Operations and Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Business | ' |
Business |
IPC The Hospitalist Company, Inc. and its subsidiaries (the “Company,” “IPC,” “we,” “us,” and “our”) is a national physician group practice company that operates and manages full-time hospitalist practices. Hospitalists focus on a patient’s care from the time of admission to discharge, working in close consultation with primary care physicians, other referring physicians and medical providers to coordinate the inpatient care delivery system and manage the entire inpatient episode of care. Our affiliated hospitalists practice in inpatient facilities, including acute care hospitals, long-term acute care facilities, specialty hospitals, psychiatric facilities and post-acute care facilities. The physicians are primarily full-time employees of our subsidiaries or consolidated Professional Medical Corporations, although part-time and temporary physicians are also employed or contracted on an as-needed basis. Also, unless otherwise expressly stated or the context otherwise requires, “our affiliated hospitalists” refer to physicians, nurse practitioners and physician assistants employed or contracted by either our wholly-owned subsidiaries or our Professional Medical Corporations. References to “practices” or “practice groups” refer to our Professional Medical Corporations and the wholly-owned subsidiaries of IPC that provide medical services, unless otherwise expressly stated or the context otherwise requires. |
Principles of Consolidation | ' |
Principles of Consolidation |
Our consolidated financial statements include the accounts of IPC The Hospitalist Company, Inc. and its wholly owned subsidiaries and our affiliated professional medical corporations, also called “affiliated professional organizations”, which we manage under long-term management agreements. Some states have laws that prohibit business entities, such as IPC, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions by physicians (collectively known as the corporate practice of medicine), or engaging in certain arrangements with physicians, such as fee-splitting. In states that have these restrictions, we operate by maintaining long-term management contracts with affiliated professional organizations, which are each owned and operated by physicians, and which employ or contract with additional physicians to provide hospitalist services. Under the management agreements, we provide and perform all non-medical management and administrative services, including financial management, information systems, marketing, risk management and administrative support. The management agreements have an initial term of 20 years and are automatically renewable for successive 10-year periods unless terminated by either party for cause. The management agreements are not terminable by the Professional Medical Corporations, except in the case of gross negligence, fraud, or other illegal acts by us, or bankruptcy of IPC. |
Through the management agreements and our relationship with the stockholders of the Professional Medical Corporations, we have exclusive authority over all non-medical decision making related to the ongoing business operations of the Professional Medical Corporations. Further, our rights under the management agreements are unilaterally salable or transferable. Based on the provisions of the agreements, we have determined that the Professional Medical Corporations are variable interest entities (VIE’s), and that we are the primary beneficiary because we have controls over the operations of these VIE’s, provide full financial and management support to them, and take all residual benefits and bear all residual losses from their operations. Consequently, we consolidate the revenue and expenses of the Professional Medical Corporations from the date of execution of the agreements. All intercompany balances and transactions have been eliminated in consolidation. |
Segment Reporting | ' |
Segment Reporting |
In accordance with U.S. generally accepted accounting principles (GAAP), the results of our operations are consolidated into a single reportable segment for purposes of presenting financial information. |
Revenue | ' |
Revenue |
Net revenue consists of fees for medical services provided by our affiliated hospitalists under fee-for-service, case rate and other professional fee arrangements with various payors including Medicare, Medicaid, managed care organizations, insurance companies and hospitals. For the years ended December 31, total patient volume consisted of the following percentage from Medicare and Medicaid programs: |
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| | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
Medicare and Medicaid patients | | | 53 | % | | | 52 | % | | | 51 | % | | | | | | | | | | | | | | | | | | | | |
Net revenue is reported in the period in which services are provided at amounts expected to be collected, which excludes contractual discounts and an estimate of uncollectible accounts. The process of estimating the ultimate amount of revenue to be collected is highly subjective and requires the application of our judgment based on many factors, including contractual reimbursement rates, payor mix, age of receivables, historical cash collection experience and other relevant information. We write off uncollectible accounts receivable from our billing system after reasonable collection efforts have been exhausted. The following amounts, which are excluded from our net revenues, represent an estimate of uncollectible patient copayments and deductible accounts related to patient services during the years ended December 31 (in thousands): |
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| | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
Uncollectible accounts excluded from net revenue | | $ | 15,274 | | | $ | 14,611 | | | $ | 13,539 | | | | | | | | | | | | | | | | | | | | | |
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Use of Estimates | ' |
Use of Estimates |
