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Summary of Accounting Policies (Policies)

12 Months Ended

Jan. 01, 2016

Basis of Consolidation and Description Of Business

The consolidated financial statements include the accounts of Almost Family, Inc. (a Delaware corporation) and its wholly-owned subsidiaries (collectively “Almost Family” or the “Company”). The Company is a leading, regionally focused provider of home health services and has service locations in Florida, Ohio, Tennessee, New York, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Illinois, Pennsylvania, Georgia, Missouri, Mississippi and Alabama (in order of revenue significance).

The Company was incorporated in Delaware in 1985. Through a predecessor that merged into the Company in 1991, the Company has been providing health care services, primarily home health care, since 1976. All material intercompany transactions and accounts have been eliminated in consolidation.

On November 5, 2015, the Company completed the acquisition of Black Stone Operations, LLC (“Black Stone”). Black Stone owned and operated personal care and skilled home health services in western Ohio. On August 29, 2015, the Company completed the acquisition of Bracor, Inc. (dba WillCare). WillCare owned and operated Visiting Nurse (“VN”) and Personal Care (“PC”) branch locations in New York (12), and Connecticut (1). On July 22, 2015, the Company acquired Ingenios Health (“Ingenios”). Ingenios is a leading provider of technology enabled in-house clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange lives in seven states and Washington, D.C. On March 2, 2015, the Company acquired the stock of Willcare’s Ohio operations. On January 29, 2015, the Company acquired a noncontrolling interest in a development stage analytics and software company, NavHealth, Inc. (“NavHealth”). The results of operations for WillCare and Black Stone are reported in the Company’s VN and PC segments, while Ingenios results are included in the Company’s Healthcare Innovations segment.

On December 6, 2013, the Company completed the acquisition of Omni Home Health Holdings, Inc. (“SunCrest”). Branded principally under the SunCrest name, its subsidiaries owned and operated 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama. On October 4, 2013, the Company acquired a controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that provides strategic health management services to Accountable Care Organizations (“ACOs”). On July 17, 2013, the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network (“IHCN”). The acquisitions are more fully described in Note 12, “Acquisitions”. The results of operations for SunCrest and IHCN are principally reported within the Company’s VN reportable segment, while Imperium results are included in the Company’s Healthcare Innovations segment. The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (US GAAP). All intercompany balances and transactions have been eliminated.

Fiscal Year End

Effective with the first quarter of 2015, the Company adopted a 52-53 week fiscal reporting calendar under which it will report its annual results going forward in four equal 13-week quarters. Every fifth year, one quarter will include 14 weeks and that year will include 53 weeks of operating results.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Uninsured deposits at January 1, 2016 and December 31, 2014 were approximately $4,681 and $4,183 respectively. These amounts have been deposited with national financial institutions.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives (generally two to ten years for medical and office equipment and three years for internally developed software). Leasehold improvements are depreciated over the terms of the respective leases (generally three to ten years). Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of property, plant and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

Goodwill and Other Intangible Assets

Goodwill and indefinite lived intangible assets acquired are stated at fair value at the date of acquisition. Subsequent to acquisition, the Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company reviews goodwill for impairment based on its identified reporting units, which are the same as its reportable segments. The Company tests goodwill for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using a combination of the market approach (guideline company and similar transaction method) and income approach (discounted cash flow analysis). The Company annually tests its indefinite-lived intangible assets, principally trade names, certificates of need, provider numbers and licenses. Specifically trade names are tested using a “relief-from-royalty” valuation method compared to the carrying value. Significant assumptions inherent in the valuation methodologies for goodwill and other intangibles are employed and include, but are not limited to, such estimates as future projected business results, growth rates, legislated changes in payment rates, weighted-average cost of capital for a market participant, royalty and discount rates. The Company has completed its most recent annual impairment tests as of January 1, 2016 and determined that no impairment existed.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, such as the cost of non-compete agreements for which their estimated useful life is usually 3 years, beginning after the earn-out period, if any.

The following table summarizes the activity related to the Company’s goodwill and other intangible assets:


			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete
	Goodwill		Licenses		Names		Agreements		Total
Balances at December 31, 2013	$	192,489	$	38,321	$	14,781	$	72	$	53,174
Acquisitions		—		1,290		—		—		1,290
Changes		34		—		—		—		—
Amortization		—		—		(10)		(52)		(62)
Balances at December 31, 2014	$	192,523	$	39,611	$	14,771	$	20	$	54,402
Acquisitions		84,538		6,433		3,640		180		10,253
Amortization		—		—		(10)		(16)		(26)
Balances at January 1, 2016	$	277,061	$	46,044	$	18,401	$	184	$	64,629

See Note 12 for further discussion of acquisitions.

