NOTE F — REVENUE RECOGNITION AND CONTRACTUAL ADJUSTMENTS

The Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence of an arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is reasonably assured.

The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic equivalent, 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. The Company reports revenues from contracted payers, including Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including certain insurance companies and individuals, based on the amount expected to be collected. The difference between the amount billed and the amount estimated to be collected from non-contracted payers is recorded as an allowance to arrive at the reported net revenues. The expected revenues from non-contracted payers are based on the historical collection experience of each payer or payer group, as appropriate. The Company records revenues from patient pay tests net of a large discount and as a result recognizes minimal revenue on those tests. The Company regularly reviews its historical collection experience for non-contracted payers and adjusts its expected revenues for current and subsequent periods accordingly.

The table below shows the adjustments made to gross service revenue to arrive at net revenues (in thousands), the amount reported on our statement of operations.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013

Gross Service Revenues	$	60,660		$	45,159		$	159,665		$	129,625

Total Contractual Adjustments and Discounts		(37,443	)		(28,275	)		(97,595	)		(81,481	)


Net Revenues	$	23,217		$	16,884		$	62,070		$	48,144

During the three months ended September 30, 2014, we were able to grow revenue by 37.5% on a year over year basis, despite a $1,150,000 reduction in revenue recorded to account for a conservative interpretation of policy edits issued earlier in the year from the National Correct Coding Initiative (“NCCI”) relating to the appropriate number of billing units for certain FISH testing reimbursable by Medicare. During the nine months ended September 30, 2014, we were able to grow revenue by 28.9% on a year over year basis, despite a $2,900,000 reduction in revenue recorded to account for a conservative interpretation of the NCCI FISH edits. The National Correct Coding Initiative “NCCI” FISH testing edits were issued in December 2013, effective as of January 1, 2014, and created a contradiction with respect to long-established billing practices for FISH testing. The new FISH edits suggest that the number of billable units that laboratories should bill for certain multi-probe FISH tests is less than the previously established guidance which is still in effect. The Company and The American Clinical Laboratory Association (“ACLA”) have asked the Centers for Medicare and Medicaid Services (“CMS”) to provide further guidance with respect to this contradictory new policy, and CMS officials have acknowledged the need to issue a clarification, but have yet to do so. A favorable clarification from CMS with respect to these NCCI FISH edits would result in us being able to bill in future periods for all or a portion of the previously unbilled $2,900,000 of FISH testing services that were foregone in the first nine months of 2014.