10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission File Number 000-50194

HMS HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	11-3656261 (I.R.S. Employer Identification No.)
5615 High Point Drive, Irving, TX (Address of principal executive offices)	75038 (Zip Code)

(214) 453-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock $0.01 par value	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates as of June 29, 2018 the last business day of the registrant’s most recently completed second quarter was approximately $1.8 billion based on the last reported sale price of the registrant’s common stock on the Nasdaq Global Select Market on that date. Solely for purposes of this disclosure, shares of common stock held by executive officers, directors and persons who hold 10% or more of the outstanding shares of common stock of the registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily a conclusive determination for any other purposes.

There were 85,271,867 shares of common stock outstanding as of February 15, 2019.

Documents Incorporated by Reference

Unless provided in an amendment to this Annual Report on Form 10-K, the information required by Part III is incorporated by reference to the registrant’s 2019 definitive proxy statement, to the extent stated herein. Such proxy statement or amendment will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2018.

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HMS HOLDINGS CORP. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
Glossary of Terms and Abbreviations		1
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24
PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Consolidated Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	43
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	44
Item 13.	Certain Relationships and Related Transactions and Director Independence	45
Item 14.	Principal Accounting Fees and Services	45
PART IV
Item 15.	Exhibits, Financial Statement Schedules	46
Item 16.	Form 10-K Summary	50

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Glossary of Terms and Abbreviations

ACA	Patient Protections and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010
ACO	Accountable Care Organization
ADR	Additional Documentation Request
ASO	Administrative Service Only
ASU	Accounting Standards Update
CHIP	Children's Health Insurance Program
CMS	Centers for Medicare & Medicaid Services
CMS NHE	CMS National Health Expenditures
COB	Coordination of Benefits
COSO	Committee of Sponsoring Organizations of the Treadway Commission
Credit Agreement	The Amended and Restated Credit Agreement dated as of May 3, 2013, as amended by Amendment No. 1 to Amended and Restated Credit Agreement dated as of March 8, 2017, and as further amended by Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 19, 2017, by and among HMS Holdings Corp., the Guarantors party thereto, the Lenders party thereto and Citibank, N.A. as Administrative Agent
DSO	Days Sales Outstanding
ERISA	Employment Retirement Income Security Act of 1974
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
HIPAA	Health Insurance Portability and Accountability Act of 1996
HITECH	Health Information Technology for Economic and Clinical Health
IRC	Internal Revenue Code
IRS	U.S. Internal Revenue Service
LIBO Rate	Intercontinental Exchange London Interbank Offered Rate (or any successor rate determined in accordance with the Credit Agreement)
MCO	Managed care organization
PBM	Pharmacy Benefit Manager
PHI	Protected health information
PI	Payment Integrity
R&D Credit	U.S. Research and Experimentation Tax Credit pursuant to IRC Section 41
RAC	Recovery Audit Contractor
RFP	Request for proposal
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
Section 199 Deduction	U.S. Production Activities Deduction pursuant to IRC Section 199
SG&A	Selling, general and administrative
TPL	Third-party liability
TPM	Total Population Management
U.S. GAAP	United States Generally Accepted Accounting Principles
401(k) Plan	HMS Holdings Corp. 401(k) Plan
2006 Stock Plan	HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan, as amended by Amendment No. 1 to the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan dated as of February 16, 2012
2011 HDI Plan	HDI Holdings, Inc. Amended 2011 Stock option and Stock Issuance Plan
2016 Omnibus Plan	HMS Holdings Corp. 2016 Omnibus Incentive Plan
2017 Tax Act	Tax Cuts and Jobs Act of 2017
2018 Form 10-K	HMS Holdings Corp. Annual Report on Form 10-K for the year ended December 31, 2018

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Cautionary Note Regarding Forward-Looking Statements

For purposes of this 2018 Form 10-K, the terms “HMS,” “Company,” “we, “us, and “our” refer to HMS Holdings Corp. and its consolidated subsidiaries unless the context clearly indicates otherwise. Included in this 2018 Form 10-K are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such statements relate to our current expectations, projections and assumptions about our business, the economy and future events or conditions. They do not relate strictly to historical or current facts.

