9.	Estimated Liability For Appeals

Under the Company’s contracts with certain commercial health plan customers and its Medicare RAC contracts with CMS (included within the Company’s analytical services product revenue), providers have the right to appeal HMS claim findings and to pursue additional appeals if the initial appeal is found in favor of HMS’s customer. The appeal process established under the Medicare RAC contract with CMS includes

five

levels of appeals, and resolution of appeals can take substantial time to resolve. HMS records a) a return obligation liability for findings which have been adjudicated in favor of providers and b) an estimated return obligation liability based on the amount of revenue that is subject to appeals and which are probable of being adjudicated in favor of providers following their successful appeal. The Company’s estimate is based on the Company’s historical experience. To the extent the amount to be returned to providers following a successful appeal exceeds or is less than the amount recorded, revenue in the applicable period would be reduced or increased by such amount. Any future changes to any of the Company’s customer contracts, including modifications to the Medicare RAC contract,

may

require the Company to apply different assumptions that could materially affect both the Company’s revenue and estimated liability for appeals in future periods.

The Company’s original Medicare RAC contract with CMS expired on

January 31, 2018.

As a result of the contract expiration, the Company’s contractual obligation with respect to any appeals resolved in favor of providers subsequent to the expiration date have ceased and therefore the Company released its estimated liability and increased revenue by

$8.4

million during the

first

quarter of

2018.

The Company continues to assess the remaining Medicare RAC liability to determine management’s best estimate of liability for any findings which have been previously adjudicated prior to the expiration of the contract.

The total estimated liability for appeals balance of

$22.3

million and

$30.8

million as of

June 30, 2018

and

December 31, 2017,

respectively, includes

$19.4

million and

$19.3

million, respectively, of Medicare RAC claim findings which have been adjudicated in favor of providers, and

$0.0

million and

$8.5

million, respectively, of the Company’s estimate of the potential amount of Medicare RAC repayments that are probable of being adjudicated in favor of providers following a successful appeal. Additionally, the total estimated liability for appeals balance includes

$2.9

million and

$3.2

million related to commercial customers claim appeals. The provision included in the estimated liability for appeals is an offset to revenue in the Company’s Consolidated Statements of Income.

A summary of the activity in the estimated liability for appeals related to the Company’s original Medicare RAC contract was as follows

(in thousands)

	June 30, 2018
Balance--beginning of period	$	8,544
Provision		-
Appeals found in providers favor		(108	)
Release of liability		(8,436	)
Balance--end of period	$	-