Q2 2020 HMS Holdings Corp Earnings Call
[music], ladies and gentlemen.
Thank you for standing by welcome to the P. H Q2, 2020 financial report.
At this time, all participants I know, it's in a remote access because presentation will be a question answer session.
The question only fishing read the press star one well your telephone.
Please be advised the today's conference is being recorded.
Yeah for any further systems placed or is there.
Oh, no when taking into conference over to your speaker for today Mr. Robert for sure.
Please go ahead Sir.
Thank you Demetrius and good morning, everyone.
Joining me are below Chia, our chairman Chief Executive Officer, and Jeff Sherman, Our Chief Financial Officer.
This call is being webcast and can be accessed via the Investor Relations section of our company website at HMS Dot com.
Today's press release, highlighting our financial results is posted on our IR website.
Filling Jeff will first provide her perspective on our recent financial and operating results and business outlook and then we'll open the line for questions.
Yes, you please limit yourself to one question and one follow ups, we can get to the full Q in a timely fashion.
I'd like to remind you that the financial results reported today and in this mornings press release, our preliminary and are not final until our form 10-Q for the second quarter and six month periods ended June Thirtyth 2020 as filed.
Some of the state will make today are forward looking in nature based on our current expectations in a view of our business as we see it today.
Such statements, including those related to our updated full year 2020 guidance the timing effect of circumstances surrounding cobot 19, future financial and operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results could differ materially.
As a result, they should be considered in conjunction with a cautionary statements in today's press release and the risk factors described in the company's most recent SEC filings, including our form 10-K, and subsequent form 10-Q reports.
Finally, we may refer to certain non-GAAP measures. This morning reconciliations of these measures to comparable GAAP measures are included in our press release posted to our website with that I'll now hand, the call over to Bill.
Thank you Robert and good morning, everyone.
Given our organizational agility and financial strength.
It's you're much remains well positioned to deliver value to our clients.
All our nation and the World continues to address circumstances surrounding felt that Nike.
Our initial response to the pandemic at the end of the first quarter was centered on operational execution as we continued to deliver valuable services to our brought client base, while also ensuring the safety and well being of our employees.
As we discussed on our first quarter call. We were successful in smoothly transitioning essentially all of our employees to work from home capacity without any disruptions more service levels.
The second quarter was focused on continuing to execute on our strategic growth plans.
This includes new product introductions in all three of our verticals delivering a strong quarter broken our sales pipeline and closed.
Continuing to about investing technologies to drive further clients benefit sure enhanced product yields inefficiencies.
And continuing to assess and review potential strategic acquisitions.
So even though there were many external challenges facing it tomorrow.
And the entire health care eco system over the past few months, we continued to focus on our long term growth plans.
At the same time, our second quarter financial performance was challenged due to the impact of 90.
More specifically lower.
Adequately utilization.
Client work pauses and shifts in industry focus had a negative impact on our Q2 results with revenue net income and adjusted EBITDA declining on both the sequential and year over year basis.
Importantly, we maintained robust cash flows and a very solid capital structure with low debt and an increasing cash balance.
Nearly all of our lower revenue in Q2 was related to the effects to cope with my team and we currently expect to recapture some of this in the back half of Twentyth money and into 2021.
Despite the recent industry headwinds, we have encountered our business outlook remains positive and we're seeing signs of improvement that we currently expect will be beneficial over the coming quarters.
For example, we're seeing an increase in the utilization of health care services.
Medicaid enrollment is also rise.
And our payment integrity product line is currently expected to improve during the third quarter as CMS and other clients are looking pauses on certain medical record requests and audits and actually during difficult with Nike's emergency period.
Second quarter coordination of benefits revenue increase from a year ago was down on an organic basis when you exclude accent.
This was due almost exclusively to lower claim volumes, resulting from circumstances related to cope with Nike and therefore lower recovery dollars.
However, as mentioned we are seeing signs of improving trends that should be beneficial for the HMS business.
For example, according to research and the Georgetown University Center on children and families.
Global data on 15 states through June.
Total Medicaid enrollment was up 5.8% over the past three months and Florida, the increase was almost 10%.
In addition data recently reported by a number of the largest publicly traded managed care plans showed an average increase in their Medicaid plan enrollment.
So at least 6% from Q1 to Q2 of this year.
This early trends can be attributed to higher unemployment, but also the easing of state Medicaid eligibility and redetermination criteria in order to mean maintain health coverage from many individuals are intent.
New and expansion sales state and federal clients that increase substantially from a year ago as our ability to continue to deliver meaningful savings is gaining an importance, especially as states are experiencing significant budget pressures due to lower tax revenues and higher metal.
Okay.
Oh.
For example, we recently sold CMP solutions to state that we had never before providing service to.
And we expanded our CEO be services for Federal agency as they re procure.
Our health plans CLP sales were also strong as we added two new commercial CLP logos and expanded services from rather than that doesn't Medicaid and Medicare health plans.
HMS remains a market innovator and to be as we are regularly adding new solutions to our comprehensive product line.
As an example, our recently enhanced Medicare advantage premium protection solution validates members other coverage to ensure a make plans receive the premiums they are entitled to.
This is just one of the number of so you'll be innovations in development and roll out to our clients.
