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BP Business Economic Loss Claim Appeal 2017-34: Medical Management Company’s Revenue Fluctuations Require Application of AVM Methodology


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms

The Claims Administrator denied the BEL claim of this medical management company in Metairie, Louisiana (Zone D) on the basis that the restated financials did not satisfy the causation requirements of Exhibit 4B. On appeal, Claimant argues that the application of Policy 495 was arbitrary and unnecessary because of the nature of its revenue pattern. Thus, Claimant urges that it was error for the program accountant to apply Policy 495 under the circumstances of this claim.
Claimant performs hospital management services pursuant to a contract. The services performed vary from month to month. Revenue is received and recorded on the cash basis in the month following the performance of services. Three of the seven criteria of Policy 495 were triggered. After identifying a mismatch of revenue and expenses in the P&Ls, the program accountant reallocated the revenue equally over each month for the years presented. Determining that the recognition of revenue was a fair indicator of the Claimant’s business operations, the accountant then applied the AVM methodology. The result was the inability of Claimant’s financials to pass the V-Shaped Revenue Pattern test.
Claimant’s primary argument on appeal is that its monthly revenue fluctuated from month to month because the amount of services provided also varied, as required under its contract. BP responds that Claimant’s fluctuating revenue stream is not what creates the mismatch. According to BP, it is the recording of revenues in an irregular fashion while recording variable expenses consistently on a monthly basis that resulted in the mismatch. Stated differently, Claimant received revenue in some months but not in every month. However, variable expenses are recorded consistently each month.
De novo review supports the program accountant’s reallocation of revenue and the application of the AVM methodology. Policy 495 affords the program accountant the exercise of professional judgment regarding matching issues. Further, the District Court has consistently held that the exercise of this professional judgment extends to the reallocation of revenue or expenses or both. Finally, when the Policy 495 criteria were triggered, the accounting vendor was required to apply an appropriate methodology. No abuse of professional judgment or violation of the Settlement Agreement has been demonstrated. Accordingly, the denial is upheld.

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