Goodwill

Changes in goodwill by reportable segments were as follows:



	U.S. dialysis and related lab services			DMG			Other-ancillary services and strategic initiatives			Consolidated total
Balance at January 1, 2016	$	5,629,183		$	3,398,264		$	267,032		$	9,294,479
Acquisitions	75,295			248,901			123,632			447,828
Divestitures	(12,891		)	(2,223		)	(29,645		)	(44,759		)
Goodwill impairment charges	—			(253,000		)	(28,415		)	(281,415		)
Foreign currency and other adjustments	—			—			(8,816		)	(8,816		)
Balance at December 31, 2016	$	5,691,587		$	3,391,942		$	323,788		$	9,407,317
Acquisitions	46,569			14,989			17,171			78,729
Divestitures	(14,110		)	(29		)	—			(14,139		)
Goodwill impairment charges	—			—			(24,198		)	(24,198		)
Foreign currency and other adjustments	—			—			4,761			4,761
Balance at March 31, 2017	$	5,724,046		$	3,406,902		$	321,522		$	9,452,470

Balance at March 31, 2017:
Goodwill	5,724,046			3,848,671			380,044			9,952,761
Accumulated impairment charges	—			(441,769		)	(58,522		)	(500,291		)
	$	5,724,046		3,406,902			321,522			9,452,470

The Company elected to early adopt ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment effective for the quarter ended March 31, 2017. The amendments in this ASU simplify the test for goodwill impairment by eliminating the second step in the assessment. All goodwill impairment tests performed during the quarter ended March 31, 2017 were performed under this new guidance.

Each of the Company’s operating segments described in Note 17 to these condensed consolidated financial statements represents an individual reporting unit for goodwill impairment testing purposes, except that each sovereign jurisdiction within the Company’s international operating segments is considered a separate reporting unit.

Within the U.S. dialysis and related lab services operating segment, the Company considers each of its dialysis centers to constitute an individual business for which discrete financial information is available. However, since these dialysis centers have similar operating and economic characteristics, and the allocation of resources and significant investment decisions concerning these businesses are highly centralized and the benefits broadly distributed, the Company has aggregated these centers and deemed them to constitute a single reporting unit.

The Company has applied a similar aggregation to the DMG operations in each region, to the vascular access service centers in its vascular access reporting unit, to the physician practices in its physician services and direct primary care reporting units, and to the dialysis centers within each international reporting unit. For the Company’s other operating segments, discrete business components below the operating segment level constitute individual reporting units.

Based on continuing developments at the Company’s DMG and vascular access reporting units during the first quarter of 2017, the Company performed impairment assessments for certain at-risk reporting units.

The Company has recognized goodwill impairment charges as shown and discussed below:



	Three months ended
Reporting unit	March 31, 2017		March 31, 2016
DMG Nevada	$	—	$	77,000
Vascular access	24,198		—
Total	$	24,198	$	77,000

During the quarter ended December 31, 2016, the Company determined that circumstances indicated it had become more likely than not that the goodwill of its vascular access reporting unit had become impaired. These circumstances included changes in future governmental reimbursement and the Company’s expected ability to mitigate them. Specifically, on November 2, 2016, the Centers for Medicare and Medicaid Services (CMS) released the 2017 Physician Fee Schedule Final Rule and the Ambulatory Surgical Center Payment Final Rule which reflected significant changes in reimbursement structure for this business unit. Accordingly, the Company performed the required valuations to estimate the fair value of the net assets and implied goodwill of this reporting unit and recognized a goodwill impairment charge of $28,415 in the fourth quarter of 2016.

During the quarter ended March 31, 2017, the Company recognized an incremental goodwill impairment charge of $24,198 at its vascular access reporting unit. This additional charge resulted primarily from changes in the Company’s outlook since the fourth quarter of 2016. The Company’s partners and operators have been evaluating potential changes in operations, including termination of their management services agreements and center closures, as a result of recent changes in Medicare reimbursement. These ongoing evaluations could lead to additional impairment charges in future quarters.

During the quarter ended March 31, 2016, the Company recognized goodwill impairment charges of $77,000 at its DMG Nevada reporting unit. This charge resulted primarily from changes in expectations concerning government reimbursement and the Company’s expected ability to mitigate them, medical cost trends, and other market conditions.

Further reductions in reimbursement rates, increases in medical cost or utilization trends, or other significant adverse changes in expected future cash flows or valuation assumptions could result in goodwill impairment charges in the future for the following reporting units, which remain at risk of goodwill impairment:



	Goodwill balance as of March 31, 2017		Carrying amount coverage⁽¹⁾		Sensitivities
					Operating income⁽²⁾		Discount rate⁽³⁾
Reporting unit					Operating income⁽²⁾		Discount rate⁽³⁾
DMG Nevada	$	261,204	14.0	%	(2.7	)%	(3.9	)%
DMG Florida	$	447,073	10.5	%	(1.6	)%	(2.8	)%
DMG New Mexico	$	70,926	4.9	%	(1.5	)%	(2.3	)%
DMG Washington	$	245,576	2.0	%	(1.7	)%	(3.0	)%
Vascular Access	$	10,498	0.0	%	(1.7	)%	(4.9	)%


(1)	Excess of estimated fair value of the reporting unit over carrying amount as of the latest assessment date.


(2)	Potential impact on estimated fair value of a sustained, long-term reduction of 3% in operating income as of the latest assessment date.


(3)	Potential impact on estimated fair value of an increase in discount rates of 100 basis points as of the latest assessment date.

Except as described above, none of the Company’s various other reporting units were considered at risk of goodwill impairment as of March 31, 2017. Since the dates of the Company’s last annual goodwill impairment tests, there have been certain developments, events, changes in operating performance and other changes in key circumstances that have affected the Company’s businesses. However, except as further described above, these did not cause management to believe it is more likely than not that the fair value of any of its reporting units would be less than their carrying amounts.