We've also been scaling our Medicare commercial and commercial commercial CLP products and have already generated severance several million dollars incremental revenue opportunity through our concerted cross selling efforts.
Payment integrity revenue was off from Q2, a year ago as we had anticipated due to cope with 19 circumstances that predominantly impacted our work involving medical record requests and on us.
As we mentioned on last quarter's call in order to temporarily ease hospital administrative burden storing depends on that.
You must have caused all rack related medical reviews and documentation requests.
In addition, a few stayed at health plan clients also caused some of our payment integrity work during the second quarter.
We do expect RP.
Business to improve during the third quarter as CMS and other clients have started launching comps.
In fact, the restart of the Medicare RAC program is expected to begin later this month, which will enable us to complete our work from claims received before and during the Tandigm and recognize revenue for the an effort.
We continue to work with CMS to fully understand the scope of work that will be able to do.
Most important recent sales have created a robust pipeline implementations. So we remain optimistic about the outlook for this product line.
Revenue from our population health management products also declines in the period as clients appropriately shifted their focus during the pandemic.
Caused many traditional consumer engagement programs, including those that focus on primary care and Wallace citizens.
This offset the traction we gain with our cobot 19 rapid response solution in the quarter communicating critical information about the virus to our clients members.
Investment, we made a new sales leadership and business development executives is driving a stronger PHN sales pipeline in 2020.
You are also leveraging our marketing expertise to push lead generation through a highly targeted campaign that speaks directly to our clients and prospects.
Excuse our sales team the tools and resources they need to pursue new business.
As a case of our Ellie risk analytics platform. One health plan is using it to identify patients most at risk for severe complications while another client is using the solution to treat us basin patients who are returning for elected and preventing the.
In summary, Q2 was both unusual and challenging to healthcare industry and the lower claim volumes and client work causes impacted our revenue and EBITDA performance as well.
Certainly we continue to believe the growth trajectory as our business remains strong and we're confident that the macro industry trends continue to support our strategies for long term profitable growth.
Jeff will now provide additional details on our second quarter performance and outlook for the remainder of the year Jeff.
Thank you Bill and good morning.
As Bill mentioned, our strong financial position and expanding product portfolio and value proposition position HMS well continue to pursue our growth agenda.
Our second quarter financial performance was impacted by cobot 19 related issues, including lower healthcare utilization rates, the temporary suspension or reduction of certain client work and shifts in industry focus in our PHN business.
At the same time, we maintained healthy cash flows and a strong balance sheet, enabling us to continue to invest in new product development and future growth.
In fact, our cash flow from operations in Q2 was one of the strongest in our company's history.
She will be revenue in Q2 was up 1.6% from the second quarter last year, but down 8.8% organically. If you exclude accent revenue as lower claim volumes due to the fact of cobot 19.
Which had a slightly greater impact than we previously anticipated.
We continue to believe the benefit from Medicaid enrollment increases could offset the negative impact of recent claim volume trends NRC, you'll be product line over the next two quarters.
In the past timing is always a factor in our quarterly revenue trends and the market data inputs into our forecasting models continue to have some variability.
Payment integrity revenue decreased 36.8% come Q2 last year, when you exclude the onetime Medicare RAC reserve release benefit from a year ago.
As Bill noted this was expected as the decline was primarily driven by a temporary suspension or reduction of certain client work related to covert 19 circumstances.
Yeah, Tim revenue decreased 17.6% in Q2 due to the suspension im certain consumer engagement programs due to cope with 19.
This more than offset an increase in cobot 19 specific program activities.
Adjusted EBITDA in the second quarter was down 41.6% when you exclude the Q2 reserve release benefit.
This year over year decline was due to lower revenue as well as an expected increase in compensation and other operating costs as a result that the accident matriarch Health acquisition, then the second half of 2019.
We incurred accent integration costs of approximately $3.5 million into quarter, which are reflected as an add back in the adjusted EBITDA reconciliation schedule.
In the quarter, we recognize other income of 2.2 million related to the mark to market fair value of our met advisor investment.
We also absorbed approximately $2 million of severance expense as we completed the small strategic repositioning of our workforce to align resources and invest in key areas of future growth.
This includes the addition of sales account management operation and analytics personnel and payment accuracy. This important newly signed business and address the heightened demand for our services.
Second quarter adjusted EPS of 19 cents produce share was down from the 34 cents per diluted share reported in Q2, a year ago. Excluding this having tent reserve release benefit.
Our cash flow from operations was 40 point $48.7 million during the quarter.
We continue to have very strong balance sheet and liquidity profile with total net debt 0.3 times trailing 12 month adjusted EBITDA.
Turning now to our updated financial guidance.
Historically, we have not updated our annual guidance each quarter, but we are unique circumstances and we believe it is important to try to provide our best estimate a future financial performance and the mix of this challenging environment.
Given our updated analysis of the business and financial impact due to cope with 19.
We now expect full year 2020 total revenue to be in a range of 680 $690 million, but we are maintaining our adjusted EBITDA guidance range.
Below in the revenue guidance is $10 million below our previous guidance as we factored in our Q2 performance to compensate for clients delays and payment integrity work and a greater impact to our CEO B.M.P.H.M. product line due to the cobot 19 circumstances.
