Business and Summary of Significant Accounting Policies

(a) Business

The terms “HMS,” “Company,” “we,” “us,” and “our” refer to HMS Holdings Corp. and its consolidated subsidiaries unless the context clearly indicates otherwise. HMS is an industry-leading provider of cost containment solutions in the healthcare marketplace. We use healthcare data technology, analytics and engagement solutions, to deliver coordination of benefits, payment integrity, population risk analytics, and care management and consumer engagement solutions to help payers reduce costs, improve healthcare outcomes and enhance member experiences. We provide coordination of benefits services to government and commercial healthcare payers to ensure that the correct party pays the claim. Our payment integrity services promote accuracy by fighting fraud, waste and abuse, and our total population management solutions provide risk-bearing organizations with reliable intelligence across their member populations to identify risks and improve patient engagement and outcomes. Together these various services help move the healthcare system forward for our customers. We currently operate as

one

business segment with a single management team that reports to the Chief Executive Officer.

The Consolidated Financial Statements and accompanying Notes in this Form

-Q are unaudited. Accordingly, they do

not

include all of the information and notes required by generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These statements include all adjustments (which include only normal recurring adjustments, except as disclosed) that management considers necessary to present a fair statement of the Company’s results of operations, financial position and cash flows. The results reported in these unaudited Consolidated Financial Statements should

not

be regarded as necessarily indicative of results that

may

be expected for the entire year. It is suggested that these unaudited Consolidated Financial Statements be read in conjunction with the Company’s consolidated financial statements and notes thereto as of and for the year ended

December 31, 2018,

which were filed with the SEC as part of the Company’s Annual Report on Form

-K for the year ended

December 31, 2018 (

“2018

Form

-K”). The consolidated balance sheet as of

December 31, 2018

included herein was derived from audited financial statements, but does

not

include all disclosures required by U.S. GAAP.

The preparation of the Company’s unaudited Consolidated Financial Statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, primarily accounts receivable, intangible assets, fixed assets, accrued expenses, estimated liability for appeals, the disclosure of contingent liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting periods. The Company’s actual results could differ from those estimates.

These unaudited Consolidated Financial Statements include HMS accounts and transactions and those of the Company’s wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Summary of Significant Accounting Policies

There have been

material changes to the Company’s significant accounting policies that are referenced in the

2018

Form

-K other than as described below with respect to leases.

Recently Adopted Accounting Pronouncements

February 2016,

the Financial Accounting Standards Board (“FASB”) issued ASU

No.

2016

02,

Leases

(Topic

842

) (“ASU

2016

02”

). ASU

2016

requires most lessees to recognize a majority of the company’s leases on the balance sheet, which increases reported assets and liabilities. ASU

2016

was subsequently amended by ASU

No.

2018

01,

Land Easement Practical Expedient for Transition to Topic

842;

ASU

No.

2018

10,

Codification Improvements to Topic

842,

Leases

; and ASU

No.

2018

11,

Targeted Improvements

. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than

months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. ASU

2016

is effective for annual reporting periods beginning after

December 15, 2018

including interim periods within such annual reporting periods with early adoption permitted. The Company adopted this guidance on

January 1, 2019,

utilizing the optional transition method approach with an effective date of

January 1, 2019.

Consequently, financial information prior to the effective date was

not

updated and the disclosures required under the new standard are

not

provided for dates and periods prior to the effective date. There were

cumulative effect adjustments to retained earnings as part of adoption. The Company elected the available practical expedients, including the practical expedient to

not

separate lease and non-lease components of its leases and the short-term lease practical expedient. The Company’s internal control framework did

not

materially change, but existing internal controls were modified due to certain changes to business processes and systems to support the new leasing standard as necessary. The standard had a material impact on our consolidated balance sheets, the most significant impact being the recognition of approximately

$21.3

million of ROU assets and

$26.3

million lease liabilities on the effective date, but did

not

have an impact on our consolidated income statements. The Company continues to expect the impact of the adoption of the new standard to be immaterial to its net income and its internal control framework on an ongoing basis.

June 2018,

the FASB issued ASU

No.

2018

07,

Compensation – Stock Compensation (Topic

718

) – Improvements to Nonemployee Share-Based Payment Accounting,

(“ASU

2018

07”

). ASU

2018

requires entities to apply similar accounting for share-based payment transactions with non-employees as with share-based payment transactions with employees. ASU

2018

is effective for public entities for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company adopted this guidance on

January 1, 2019.

The adoption of this guidance did

not

have a material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

Not

Yet Adopted

June 2016,

the FASB issued ASU

No.

2016

13,

Financial Instruments – Credit Losses

(“ASU

2016

13”

). ASU

2016

introduces the current expected credit losses methodology for estimating allowances for credit losses. ASU

2016

applies to all financial instruments carried at amortized cost and off-balance-sheet credit exposures

not

accounted for as insurance, including loan commitments, standby letters of credit, and financial guarantees. The new accounting standard does

not

apply to trading assets, loans held for sale, financial assets for which the fair value option has been elected, or loans and receivables between entities under common control. ASU

2016

is effective for public entities for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact on the Company’s financial statements of adopting this guidance but this guidance is

not

expected to have a material impact on the Company’s financial position, results of operations or internal control framework.