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions of the fair value of certain reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the financial statements are prepared. Significant estimates include the estimated net realizable value of accounts receivable, medical malpractice insurance receivable and payable for known claims, liabilities for claims incurred but not reported (IBNR) related to medical malpractice, fair value of contingent consideration related to business combinations and the analysis of goodwill for impairment. |
The process of estimating these assets and liabilities involves judgment decisions, which are subject to an inherent degree of uncertainty. Actual results could differ from those estimates. |
Fair Value of Financial Instruments | ' |
Fair Value of Financial Instruments |
Our consolidated balance sheets as of December 31, 2013 and 2012 included the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, payable for practice acquisitions and long-term debt. We consider the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying amount of our long-term debt borrowed from our line of credit in December 2013 approximated its fair value at December 31, 2013. Pursuant to GAAP, we determine the fair value of our long-term borrowing using inputs that can be corroborated by observable market data, which is defined as a Level 2 input under GAAP’s fair value hierarchy. |
Our payable for practice acquisitions consisted of accrued contingent consideration for practice acquisitions, which is carried at fair value determined using the income approach with unobservable inputs defined as Level 3 inputs under GAAP. See Note 3 for more information. |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents |
Our cash and cash equivalents consist of bank deposits, money market accounts and short-term securities with maturities of three months or less. |
Accounts Receivable and Concentrations of Credit Risk | ' |
Accounts Receivable and Concentrations of Credit Risk |
Accounts receivable primarily consists of amounts due from third-party payors, including government sponsored Medicare and Medicaid programs, and insurance companies, and amounts due from hospitals, and patients. Accounts receivable are recorded and stated at the amount expected to be collected. The following amounts which are excluded from our accounts receivable, represent an estimate of uncollectible accounts at December 31 (in thousands): |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for uncollectible accounts | | $ | 6,510 | | | $ | 4,837 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Except with respect to the Medicare and Medicaid programs, concentrations of credit risk, which consist primarily of accounts receivable, is limited due to the large number of payors comprising our diverse payor mix and patient base. Geographically, approximately 59%, 60% and 62% of our net revenue in 2013, 2012 and 2011, respectively, was generated by our operations in five states: Arizona, Florida, Michigan, Missouri and Texas. As of December 31, accounts receivable from Medicare and Medicaid made up the following percentage of total net accounts receivable: |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Percentage of receivables from Medicare and Medicaid | | | 43 | % | | | 36 | % | | | | | | | | | | | | | | | | | | | | | | | | |
Property and Equipment | ' |
Property and Equipment |
Property and equipment are stated on the basis of cost or fair value on the date of practice acquisition. Repairs and maintenance are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The depreciable life is generally three years for equipment and software, seven years for furniture, and the lesser of the useful life or lease period for leasehold improvements. At December 31, property and equipment consisted of the following (in thousands): |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Furniture | | $ | 2,803 | | | $ | 2,491 | | | | | | | | | | | | | | | | | | | | | | | | | |
Computer equipment and software | | | 19,685 | | | | 16,226 | | | | | | | | | | | | | | | | | | | | | | | | | |
Office equipment | | | 1,925 | | | | 1,876 | | | | | | | | | | | | | | | | | | | | | | | | | |
Leasehold improvements | | | 1,087 | | | | 950 | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | 25,500 | | | | 21,543 | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: Accumulated depreciation and amortization | | | (19,157 | ) | | | (15,780 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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| | $ | 6,343 | | | $ | 5,763 | | | | | | | | | | | | | | | | | | | | | | | | | |
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For the years ended December 31, the following amounts were included in total depreciation and amortization expense (in thousands): |
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| | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
Depreciation of property and equipment | | $ | 3,377 | | | $ | 2,968 | | | $ | 2,277 | | | | | | | | | | | | | | | | | | | | | |
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Goodwill and Other Intangible Assets | ' |
Goodwill and Other Intangible Assets |
We record acquired assets and liabilities and any contingent consideration at their acquisition-date fair values, and expense all transaction related costs under the acquisition method of accounting. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets primarily represent the fair value of hospital service contract agreements and non-compete agreements acquired in connection with certain asset purchase agreements. Goodwill and other indefinite-lived intangible assets are not amortized. Separable identified intangible assets that have finite lives are amortized over their useful lives. |
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In addition to the initial consideration paid at the close of each business combination, the asset purchase agreements for certain completed practice acquisitions provide for additional future consideration to be paid, which is generally based upon the achievement of certain operating results of the acquired practices or the occurrence of certain events as of certain measurement dates. Pursuant to GAAP, the estimated fair value of contingent consideration is accrued at the acquisition-date. Subsequent changes, if any, to the estimated fair value of contingent consideration are recognized as part of on-going operations. |
