HMS Holdings Corp. hit the red ink in the fourth quarter thanks to the lingering standstill in Medicare's recovery audit program, but growing Medicaid contracts offered the company some relief.
HMS is the parent company of HealthDataInsights, or HDI, which is the Medicare recovery audit contractor for 17 states. Medicare RACs peruse provider payment claims to see if there are any overpayments, and RACs keep a portion of the recoveries.
RAC contracts are somewhat in limbo. In December, the CMS extended the Medicare RAC contracts to HDI and the other three incumbents through Dec. 31, 2015. But it was not made clear what type of reviews the RACs could conduct. Long-term RAC contracts won't be issued until a federal court resolves a protest.
In addition, RACs are prohibited from auditing short-stay inpatient stays until March 31. Congress delayed those audits, which are lucrative for contractors, after hospitals criticized the CMS' controversial two-midnight rule that went into effect in late 2013.
HDI's Medicare RAC contract is one of HMS' largest and therefore carries a lot of weight in its financial results. “Our business and results of operations would be adversely affected if HDI was not awarded a region, if HDI was awarded a region but on substantially different terms from HDI's current contract, or if contract awards continue to be delayed,” the company said in the third quarter.
In the fourth quarter, HMS lost $2.4 million compared with an $11 million profit in the year-ago period. Fourth-quarter revenue slumped 8.4% to $112.2 million due to the restricted Medicare contract. HMS' profit in all of 2014 totaled $13.9 million, down 65% from its $40 million profit in 2013. Revenue dropped almost 10% to $443.2 million, again mostly attributed to Medicare audits.
“The $86 million decline in 2014 Medicare RAC revenue, compared to the prior year, presented significant challenges, but also highlighted the importance of our ongoing strategy to diversify revenues,” HMS CEO Bill Lucia said in a news release.
Those other revenue sources include state Medicaid agencies. The Affordable Care Act expanded the RAC program to Medicaid and required state agencies to implement an auditing process in 2012. HMS has become active in the Medicaid RAC space, which helped the company increase its state government revenue by 9% in 2014, the company said.
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