The following table summarizes the Company’s goodwill and other intangible assets by segment:


			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete
	Goodwill		Licenses		Names		Agreements		Total
Visiting Nurse	$	147,368	$	38,831	$	11,391	$	10	$	50,232
Personal Care		37,571		780		3,380		10		4,170
Healthcare Innovations		7,584		—		—		—		—
December 31, 2014 balance	$	192,523	$	39,611	$	14,771	$	20	$	54,402

Visiting Nurse	$	186,384	$	42,884	$	13,206	$	92	$	56,182
Personal Care		72,773		3,160		5,195		92		8,447
Healthcare Innovations		17,904		—		—		—		—
January 1, 2016 balance	$	277,061	$	46,044	$	18,401	$	184	$	64,629

Capitalization Policies

Maintenance, repairs and minor replacements are charged to expense as incurred. Major renovations and replacements are capitalized to appropriate property and equipment accounts. Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and the related gain or loss is recognized in the consolidated statement of income.

The Company capitalizes the cost of internally developed computer software for the Company’s own use. Software development costs of approximately $788, $327 and $647 were capitalized in the years ended January 1, 2016, December 31, 2014 and 2013, respectively.

Insurance Programs

The Company bears significant risk under its large-deductible workers’ compensation insurance program and its self-insured employee health program. Under the workers’ compensation insurance program, the Company bears risk up to $400 per incident, except for a recent acquisition that has not yet been folded into the Company’s program and has a stop-loss of $750, after which stop-loss coverage is maintained. The Company purchases stop-loss insurance for the employee health plan that places a specific limit, generally $300, on its exposure for any individual covered life.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against the Company by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. The Company currently carries professional and general liability insurance coverage (on a claims made basis) for this exposure with no deductible. The Company also carries D&O coverage (also on a claims made basis) for potential claims against the Company’s directors and officers, including securities actions, with deductibles ranging from $175 to $500 per claim.

The Company records estimated liabilities for its insurance programs based on information provided by the third-party plan administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance policies in other current assets, while recording the estimated carrier liability in other current liabilities. As facts change, it may become necessary to make adjustments that could be material to the Company’s results of operations and financial condition.

Accounting for Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the Company’s book and tax bases of assets and liabilities and tax carry-forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of changes in tax rates on deferred taxes is recognized in the period in which the enactment dates change. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized.

Seasonality

The Company’s VN segment operations located in Florida (which generated approximately 24% of that segment’s revenues in the year ended January 1, 2016) normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations.

Net Service Revenues

The Company is paid for its services primarily by federal and state third-party reimbursement programs, commercial insurance companies, and patients. Revenues are recorded at established rates in the period during which the services are rendered. Appropriate allowances to give recognition to third party payment arrangements are recorded when the services are rendered.

Approximately 71% of the Company’s consolidated net service revenues are derived from the Medicare program. Net service revenues are recorded under the Medicare prospective payment program (PPS) based on a 60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) changes in the base episode payments established by the Medicare program; (b) adjustments to the base episode payments for case-mix and geographic wages; (c) a low utilization payment adjustment (LUPA) if the number of visits was fewer than five; (d) a partial payment if a patient is transferred to another provider or if a patient is received from another provider before completing the episode; (e) a payment adjustment based upon the level of therapy services required (thresholds set at 6, 14 and 20 visits); (f) an outlier payment if the patient’s care was unusually costly (capped at 10% of total reimbursement); (g) the number of episodes of care provided to a patient; and (h) a 2% reduction for sequestration.

At the beginning of each Medicare episode the Company calculates an estimate of the amount of expected reimbursement based on the variables outlined above and recognizes Medicare revenue on an episode-by-episode basis during the course of each episode over its expected number of visits. Over the course of each episode, as changes in the variables become known, adjustments are calculated and recorded as needed to reflect changes in expectations for that episode from those established at the start of the 60 day period until its ultimate outcome at the end of the 60 day period is known.

Substantially all remaining revenues are earned on a per visit, hour or unit basis (as opposed to episodic). For all services provided, the Company uses either payor-specific or patient-specific fee schedules for the recording of revenues at the amounts actually expected to be received.

Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. It is common for issues to arise related to: 1) medical coding, particularly with respect to Medicare, 2) patient eligibility, particularly related to Medicaid, and 3) other reasons unrelated to credit risk, all of which may result in adjustments to recorded revenue amounts. The Company continuously evaluates the potential for revenue adjustments and when appropriate provides allowances for losses based upon the best available information. There is at least a reasonable possibility that recorded estimates could change by material amounts in the near term. Changes in estimates related to prior periods (increased) decreased revenues by approximately ($365), ($320), and $114 in the years ended January 1, 2016, December 31, 2014 and 2013, respectively.

