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Accounts Receivable, Sales and Allowances
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Accounts Receivable, Sales and Allowances Accounts Receivable, Sales and Allowances

The nature of the Company’s business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. This is typical of the pharmaceutical industry and is not necessarily specific to the Company. Depending on the product, the end-user customer, the specific terms of national supply contracts and the particular arrangements with the Company’s wholesale customers, certain rebates, chargebacks and other credits are deducted from the Company’s accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end-user customer (which in turn depends on the specific end-user customer, each having its own pricing arrangement that entitles it to a particular deduction). This process can lead to partial payments to the Company against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

With the exception of the provision for doubtful accounts, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected as a reduction of revenues in the accompanying consolidated statements of comprehensive (loss). Additionally, with the exception of administrative fees and others, which is included as a current liability, the ending reserve balances are included in trade accounts receivable, net in the Company’s consolidated balance sheets.

Trade accounts receivable, net consists of the following (in thousands):
 
December 31,
 
2019
 
2018
Gross accounts receivable (1)
$
258,173

 
$
308,305

Less reserves for:
 
 
 
Chargebacks (2)
(40,498
)
 
(55,312
)
Rebates (3)
(42,515
)
 
(55,963
)
Product returns
(33,127
)
 
(35,146
)
Discounts and allowances
(5,816
)
 
(6,561
)
Advertising and promotions
(1,508
)
 
(1,574
)
Doubtful accounts
(536
)
 
(623
)
Trade accounts receivable, net
$
134,173

 
$
153,126



(1) The reduction in the Gross accounts receivable balance as of December 31, 2019 when compared to the December 31, 2018 balance is due to the decline in gross sales in 2019 compared to the prior year.

(2) The decrease in the reserve for chargebacks as of December 31, 2019 compared to December 31, 2018 is primarily due to volume declines and changes in product and customer mix.

(3) The decrease in the reserve for rebates as of December 31, 2019 compared to December 31, 2018 is primarily due to volume declines, lower failure to supply penalties and timing of payments and settlements.

For the years ended December 31, 2019, 2018 and 2017, the Company recorded the following adjustments to gross sales (in thousands):
 
Year ended December 31,
 
2019
 
2018
 
2017
Gross sales
$
1,674,196

 
$
1,887,862

 
$
2,351,071

Less adjustments for:
 
 
 
 
 
Chargebacks (1)
(678,204
)
 
(830,038
)
 
(953,326
)
Rebates, administrative fees and others (2)
(241,548
)
 
(297,802
)
 
(476,601
)
Product returns (3)
(30,699
)
 
(20,162
)
 
(26,874
)
Discounts and allowances
(32,555
)
 
(36,933
)
 
(45,292
)
Advertising, promotions, and others
(8,761
)
 
(8,909
)
 
(7,933
)
Revenues, net
$
682,429

 
$
694,018

 
$
841,045



(1) The decrease in chargeback expense in 2019, compared to 2018 was due to volume declines as well as changes in product and customer mix.

(2) The decrease in rebates, administrative fees and other expenses in 2019, compared to 2018 was primarily due to volume declines and lower failure to supply penalties.

(3) The dollar increase in 2019, compared to 2018 was primarily due to unfavorable outcome on disputed returns claims.

The annual activity in the Company’s allowance for customer deductions accounts for the three years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):
 
Chargebacks
 
Rebates (1)
 
Returns
 
Discounts
 
Doubtful Accounts
 
Advertising & Promotions
 
Total
Balance at December 31, 2016
$
80,360

 
$
97,935

 
$
43,689

 
$
12,389

 
$
960

 
$
688

 
$
236,021

Provision
953,326

 
416,125

 
26,874

 
45,292

 
—

 
7,933

 
1,449,550

Charges processed
(959,702
)
 
(402,115
)
 
(28,876
)
 
(49,902
)
 
(280
)
 
(7,320
)
 
(1,448,195
)
Balance at December 31, 2017
$
73,984

 
$
111,945

 
$
41,687

 
$
7,779

 
$
680

 
$
1,301

 
$
237,376

Provision
830,038

 
257,417

 
20,162

 
36,933

 
—

 
8,909

 
1,153,459

Charges processed
(848,710
)
 
(313,399
)
 
(26,703
)
 
(38,151
)
 
(57
)
 
(8,636
)
 
(1,235,656
)
Balance at December 31, 2018
$
55,312

 
$
55,963

 
$
35,146

 
$
6,561

 
$
623

 
$
1,574

 
$
155,179

Provision
678,204

 
218,635

 
30,699

 
32,555

 
—

 
8,761

 
968,854

Charges processed
(693,018
)
 
(232,083
)
 
(32,718
)
 
(33,300
)
 
(87
)
 
(8,827
)
 
(1,000,033
)
Balance at December 31, 2019
$
40,498

 
$
42,515

 
$
33,127

 
$
5,816

 
$
536

 
$
1,508

 
$
124,000



(1) As provisions for rebates, administrative fees and others represent both contra-receivables and current liabilities, depending on the method of settlement, the cumulative provision relating to rebates, administrative fees and others is bifurcated as applicable based on the associated consolidated balance sheet classification. Accordingly, for the years ended December 31, 2019, 2018 and 2017, an additional $22.9 million, $40.4 million and $60.5 million, respectively, of provision was associated with administrative fees and others.

Provisions and utilizations of provisions activity in the current period which relate to prior period revenues are not provided because to do so would be impracticable. Our current systems and processes do not capture the chargeback and rebate settlements by the period in which the original sales transaction was recorded. Chargeback and rebate claims are not submitted by customers with sufficient details to link the accrual recorded at the point of sale with the settlement of the accrual. As a result, the Company is unable to reasonably determine the dollar amount of the change in estimate in its gross
to net reporting reflected in its results of operations for each period presented, and, those changes could be significant; however, the Company uses a combination of factors and applications to estimate the dollar amount of reserves for chargebacks and rebates at each balance sheet date. The Company regularly monitors the chargeback reserve based on an analysis of the Company’s product sales and most recent claims, wholesaler inventory, current pricing, and anticipated future pricing changes. If claims are different from the estimate due to changes from estimated rates, accrual rate adjustments are considered prospectively when determining provisions in accordance with authoritative GAAP.