This now reflects revenue growth of 10.5 to 12.1 per cent compared to last year. When you exclude the Medicare RAC reserve release from 2019.
As you might expect there continues to be numerous inherent complexities as we work to accurately forecast revenue in the midst of very fluid cobot 19 circumstances.
The obvious challenging data input issues include key drivers such as healthcare utilization and claim volume trends.
With that said our various analyses utilize both historical internal results as well as external forecast our macroeconomic variables driven by cobot 19.
This includes Medicaid membership and expenditures and uninsured population and unemployment data from sources, such as CMS Health management Associates and the Kaiser family Foundation.
We currently expect our performance to improve in the third and fourth quarters and continuing into 2021.
As we've said consistently in the past RCB product line always has the potential for quarter to quarter variability. So timing may play a key part in the quarterly progression of our revenue performance.
As the volume of health care services come back online and more individuals likely into government sponsored health care programs. We believe the demand for our payment accuracy cost containment and clinical outcome capabilities will ultimately increase.
We have confidence in our outlook for the second half and 2020 and our momentum moving into 2021, given the current level market demand for our solutions and the positive trajectory of our sales pipeline close sales inactive implementations.
We are maintaining our full year adjusted EBITDA guidance range of $177 million to $187 million for 2024 year over year growth of 7.9, 14%.
As a result of better operating expense trends now forecasted for the second half of the year.
As much revenue we are normalizing the pointing 19 adjusted EBITDA for comparison purposes to exclude 8.2 million from the Medicare RAC Reserve release as was the 7.7 million dollar investment gain.
While we did see an increasing costs related to our acquisitions and investments as discussed last quarter. We continue to believe this spending will drive results in the second half of 2020 and beyond.
We remain diligent and managing expenses in order to maintain an appropriate cost structure relative to revenue growth.
Bill and offer some concluding remarks, and then we'll be ready for questions Bill.
Thank you Jeff.
And as we discussed the HMS organization moved swiftly to remain fully operational and support of our clients will also protecting our employees health and safety.
We remain confident in our business outlook and we'll continue to invest in our sales and account management resources to meet market demands for our services bolstering future growth as well as delivering strong client value to meet the industry's evolving needs.
As the longer term effects of opened 19 work its way through the health care system.
We believe this will create greater opportunities for HMS to show, how we can have a positive impact.
Strong cost containment and clinical outcome capabilities are going to grow in important during and after this call crisis, particularly as state budgets are pressured to do low to do our pressure due to lower revenue and higher Medicaid costs and the managed care managed Medicaid plans field.
Weight of lower premiums from some states.
The trajectory of our sales pipeline.
Closed sales and active implementations are all positive leading indicators.
So we continue to be well positioned to deliver high value to our clients and the entire health care industry.
I want to thank our employees on board of directors for their vital support and commitments, so our business and our clients for their continued collaboration and trust in our values partnership.
Finally, I'd like to send our sincerest appreciation to all healthcare workers and all of our nation's first responders and a central workers or on the front line, serving all of us during this challenging time.
Thank you.
Operator, we are ready now for the first question.
Thank you.
A reminder to ask a question you need to press star one on your telephone.
So your question please press the pound key.
Please standby those compared to Q any roster.
And once again to ask the question. Please press Star then one.
Hi, My first question comes from Matthew Gilmore there.
You mean Christine.
Hi, Good morning. Thanks for the question I guess I wanted to start with the cobot impact on the second quarter at and I think you had talked about a $19 million sequential impact during the first quarter call. It obviously came in a bit higher than that and I. Appreciate we were all sort of and uncharted territory here, but can you.
Just talking about sort of how cobot impacted the the business in the quarter versus what your expectations were 90 days ago.
Sure sure about yeah, Phil I'll take I'll start with this way so Matt our initial expectations for the impact of code Kobe 19 was actually approximately $12 million to $13 million for Q2, we thought Q2 would be down 20 million sequentially, but we had to $7 million nclb.
Ah that we booked in Q1 that was I was really related to 29 team and so we are estimating the impact was going to be primarily driven by.
Revenue due to the suspension of the Medicare RAC program.
As we now look back in the quarter you know the estimated impact was over $25 million Kurt Cobain as we noted there are inherent complexities and forecasting the impact.
And is very fluid environment with variables changing.
As the second quarter progress more state and managed care clients paused T. I work that obviously impacted and made our pie impact a greater than $12 million to $13 million on a few beside of the business as Bill noted utilized lower utilization impacted our claim volume.
Available for recoveries, but in addition, there were also pauses in our segregation work in the state level and our federal work for health care Dot com that occurred during the quarter and then finally, the accident business, which rolls up on new CEO be also experienced a slowdown in provider collections due to the pandemic.
So as I said in our prepared remarks, you know, we do expect a rebound and then third and fourth quarters.
Clients, a restart their work and again nothing inherent in the overall business.
Business model, but really suspensions of work driving the vast majority of the decline.
Got it and then as a as a follow up it if you think about but the 25 million.
And I I appreciate there's probably not a precise answer it again, but how much of that do you think would be available for recapture by going back and actually auditing those claims versus how much is just kind of lost because of lower healthcare utilization.
