Liability for Appeals

12 Months Ended

Dec. 31, 2019

Other Liabilities Disclosure [Abstract]

Under the Company’s contracts with certain commercial health plan customers and its Medicare Recovery Audit Contractor (“RAC”) contract with the Centers for Medicare & Medicaid Services (“CMS”) (included within the Company’s payment integrity services 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 contracts with CMS includes five levels of appeals, and resolution of appeals can take substantial time to resolve. HMS records a) an actual return obligation liability for findings which have been previously 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.

A roll-forward of the activity in the liability for appeals is as follows (in thousands):


	Original RAC contract		RAC 4 contract		Commercial contracts		Total
Balance at December 31, 2017	$	27,816	$	—	$	2,971	$	30,787
Provision	108		20		2,038		2,166
Appeals found in providers favor	(108)		—		(2,686)		(2,794)
Release of estimated liability	(8,436)		—		—		(8,436)
Balance at December 31, 2018	$	19,380	$	20	$	2,323	$	21,723
Provision	—		2,026		7,347		9,373
Appeals found in providers favor	—		(440)		(7,706)		(8,146)
Release of estimated liability	(19,380)		—		—		(19,380)
Balance at December 31, 2019	$	—	$	1,606	$	1,964	$	3,570

The Company’s original Medicare RAC contract with CMS expired on January 31, 2018. As a result of the original 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 return obligation liability and increased revenue by $8.4 million during the first quarter of 2018.

In 2019, the Company determined, based on communications, that there was no further contractual obligation to CMS with respect to the original Medicare RAC contract as of June 30, 2019. Accordingly, the Company released its remaining estimated liability of $19.4 million and net receivables during the second quarter of 2019. As a result of the release, there was a $10.5 million increase to the Company's revenue for the three months ended June 30, 2019.