We test goodwill for impairment on an annual basis as of October 1 of each year, as well as when events or changes in business conditions indicate that the carrying amount of goodwill may not be recoverable, at the entity level since we have only one reporting unit pursuant to GAAP. The testing for impairment is completed using a two-step test. The first step compares the fair value of our Company with its carrying amount. The fair value of our Company is derived using the market-multiple valuation approach, which is based on our peer group’s market capitalization computed using publicly available market quotes. The fair value from the market-multiple approach is used to derive the fair value of our Company. If the fair value of our Company is less than its carrying amount, a second step is performed to determine the amount of any impairment loss. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 2013, 2012 and 2011, no impairment indicators were present and no impairment was recognized. |
The changes in the carrying amount of goodwill for the years ended December 31, 2013and 2012 are as follows (in thousands): |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill—beginning balance at January 1 | | $ | 240,009 | | | $ | 173,688 | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill acquired during year | | | 119,437 | | | | 66,321 | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill adjustment for prior year transactions | | | (2,059 | ) | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Goodwill—ending balance at December 31 | | $ | 357,387 | | | $ | 240,009 | | | | | | | | | | | | | | | | | | | | | | | | | |
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At December 31, other intangible assets consist of the following (in thousands): |
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| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-compete agreements | | $ | 2,126 | | | $ | 1,916 | | | | | | | | | | | | | | | | | | | | | | | | | |
Hospital contracts | | | 10,088 | | | | 5,270 | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade name | | | 70 | | | | 70 | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | 12,284 | | | | 7,256 | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: Accumulated amortization | | | (6,427 | ) | | | (5,123 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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| | $ | 5,857 | | | $ | 2,133 | | | | | | | | | | | | | | | | | | | | | | | | | |
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For the years ended December 31, the following amortization of other intangible assets was included in total depreciation and amortization expenses (in thousands): |
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| | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
Amortization of other intangible assets | | $ | 1,304 | | | $ | 943 | | | $ | 915 | | | | | | | | | | | | | | | | | | | | | |
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Other intangible assets are being amortized over their estimated useful lives which range from three to six years and have a weighted average remaining useful life of 3.5 years at December 31, 2013. Future estimated aggregate amortization expenses are as follows (in thousands): |
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2014 | | $ | 1,454 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | 973 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 685 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 569 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | 469 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thereafter | | | 1,707 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | $ | 5,857 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Medical Malpractice Liability Insurance | ' |
Medical Malpractice Liability Insurance |
We maintain medical malpractice insurance coverage that indemnifies us and our employed health-care professionals on a claims-made basis. Our claims-made coverage covers those claims reported during the policy period, which ends December 31 of each year, on a first dollar coverage up to our policy limits on new claims reported during the policy period. In December 2013, we renewed our annual professional liability insurance policy for 2014 effective January 1, 2014 under the same terms as our 2013 policy. We expect to be able to continue to obtain coverage in future years; however, there can be no assurance that we will obtain substantially similar coverage as is provided under the 2014 policy at acceptable costs and on favorable terms upon expiration. |
We record our medical malpractice reserves, on an undiscounted basis, for claims incurred and reported and claims incurred but not reported during the policy period, based on actuarial loss projections using historical loss patterns. For claims incurred and reported, an insurance receivable from our carrier has been recorded pursuant to GAAP. |
Total accrued medical malpractice reserves and related insurance receivables at December 31 were as follows (in thousands): |
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| | 2013 | | | 2012 | |
| | Assets | | | Liabilities | | | Assets | | | Liabilities | |
| | Insurance | | | Claims | | | IBNR | | | Total | | | Insurance | | | Claims | | | IBNR | | | Total | |
Receivable | Reserve | Reserve | Liabilities | Receivable | Reserve | Reserve | Liabilities |
Current Portion | | $ | 11,653 | | | $ | 11,653 | | | | 558 | | | | 12,211 | | | $ | 9,719 | | | $ | 9,846 | | | | 504 | | | | 10,350 | |
Long-term Portion | | | 20,599 | | | | 20,599 | | | | 23,445 | | | | 44,044 | | | | 17,074 | | | | 17,074 | | | | 20,847 | | | | 37,921 | |
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Total | | $ | 32,252 | | | $ | 32,252 | | | | 24,003 | | | | 56,255 | | | $ | 26,793 | | | $ | 26,920 | | | | 21,351 | | | | 48,271 | |
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Reclassifications | ' |
Reclassifications |
Certain prior year amounts have been reclassified to conform to the current year presentation. |