Yes. It is that it go ahead belt.
Well, so there's a certain amount.
That that will be a very what I would say is a smaller amount will be lost due to lower healthcare utilization there will be at some point rebound.
Of utilization not only for elective procedures, but for those people that have multiple comorbidities and need to get in.
So the higher cost claims will start coming through again and I think we'll we'll start seeing we've actually started seeing them and argueta. So our data as a little lag from the actual data service.
So and then of course with CLP, we have three a retrospective opportunities to recover so most of the claims that would be projects that you weren't allowed to do we can do recoveries from providers, we can do them once the.
Once were turned back on and an POI.
Most of the client type of certain look back window for the year to two years, depending on the client or up to three.
And though the pie the clients are turning them back on for a number of reasons.
Not only is there a financial needs to do so but also compliance I mean, they still have to comply with.
The audit requirements from the state sort of the federal government.
Great. Thank you.
[noise] and our next question comes from Ryan Daniels.
With William Blair.
You May proceed.
Yeah, you talked about the EBITDA being intact, given some cost savings and restructurings is that something that is sustainable going forward or is that more transitory given the covert.
No I think Brian our overall cost structure.
We always forecast cost based upon the other investments, we're making the back half the year Oh, we did we did do some some restructuring a small amount in the second quarter, so that will actually help help.
Fund some of the incremental investments we're looking so I wasn't that I would expect as you look at our cost structure going forward, it's going to remain fairly consistent.
And again I think as you look at what's happened in the past, we get we get good leverage from incremental revenue on an EBITDA line.
And we'll expect that to continue as we progress and into the back half a year.
Okay. That's helpful. And then if we think of program integrity and population health can you speak a little bit too how bad is varying on a regional or state basis. I'm curious if the states that are seeing spikes or still kind of under pause for both of those activities, whereas regions, where the cases.
We have kind of flatlined or decline are you seeing an uptick there just trying to get a feel for how we should monitor that and the potential impact on your business. Thanks.
So look we thanks, Ryan so I would separate Medicare RAC from everything else because Medicare RAC.
At a pause across the nation, though that will be we're hoping by the end of this month lifted.
Initially the hardest hit area in the beginning or few months ago was New York and so both the state to state have also asked all the health plans to pause auditing of hospitals I believe that has reopened as of the month of August.
And we are now re auditing on behalf of both the state and.
Plans, where we have a payment integrity auto claim we have nothing else.
Secondly to slow down and in in different markets, So, Florida, and Texas are somewhat hot spots, we hadn't been asked recently slowdown. So my guess is there will be.
Continues.
There'll be some continued delays, but for the most part.
The Medicaid plans and the Medicare advantage plans again still have a compliant reason to actually performed the ODL. So we expect that through Q3, Q4, Auditz will pick back up but.
The only thing the only time, where we had really a state come down pretty hard on the entire industry, What's New York and that has started to lift as the market there has changed.
And that isn't that is reflected as we expect our revenue to ramp in Q3 Q4 is is a more returning.
To normal.
Hello, and we're also seeing that in the claims volume trends in our Cobiz business as well you know with with April being the low point and moving forward seeing incremental increases in volumes and as you look at least some of them publicly reported hospitals service companies.
June and July volumes were.
Approaching 85 to 90 plus percent of the prior year volumes. So we do overall have seen a tendency to move more towards the normalization you know as of.
This month.
And our next question comes from eight when we.
Jeffrey.
You May proceed hi, good morning, Thanks for taking my question on.
One of the earlier questions got at my Oh My cost.
Question, It sounds like Jeff that.
Some of that restructuring you mentioned I think you used the words that it would help to fund some of your investment so.
I guess I'm trying to understand if if there are some operating efficiencies that you have found that we should think about carrying over beyond 2020.
Just as just the thinking more about the long term cost structure.
Yeah, I think from from on modeling perspective.
With with expected volume ramp as was the continued investments, we're making an IP et cetera, I think that some of the restructuring we did well really help pay for that so I wasn't I wouldn't expect to see.
That's a much bigger reduction in costs from our run rate, but it will help fund some of these incremental investments work that we're making.
To drive growth into back half.
2020 and into 2021.
Okay and.
And then I think Bill you mentioned some two commercial logos.
Oh were those should I interpret that as being in the accent business and either way could you give us a sense of of the size of those opportunities.
Yes so.
It's always hard to measure the size.
When we when we sell into account we always measure.
Somewhat conservatively, but we measure based on expenditures of that plan or state what the annual contract value.
But but we have done cross sells both into the HMS account account and then Hmm services into the legacy I spent account with a very strong funnel, but building sales funnel. That's building of the millions of dollars I mean, I really can't get into very specific but they are commercial become.
Marshall CLP or Medicare to commercial Seo before commercial risk plan that were HMS plant.
And then other HMS clinical related activities being sold into where legacy.
Excellent clients.
And you know we've kind of other than as a product line. We've we've really removed in a sense. All the employers are just HMS employees, but we are starting to see real good traction there on of course ultimately the opportunity for us across the entire see obese.
Spectrum is to continue to consolidate the technology as well as continued to rapidly deploy our PPA.
So that we're able to.
