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corresp

June 2, 2005

VIA EDGAR AND UPS OVERNIGHT

Jim B. Rosenberg

Senior Assistant Chief Accountant

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

    Re:

    Accredo Health Inc.

    Form 10-K for the fiscal year ended June 30, 2004

    File No. 000-25769

Dear Mr. Rosenberg:

     This
letter is a response of Accredo Health, Incorporated
(“Accredo,” the “Company,” “we” or
“our”) to the Staff’s comment letter dated May 10, 2005 with regard to the above filing. In the context
of this response, we refer to our letter to you dated April 22, 2005, as the “Initial Response
Letter.”

Form 10-K for the year ended June 30, 2004, filed September 13, 2004 (the “2004 10-K”)

Item 7. Management’s Discussion and Analysis of Financial Condition of Results of
Operations

Critical Accounting Policies and Estimates, page 36

    1.
    Comment. We noted the disclosures proposed as a result of comment #1. In
discussing how you arrived at the critical accounting estimate, please describe how your
consideration of any qualitative factors are quantified in arriving at the estimate. In
addition, as you did not appear to provide the quantitative disclosure that we had
requested, please justify to us that it is not reasonably available and would not provide
material information for investors. Otherwise, please provide quantitative disclosure
about the significant assumptions underlying the estimate and the effect of reasonably
likely changes in those assumptions.

     Response. 1. The disclosures in the 2004 10-K under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting
Policies and Estimates” will be further modified in response to this comment and supplementally
provided.

Our modifications considered the guidance outlined in Section V of FR-72, Commission Guidance
Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

    2.
    Comment. We noted your response to comment #2 and the
disclosures you proposed as a result of that comment. Please provide us and consider
disclosing information addressing the following comments:

    a)
    In your response to our comment 2(a), you state that you have not
historically had any significant change in estimates from reporting period

    to reporting period and do not anticipate any significant changes in estimates in
future periods. However, you also state that you are unable to reconcile changes in
prior estimates, as this would have to be performed on an individual claims basis.
If you are unable to reconcile changes in prior estimates, it is unclear how you
know that you have not had any significant changes in estimate. As such, please
clarify this.

    b)
    As of June 30, 2004, your allowances appear to represent approximately 20% of
your gross accounts receivable. At the same time, the amounts past due by over 90 days
would appear to represent approximately 55% of your gross accounts receivable, with
36% being past due for over 180 days. As of June 30, 2003, your allowances appear to
have only been approximately 29% of your gross accounts receivable, while
approximately 57% were over 90 days past due. In light of this, please clarify why
your allowances are appropriate.

In so doing, please clarify your billing terms and the period over which you
receive payments. If you regularly continue to receive payments after an amount
becomes over 180 days past due, please consider disaggregating the amounts over 180
days past due. This disaggregation should try to illustrate the amounts that have
been past due longer than your collection patterns would have otherwise suggested.

    c)
    It appears that you rely on historical experience in estimating your
allowances. Please clarify how you also consider the current composition of your
receivables (by payor group and aging classification) in determining your estimate of
the allowances. Please tell us why you believe the use of historical experience is
reasonable in view of the current composition of your accounts receivable.

    d)
    It appears that your medical billing system does not “readily provide”
information about self-pay receivables. Please clarify what you mean by “readily
provide”. In addition, we noted that your primary collection risks are for patient
co-payments and deductibles and that your bad debt write-offs primarily result from
uncollectible patient co-payments and deductibles. As such, please clarify whether you
consider information about self-pay receivables in estimating your allowances. If you
do, please address why you have not segregated self-pay balances on accounts where the
primary payor has yet to make payment from the “commercial and other” payor group.

    e)
    Please discuss the reasons why your actual day’s sales outstanding appear to
have differed from your target. In so doing, please clarify whether the target was
based on historical experience. If so, please address how your estimates considered
these reasons for the differences and the deviations from historical experience.

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    f)
    It appears that your accounts receivable subledger needs to be reconciled to
the amounts recorded in your financial statements because of credit balances. Please
clarify whether these credit balances represent collections that have not been applied
to specific receivable balances. In addition, please clarify how you have allocated
these credit balances in your aging disclosures and how you have considered them in
estimating your allowances.