We have tried to identify forward-looking statements by using words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “likely,” “may,” “plan,” “project,” “seek,” “strategy,” “target,” “will,” “would,” “could,” “should,” and similar expressions and references to guidance, although some forward-looking statements may be expressed differently. These statements include, among other things, information concerning our future growth, business strategy, strategic or operational initiatives, our future operating or financial performance, our ability to invest in and utilize our data and analytics capabilities to expand our capabilities, the benefits and synergies to be obtained from completed and future acquisitions, the future performance of companies we have acquired, our future expenses, interest rates and tax rates, our ability to meet our future liquidity requirements, the impact of changes to U.S. healthcare legislation or healthcare spending affecting Medicare, Medicaid or other publicly funded or subsidized health programs, and other statements regarding our possible future actions, business plans, objectives and prospects.

Forward-looking statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual results may differ materially from past results and from those indicated by such forward-looking statements if known or unknown risks or uncertainties materialize, or if underlying assumptions prove inaccurate. These risks and uncertainties include, among other things:

§	our ability to execute our business plans or growth strategy;
§	our ability to innovate, develop or implement new or enhanced solutions or services;
§	the nature of investment and acquisition opportunities we are pursuing, and the successful execution of such investments and acquisitions;
§	our ability to successfully integrate acquired businesses and realize synergies;
§	significant competition for our solutions and services;
§	variations in our results of operations;
§	our ability to accurately forecast the revenue under our contracts and solutions;
§	our ability to protect our systems from damage, interruption or breach, and to maintain effective information and technology systems and networks;
§	our ability to protect our intellectual property rights, proprietary technology, information processes and know-how;
§	our failure to maintain a high level of customer retention or the unexpected reduction in scope or termination of key contracts with major customers;
§	customer dissatisfaction or our non-compliance with contractual provisions or regulatory requirements;
§	our failure to meet performance standards triggering significant costs or liabilities under our contracts;
§	our inability to manage our relationships with data sources and suppliers;
§	our reliance on subcontractors and other third party providers and parties to perform services;
§	our ability to continue to secure contracts and favorable contract terms through the competitive bidding process;
§	pending or threatened litigation;
§	unfavorable outcomes in legal proceedings;
§	our success in attracting and retaining qualified employees and members of our management team;
§	our ability to generate sufficient cash to cover our interest and principal payments under our credit facility;
§	unexpected changes in tax laws, regulations or guidance and unexpected changes in our effective tax rate;
§	unanticipated increases in the number or amount of claims for which we are self-insured;
§	changes in the U.S. healthcare environment or healthcare financing system, including regulatory, budgetary or political actions that affect healthcare spending or the practices and operations of healthcare organizations;
§	our failure to comply with applicable laws and regulations governing individual privacy and information security or to protect such information from theft and misuse;
§	our ability to comply with current and future legal and regulatory requirements;

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§	negative results of government or customer reviews, audits or investigations;
§	state or federal limitations related to outsourcing of certain government programs or functions;
§	restrictions on bidding or performing certain work due to perceived conflicts of interests;
§	the market price of our common stock and lack of dividend payments; and
§	anti-takeover provisions in our corporate governance documents.

These and other risks are discussed under the headings “Part I, Item 1. Business,” “Part I, Item 1A. Risk Factors,” “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of this 2018 Form 10-K and in other documents we file with the SEC.

Any forward-looking statements made by us in this 2018 Form 10-K speak only as of the date on which they are made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. We caution readers not to place undue reliance upon any of these forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and Form 8-K reports and our other filings with the SEC.

Market and Industry Data

This 2018 Form 10-K contains market, industry and government data and forecasts that have been obtained from publicly available information, various industry publications and other published industry sources. We have not independently verified the information and cannot make any representation as to the accuracy or completeness of such information. None of the reports and other materials of third party sources referred to in this 2018 Form 10-K were prepared for use in, or in connection with, this 2018 Form 10-K.

Trademarks and Trade Names

We have a number of registered trademarks, including HMS^®, as well as the corresponding HMS + logo design mark, HMS IntegritySource^®, Eliza^®, Essette^® and Elli^®. These and other trademarks of ours appearing in this 2018 Form 10-K are our property. Solely for convenience, trademarks and trade names of ours referred to in this 2018 Form 10-K may appear without the ^® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. This 2018 Form 10-K contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

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PART I

Item 1. Business

Founded in 1974, HMS is an industry-leading provider of cost containment solutions in the healthcare marketplace. We use healthcare data technology, analytics and related services to deliver coordination of benefits, payment integrity, population risk intelligence, 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 a claim, and payment integrity services to ensure the correct amount is paid. 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 services help move the healthcare system forward for our customers and contribute to bending the healthcare cost curve for the nation.