Increase the margins as we had as we had been saying we would be doing with technology.
I think or how would I would start I would just add I mean, the we're continuing to see demand for our traditional she'll be services even into Medicaid space.
And the two two noted warford per work for our traditional she'll be on HMS side, but as Bill noted the cross selling opportunities I continued to be significant.
For the accent customer base as well and again as we look at the back half of the year, where we certainly see you know USIO be sales implementations as well as growth in Acs and helping to drive the second half revenue increase that we're expecting.
Okay. Thank you for that I appreciate it.
And our next question comes from Stephanie Davis.
He leerink.
Eight.
Okay.
We've seen some volume recovery on the provider side as we've been running through the best earning this is more of a a multipart question.
First what sort of like you see from volume recovery to payment integrity revenue that convert.
To what are your assumptions prepared the man for P. I just given the provider friction concerns for the next year and every how should we think about your view on the past and volume recovery.
Well I Wonder if you get Allstar departmental art.
Yeah. When you get these multi part questions you start to.
You're gonna here, so I can just read any part of it.
[laughter].
So.
We have started to hear from particularly the a publicly traded hospital systems that.
Volume recovery has happened we've heard recently that.
And another Companys earnings call that we're at about 9% pre coated volumes that's on a.
Closer to real time data service. So if you consider HMS is.
Typically we get eligibility and claims it's either daily weekly or monthly from our clients, but its when they pay them.
Words, when they update their eligibility files, so were often anywhere between 45 90 days after data service.
Or or date, the claim must pay until we start to see that so you'll see us being a little more behind what is current market activity. So we were at 100 or 110% of Street Covance.
Healthcare utilization, we would be a couple of months.
Hi, Matt anywhere between one to three months behind that.
But that's why you know, it's a key leading indicator for us and its and its very positive them of course on the eligibility side.
We're just we're seeing and you heard the comments about Medicaid growing from the Medicaid managed care plans, 6% from Q1 the Q2.
Is that Medicaid enrollment increased continues or even rises due to eligibility, we see that faster and as long as they are still employer sponsored insurance, which we have not seen those numbers go down dramatically.
Than that that will impact rather quickly our prospective costs.
Perspective, CRB, which we call cost avoidance, Jeff anything else to after that yeah, I would just add keep in mind I mean, we continued to receive medical record claims for many of our customers offer audit purposes. During the second quarter and so really with the exception shape CMS a few state.
In a couple of our managed Medicaid our health plans as Bill noted you know pausing, we were continuing to do work in building that inventory of claims that we can do work on so that's certainly as we look at our Q3 in Q4.
Hi, expectations that is certainly factored in there as well as.
The return of claims driving the CEO beside but I think most importantly, you know customers just allowing us to restart work again is probably the biggest biggest driver and you know as we've said Oh CMS and most of the clients that pause.
Have allowed us to start doing that so that does give us more confidence as we look at the back half a year that we're going to see that more returned to normalized level.
Okay. That's super helpful. Guy and then just one quick one.
We talked about a we started the Medicare RAC program again has prepared comments.
Are you planning on ramping this up without creating access provider friction given the current environment.
Well typically.
Well typically what happens is.
Medicare starts off starts all relatively slowly if it's a new audit. So we always do a sample.
X number of all facilities for we roll in all of that further and there's already a cell.
Contain number of records that were allowed to send that to any get them provider in any given cycle, depending on that that they medically complex clinical claims review a little less restrictions on our automated.
So I don't I think CMS will be semi cautious as we ramp up but they are proving new edit and audit algorithms from us.
And we remain the highest for capital in recoveries for the Trust fund.
The rack RAC auditors today.
And I'll, just add just to add to that a little bit.
So CMS paused our ability to requests.
New Medical records and do work during that period, meaning we couldn't do offsets for claims where we had findings during during the second quarter.
Well, we were we continued to receive claims during the second quarter for pre pandemic Medical records that we had requested and we were able to complete our work during the quarter. So just the ability to start sending those claims the out you know really gives us pretty good view.
Those claim dollars.
Well, we'll be able to Threeq you know record revenue for that for that book claims relatively quickly with with the pogs.
Lifted and then we'll get into a more normal routine as we move into the fourth quarter of just our our typical request and audit work that we're doing.
And our next question comes from killing just staying with credit Suisse.
Yes.
Have you been so just a follow up any old lopped off point, Jeff So looks like whats Pms rack that have you program as well are you seeing that you can dust effectively go back and audit those claims and generate some revenue and recapture some lost revenue. This is before corporate claims I'm just trying to understand.
What can be recaptured for CMS RAC review program.
Yeah. So these would be drilling in these would be for claims before that pandemic started when we hit army requested for had received that claim.
Able to do work during you were able to do do the work during their pandemic period, we're still working with CMS to to further clarify our ability to audit any claims from the pandemic period. So so right now are our forecast for the back half a year does not include.
Include any.
Claim that would have been incurred in the second quarter. This is really work for our claims that were pre the pen demand periods.
Okay and then my follow up on the last quarter, you talked about that you don't have much benefit building your guidance from Medicaid enrollment increase that's still the case and given the lag major up your business how should we think about the timing on the benefit from this increase Medicaid enrollment.
