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Revenue Recognition
 12 Months Ended
Dec. 31, 2023
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Disaggregated revenue
The following table summarizes the Company’s disaggregated revenue by payor category:
Year ended December 31,
20232022
GeneDxLegacy Sema4ConsolidatedGeneDxLegacy Sema4Consolidated
Diagnostic test revenue:
Patients with third-party insurance$126,265 $8,226 $134,491 $72,890 $100,734 $173,624 
Institutional customers59,497 — 59,497 40,754 5,370 46,124 
Self-pay patients1,702 (36)1,666 1,230 6,356 7,586 
Total diagnostic test revenue187,464 8,190 195,654 114,874 112,460 227,334 
Other revenue6,912 — 6,912 7,360 — 7,360 
Total$194,376 $8,190 $202,566 $122,234 $112,460 $234,694 
Reassessment of variable consideration
Subsequent changes to the estimate of the transaction price, determined on a portfolio basis when applicable, are generally recorded as adjustments to revenue in the period of the change. The Company updates estimated variable consideration quarterly.
For the year ended December 31, 2023, the total change in estimate resulted in a net $8.8 million which included the partial release of a third party payor reserve established in prior periods for Legacy Sema4.
During the year ended December 31, 2022, the Company recorded $54.0 million to decrease revenue resulting from changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and potential and actual settlements with third party payors.
Certain payor matters
As noted above, third-party payors, including government programs, may decide to deny payment or seek to recoup payments for tests performed by the Company that they contend were improperly billed, not medically necessary or against their coverage determinations, or for which they believe they have otherwise overpaid, including as a result of their own error. As a result, the Company may be required to refund payments already received, and the Company’s revenues may be subject to retroactive adjustment as a result of these factors among others, including without limitation, differing interpretations of billing and coding guidance, and changes by government agencies and payors in interpretations, requirements, policies and/or “conditions of participation” in various programs. The Company processes requests for recoupment from third-party payors in the ordinary course of its business, and it is likely that the Company will continue to do so in the future. If a third-party payor denies payment for testing or recoups money from the Company in a later period, reimbursement and the associated recognition of revenue for the Company’s testing services could decline.
As an integral part of the Company’s billing compliance program the Company instituted a third-party review of billing claims and compliance practices, and initiated improvements including implementing a package of new billing compliance policies and procedures and strengthening the Company’s billing compliance team. From time to time, the Company may have an obligation to reimburse Medicare, Medicaid, and third-party payors for overpayments regardless of fault. Settlements with third-party payors for retroactive adjustments due to audits, reviews, or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing services. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor, the Company’s historical settlement activity (if any), and the Company’s assessment of the probability a significant reversal of cumulative revenue recognized will occur when the uncertainty is subsequently resolved. Estimated settlements are adjusted in future periods as such adjustments become known (that is, if new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations.
Throughout 2022, the Company was engaged in discussions with one of its third-party payors (the “Payor”) regarding certain overpayments to Legacy Sema4. On December 30, 2022, the Company entered into a settlement agreement with the Payor in order to settle the claims related to coverage and billing matters allegedly resulting in the overpayments by the Payor to the Company (the “Disputed Claims”). Under the settlement agreement, $42 million is to be paid by the Company to the Payor in a series of installments over four years with the final installment payment scheduled to be on or before June 30, 2026. The first installment payment of $15 million was made on December 31, 2022 and the second installment of $5 million was made on December 27, 2023. In consideration for these payments, the Payor agreed to provide releases of the Disputed Claims, which releases became effective on March 31, 2023.
As a result of this matter, and in connection with a review of certain billing policies and procedures undertaken by management, the Company considered the need to establish reserves for potential recoupments of payments previously made by third-party payors. As of December 31, 2023 and December 31, 2022, $27.0 million and $39.0 million were recorded in accounts payable and accrued expenses and other liabilities, respectively. See Note 16, “Supplemental Financial Information”. The Company uses estimates, judgments, and assumptions to assess whether it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods, based upon information presently available. These estimates are subject to change. In addition, as discussed above, the Company has made certain adjustments to its estimated variable consideration as result of this matter and other potential settlements with payors.
Remaining performance obligations
Due to the long-term nature of collaboration service agreements, the Company’s obligations pursuant to such agreements represent partially unsatisfied performance obligations as of December 31, 2023. The revenues under existing service agreements with original expected durations of more than one year are estimated to be approximately $3.3 million. The Company expects to recognize the majority of this revenue over the next 2 years.
Costs to fulfill contracts
Costs associated with fulfilling the Company’s performance obligations pursuant to its collaboration service agreements include costs for services that are subcontracted to ISMMS. Amounts are generally prepaid and then expensed in line with the pattern of revenue recognition. Prepayment of amounts prior to the costs being incurred are recognized on the balance sheets as current or non-current asset based upon forecasted performance.
As of December 31, 2023 and December 31, 2022, the Company had outstanding deferred costs to fulfill contracts of zero and $0.3 million, respectively. At each period, all outstanding deferred costs were recorded as other current assets.
The cost recognized was $2.1 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively and are recorded in cost of services on the consolidated statements of operations and comprehensive loss.