HMS began its operations as Health Management Systems, Inc., which became our wholly owned subsidiary in March 2003 when we assumed its business in connection with the adoption of a holding company structure. In recent years HMS has grown both organically and through targeted acquisitions of businesses that helped expand our solution suite, including IntegriGuard, LLC (doing business as HMS Federal) in 2009; HealthDataInsights, Inc. (“HDI”) in 2011; Essette, Inc. (“Essette”) in 2016; and Eliza Holding Corp. (“Eliza”) in 2017. We currently operate as one business segment with a single management team that reports to the Chief Executive Officer.

We were originally incorporated in the State of New York in October 2002 and reincorporated in the State of Delaware in July 2013. Our principal executive offices are located at 5615 High Point Drive, Irving, Texas 75038, and our telephone number is (214) 453-3000. As of December 31, 2018, we had approximately 2,500 employees. Additional information about HMS is available on our website at www.hms.com.

Copies of our recent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements, as well as amendments to these reports or statements, are available free of charge on our website through the Investor Relations page, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. These materials, as well as similar materials for SEC registrants, may be obtained directly from the SEC through their website at http://www.sec.gov.

The content of any website referred to in this 2018 Form 10-K is not incorporated by reference into this filing unless expressly noted. References to the URLs for these websites are intended to be inactive textual references only.

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Our Solutions

We provide solutions that apply broadly across Medicaid, Medicare, commercial at-risk, and employer self-insured populations. Our services span the payment and care continuum from an individual’s enrollment in a program before medical service is rendered, to pre-payment review of a claim, through recovery where identification of improper payments is made via audit, and back to the individual where our consumer-driven solutions allow health plans to manage their members on a personal level, and at scale, by using actionable analytics that drive patients to take action to improve health outcomes. Our coordination of benefits and payment integrity services ensure payment accuracy by addressing a wide spectrum of payment errors, including eligibility and coordination of benefits errors, the identification and investigation of potential fraud, and the review of claims on a pre-payment and post-payment basis. Our total population management services assist customers in managing quality, risk, cost and compliance across all lines of business by engaging members, providing the tools to manage their care, and identifying existing or emerging health risk among members. As a result of these services, our customers saved billions of dollars in 2018 through the prevention of erroneous payments, improved clinical outcomes for their members, and reduced enrollment turnover; and they received billions more in cash recoveries for improperly paid claims.

Our comprehensive solutions offer value throughout the healthcare continuum and include the following:

Coordination of Benefits (COB)

Our COB services are provided primarily for state governments and Medicaid managed care plans, pursuant to Federal law which mandates that Medicaid is the payer of last resort, and draw principally upon proprietary information management and data mining techniques designed to ensure the correct party pays a healthcare claim. We offer cost avoidance services, which include providing validated insurance coverage information that is used by payers to coordinate benefits properly for future claims. With validated insurance information, Medicaid payers can avoid unnecessary costs by ensuring they pay only after all other insurance coverage available has been exhausted. Nevertheless, due to a variety of factors, many Medicaid claims are paid even when there is a known responsible third party. Our customers rely on us to identify Medicaid eligibility, before a claim is submitted, and retrospectively, for those claims that were paid in error, and then recover these payments from the liable third party. We also provide services to assist customers in identifying other third-party insurance and recovering medical expenses where a member is involved in a casualty or tort incident. Lastly, for Medicaid agencies exclusively, we provide estate recovery services to identify and recover Medicaid expenditures from the estates of deceased Medicaid members in accordance with state policies. For the years ended December 31, 2018, 2017 and 2016, our COB services represented 66.4%, 73.4% and 72.2% of our total revenue, respectively.

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Analytical services

Analytical services consists of our payment integrity and total population management solutions.

Payment Integrity (PI)

Our PI services ensure healthcare payments are accurate and appropriate. These services are applicable to all customers HMS serves, including federal and state governments, commercial health plans and other at-risk or self-insured entities. Our solutions verify that healthcare services are utilized, billed and paid appropriately. We combine data analytics, clinical expertise and proprietary algorithms and technology to identify and prevent improper payments on submitted claims to optimize savings before a claim is even paid, and on a post-payment basis, to identify and recover overpayments and correct underpayments; detect and prevent fraud, waste and abuse; and identify process improvements. For the years ended December 31, 2018, 2017 and 2016, our PI services represented 24.1%, 20.0% and 27.6% of our total revenue, respectively.