Revenue and Receivable Concentrations

The following table sets forth the percent of the Company’s revenues generated from Medicare, state Medicaid programs and other payors for the fiscal year ended:


	January 1, 2016		December 31, 2014		December 31, 2013
Medicare	71.4	%	72.4	%	71.2	%
Medicaid & other government programs:
Ohio	9.1	%	8.8	%	11.7	%
Connecticut	5.5	%	5.5	%	7.1	%
Tennessee	3.2	%	2.5	%	0.2	%
Kentucky	1.7	%	1.8	%	2.3	%
New York	1.7	%	—	%	—	%
Florida	0.9	%	0.6	%	0.7	%
Others	0.4	%	0.4	%	0.5	%
Subtotal	22.5	%	19.6	%	22.5	%
All other payors	6.1	%	8.0	%	6.3	%
Total	100.0	%	100.0	%	100.0	%

Concentrations in the Company’s accounts receivable were as follows:


	January 1, 2016				December 31, 2014
	Amount		Percent		Amount		Percent
Medicare	$	50,369	45.9	%	$	46,342	55.5	%
Medicaid & other government programs:
Ohio		8,627	7.9	%		9,239	11.1	%
Tennessee		8,038	7.3	%		5,617	6.7	%
New York		3,207	2.9	%		—	—	%
Kentucky		3,055	2.8	%		3,686	4.4	%
Florida		2,702	2.5	%		1,804	2.2	%
Connecticut		2,693	2.5	%		3,982	4.8	%
Others		1,156	1.1	%		1,031	1.2	%
Subtotal		29,478	26.9	%		25,359	30.4	%
All other payors		29,937	27.3	%		11,781	14.1	%
Subtotal		109,784	100.0	%		83,482	100.0	%
Allowances		(17,514)				(8,880)
Total	$	92,270			$	74,602

The ability of payors to meet their obligations depends upon their financial stability, future legislation and regulatory actions. The Company does not believe there are any significant credit risks associated with receivables from Federal and state third-party reimbursement programs. The allowance for uncollectible accounts principally consists of management’s estimate of amounts that may prove uncollectible for coverage, eligibility and technical reasons.

Payor Mix Concentrations and Related Aging of Accounts Receivable

The approximate breakdown by payor classification as a percent of total accounts receivable, net of contractual allowances, if any, were as follows:


	January 1, 2016
Payor	0-90		91-180		181-365		>1 yr.		Total
Medicare	26	%	10	%	7	%	3	%	46	%
Medicaid & Government	12	%	4	%	8	%	3	%	27	%
Self Pay	6	%	1	%	1	%	1	%	9	%
Insurance	7	%	2	%	5	%	4	%	18	%
Total	51	%	17	%	21	%	11	%	100	%


	December 31, 2014
Payor	0-90		91-180		181-365		>1 yr.		Total
Medicare	36	%	13	%	7	%	0	%	56	%
Medicaid & Government	19	%	6	%	4	%	1	%	30	%
Self Pay	1	%	0	%	2	%	0	%	3	%
Insurance	6	%	3	%	2	%	0	%	11	%
Total	62	%	22	%	15	%	1	%	100	%

Variations between years are largely attributable to the WillCare and Black Stone acquisitions.

Allowance for Uncollectible Accounts by Payor Mix and Related Aging

The Company records an estimated allowance for uncollectible accounts by applying estimated bad debt percentages to its accounts receivable aging. The percentages to be applied by payor type are based on the Company’s historical collection and loss experience. The Company’s effective allowances for uncollectible accounts as a percent of accounts receivable were as follows:


	January 1, 2016
Payor	0-90		91-180		181-365		>1 yr.		>2 yrs.
Medicare	3	%	6	%	36	%	55	%	100	%
Medicaid & Government	4	%	5	%	44	%	46	%	100	%
Self Pay	4	%	3	%	34	%	59	%	100	%
Insurance	3	%	5	%	36	%	56	%	100	%
Total	3	%	5	%	38	%	53	%	100	%


	December 31, 2014
Payor	0-90		91-180		181-365		>1 yr.		>2 yrs.
Medicare	0	%	0	%	8	%	75	%	100	%
Medicaid & Government	1	%	8	%	31	%	66	%	100	%
Self Pay	1	%	12	%	51	%	74	%	100	%
Insurance	5	%	22	%	46	%	83	%	100	%
Total	1	%	6	%	23	%	74	%	100	%

Variations between years are largely attributable to the WillCare and Black Stone acquisitions.

