Credit Suisse https://www.credit-suisse.com hosted Jeff Sherman, HMS Holding Corporation’s (HMSY) https://hms.com Executive Vice President, Chief Financial Officer and Treasurer, and Robert Borchert, Senior VP, Investor Relations, at Credit Suisse’s Annual Healthcare Conference.
The company reports that two-thirds of the 3Q revenue shortfall is related to the company’s Coordination of Benefits (COB) segment but expects to recover in 2019 and 2020. On average HMS’s top 10 states are coming up for renewal in 2020. On average, 12-15% of HMSY’s state revenue comes up for renewal every years.
Management pointed out that COB is made up of two main businesses. First, there is the cost avoidance segment where the company gets paid by the state and managed Medicaid customers to find another match or to check if the Medicaid eligible member has other coverage. The second business is the cost recovery business, where the company can go back as much as three years and recover claims that have been paid by inappropriate responsible parties.
It has been reported that the 3Q revenue shortfall arose when the company processing several claims had some technical challenges which the company describes as not unique to their business. In any given month, the company gets 80-100 K data files from both carriers and customers which supply eligibility claims verification.
In addition, HMS sends PBM claims or eligibility data to be processed, but as it turned out, two of the large PBMs had some technical challenges in the quarter. As a result, the work which HMS management thought was likely to get done in the quarter was not accomplished.
As a result, over the past several quarters, COB revenues have been affected. However, the company expects a pretty strong rebound in its COB business in the fourth quarter and still expects its COB business to be up mid-single digit for 2019.
The Payment Integrity (PI) segment was up in the quarter. One of the drivers of PI’s outperformance continues when audit scenarios are submitted for approvals to CMS. So far, it is noted that HMS has been submitting the most audit scenarios for approvals and that the PI market is pretty big, so the company does not see that market as a zero sum game.
However, the Population Health Management (PHM) segment created about two and half years ago, notes that performance has been below expectations but the company is optimistic about growth opportunities in PHM. The goal is to identify risk members and help manage them through the system.
HMS believes that they are able to help plans and states manage their population differently at scale. Selling PHM to states involves a long sales cycle and the company is not been expecting much success there in 2019.
In another move, the company is going forward by adding new sales force dedicated to the PHM segment since the sales side was not getting traction as expected. The company has decided to split its PHM salesforce but the company does not expect this to have a material impact on their financials in 4Q19 or on long term growth.
Recently, HMS acquired VitreosHealth’s artificial intelligence-driven platform is able to leverage data from a broad set of sources, including EHRs, claims, health risk assessments, and socioeconomic data. The system provides insights that allow clinicians and health plan administrators to identify and address care gaps within their member or patient populations.
Specifically, VitreosHealth’s advanced analytic predictions into the care management workflow, helps health plans and managed care organizations optimize their STAR and other quality ratings, recognize undercoding and or overcoding patterns, and analyze out-of-network utilizations. Selling PHM to states is a long sales cycle and the company was not expecting much success there in 2019, however, the company is having active dialog with several states.
In discussing their marketing position related to their COB business, HMS is generally the sole source vendor while dealing with the states directly. However, when dealing with the managed Medicaid companies, the company faces some competition but holds a strong position and believes that they have 90% of the Medicaid population in the company’s national eligibility database.
Although, there are currently 10 other states where the company doesn’t operate which could be an opportunity for the company but be small in terms from a revenue standpoint. So far, COB business has trended positive despite Medicaid lives being down 2% in the last fiscal year. While almost all of the company’s COB business is in Medicaid, the company is also exploring opportunities for leveraging their COB capabilities in Medicare and Commercial businesses
A lot of the company’s technology investments on the COB side really comes down to how the company manages the data, how the company gets more efficient at finding better matches, and once a match is found, how the company gets better at recovering dollars. The company’s analytical services should benefit from the increasing focus on payment accuracy and population health management among payers and providers.
For more information or to provide feedback, email Jailendra Singh, jailendra.singh@credit-suisse.com or call 212-326-8121.