Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies

Schedule of customers generating in excess of ten percent of net revenues for respective segment

In addition to the Florida Contracts and Iowa Contracts previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the years ended December 31, 2014, 2015 and 2016 (in thousands):


Segment	Term Date	2014		2015			2016

Healthcare
None

Pharmacy Management
Customer A	December 31, 2016 (1)	$	171,936	$	324,809		$	264,152
Customer B	December 31, 2018		123,812		130,200	*		139,273	*

* Revenue amount did not exceed 10 percent of net revenues for the respective segment for the year presented. Amount is shown for comparative purposes only.

A vast majority of this customer’s revenues were generated from drug acquisition costs related to PBM services which terminated on September 1, 2016. The Company continues to provide specialty drug formulary management services to the customer and is in negotiations with the customer to extend this contract.

Schedule of significant restricted assets

Significant restricted assets of the Company as of December 31, 2015 and 2016 were as follows (in thousands):


	2015		2016
Restricted cash and cash equivalents	$	133,597	$	81,776
Restricted short-term investments		277,556		227,795
Restricted deposits (included in other current assets)		27,752		38,785
Restricted long-term investments		3,826		6,306
Total	$	442,731	$	354,662

Schedule of fair value of financial assets and liabilities

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of December 31, 2015 and 2016 (in thousands):


	December 31, 2015
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	88,817	$	—	$	88,817
Investments:
U.S. Government and agency securities		5,514		—		—		5,514
Obligations of government-sponsored enterprises (2)		—		50,525		—		50,525
Corporate debt securities		—		268,976		—		268,976
Certificates of deposit		—		1,150		—		1,150
Total assets held at fair value	$	5,514	$	409,468	$	—	$	414,982

Liabilities
Contingent consideration	$	—	$	—	$	92,426	$	92,426
Total liabilities held at fair value	$	—	$	—	$	92,426	$	92,426


	December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (3)	$	—	$	177,495	$	—	$	177,495
Investments:
U.S. Government and agency securities		5,817		—		—		5,817
Obligations of government-sponsored enterprises (4)		—		25,767		—		25,767
Corporate debt securities		—		272,219		—		272,219
Certificates of deposit		—		1,450		—		1,450
Total assets held at fair value	$	5,817	$	476,931	$	—	$	482,748

Liabilities
Contingent consideration	$	—	$	—	$	11,153	$	11,153
Total liabilities held at fair value	$	—	$	—	$	11,153	$	11,153

(1)

Excludes $160.2 million of cash held in bank accounts by the Company.

(2)

Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks.

(3)

Excludes $127.0 million of cash held in bank accounts by the Company.

(4)

Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association.

Summary of the Company's liability for contingent consideration

The following table summarizes the Company’s liability for contingent consideration (in thousands):


	December 31,		December 31,
	2015		2016
Balance as of beginning of period	$	58,153	$	92,426
Acquisition of 4D		19,290		—
Acquisition of TMG		—		2,244
Acquisition of AFSC		—		8,247
Changes in fair value		44,257		(104)
Payments		(29,274)		(91,660)
Balance as of end of period	$	92,426	$	11,153

Summary of short-term and long-term investments

The following is a summary of short-term and long-term investments at December 31, 2015 and 2016 (in thousands):


	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	5,524	$	—	$	(10)	$	5,514
Obligations of government-sponsored enterprises (1)		50,575		4		(54)		50,525
Corporate debt securities		269,340		—		(364)		268,976
Certificates of deposit		1,150		—		—		1,150
Total investments at December 31, 2015	$	326,589	$	4	$	(428)	$	326,165


	December 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	5,832	$	—	$	(15)	$	5,817
Obligations of government-sponsored enterprises (2)		25,779		2		(14)		25,767
Corporate debt securities		272,479		1		(261)		272,219
Certificates of deposit		1,450		—		—		1,450
Total investments at December 31, 2016	$	305,540	$	3	$	(290)	$	305,253

(1)

Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks.