     Response. 2(a) At the time of billing, the Company’s medical billing system
automatically records a contractual discount adjustment necessary to reduce the patient’s invoice
total (net billed amount) to the selected contractual level. This net billed amount is calculated
based upon the discount level contained in the associated payor contract. The Company records
revenue and accounts receivable net of these system-generated contractual adjustments. After we
receive payment, we evaluate our recorded accounts receivable to ensure their accuracy. We then
record an adjustment to the account balance, if necessary, in the period that the change in
estimate is made in accordance with APB 20. The Company’s medical billing system contains all of
the contract information that supports these system-generated adjustments and is updated
continuously to ensure that the system is producing account balances based upon current and
accurate information. The historical experience of changes in the Company’s contractual adjustments
has not been significant from period to period because of the high degree of accuracy of the
automated contractual adjustments generated by the medical billing system. In addition, the
Company has analyzed contractual adjustments on a year to date basis in fiscal 2005 (through April
30, 2005) related to invoices for dates of service on or before June 30, 2004. During this period,
the Company has collected and posted approximately 84% of its net accounts receivable outstanding
as of June 30, 2004, and recorded contractual adjustments on those accounts of approximately $5.0
million. Extrapolating this to the remaining June 30, 2004 unpaid accounts receivable (16%) as of
April 30, 2005, the resulting total allowance for contractual discounts would be approximately $6.0
million for all accounts receivable outstanding as of June 30, 2004. The Company believes that the
accounts receivable that have been collected through April 30, 2005, are representative of the
accounts receivable that remained outstanding as of that date. The allowance for contractual
adjustments was approximately $5.7 million, or 1.4% of gross accounts receivable, as of June 30,
2004.

The Company believes that these estimates are materially accurate and have been recorded in
accordance with the provisions of SFAS 5. See further discussion on the Company’s methodology for
establishing its estimates for uncollectible accounts in responses to 2(b) – 2(e) below.

     Response. 2(b) The Company believes that the response to this comment can best be
prepared by starting with a short description of Accredo’s business and the nature of the accounts
receivable generated as a result of its business activities. Accredo is a specialty retail
pharmacy that dispenses a very limited number of drugs (twenty (20) at June 30, 2004) with the
following characteristics:

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    ?
    the medication is expensive, typically $8,000 to $300,000 per patient, per
year;

    ?
    the drugs are for patients with diseases that are chronic in nature, whereby
patients need to continue to take the medication routinely for extended periods of
time (which in many cases is for the remainder of their lives);

    ?
    most of the drugs require some form of special handling; and

    ?
    these drugs typically have a side effect profile that requires clinical
intervention on a routine basis.

Due to the complexity of the diseases that Accredo serves and the length of time that a patient
will likely be on therapy, virtually all of our patient orders require some form of prior approval
before each shipment of the medication is made to the patient to help ensure payment. It is the
Company’s policy to verify the patient’s third-party insurance coverage (for all governmental and
commercial payors) prior to each shipment of drug made to the patient. Patients typically order and
receive a refill of their medications every 30 days.

Virtually all of the Company’s medications are delivered to the patient’s home or to the patient’s
designated delivery site using the services of FedEx. The Company does not have any walk-in retail
pharmacy business and all of the drugs are dispensed pursuant to a prescription from the patient’s
physician. Upon delivery of the medication to the patient, the Company bills the patient’s
third-party insurance carrier using the appropriate procedures outlined in the patient’s coverage.
The drugs dispensed by the Company are reimbursed by the patient’s health insurance plan through
two principal benefit forms: (i) prescription card benefit, which is typically an electronic
billing, or (ii) medical benefit, which is typically a manually generated paper claim. While it
is not always the case, the electronic billing process typically results in the claim being paid by
the carrier in a range of 40 to 50 days from the date the drug was dispensed. In addition, through
the terms of the patient’s prescription card benefit coverage, the patient’s out-of- pocket
liability (co-payment) is generally $15 to $30 per prescription fill and is usually collected from
the patient before each shipment. Prescription cards represented approximately 14% and 9% of gross
accounts receivable as of June 30, 2004 and 2003, respectively.