Yeah, I think it's fair to say as we as we looked at you know our guidance.
Last quarter and thought about the impact HM we knew there could be lower claim volume in an impact to that very hard to two model and forecast until we started seeing some of the actual claims going in but we also recognize that increasing Medicaid rolls would be a a positive tailwind for us in the back half.
After the year. So I think it's safe to assume now as we as we look at at that some of the lower claim volume that that we lost a you know in the second quarter, we do believe could be offset by increasing Medicaid roles in the last two quarters and keep in mind, we have two main dry.
Libraries of RCB business. The first is where we find a other coverage we call that cost avoidance that happens relatively quickly once a member comes on eligibility rolls up I'm, either a state or managed Medicaid plan. We can you compare that to our national eligibility database and determine if there's other coverage and getting paid for that.
So we do think that we have the potential to to see some positive Medicaid or you know revenue offsetting some of the lower claims volume in the back half the year and we have we have factor that into our guidance in the back half of the.
Okay. Thanks.
And our next question comes from Donald Hooker with Keybanc, Sir you May proceed.
Hey, good good morning, everyone. Thanks for that so the question here.
So just I'm sort of repeating a little bit of earlier questions I'm, sorry about that but just want to make sure we get the strayed because that there's this recapture effect, where you can look back and recapture thinks he is you seem to say there was a $25 million.
Impact in Q2 from covert 19 across the businesses.
Maybe when you present in your guidance here, how much of that 25 million reappears in Q3 in Q4.
Yeah, we did we didn't give a discrete numbers. So again keep in mind you know a good chunk of the 25 million was was for Medicare RAC, you know that we already talked about and at this point, it's not clear to it's not clear that we'll be able to audit any claims during.
The pandemic that occurred during the pendency period, but we have claims in the pipeline for pre pandemic and then we'll be able to start sending new planes out for post pandemic. So I think for the Medicare RAC piece, we're still working on CMS to get clarity on that some of the work some of their work.
It was related to a as bill said for some of our P. I work, where there's a per year.
Three year look back we will be able to recapture some of those.
Over time and again, if you look at the midpoint of our of our guidance range.
We're expecting a little bit over 55 million dollar increase in revenue in the first and the second half of the year compared to the first half of the year. So certainly that does include recapturing some of those some of those dollars as we move into the third and fourth quarters.
Okay Super and then last question for the Senate acquisition.
It looks like revenues were roughly looks like they held okay up in the June quarter relatively speaking given the environment.
How should we think about that re ramping in Q3 in Q4, it may be synergies on top of that.
Or should we be take or those expectations.
Yes, so I would say as as we look at that 55 million dollar increase.
In the second half two year versus the first half of year almost half of it really is CMS RAC and increase in accident revenue.
Okay that will be higher in the second half second half year versus the first half a year. So accident traditionally is that it ramps more in the back half of the year as well and action is recovering dollars from providers as well. So we did see some impact in the second quarter from providers, just you know not either not.
Repaying dollars back or just sending staff home and processing some of our recovery claims. So we do expect a stronger second half a per accent and expect to be close close to where we are expected to be from a budget perspective for the year, but again, we expect some of that to roll into.
And to 2021.
Again those are not lost dollars. We just expect is going to be a longer time period to recover some of those dollars due to the pause and claims being worked during the pendency period by some of the providers.
Thank you very much.
In our next question comes to Shine Guide <unk> RBC capital markets.
You May proceed.
Good morning.
Maybe going back to me the sales activity comments you'd made a little bit earlier Bill I know you've made some some investments in your sales organization recently, particularly around population health management solution.
How much of it disruption has the pandemic had on on activity. There can you give us affected the progress you've been able to make in building owners or kind of be establishing a pipeline there.
Yes.
Yes, so the pipeline.
We've done a good job on rebuilding the pipeline that we brought in.
I don't know and 2020 alone.
I'm sorry.
We brought in four new relies on logos and those would be brand now and then three new OSAT and elling lumpy. So.
Those are brand new accounts, we've never sold into before and and then we are we are starting to get traction.
With no additional PBM, and then specialty benefit management companies.
And then we have significant Q upsells to existing clients now with that said.
The demand is seems to outpace sales capacity at times. So we're continuing to look for additional sales leaders not only in that space, but in what you would consider our entire payment accuracy product line, but the sales Q has been ramping up and then this past week or so we re.
Launched the PHN, Brandon HMS to make it a little less confusing.
That of course that is being launched throughout got a state federal.
And a health plan as well as providers. So we expect that this will continue to grow but hope it did have an impact.
And the biggest impact was you just really don't want when someone at home worried about.
Health and safety and health and safety their family you don't want to Stan.
A mom a message, saying, yes to your your child is due for their well baby visit.
Because that maybe not the first thing that they're worried about.
So those trucks more traditional calls or email certex are what we expect to see coming in the second half of the year.
The health care.
The capacity increases and people feel more comfortable getting back to facilities and or their doctors are specialists.
Yeah, I would just sat on that I mean, our you know payment accuracy, including she'll be and payment integrity sales.
Were up significantly and I think as the quarter progress. Initially there was a lot of things just put on hold it was hard even deals that were in process of being side, we're taking longer that was chew and all of our product verticals, but as the quarter progress we got more into a more normalized sales team, where we were having you know reach out.