(2)

Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks.

Summary of maturity dates of investments

The maturity dates of the Company’s investments as of December 31, 2016 are summarized below (in thousands):


	Amortized		Estimated
	Cost		Fair Value
2017	$	297,748	$	297,493
2018		7,792		7,760
Total investments at December 31, 2016	$	305,540	$	305,253

Schedule of net property and equipment

Property and equipment, net, consisted of the following at December 31, 2015 and 2016 (in thousands):


	2015		2016
Building improvements	$	13,655	$	16,817
Equipment		207,667		204,743
Capital leases - property		26,945		26,945
Capital leases - equipment		12,335		14,729
Capitalized internal-use software		396,794		446,619
		657,396		709,853
Accumulated depreciation		(482,651)		(537,329)
Property and equipment, net	$	174,745	$	172,524

Schedule of allocation of goodwill by reporting units

Goodwill for each of the Company’s reporting units with goodwill at December 31, 2015 and 2016 were as follows (in thousands):



	2015		2016
Commercial	$	242,255	$	242,255
Government		18,363		108,321
Pharmacy Management		360,772		391,478
Total	$	621,390	$	742,054

Summary changes in the carrying amount of goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2016 are reflected in the table below (in thousands):



	2015		2016
Balance as of beginning of period	$	566,106	$	621,390
Acquisition of 4D		49,136		—
Acquisition of AFSC		—		76,736
Acquisition of Veridicus		—		30,705
Other acquisitions and measurement period adjustments		6,148		13,223
Balance as of end of period	$	621,390	$	742,054

Schedule of intangible assets

The following is a summary of intangible assets at December 31, 2015 and 2016, and the estimated useful lives for such assets (in thousands):


	December 31, 2015
					Weighted Avg		Gross				Net
	Original				Remaining		Carrying		Accumulated		Carrying
Asset	Useful Life				Useful Life		Amount		Amortization		Amount
Customer agreements and lists	2.5	to	18	years	6.8	years	$	274,790	$	(148,795)	$	125,995
Provider networks and other	1	to	16	years	4.7	years		16,663		(9,284)		7,379
							$	291,453	$	(158,079)	$	133,374


	December 31, 2016
					Weighted Avg		Gross				Net
	Original				Remaining		Carrying		Accumulated		Carrying
Asset	Useful Life				Useful Life		Amount		Amortization		Amount
Customer agreements and lists	2.5	to	18	years	6.4	years	$	357,708	$	(181,588)	$	176,120
Provider networks and other	1	to	16	years	4.3	years		18,240		(12,008)		6,232
AFSC trade name	indefinite				indefinite			3,880		—		3,880
							$	379,828	$	(193,596)	$	186,232

Schedule of changes in medical claims payable

The following table presents the components of the change in medical claims payable for the years ended December 31, 2014, 2015 and 2016 (in thousands):


	2014		2015		2016
Claims payable and IBNR, beginning of period	$	242,229	$	278,803	$	253,299
Cost of care:
Current year		2,097,395		2,297,255		1,892,914
Prior years(3)		(8,800)		(22,500)		(10,300)
Total cost of care		2,088,595		2,274,755		1,882,614
Claim payments and transfers to other medical liabilities(1):
Current year		1,845,325		2,077,729		1,733,310
Prior years		206,696		222,530		213,985
Total claim payments and transfers to other medical liabilities		2,052,021		2,300,259		1,947,295
Claims payable and IBNR, end of period		278,803		253,299		188,618
Withhold receivables, end of period(2)		(321)		(2,850)		(4,482)
Medical claims payable, end of period	$	278,482	$	250,449	$	184,136

(1)

For any given period, a portion of unpaid medical claims payable could be covered by reinvestment liability (discussed below) and may not impact the Company’s results of operations for such periods.

(2)

Medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred.

Favorable development in 2014, 2015 and 2016 was $8.8 million, $22.5 million and $10.3 million, respectively, and was mainly related to lower medical trends and faster claims completion than originally assumed.