Note 11 - Commitments and Contingencies	3 Months Ended
Mar. 31, 2016
Notes to Financial Statements
Commitments and Contingencies Disclosure [Text Block]	11. Commitments and Contingencies Kern Health Systems : In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (“KHS”) sought to recover in excess of $7.0 million exclusive of interest, attorneys’ fees and costs, against HMS’s wholly owned subsidiary Allied Management Group Special Investigation Unit, Inc. (“AMG”) and two of AMG’s former owners Dennis Demetre and Lori Lewis (collectively, the “Defendants”), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code. In June 2014, the jury issued its verdict in favor of all the Defendants on all causes of action except negligent misrepresentation. On that cause of action, due to an error in the special verdict form, the jury awarded damages to KHS in the sum of $1.38 million, while also finding that KHS failed to prove the required elements of the claim. However, the court denied the Defendants’ motion to vacate the jury’s verdict and resulting judgment. The court further awarded each side certain costs but denied AMG recovery of its attorneys’ fees sought in the sum of approximately $2.4 million. In August 2014, AMG filed a notice of appeal based on the award of damages to KHS on the negligent misrepresentation claim, and the denial of AMG’s request for attorneys’ fees. Following completion of briefing and oral argument on the appeal, on April 25, 2016, the California Court of Appeal reversed the judgment and remanded the matter to the trial court with directions to enter a new judgment in favor of the Defendants on all causes of action and to award the Defendants their reasonable attorneys’ fees. The decision is set to become final on May 25, 2016. Although there are risks and uncertainties related to any litigation, including appeals, HMS did not record an obligation as the Company believes it was probable that AMG would prevail on the appeal of this matter. Pending the appeal process, HMS was required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in other current assets on the Company’s Consolidated Balance Sheet as of March 31, 2016. Dennis Demetre and Lori Lewis : In July 2012, Dennis Demetre and Lori Lewis (the “Plaintiffs”), filed an action in the Supreme Court of the State of New York against HMS Holdings Corp., claiming an undetermined amount of damages alleging that various actions unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the “SPA”) and that HMS had breached certain contractual provisions under the SPA. The Plaintiffs filed a second amended complaint with two causes of action for breach of contract and one cause of action for breach of implied covenant of good faith and fair dealing. HMS asserts a counterclaim for breach of contract arising out of the Plaintiffs’ failure to indemnify the Company for costs, including attorneys’ fees arising out of the Company’s defense of the Kern Health Systems matter described above. In January 2016, HMS moved for summary judgment on (i) its remaining counterclaim for breach of contract against the Plaintiffs and (ii) the Plaintiffs’ breach of contract causes of action against HMS. Oral argument on the motions for summary judgement is set for June 22, 2016. A trial date has not been set. HMS believes it has a meritorious defense and will continue to defend this matter vigorously. As such, HMS has not accrued for any loss contingencies related to this matter because no assessment can been made as to the likely outcome of this lawsuit or whether the outcome will be material to the Company. Restrictive Covenants, Trade Secret, Contract and other Causes of Action in Texas and New York : HMS was the plaintiff in lawsuits filed in August 2014, entitled HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino and Jason Ramos , in the District Court of Dallas County, Texas, and HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin and Danielle Lange , in the New York State Supreme Court, Albany County. In July 2015, HMS filed a third related lawsuit, entitled HMS Holdings Corp., et al. v. Elena Moiseenko and Joseph Flora , in the New York State Supreme Court, Albany County. These suits allege that, in violation of their respective contractual, statutory and common law obligations to the Company, defendants PCG, Flora and former HMS employees Gambino, Ramos, Arendt, Curtin, Lange and Moiseenko unlawfully misappropriated HMS’s confidential, proprietary and trade secret information and committed other wrongdoing. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. HMS has sought injunctions in all three lawsuits. 15 On April 27, 2016, the Company entered into settlement agreements with PCG and various individuals that fully resolve the matters in controversy in these lawsuits. Pursuant to terms of the settlement agreement between HMS and PCG, PCG agreed that for a period of seven years from the date of the settlement agreement, PCG will not develop, plan, market, provide, offer, advise with respect to, assist with, sell, or otherwise perform, directly or indirectly, any TPL services, including, but not limited to, coordination of benefits, credit balance audits and dependent eligibility audits. PCG further agreed to withdraw any pending TPL bids, bid protests or contract negotiations, which includes the withdrawal of its pending TPL bid with the New Jersey Department of Human Services. HMS and the New Jersey Department of Human Services have entered into an amendment to extend the current TPL contract through May 31, 2016. The settlements also result in the dismissal of all pending cases or appeals between the parties and includes full, mutual releases of PCG, HMS and their affiliates from any and all pending and future claims related to the lawsuits. In addition, in August 2015, the New York State Office of Medicaid Inspector General (“OMIG”) awarded HMS the new Medicaid Third Party Liability Match and Recovery Services contract, which PCG challenged by filing a protest with the New York Office of the State Comptroller. In March 2016, OMIG denied PCG’s protest and HMS’s new contract was approved with an effective date of April 7, 2016. From time to time, HMS may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of the Company’s business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. Due to the Company’s contractual relationships, including those with federal and state government entities, HMS’s operations, billing and business practices are subject to scrutiny and audit by those entities and other multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of the Company’s contractual performance. HMS may have contractual disputes with its customers arising from differing interpretations of contractual provisions that define the Company’s rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that HMS accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could affect the Company’s business, financial condition, results of operations and cash flows. HMS records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, HMS does not establish an accrued liability.