And I would say you know, we actually were finding it easier to get high level executives on called without traveling and really have more meaningful conversations as the quarter progress and we're really ended with a very strong sales quarter in terms of clothes sales and again those as we think about that as well as.
Previously closed sales that are anywhere inflammation pipeline. Those are the things that are factored into our forecast for the second half year.
Okay, and then you seen on population health you mentioned.
A little bit of a stepping back and some of the the in kind of more traditional engagement activities, but I think you also talked about.
That being partially offset by ramping up.
Some some covidien related.
Interactions can you give us a couple of examples of what had been kind of applications. This has core toward.
The pandemic.
Yes, so so we had a number of clients.
In Q1 ask us to do we built the rapid response communication protocol that was driven down to the actual state level.
To be able to educate people about anything from where to get tested when to go to the doctor when not to all those things some of the client assets continue to do that on a regular basis. So in Q2, there was more volume.
That we did for the clients and said we want to the consensus expectation, we think more more should be doing it and you know that was out of us JD powers study that you know less than half of the people in the U.S. had heard from their health plans regarding some of it.
But what I think more important about is the analytics that we're building to be able to present to our clients.
These are the people who have the most risk of having a very bad outcome from cobot and they are not yet diagnose covance. So get them the kind of services. They need we think if you really start to put resources on people like that make sure they understand what to do and what not to do and how.
Prevent them from getting hope it.
Then you're you're you're.
Much ahead of the game from a clinical outcomes and cost perspective. So we are using that analytics as well as some other predictive analytics using social determinant to help built into our lead platform. So we think there's opportunities for now as it continues to reap some havoc in our health care system, but for any future.
Pandemic as well.
Alright, Thats very helpful. Thank you.
Mhm.
And our next question comes to Richard close the Canaccord Genuity.
You May proceed.
[noise] been addressed but obviously you sound a b cells in the corridor and the and the pipeline. So just curious with respect to your internal targets for the second corridor or whether the bookings are new sales.
Exceeded your expectations that would be the first one and then with respect to the pipeline.
Is it.
Strength.
Is the strength broad base across all the areas or any particular area outpacing the others.
I'll start with them for I'll start with the first Bill if you want to add so I think you know Richard on the sales the sales were inline with where we expect it could be two through the first two quarters of the year, but but but also up significantly over prior year. When we compare comparative periods. So I think you know on track.
With.
With more activity expected in the third and fourth quarter is and that traditionally the back half of your tends to be stronger sailings selling part of the year anyway.
Okay, and then across all areas.
Yes, and and we're projecting releasing a fair amount of interest across.
The.
State Medicaid agencies, who are you know.
I actually have to balanced budgets that states and our.
Looking towards some really big budget short not all of them, but some are looking towards very large shortfall. So we're working closely with them on what can be due to help them closed those gaps. So we're seeing a fair amount on stateside.
And as as we said we are selling new concepts than on the tendency amass each time, we it is really a sale. Each time, we presented new audit we have to get their approval and then we have to run some some test upon that and then we brought some other unique services out to the market and each of the.
Product lines that are just starting to be launched with some of our alco or beta clients.
Okay Frac is slip one more in a bill you mentioned a new state that you never did business with can you provide any more details with that was that an RFP or did they come to you during the pandemic and said we need to get something going here just any thoughts there.
No. This wasn't any S them might enable Medicaid information system procurement.
That was.
We won the.
Medicaid coordination of benefits module peaks.
And so it was a state that up until now has done the work on their own or through there and my last sender and then we won I.
I believe it was.
Through a another vendor, meaning oftentimes these are bid package by one system integrator, but yeah, we did when that.
As well as.
One of the federal agencies, we do we do see will be worked for competitively recent Jordan added scope.
And what we're seeing in a number of either re procurements or I'd say.
Proposals that worsening in the state government is there, but just trying to find ways for us to be able to do the work with amendments to our contracts when we find some novel ways for them to save money again because of the very significant.
Shortfalls, they're expecting to see as the.
As the Medicaid Rolls increase.
Okay. Thank you.
And our next question comes from getting your Larson.
[noise] you May proceed.
Hi, with respect to the EBITDA guidance, how much of that is dependent on.
Revenue versus cost reductions what are you expecting to have any more cost reductions in the back half of the year and if so can you quantify that please thanks.
Yeah, we're always continuing to to invest in technology to help us drive efficiencies.
But I would say expect more of the EBITDA margin is going to be driven by by the revenue growth.
The second half the year, but again, we'll continue to to deploy technologies to increase efficiencies.
As we have talked about in robotic process automation machine learning AI. So that you know, though those synergies walk will continue to accrue in the back half of the year as well, but but definitely the more majority of is going to be revenue driven.
And again getting good leverage on that revenue growth as we have historically.
Great. Thanks, and then with the CMS audit and the RAC audits I guess my question is like why have they been pause to do you actually have to be on site in the hospital in the medical Records Department digging through the Manila folders and looking at the paper Medical records in order to be able to do that work is that why they have been Paul.
Just.
