8. GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

The following table sets forth the changes in goodwill by segment:




	Specialty		PBM		Total
Balance at January 1, 2016	$	256,318	$	—	$	256,318
Acquisitions:
TNH		59,275		—		59,275
Miscellaneous		1,023		—		1,023
Balance at December 31, 2016		316,616		—		316,616
Acquisitions:
Affinity		8,772		—		8,772
Comfort		11,669		—		11,669
WRB		20,181		—		20,181
TNH		1,351		—		1,351
Accurate		8,741		—		8,741
Focus		15,237		—		15,237
NPS		—		20,735		20,735
LDI		—		426,005		426,005
Miscellaneous		3,317		—		3,317
Balance at December 31, 2017		385,884		446,740		832,624
Other measurement period adjustments		552		1,382		1,934
Impairments		(45,776)		(179,190)		(224,966)
Balance at December 31, 2018	$	340,660	$	268,932	$	609,592

The goodwill for the Specialty and PBM segments is net of accumulated impairment losses of $45,776 and $179,190, respectively, at December 31, 2018.

Goodwill is not subject to amortization and is reviewed at least annually in the fourth quarter of each year using data as of December 31 of that year, or earlier if an event occurs or circumstances change and there is an indication of impairment. The Company tests goodwill at the reporting unit level. The impairment test consists of comparing a reporting unit’s fair value to its carrying value. Based on the results of the 2018 annual impairment test, the fair value of the DSP and PBM reporting units were less than their respective carrying value.

The estimated fair value for each of the reporting units was determined using the income approach. With the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Such projections contain Management’s best estimates of economic and market conditions over the projected period, including growth rates in revenue and costs and best estimates of future expected changes in operating margins and cash expenditures. Our projection of estimated operating results and cash flows are discounted using a weighted average cost of capital that reflects current market conditions appropriate to each reporting unit. The discount rate is sensitive to changes in interest rates and other market rates in place at the time the assessment is performed. The discount rates used in the annual reporting unit valuations were 10.5% for the DSP reporting unit and 12.25% for the PBM reporting unit.

For the DSP reporting unit, the Company began experiencing a decline in the volume of pharmacy prescriptions, pressure on reimbursement rates from certain payors and a less favorable medication drug mix within certain payer specialty contracts which reduced profitability. As such, these conditions resulted in downward revisions of the forecasts on current and future projected earnings and cash flows of the Specialty business.

In 2018, the Company recorded a non-cash impairment of $45,776, which is not deductible for income tax purposes. The impairment loss is recorded in the caption “Goodwill impairments” in the consolidated statement of operations. After the impairment charge, the adjusted carrying value of the Specialty segment goodwill was $340,660 at December 31, 2018, of which $68,218 was allocated to the DSP reporting unit.

The goodwill in the PBM segment was recorded as a result of two separately acquired entities (i) Pharmaceutical Technologies, Inc. d/b/a National Pharmaceutical Services, acquired in November 27, 2017, and (ii) LDI Holding Company, LLC, acquired December 20, 2017.

The PBM segment began to experience a substantial loss of customer contracts primarily as a result of service issues experienced while transitioning to a new claims processing platform, third-party acquisitions of such clients, contract non-renewals, reduced contracted rates, and terminations prior to expiration as well as other factors. Also, it has been taking longer than initially expected to replace these customers and client retention has also suffered as legacy customers can easily cancel, without penalty, and not renew their contracts with us. These conditions resulted in downward revisions of the forecasts on current and future projected earnings and cash flows of the PBM business.

In 2018, the Company recorded a non-cash impairment loss of $179,190, which is not deductible for income tax purposes. The impairment loss is recorded in the caption “Goodwill impairments” in the consolidated statement of operations. After the impairment charge, the adjusted carrying value of the PBM segment goodwill was $268,932 at December 31, 2018.

Also, the Company assessed whether the carrying amounts of the reporting units long-lived assets may not be recoverable and therefore may be impaired. To assess the recoverability at the PBM reporting unit asset group level, the undiscounted cash flows of the PBM business were analyzed over a range of potential remaining useful lives with the PBM customer relationships as the primary asset. As a result, the Company determined that certain trade names and trademarks, and certain customer relationships in its PBM reporting unit were not recoverable and were impaired. The Company recorded an impairment loss related to these intangible assets. It was determined, using the same methodology, that the long-lived assets of the DSP reporting unit were not impaired. Refer to the additional discussion below.

Definite-lived intangible assets consisted of the following:


	December 31, 2018
	Weighted
	Average	Gross		Accumulated		Net
	Amortization	Carrying		Amortization/		Carrying
	Period	Amount		Impairments		Amount
Customer relationships	9.8	$	100,200	$	(1,238)	$	98,962
Patient relationships	5.9		170,100		(67,964)		102,136
Trade names and trademarks	1.8		30,650		(20,270)		10,380
Non-compete employment agreements	1.6		61,389		(44,100)		17,289
Physician relationships	4.8		21,700		(9,657)		12,043
		$	384,039	$	(143,229)	$	240,810


	December 31, 2017
	Weighted
	Average	Gross				Net
	Amortization	Carrying		Accumulated		Carrying
	Period	Amount		Amortization		Amount
Customer relationships	9.9	$	196,073	$	(1,141)	$	194,932
Patient relationships	6.8		170,100		(49,643)		120,457
Trade names and trademarks	3.7		44,020		(13,624)		30,396
Non-compete employment agreements	3.1		61,389		(30,560)		30,829
Physician relationships	5.7		21,700		(6,303)		15,397
		$	493,282	$	(101,271)	$	392,011

As disclosed above, certain intangible assets, consisting of certain trade names and trademarks, and customer relationships, were impaired. The Company performed a valuation to determine the fair value of these intangible assets and as a result recorded a non-cash impairment charge of $82,678 which is recorded in the caption “Impairments of definite-lived intangible assets” in the consolidated statement of operations. In conjunction with the valuation performed, Management also reviewed the useful lives of the trade name and trademarks, and customer relationships. As a result of the review, no significant changes were necessary to the remaining estimated useful lives. At December 31, 2018, the residual balance of the trade names and trademarks of $4,000 and customer relationships of $95,000 will be amortized over their remaining estimated useful lives.

Amortization expense for the years ended December 31, 2018, 2017 and 2016 was $68,523, $41,844 and $33,868, respectively. Estimated future amortization expense is as follows:


2019	$	53,944
2020		41,612
2021		33,781
2022		27,738
2023		25,911
Thereafter		57,824
	$	240,810

On August 28, 2014, the Company and two unrelated third-party entities entered into a contribution agreement to form a new company, Primrose Healthcare, LLC (“Primrose”). Primrose functioned as a management company, managing a network of physicians and medical professionals providing continuum care for patients infected with the hepatitis C virus. The Company contributed $5,000 for its 51 percent ownership interest, of which $2,000 and $3,000 were contributed during the years ended December 31, 2015 and 2014, respectively. The unrelated third-party entities contributed a software licensing agreement valued at $2,647 and intellectual property valued at $2,157. During the third quarter of 2016, primarily due to updated projections of continuing losses into the foreseeable future, the Company fully impaired Primrose’s intangible assets and recorded an impairment charge of $4,804. Primrose was dissolved during the fourth quarter of 2017.