Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2017

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 Contract 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, 2015, 2016 and 2017 (in thousands):


Segment	Term Date	2015		2016			2017

Healthcare
None

Pharmacy Management
Customer A	December 31, 2016 (1)	$	324,809	$	264,152		$	4,764	*
Customer B	March 31, 2019		—		152,218	*		346,405

* 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, 2016 and 2017 were as follows (in thousands):


	2016		2017
Restricted cash and cash equivalents	$	81,776	$	229,013
Restricted short-term investments		227,795		219,111
Restricted deposits (included in other current assets)		38,785		41,121
Restricted long-term investments		6,306		17,287
Total	$	354,662	$	506,532

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, 2016 and 2017 (in thousands):


	December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	177,495	$	—	$	177,495
Investments:
U.S. Government and agency securities		5,817		—		—		5,817
Obligations of government-sponsored enterprises (2)		—		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


	December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (3)	$	—	$	284,064	$	—	$	284,064
Investments:
U.S. Government and agency securities		28,231		—		—		28,231
Obligations of government-sponsored enterprises (2)		—		22,088		—		22,088
Corporate debt securities		—		269,788		—		269,788
Taxable municipal bonds		—		5,000		—		5,000
Certificates of deposit		—		2,758		—		2,758
Total assets held at fair value	$	28,231	$	583,698	$	—	$	611,929

Liabilities
Contingent consideration	$	—	$	—	$	8,817	$	8,817
Total liabilities held at fair value	$	—	$	—	$	8,817	$	8,817

(1)

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

(2)

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

(3)

Excludes $114.7 million of cash held in bank accounts by the Company.

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,
	2016		2017
Balance as of beginning of period	$	92,426	$	11,153
Acquisition of TMG		2,244		—
Acquisition of AFSC		8,247		—
Changes in fair value		(104)		696
Payments		(91,660)		(3,032)
Balance as of end of period	$	11,153	$	8,817

Summary of short-term and long-term investments

The following is a summary of short-term and long-term investments at December 31, 2016 and 2017 (in thousands):


	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 (1)		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


	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	28,313	$	—	$	(82)	$	28,231
Obligations of government-sponsored enterprises (1)		22,139		—		(51)		22,088
Corporate debt securities		270,154		1		(367)		269,788
Taxable municipal bonds		5,000		—		—		5,000
Certificates of deposit		2,758		—		—		2,758
Total investments at December 31, 2017	$	328,364	$	1	$	(500)	$	327,865

(1)

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, 2017 are summarized below (in thousands):


	Amortized		Estimated
	Cost		Fair Value
2018	$	310,989	$	310,578
2019		17,375		17,287
Total investments at December 31, 2017	$	328,364	$	327,865

Schedule of net property and equipment

Property and equipment, net, consisted of the following at December 31, 2016 and 2017 (in thousands):


	2016		2017
Building improvements	$	16,817	$	17,974
Equipment		204,743		204,632
Capital leases - property		26,945		26,945
Capital leases - equipment		14,729		18,183
Capitalized internal-use software		446,619		486,013
		709,853		753,747
Accumulated depreciation		(537,329)		(595,109)
Property and equipment, net	$	172,524	$	158,638

Schedule of allocation of goodwill by reporting units

Goodwill for each of the Company’s reporting units with goodwill at December 31, 2016 and 2017 was as follows (in thousands):



	2016		2017
Commercial	$	242,255	$	242,255
Government		108,321		368,612
Pharmacy Management		391,478		395,421
Total	$	742,054	$	1,006,288

Summary of changes in the carrying amount of goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2017 are reflected in the table below (in thousands):



	2016		2017
Balance as of beginning of period	$	621,390	$	742,054
Acquisition of AFSC		76,736		—
Acquisition of Veridicus		30,705		1,647
Acquisition of SWH		—		260,139
Other acquisitions and measurement period adjustments		13,223		2,448
Balance as of end of period	$	742,054	$	1,006,288

Schedule of intangible assets

The following is a summary of intangible assets at December 31, 2016 and 2017, and the estimated useful lives for such assets (in thousands, except useful lives):


	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
Trade names	indefinite				indefinite			3,880		—		3,880
							$	379,828	$	(193,596)	$	186,232


	December 31, 2017
					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	5.3	years	$	441,346	$	(218,335)	$	223,011
Provider networks and other	1	to	16	years	3.0	years		25,410		(14,433)		10,977
Trade names and licenses	indefinite				indefinite			34,300		—		34,300
							$	501,056	$	(232,768)	$	268,288

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, 2015, 2016 and 2017 (in thousands):


	2015		2016		2017
Claims payable and IBNR, beginning of period	$	278,803	$	253,299	$	188,618
Cost of care:
Current year		2,297,255		1,892,914		2,421,270
Prior years(3)		(22,500)		(10,300)		(7,500)
Total cost of care		2,274,755		1,882,614		2,413,770
Claim payments and transfers to other medical liabilities(1):
Current year		2,077,729		1,733,310		2,210,346
Prior years		222,530		213,985		161,798
Total claim payments and transfers to other medical liabilities		2,300,259		1,947,295		2,372,144
Acquisition of SWH		—		—		96,398
Claims payable and IBNR, end of period		253,299		188,618		326,642
Withhold (receivables) payable, end of period(2)		(2,850)		(4,482)		983
Medical claims payable, end of period	$	250,449	$	184,136	$	327,625

(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 2015, 2016 and 2017 was $22.5 million, $10.3 million and $7.5 million, respectively, and was mainly related to lower medical trends and faster claims completion than originally assumed.