1.	Business and Summary of Significant Accounting Policies

(a) Business

HMS is a leading provider of cost containment solutions in the U.S. healthcare marketplace. We use innovative technology, extensive data services and powerful analytics to deliver coordination of benefits, payment integrity and care management and consumer engagement solutions to help healthcare payers improve financial performance and clinical outcomes. We provide coordination of benefits services to government and commercial healthcare payers and sponsors to ensure that the responsible party pays healthcare claims. Our payment integrity services ensure healthcare claims billed are accurate and appropriate, and our care management and consumer engagement technology helps risk-bearing organizations to better engage with and manage the care delivered to their members. Together these various services help customers recover erroneously paid amounts from liable

third

parties; prevent future improper payments; reduce fraud, waste and abuse; better manage the care their members receive; engage healthcare consumers to improve clinical outcomes while increasing member satisfaction and retention; and achieve regulatory compliance. We currently operate as

one

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

The accompanying consolidated financial statements and notes are unaudited. Accordingly, they do

not

include all of the information and notes required by 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 as of and for the year ended

December 31, 2017

which were filed with the SEC as part of the

2017

Form

-K. The consolidated balance sheet as of

December 31, 2017

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

2017

Form

-K other than as described below with respect to revenue recognition.

Recently Adopted Accounting Pronouncements

May 2014,

the FASB issued ASU

2014

09,

Revenue from Contracts with Customers

(Topic

606

) (“ASU

2014

09”

), which is the new comprehensive revenue recognition standard that supersedes all existing revenue recognition guidance under U.S. GAAP. The Company adopted ASU

2014

January 1, 2018

as to all contracts using the modified retrospective method and the Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The financial information for comparative prior periods has

not

been restated and continues to be reported under the accounting standards in effect for those periods. The effect of adopting ASU

2014

in the current annual reporting period as compared with the guidance that was in effect before the change is immaterial. 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 revenue recognition standard as necessary. 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.

August 2016,

the FASB issued ASU

No.

2016

15,

Statements of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments

(“ASU

2016

15”

)

ASU

2016

clarifies where certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for annual reporting periods beginning after

December 15, 2017,

and for interim reporting periods within such annual periods. The Company adopted this guidance on

January 1, 2018.

The adoption of this guidance did

not

have an effect on the Company’s consolidated financial statements.

January 2017,

the FASB issued ASU

No.

2017

01,

Business Combinations (Topic

805

) – Clarifying the Definition of a Business

(“ASU

2017

01”

). ASU

2017

finalizes previous proposals regarding shareholder concerns that the definition of a business is applied too broadly. The guidance assists entities with evaluating whether transactions should be accounted for as acquisitions of assets or of businesses. The amendments are effective for annual periods beginning after

December 15, 2017,

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

January 1, 2018.

The adoption of this guidance did

not

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

May 2017,

the FASB issued ASU

No.

2017

09,

Compensation – Stock Compensation (Topic

718

) – Scope of Modification Accounting,

(“ASU

2017

09”

). ASU

2017

requires entities to apply modification accounting to changes made to a share-based payment award. The new guidance specifies that entities will apply modification accounting to changes to a share-based payment award only if any of the following are

not

the same immediately before and after the change:

) The award’s fair value (or calculated value or intrinsic value, if those measurement methods are used),

) the award’s vesting conditions, and

) the award’s classification as an equity or liability instrument. ASU

2017

is effective for annual reporting periods beginning after

December 15, 2017,

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

January 1, 2018.

The adoption of this guidance did

not

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

Recently Issued Accounting Pronouncements

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (Topic

842

)

(“ASU

2016

02”

). ASU

2016

will require most lessees to recognize a majority of the company’s leases on the balance sheet, which will increase reported assets and liabilities. 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 has

not

early adopted this guidance. The Company developed a preliminary implementation plan and is reviewing historical lease agreements to quantify the impact of adoption. Depending on the results of the Company’s review, there could be material changes to the Company’s financial position and/or results of operations. The Company expects to complete the initial analysis of all historical agreements and the overall assessment process by the end of the

third

quarter of

2018

in anticipation of performing additional reviews and other implementation considerations in the

fourth

quarter of

2018.

January 2017,

the FASB issued ASU

No.

2017

04,

Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

(“ASU

2017

04”

). This amendment simplifies the manner in which an entity is required to test for goodwill impairment by eliminating Step

from the goodwill impairment test. Step

measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendment simplifies this approach by having the entity (

) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (

) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. The amendment is effective for public entities that are SEC filers prospectively for their annual, or any interim, goodwill impairment tests in fiscal years beginning after

December 15, 2019.

Early adoption is permitted for all entities for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

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.

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 year beginning after

December 15, 2018,

including interim periods within that fiscal year. 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.