I'd like it seems to me like should be able to do that work remotely like everybody has any amar. So why can't you look up the data remotely and then how I guess, if CMS doesn't turn let the switch back on at the end of August.
I guess, some you know that could potentially impact to revenue guide for the years out right. Thanks.
Hospitals were being impacted significantly with lower utilization not only send them advanced payment, but not bother them with audit now in reality.
But understand that Theres less people in hospital I don't think it really impacts the.
Financial accounting or business office or patient accounting office.
And of course, we implemented with a number of our clients ways to make these audit says provider friendly, but it was CMS his decision to do that.
They are very interested in turning the program back on particularly because it is a program that Congress.
Watches and they report to Congress on the result.
As well as the fact that they do believe that there.
Ultimately, we're going to find up coating, even on coke plants, So I would think that.
We've already had discussions with CMS about turning back on and they've already published I believe on their website. The RAC audits will will will restart so.
I don't I'm not as concerned about that obviously, if they said we're shutting it down which again is enacted by law that they have to have the program.
It will have an impact on revenue, but I doubt that that's going to happen.
[noise] great. Thanks.
So we have a couple more questions I know, we're running a little longer going there should we take these two final questions.
And our next question comes from Charlie Strauzer. Thank you.
Okay.
Just picking up on that last question about the the pauses given the spike in cobot cases.
Some of the larger state.
That all concerned that they could extend the pausing reinstatement pauses kind of going forward and have you cited some of that into your guidance at all.
Yes, I don't.
I don't really see that I mean.
I'll give you an example.
So the states, where we've got.
Where there's been spikes, where we have.
Particularly audit contracts, so Florida has a very all expansive contract with us for Seo be that we also do overpayment recoveries. They have a waiver enough to have Medicaid rack. So we do a lot of that work under that contract.
They have not slowed down on audits.
In fact, there adopting new services from us.
California, we really only do see you'll be recoveries, though they're open to new ideas and they also are a state that Ken amend the contract to do other things they have not asked us to slow down.
Our CEO be recoveries from providers.
And then the other one of course of note would be Texas.
And the plans that we work for on Texas up not stopped on it so.
I mean could that happen in any given state, yes, but the only state that that basically communicated to itself plans.
That audit should be on cause wasn't New York State and that has been left so I think we're going to have we're gonna have to get back to a new normal because the fact that it's a compliance issue as well.
Back that.
I can't let particularly providers, who are abusing the system and there are some that do you can't let that run rapidly. So there has to be a certain level bottling across the programs.
That's fair Thank you very much.
And our final question concerning Daniel costly.
Okay.
You May proceed.
You're in a pretty strong capital position and you had some nice cash free cash flow this quarter.
So I'm just curious how the how the volatility has has impacted your capital deployment plans.
And if you're still looking at acquiring additional pie and PHN assets in the near term.
Oh, yes, we are they are continuing to be actively reviewing.
Acquisition opportunities, we continue that work during the quarter. So we do think we can be opportunistic with our strong balance sheet and are continuing to look for assets that will complement our our solution set that we're selling into the marketplace. We certainly think on that.
Payment integrity and the population health management side, there continues to be opportunities out there I I will say the pipeline did slow down during a pandemic period.
Maybe starting to see a little bit of signs of a picking up again in terms of.
Potential opportunities in the marketplace and then finally I would just say hopefully there'll be some more modest valuation expectations that continues to be a challenge as a result and to make period, but as we're now almost halfway through the integration of or halfway through the year and really finalizing the full Anna.
Gration a of accident in terms of the IP.
Switch over is that we're expecting to occur.
This month, we're certainly a into position to be able to.
Look for new acquisitions that meet our good strategic fit for us.
Yes.
Got it and maybe just as a follow up.
It's difficult to kind of read the political tea leaves right now, but I guess I would love to get your thoughts on how a biden administration in a Democratic Senate might impact your business and if you have any update on the AC a case that wont seem to want to go away. Thanks.
Well so I.
I think we.
And I think most people would assume that abides best duration.
I would really be a increase in what was started with the affordable care Act, which would mean more Medicaid expansion more opportunities for people to be covered which means that we'd have of course greater opportunity. So we think it's a net positive.
There continues to be challenges to the AC a court.
From the Republican AG, that's filed the original suit.
But.
The challenges and I think this has been some of the posture from the Supreme Court, there's nothing to replace it with so I mean, I think that they've looked at the legal side on the but yet you're talking about I don't know depending on what what actually happens from of repeal if one were to happen.
Significant number of people, losing their coverage so.
I think that there'll be continued challenges to that something like that were to happen.
But but we see the abiding win as net positive for us and we see a Trump three wind.
As almost business as usual because there has been no replacement health care plan that's been.
Really.
For by the administration. So we think it'll be very similar to a business as usual.
It's a trump.
Back in office.
Got it thanks guys.
Ladies and gentlemen, this concludes secure any question at today's conference call.
Turning the call back over to Mr. Bill at least you for any closing remarks.
Well I'd like to thank you all for attending the call today, we look forward to speaking to you on our Q recall. So please stay safe and thanks for your continued interest in HMS have a wonderful day.
Ladies and gentlemen, it concludes today's conference call. Thank you for participating and you may now disconnect everyone have a bunch of today.
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