Total Population Management (TPM)

Our TPM services consist of population risk analytics, consumer engagement and care management solutions, which are the result of internal product development and our acquisitions of Essette in 2016 and Eliza in 2017. These solutions help customers better manage quality, cost, compliance and patient outcomes and improve their members’ experience. The services span across the care continuum. Our flexible, scalable architecture and modular platform integrates early risk identification, advanced analytics, multi-channel outreach, social engagement and care management components to address our customers’ increased focus on consumer engagement, performance management and program design—all key components of an effective population health management program. Our Elli, Eliza and Essette solutions leverage HMS data and advanced analytics to support population risk management, member engagement and care management, respectively, and provide customers with a tailored, integrated platform that addresses core healthcare industry challenges on an enterprise scale. For the years ended December 31, 2018, 2017 and 2016, our TPM services represented 9.5%, 6.6% and 0.2%, of our total revenue, respectively.

Intellectual Property

Our ability to develop and maintain the proprietary aspects of our technology and operate without infringing the proprietary rights of others is important to our business and competitive position. We establish and protect our proprietary technology and intellectual property through a combination of patents, patent applications, trademarks, copyrights, domain names and trade secrets, as well as through contractual rights, including confidentiality, non-disclosure and invention assignment agreements, and other security measures.

As of December 31, 2018, our patent portfolio is comprised of approximately 60 domestic and international patents, and we are currently pursuing several patent applications in the United States and around the world. Our principal trademarks are HMS^®, and the corresponding HMS + logo design mark, HMS IntegritySource^®, Eliza^®, Essette^®, and Elli^®. We also hold copyrights relating to certain aspects of our solutions and services. While we consider all of our intellectual and proprietary rights important to HMS, we believe our business as a whole is not materially dependent on any particular patent, trademark, license or other intellectual property right.

Customers

We provide our solutions to customers across a broad range of entities within the healthcare industry, including health plans, state agencies, federal programs, private employers and other risk-bearing healthcare organizations. For the years ended December 31, 2018, 2017 and 2016, our total revenue was $598.3 million, $521.2 million and $489.7 million, respectively. No single customer accounted for 10% or more of our total revenue during any period presented.

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The composition of our 10 largest customers changes periodically. For the years ended December 31, 2018, 2017 and 2016, our 10 largest customers represented 41.4%, 39.5% and 40.6% of our total revenue, respectively. We provide services under contracts (or subcontracts) that contain various revenue structures, including contingent revenue and to a lesser extent fixed-fee arrangements. The current terms of many of our federal and state government contracts range from one to five years, including renewal terms at the option of the customer. In many instances, we provide our services pursuant to agreements that are subject to periodic reprocurements. Several of our contracts, including those with some of our largest customers, may be terminated for convenience, in whole or in part, by the customer. Because we provide our services pursuant to agreements that are open to competition from various businesses in the U.S. healthcare arena, we cannot provide assurance that our contracts, including those with our largest customers, will not be terminated for convenience or awarded to other parties. Additionally, we cannot provide assurance that any contracts that are renewed will have the same fee structures as the expiring contracts or otherwise be on satisfactory terms. The early termination of key contracts with significant customers, or the inability to renew such contracts on favorable terms or at all, may have an adverse effect on our financial condition, results of operations and cash flows.

In providing solutions and services to our customers, we rely heavily upon our technology systems and networks, as well as on those of third-party providers, to process, transmit, maintain, store and host the confidential, proprietary and sensitive information and data we receive from our customers and other data suppliers, including private insurance plans and financial institutions. The secure processing and maintenance of this information is critical to our operations and business strategy. Although we have spent significant resources to implement security and privacy programs and controls, train our workforce and augment our security measures with the implementation of new technologies and processes, our information technology and infrastructure, and those of third parties on which we rely could continue to be potentially subject to various forms of cyber-attacks, as further discussed under the heading “Part I, Item 1A. Risk Factors.”

Healthcare Landscape

The market for cost containment solutions is large and growing, driven by increasing healthcare costs, rising program enrollment and payment complexities. Established in 1965 under the Social Security Act, Medicaid provides health insurance and long-term care services and support to low-income families and individuals with disabilities in the United States. Medicaid is funded jointly by the federal and state governments and administered by the states. The Balanced Budget Act of 1997 created CHIP to help states expand coverage primarily to children whose families earned too much to qualify for Medicaid, yet not enough to afford private health insurance. Medicare is a federal program that is administered by CMS, and provides eligible persons age 65 and over and some disabled persons with a variety of hospital, medical insurance and prescription drug benefits. All three of these programs have opted to contract with managed care organizations in whole or in part as a means of delivering quality healthcare to program beneficiaries and controlling costs.