11.

Commitments and Contingencies

Kern Health Systems

: In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (“KHS”) sought to recover in excess of $7.0 million exclusive of interest, attorneys’ fees and costs, against HMS’s wholly owned subsidiary Allied Management Group Special Investigation Unit, Inc. (“AMG”) and two of AMG’s former owners Dennis Demetre and Lori Lewis (collectively, the “Defendants”), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code. In June 2014, the jury issued its verdict in favor of all the Defendants on all causes of action except negligent misrepresentation. On that cause of action, due to an error in the special verdict form, the jury awarded damages to KHS in the sum of $1.38 million, while also finding that KHS failed to prove the required elements of the claim. However, the court denied the Defendants’ motion to vacate the jury’s verdict and resulting judgment. The court further awarded each side certain costs but denied AMG recovery of its attorneys’ fees sought in the sum of approximately $2.4 million. In August 2014, AMG filed a notice of appeal based on the award of damages to KHS on the negligent misrepresentation claim, and the denial of AMG’s request for attorneys’ fees. Following completion of briefing and oral argument on the appeal, on April 25, 2016, the California Court of Appeal reversed the judgment and remanded the matter to the trial court with directions to enter a new judgment in favor of the Defendants on all causes of action and to award the Defendants their reasonable attorneys’ fees. The decision is set to become final on May 25, 2016. Although there are risks and uncertainties related to any litigation, including appeals, HMS did not record an obligation as the Company believes it was probable that AMG would prevail on the appeal of this matter. Pending the appeal process, HMS was required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in other current assets on the Company’s Consolidated Balance Sheet as of March 31, 2016.

Dennis Demetre and Lori Lewis

: In July 2012, Dennis Demetre and Lori Lewis (the “Plaintiffs”), filed an action in the Supreme Court of the State of New York against HMS Holdings Corp., claiming an undetermined amount of damages alleging that various actions unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the “SPA”) and that HMS had breached certain contractual provisions under the SPA. The Plaintiffs filed a second amended complaint with two causes of action for breach of contract and one cause of action for breach of implied covenant of good faith and fair dealing. HMS asserts a counterclaim for breach of contract arising out of the Plaintiffs’ failure to indemnify the Company for costs, including attorneys’ fees arising out of the Company’s defense of the

Kern Health Systems

matter described above. In January 2016, HMS moved for summary judgment on (i) its remaining counterclaim for breach of contract against the Plaintiffs and (ii) the Plaintiffs’ breach of contract causes of action against HMS. Oral argument on the motions for summary judgement is set for June 22, 2016. A trial date has not been set. HMS believes it has a meritorious defense and will continue to defend this matter vigorously. As such, HMS has not accrued for any loss contingencies related to this matter because no assessment can been made as to the likely outcome of this lawsuit or whether the outcome will be material to the Company.

Restrictive Covenants, Trade Secret, Contract and other Causes of Action in Texas and New York

: HMS was the plaintiff in lawsuits filed in August 2014, entitled

HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino and Jason Ramos

, in the District Court of Dallas County, Texas, and

HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin and Danielle Lange

, in the New York State Supreme Court, Albany County. In July 2015, HMS filed a third related lawsuit, entitled

HMS Holdings Corp., et al. v. Elena Moiseenko and Joseph Flora

, in the New York State Supreme Court, Albany County. These suits allege that, in violation of their respective contractual, statutory and common law obligations to the Company, defendants PCG, Flora and former HMS employees Gambino, Ramos, Arendt, Curtin, Lange and Moiseenko unlawfully misappropriated HMS’s confidential, proprietary and trade secret information and committed other wrongdoing. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. HMS has sought injunctions in all three lawsuits.

On April 27, 2016, the Company entered into settlement agreements with PCG and various individuals that fully resolve the matters in controversy in these lawsuits. Pursuant to terms of the settlement agreement between HMS and PCG, PCG agreed that for a period of seven years from the date of the settlement agreement, PCG will not develop, plan, market, provide, offer, advise with respect to, assist with, sell, or otherwise perform, directly or indirectly, any TPL services, including, but not limited to, coordination of benefits, credit balance audits and dependent eligibility audits. PCG further agreed to withdraw any pending TPL bids, bid protests or contract negotiations, which includes the withdrawal of its pending TPL bid with the New Jersey Department of Human Services. HMS and the New Jersey Department of Human Services have entered into an amendment to extend the current TPL contract through May 31, 2016. The settlements also result in the dismissal of all pending cases or appeals between the parties and includes full, mutual releases of PCG, HMS and their affiliates from any and all pending and future claims related to the lawsuits.

In addition, in August 2015, the New York State Office of Medicaid Inspector General (“OMIG”) awarded HMS the new Medicaid Third Party Liability Match and Recovery Services contract, which PCG challenged by filing a protest with the New York Office of the State Comptroller. In March 2016, OMIG denied PCG’s protest and HMS’s new contract was approved with an effective date of April 7, 2016.

From time to time, HMS may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of the Company’s business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. Due to the Company’s contractual relationships, including those with federal and state government entities, HMS’s operations, billing and business practices are subject to scrutiny and audit by those entities and other multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of the Company’s contractual performance. HMS may have contractual disputes with its customers arising from differing interpretations of contractual provisions that define the Company’s rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that HMS accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could affect the Company’s business, financial condition, results of operations and cash flows.

HMS records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, HMS does not establish an accrued liability.