Allowance for Doubtful Accounts

12 Months Ended

Dec. 31, 2018

Note 8 — Allowance for Doubtful Accounts

The allowance for doubtful accounts is established when the Company determines that it is probable that receivables have been impaired and the Company can reasonably estimate the amount of the losses. The related provision for bad debts is charged to costs of services provided in the Company’s Consolidated Statements of Comprehensive Income. The allowance for doubtful accounts is evaluated based on the Company’s ongoing review of accounts and notes receivable and is inherently subjective as it requires estimates susceptible to significant revision as more information becomes available.

The Company has had varying collections experience with respect to its accounts and notes receivable. The Company has sometimes extended the period of payment for certain clients beyond contractual terms. Such clients include those who have terminated service agreements and slow payers experiencing financial difficulties. In order to provide for these collection problems and the general risk associated with the granting of credit terms, the Company recorded the following bad debt provisions (in an Allowance for Doubtful Accounts):


	Year Ended December 31,
	2018		2017		2016
	(in thousands)
Bad debt provision	$	51,387	$	6,250	$	4,629

The increase to the bad debt provision for 2018 related to multiple corporate restructurings of privately-held, multi-facility operators that occurred during 2018 that resulted in increased expense compared to the Company's historical experience.

In making the Company’s credit evaluations, in addition to analyzing and anticipating, where possible, the specific cases described above, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits, performs ongoing credit evaluations and monitors accounts to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, clients could be adversely affected if future industry trends change in such a manner as to negatively impact their cash flows. If the Company’s clients experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

Impaired Notes Receivable

The Company evaluates its notes receivable for impairment quarterly and on an individual client basis. Notes receivable are generally evaluated for impairment when the respective clients are in bankruptcy, are subject to collections activity or are slow payers that are experiencing financial difficulties. In the event that the evaluation results in a determination that a note receivable is impaired, it is valued at the present value of expected future cash flows or at the market value of related collateral. The increase in impaired notes receivable and the related reserve during the year ended December 31, 2018 related to the corporate restructuring of a privately held, multi-state operator that occurred during 2018. A result of the corporate restructuring was a long-term promissory note receivable of $10.0 million, net of reserve. Summary schedules of impaired notes receivable, and the related reserve, for the years ended December 31, 2018, 2017 and 2016 are as follows:


	Impaired Notes Receivable
Year Ended December 31,	Balance Beginning of Year		Additions		Deductions		Balance End of Year		Average Outstanding Balance
	(in thousands)
2018	$	6,854	$	23,382	$	4,532	$	25,704	$	15,448
2017	$	5,685	$	1,169	$	—	$	6,854	$	6,270
2016	$	6,471	$	—	$	786	$	5,685	$	6,078


	Reserve for Impaired Notes Receivable
Year Ended December 31,	Balance Beginning of Year		Additions		Deductions		Balance End of Year
	(in thousands)
2018	$	2,884	$	12,526	$	1,938	$	13,472
2017	$	2,419	$	465	$	—	$	2,884
2016	$	2,139	$	280	$	—	$	2,419

For impaired notes receivable, interest income is recognized on a cost recovery basis only. As a result, no interest income was recognized on impaired notes receivable. The Company follows an income recognition policy on all other notes receivable that do not recognize interest income until cash payments are received. This policy was established, recognizing the environment of the long-term care industry, and not because such notes receivable are necessarily impaired. The difference between income recognition on a full accrual basis and cash basis, for notes receivable that are not considered impaired, is not material.