By law, Medicaid programs serve as the payer of last resort and all other sources of coverage must pay for medical costs incurred by a Medicaid-eligible individual. The TPL rules of the Medicaid statute require, among other things, that states take reasonable measures to identify potentially liable third parties and process claims accordingly. Since 1985, we have provided state Medicaid agencies with services to identify third parties with primary liability for paying claims for Medicaid members, and since 2005, we have provided similar services to Medicaid managed care plans.

The Deficit Reduction Act enacted by Congress in 2006 contained provisions to strengthen the TPL rules and created the Medicaid Integrity Program under the Social Security Act to increase the government’s capacity to prevent, detect and address fraud, waste and abuse in the Medicaid program. Later that year, Congress passed the Tax Relief and Health Care Act of 2006, which established the Medicare RAC program. These measures, at both the federal and state level, have strengthened our ability to identify and recover erroneous payments on behalf of our customers. We also serve as a Medicaid RAC to certain states pursuant to provisions of the ACA and became the Medicare RAC for Region D with our acquisition of HDI. We again were awarded a region under the new Medicare RAC contracts in October 2016. Following the implementation of the new Medicare RAC contracts and completion of contract closeout activities for RAC Region D, our original Medicare RAC contract expired on January 31, 2018.

The ACA, generally referred to as Obamacare, was signed into law in 2010 and has made broad-based changes to the U.S. healthcare system, including many provisions impacting healthcare delivery and payment programs, such as employer-sponsored health coverage, Medicaid, Health Insurance Exchanges with premium subsidies and payment integrity efforts. The ACA also further expanded the recovery audit contractor program to states. CMS and various states have proposed Medicaid program design alternatives and changes to enrollment criteria which could impact future Medicaid enrollment. As ACA-related changes develop or are enacted, we will assess their potential impact, including opportunities they may present for our customers and for us.

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Industry Trends and Opportunities

U.S. healthcare expenditures continue to escalate and consume an increasingly larger proportion of the U.S. GDP, presenting challenges for payers who wish to contain costs and promote quality healthcare outcomes. For 2019, Medicare and Medicaid are projected to pay approximately 37.9% of the nation’s healthcare expenditures and serve over 136.3 million beneficiaries. Many of these beneficiaries are enrolled in managed care plans, which have the responsibility for both patient care and claims adjudication. The dual aims of cost containment and quality healthcare outcomes are the same across all at-risk entities, including commercial health plans and government healthcare programs, such as Medicaid and Medicare.

Within the commercial market, health plans sell policies directly to individuals (on the open market or via health insurance exchanges), contract with employers to underwrite their employees’ care, or contract with self-insured employers to oversee benefit administration for their employees. This market also includes a growing number of risk bearing provider-sponsored plans that operate and market health plan benefits. According to CMS NHE projections, private health insurance covered approximately 197.5 million individuals at a cost of approximately $1.24 trillion in 2018.

Several commercial health plans also offer government-sponsored lines of business, including partnering with Medicare, Medicaid and CHIP to oversee care delivery for beneficiaries enrolled in those programs. States continue to focus on improving value, quality and outcomes through arrangements with MCOs. At the end of state fiscal year 2018, 47 states and the District of Columbia operated with some form of managed care, and Alaska reported plans to implement a managed care program in 2019. Comprehensive risk-based managed care continues to be the predominant delivery system for Medicaid services in the US. Among the 39 Medicaid programs with comprehensive risk-based MCOs, 33 reported that 75% or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2018. Of the 32 states that had implemented Medicaid expansion pursuant to the ACA, 27 were using MCOs to cover newly eligible adults as of July 1, 2018. Managed care health plans also continue to assume risk for a growing number of Medicare lives. Approximately 34% of all Medicare beneficiaries, or 20 million lives, were enrolled in Medicare Advantage plans in 2018.

