Cotiviti Holdings, an auditing company that works with health insurers and governments to ensure payments to hospitals and doctors are accurate, did not get a warm welcome when it started trading Thursday on Wall Street.
Cotiviti priced its initial public offering at $19 per share. However, its stock ended Thursday down almost 10% at $17.16.
The Atlanta-based company works with many large health insurers, but it is perhaps best known as an auditor working on behalf of the CMS. Cotiviti's previous name was Connolly iHealth Technologies, and Connolly is one of Medicare's recovery audit contractors.
Medicare RACs work with the CMS to recoup overpayments from providers. The government pays them a contingency fee, usually from 9% to 12.5% of the improper payments they find. But hospitals have railed against the RAC program, calling them “bounty hunters.” Hospitals routinely appeal the auditors' decisions.
Cotiviti estimates there were $170 billion worth of inaccurate provider claims in 2015, giving the auditor a large market. Further, the company believes it has a powerful niche as new reimbursement models and ICD-10 coding are expected to “further increase the complexity of healthcare payments.”
The auditing industry has proven to be relatively profitable for Cotiviti. In 2015, Cotiviti brought in more than $541 million of revenue and had $14 million of net income, according to the company's registration filing. Cotiviti's operating profit was $96.5 million, good for an 18% margin.
Advent International Corp., a Boston-based private equity firm, owns about two-thirds of Cotiviti's common stock.