Conversely, the medical benefit billing and payment cycle tends to be far more complicated and time
consuming. Most medical benefit claims require various forms of paperwork and justification for
treatment for each shipment of the drug sent to the patient. Due to the inherent cost of
treatment, the length of the patient’s therapy, and changes in the patient’s condition or
circumstances, virtually all of these patients are being case managed by the insurance carrier and
most claims for these patients are subject to medical review by the carrier before payment is made.
The ultimate result of these processes is a payment cycle for most of the medical benefit claims
that average in a range of 110-120 days after shipment, although claims for certain payors or
claims undergoing extensive medical review can take much longer. The medical benefit coverage
generally requires a patient to be responsible for a deductible (typically in a range of $500 to
$1,000) and a co-payment amount (typically in a range of $2,000 to

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$3,000) per plan year. In addition, hemophilia blood clotting factor and two of the PAH medications
are covered through the Medicare Part B program. Although the Medicare benefits for the patient
are verified before each drug shipment, the initial benefit payments for these patients may take up
to nine months or longer to begin, during which time we continue to service the patient.

The characteristics of the Company’s accounts receivable and the periods of time that it takes to
collect its account receivable balances vary based upon the following factors:

    ?
    the patient’s insurance coverage;

    ?
    the insurer involved;

    ?
    the benefit plan type that is covering the drug (prescription card, medical benefit,
home infusion therapy, etc.);

    ?
    the approval process mandated by the insurer;

    ?
    the case management and medical review cycle of the payor;

    ?
    the number of appeals and re-filing of claims that is necessary to collect the
authorized payment amount;

    ?
    the re-filing of a patient’s secondary or supplemental insurance coverage amounts after
the primary plan has covered its portion of the amount billed;

    ?
    coordination of benefits between two covered plans;

    ?
    governmental versus commercial based payors; and

    ?
    numerous factors that can be unique to the patient or the particular therapy involved.

The Company ages its accounts receivable balances from the date of service to the patient. The age
of the receivable balance, while a factor in helping to determine the adequacy of the estimate for
the allowance for doubtful accounts, is dictated by many of the factors outlined within this
response and is more indicative of the timing of cash flow for the Company rather than the ultimate
collectibility of its net accounts receivable balance. The Company does not consider a receivable
to be “past due”. Rather, the Company monitors the age of accounts receivable based on date of
service as a basis for prompting account collection and follow-up procedures. The Company has
outlined its procedures for determining the adequacy of its allowance for doubtful accounts and to
ensure the estimate of these reserves is based upon appropriate and relevant factors in its
response to comment 2(c) below. Based upon these procedures, the Company believes that its
allowance estimates are adequate and the Company’s consolidated financial statements fairly present
the net collectible value of its accounts receivable in accordance with generally accepted
accounting principles at the respective balance sheet dates. The relationship of the allowance and
gross accounts receivable is, in part, a function of the timing of the write-off of specific
account balances in the accounts receivable subledger. For example, to the extent accounts are
provided for in the allowance but not yet written-off in the subledger, this results in an increase
in the ratio of the allowance to gross accounts receivable, with no resulting impact on their net
realizable value. While the Company’s analysis of a specific account may result in a recorded
allowance, the account is not written-off in the subledger until all collection efforts have been
exhausted. As a result, that relationship, while meaningful, is not always the best indicator of
the quality

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of the Company’s net receivable balance. On specific patient accounts, differences can occur in
the amounts previously provided for in the allowance and the amounts actually written-off. To
appropriately account for such differences, the Company records estimated bad debt provisions on a
monthly basis which are adjusted to reflect the results of the quarterly procedures described in
2(c) below. This ensures that the allowances are appropriately adjusted as of each reported
balance sheet date.

The Company routinely collects patient accounts receivable balances in excess of one-year from the
date of the dispensing of the drug, particularly for those patients covered under a medical benefit
where rigorous do