HMS continues to serve government agency fee-for-service programs at the state and federal level. These plans are generally reliant on and susceptible to the government appropriations process that determines their budget and governs the number of beneficiaries they serve. According to the CMS NHE projections, Medicare programs in 2018 covered approximately 59 million people at a cost of approximately $748 billion and Medicaid/CHIP covered approximately 81.2 million people, costing approximately $641 billion. Altogether, it is projected that the government programs we serve covered approximately 140.2 million people at a total cost of nearly $1.39 trillion in 2018.

CMS projects that Medicare enrollment growth will increase by 3.03% in 2019, with expenditures to increase by 7.95% in 2019 compared to 2018; and Medicaid/CHIP enrollment growth will increase by 1.97% in 2019, with expenditures to increase by 5.5% in 2019 compared to 2018. As commercial and government health plans focus on strategies to contain costs across their different lines of business, HMS will continue offering solutions to meet their evolving needs.

Competitors

The U.S. healthcare marketplace is a dynamic industry with a range of businesses currently offering cost containment services, both directly or indirectly (through subcontracting), to some or all of the various healthcare payers, providers, employers and consumers. In addition, with improvements in technology and the growth in healthcare spending, new businesses are incentivized to enter this marketplace. Many customers also have the ability to perform some or all of the needed cost containment services themselves and choose to exercise that option to varying degrees. Therefore, competition is robust as customers have many alternatives available to them in their effort to contain healthcare costs.

We compete based on a variety of factors, including our ability to provide a broad range of solutions that span the entire healthcare claims payment and services continuum. These include payment accuracy solutions focused on COB and PI related functions, as well as TPM solutions which support the ability of payers to better understand and engage consumers, perform effective outreach, and impact both costs and health outcomes.

We have a proven record of delivering results that optimize savings and recoveries, enabled by:

§ in-depth government and commercial healthcare program experience;

§ clinical staff expertise;

§ expansive data resources;

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§ innovative technology;

§ enterprise analytics;

§ an extensive insurance eligibility database;

§ extensive relationships with customers and other industry stakeholders; and

§ an ability to provide customers with actionable intelligence to improve clinical outcomes, optimize patient engagement, and better manage costs.

Our competitors range in size from large, diversified national companies, to small, specialized firms. Some of these competitors have significantly greater financial and technical resources, and others have longer operating histories and greater name recognition than we do in certain markets. Within our payment accuracy portfolio of products and services, we compete primarily with large business outsourcing and technology firms, claims processors and PBMs, clearinghouses, healthcare consulting firms, and other vendors who provide some or all of these solutions to payers. In addition, we frequently work with customers who may elect to perform some or all of their cost avoidance and recovery functions in-house. Within the population health management sector, we compete primarily with vendors who provide care management, consumer engagement, and related technology services. Companies with whom we compete across our offerings include:

§ Accenture plc	§ CaseNet LLC	§ Change Healthcare
§ Cotiviti Corporation	§ DXC Technology Company	§ Equian, LLC
§ EXL Service Holdings, Inc.	§ Experian Health	§ IBM Watson Health
§ LexisNexis	§ MedHok, Inc.	§ Optum (subsidiary of UnitedHealthGroup)
§ Performant Financial Corporation	§ Welltok, Inc.	§ ZeOmega LLC

Business Strategy

We believe that the steadily increasing enrollment and rising expenditures for Medicare and Medicaid, with most new enrollees entering managed care plans; an aging U.S. population with an increasing concentration of individuals with high cost chronic conditions and often co-morbidities; and the overall complexity of the healthcare claims payment system in the U.S. all combine to create substantial growth opportunities for the suite of cost containment solutions we offer.

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We also believe these factors present growth opportunities for our TPM services. We are focused on growing our business over the course of 2019 and beyond, both organically and inorganically, by leveraging existing key assets (e.g., our data, analytics, in-house expertise, and distribution channel) and pursuing a number of strategic objectives or initiatives, including:

§ Expanding the scope of our relationship with existing customers – by selling additional solutions and services, including those designed to improve member engagement and improve clinical outcomes.

§ Adding new customers – by marketing to commercial health plans, including Medicaid managed care and Medicare Advantage plans, at-risk group and individual health lines of business and ASOs; government healthcare payers, including Medicaid agencies, state employee health benefit plans and CHIPs; at-risk provider organizations and ACOs; and commercial self-insured employers.

§ Introducing new innovative solutions and services – through internal development initiatives designed to enhance or expand our existing suite of cost containment solutions.

§ Utilizing technology tools to leverage a big data environment – to create a more nimble operating environment, create operating efficiencies, improve the yield on our existing solution suite and identify new revenue opportunities within our current service delivery models.