The Company’s allowance for uncollectible accounts at January 1, 2016 and December 31, 2014 was approximately $17,514 and $8,880, respectively. The increase is primarily due to the timing of write-offs and to a lesser degree, the 2015 acquisitions.

Contingent Service Revenues

The Company, through its Imperium acquisition, provides strategic health management services to ACOs that have been approved to participate in the Medicare Shared Savings Program (“MSSP”). In some cases, the Company also had ownership interests in ACOs beginning January 1, 2015.

ACOs are entities that contract with CMS to serve the Medicare fee-for-service population with the goal of better care for individuals, improved health for populations and lower costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The MSSP is relatively new and therefore has limited historical experience, which impacts the Company’s ability to accurately accumulate and interpret the data available for calculating an ACOs’ shared savings, if any. MSSP payments are not recognized in revenue until persuasive evidence of an agreement exists, services have been rendered, the payment is fixed and determinable and collectability is insured, which is generally satisfied upon cash receipt. Under such agreements, the Company recognized $1.4 million and $1.6 million in MSSP payments for cash received during 2015 and 2014, respectively, related to savings generated for the program period ended December 31, 2013 and December 31, 2014, respectively, which is included in the Company’s Healthcare Innovations segment revenues. The Company has yet to recognize MSSP payments, if any, for savings generated through January 1, 2016

Net Income per Share

Weighted Average Shares

Net income per share is presented as a unit of basic shares outstanding and diluted shares outstanding. Diluted shares outstanding is computed based on the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares result from dilutive stock options and unvested restricted shares. The following table is a reconciliation of basic to diluted shares used in the earnings per share calculation for the fiscal year ended:


	January 1, 2016	December 31, 2014	December 31, 2013
Basic weighted average outstanding shares	9,505	9,333	9,279
Dilutive effect of outstanding compensation awards	240	129	95
Diluted weighted average outstanding shares	9,745	9,462	9,374

The assumed conversions to common stock of 20, 94, and 195 of the Company’s outstanding stock options were excluded from the diluted EPS computation in 2015, 2014, and 2013, respectively, because these items, on an individual basis, have an anti-dilutive effect on diluted EPS.

Financial Statement Reclassifications

Certain prior period amounts and data have been reclassified in the financial statements and related notes in order to conform to the 2015 presentation.

Stock-Based Compensation

Stock options and restricted stock are granted under various stock compensation programs to employees and independent directors. The Company accounts for such grants in accordance with ASC Topic 718, Compensation — Stock Compensation and amortizes the fair value of awards, after estimated forfeiture, on a straight-line basis over the requisite service periods.

Accounting for Leases

The Company accounts for operating leases using the straight-line rents method, which amortizes contracted total rents due evenly over the lease term.

Advertising Costs

The Company expenses the costs of advertising, as incurred. Advertising expense was $393, $306 and $326 for the years ended January 1, 2016, December 31, 2014 and 2013, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), during the second quarter of 2014. Topic 606 affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers. Topic 606 is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the effect of the adoption of Topic 606 on its financial position and results of operations.

In April 2014, the FASB issued ASU No. 2014-18, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which includes amendments of Accounting Standards Codification (ASC 205 Presentation of Financial Statements and ASC 360 Property, Plant and Equipment) which limits the requirement for discontinued operations treatment to the disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Additionally, this new guidance no longer precludes discontinued operations presentation based on continuing involvement or cash flows following the disposal. This guidance became effective prospectively for the Company on January 1, 2015, and will impact the Company’s determination and disclosure of discontinued operations treatment for subsequent qualifying divestitures, if any.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. In certain cases, Subtopic 835-30 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Subtopic 835-30 is effective for annual and interim periods beginning after December 15, 2015. The Company does not expect ASU No. 2015-03 to materially affect its financial position and results of operation.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Subtopic 350-40 provides guidance that all software licenses included in cloud computing arrangement be accounted for consistent with other licenses of intangible assets. However if a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract, the accounting for which did not change. Subtopic 350-40 is effective for annual and interim periods beginning after December 15, 2015. The Company does not expect ASU No. 2015-05 to materially affect its financial position and results of operations.

In November 2015, the FASB issued ASU no. 2015-17, Balance Sheet Classification of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The Company elected to early adopt this guidance with retrospective treatment which required reclassification of the consolidated balance sheet. Accordingly, $12.2 million was reclassified in the prior year presentation to confirm with the current year presentation.