill.”

Intangible Assets

Intangible Assets

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. In determining the estimated useful lives of definite-lived intangibles, the Company considers the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired asset, as well as its commitment to support these assets through continued investment and legal infringement protection.

The Company reviews intangible assets, for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the asset exceeds its fair value and the impaired asset is written down to its fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows.

 

Intangible Assets

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. In determining the estimated useful lives of definite-lived intangibles, the Company considers the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired asset, as well as its commitment to support these assets through continued investment and legal infringement protection.

The Company reviews intangible assets, for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the asset exceeds its fair value and the

impaired asset is written down to its fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows.

Fair Value Measurements

Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements (“ASC 820”). The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (see Note 8 “Fair Value Measurements and Hierarchy” for further discussion):

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

 

Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements. The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (see Note 8 “Fair Value Measurements and Hierarchy” for further discussion):

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.