§ Promoting automation and innovation to improve the efficiency and effectiveness of our services – by continuing to implement new technology and process improvements designed to increase recovery yields, increase customer satisfaction and achieve greater operating efficiencies.

§ Prudent deployment of capital – by investing in internal growth initiatives; selectively investing in capabilities, technologies, and assets to complement our core cost-containment expertise; building care management and care coordination adjacencies to complement the Essette and Eliza acquisitions and our internally developed Elli risk intelligence product; and expanding our data analytics capabilities. Our focus may include acquisitions that represent long-term growth potential, target high-growth areas, are accretive to earnings, enhance our technological capabilities and fill a strategic need in our business portfolio as we seek to provide increasingly comprehensive solutions to our customers. We may also repurchase our shares, pursuant to a two-year $50 million authority granted by our Board of Directors in November 2017, which has a remaining unused authority of approximately $29.9 million.

Item 1A. Risk Factors

Our business is subject to significant risks, including the risks and uncertainties described below. You should carefully consider these risks, as well as the other information in this 2018 Form 10-K, including our Consolidated Financial Statements and the related Notes. The occurrence of any of these risks could adversely affect our business, financial condition, results of operations, and cash flows in a material way.

Risks Relating to Our Company

Our ability to expand our business will be adversely affected if we fail to implement our growth strategy.

The size and scope of our business operations have expanded over the past several years, and we currently intend to continue our growth and expansion into new healthcare areas and markets, however, our growth and expansion strategy carries costs and risks that, if not properly managed, could adversely affect our business. Our future growth will depend on, among other things, our ability to successfully execute our business plans, which includes penetrating new markets, broadening and deepening our customer relationships, identifying and executing future acquisitions and strategic partnerships, and increasing the speed and scale at which we deliver our services, all while remaining competitive. We must also be flexible and responsive to customers’ needs and changes in the political, economic and regulatory environment in which we operate. The greater size and complexity of our expanding business may put additional strain on our administrative, operational and financial resources and can make optimal resource allocation more difficult to determine. It is possible that we may not be able to maintain or accelerate our growth. A failure to anticipate or properly address the demands and challenges that our growth strategy and potential diversification may have on our resources and existing infrastructure may result in unanticipated costs and inefficiencies that could negatively impact our ability to execute on our business plans and growth goals, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

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If we fail to innovate and develop new or enhanced solutions and services, or if these solutions and services are not adopted by our customers, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Part of our growth strategy depends on our ability to respond to the evolving healthcare landscape with new and enhanced solutions and services that our existing and potential customers are willing to adopt. The development, marketing and implementation of these solutions and services may require that we make substantial financial and resource investments. We face risks that our new or modified solutions and services may not be responsive to customer preferences or industry changes, and that the solution and service development initiatives that we prioritize may not yield the gains that we anticipate, if any. If we are unable to predict market preferences or healthcare industry changes, or if we are unable to develop or adapt solutions and services that are responsive to existing and potential customers’ needs, we may fail to expand our business, which could constrain our future revenue growth and materially adversely affect our business, financial condition, results of operations and cash flows.

Our acquisition strategy may subject us to considerable business and financial risk.

Historically, to achieve our strategic goals, we have made a significant number of acquisitions that have expanded the solutions and services we offer, provided a presence in complementary business lines, or expanded our geographic presence and/or customer base. We intend to pursue future acquisitions that will continue to expand and complement our business and to periodically engage in discussions regarding such possible acquisitions. We are subject to risks and uncertainties relating to our ability to identify suitable potential acquisition candidates, to consummate additional acquisitions that will be advantageous to us, and to successfully integrate future acquisitions. Future and potential business acquisitions involve a number of risk factors that could affect our operations, including, but not limited to:

§ diversion of management’s attention and other resources;

§ our ability to successfully and timely integrate operational, accounting and technology functions, policies, processes, systems and controls, and to implement these functions, policies, processes, systems and controls, without incurring substantial expenses, delays, difficulties or other issues;

§ our ability to integrate personnel and human resource systems as well as the cultures of the acquired business;

§ our ability to retain or replace the key personnel of the acquired business;

§ our ability to maintain relationships with the customers of the acquired business;

§ our ability to expand and further develop the acquired business;

§ our ability to cross-sell our solutions and the solutions of the acquired business to our respective customers;

§ customer dissatisfaction or performance problems with the acquired business;

§ our ability to comply with regulatory requirements and avoid potential conflicts of interest in markets that we serve;

§ the misuse of intellectual property by the personnel of the acquired business;

§ our ability to successfully enter into unfamiliar markets or manage new business lines;

§ assumption of unanticipated legal or financial liabilities and/or negative publicity related to prior acts by the acquired business;

§ we may become subject to litigation or other claims in connection with the acquired business, including claims from terminated employees, customers, former shareholders or third parties;

§ we may become significantly leveraged as a result of incurring debt to finance an acquisition;

§ the acquired business may not perform as projected which could negatively impact earnings or contingent consideration;

§ we may suffer impairment of goodwill and other acquired intangible assets; and

§ we may suffer dilution to our earnings per share.

If we fail to adequately address these risks, or to successfully integrate the businesses that we acquire, we may not realize cost efficiencies, synergies or other benefits that we anticipated when selecting our acquisition candidates, and our reputation, business, financial condition, results of operations and cash flows could be materially adversely affected.

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We face significant competition for our solutions and services and we expect competition to increase, which could materially adversely affect our business, financial condition, results of operations and cash flows.

The market for healthcare cost containment solutions is intensely competitive, driven by rapidly changing technologies, evolving industry standards and customer demands to become more efficient. Our competitors range in size from large, diversified national companies (some of which have emerged as a result of industry consolidation), to small, specialized firms. Some of our competitors may include current or former subcontractors or teaming partners seeking to establish direct relationships with our customers and provide similar services as the prime contractor, as well as current and prospective customers that elect to perform recovery and cost avoidance functions in-house or to develop in-house capacities for solutions and services that we provide or seek to provide. Consolidation among vendors and healthcare providers, as well as the merging of some of our competitors or formation of business alliances with other competitors, have contributed to the increasingly competitive environment. For example, certain state customers have combined or “bundled” TPL services under large-scale IT procurements, as they shift to implementing modular Medicaid Enterprise Systems. As part of this modular approach, they may select a new or less experienced vendor to provide the TPL module based on preferred relationships or favorable pricing. In addition, companies that have invested in proprietary technology different from our own service offerings, such as front-end analytics, have emerged as new competitors due to the rapidly evolving healthcare landscape. There is also increasing sophistication in the solutions and services that our competitors are developing that may become more efficient or appealing to our customers. In order to remain competitive, we may need to quickly develop and market new and enhanced solutions and services responsive to emerging technologies and changes in the healthcare industry, which may require that we make substantial financial and resource investments.

We may not be able to compete successfully against our existing or future competitors. Some of these competitors have significantly greater financial and technical resources, and others have longer operating histories and greater name recognition than we do in certain markets. They may be able to (i) offer lower prices or negotiate fee reductions on our current solutions and services, (ii) respond more quickly than we can to new and emerging technologies and changing customer requirements, (iii) devote greater resources to the sale of their products and the development and implementation of new and improved systems, solutions and services for customers that we serve, and (iv) pursue various acquisitions that allow them to rapidly amass a wide array of capabilities. We may be forced to lower our pricing, unexpectedly increase or enhance our technological or data capabilities, or modify our solution or service offerings. Notwithstanding any changes we make in response to increased competition, the demand for our solutions and services may decrease as a result of increased competition. A failure to be responsive to our existing and potential customers’ needs or the changing industry landscape could hinder our ability to maintain or expand our customer base, hire and retain new employees, pursue new business opportunities, complete future acquisitions and operate our business effectively. Any inability to compete effectively could materially adversely affect our business, financial condition, results of operations and cash flows.

You will not be able to rely on our operating results in any particular period as an indication of our future performance because they are subject to significant fluctuation which may cause the market price of our common stock to decrease significantly.

Our revenue and operating results may fail to match our past or projected performance and could vary significantly from period-to-period as a result of a number of factors, some of which are outside of our control. We have experienced fluctuations in our revenue and operating results in the past and they may vary in the future for reasons that include, but are not limited to:

§ fluctuations in sales activity given our sales cycle;

§ the length of contract and implementation periods;

§ the commencement, completion or termination of contracts during any particular quarter;

§ contract costs and expenses, which may be incurred in periods prior to revenue being recognized;

§ the timing of period revenue recovery projects and third party payers’ claim adjudication;

§ the billing and budgeting cycles of our customers;

§ the timing of government procurement activities, including when contract awards are announced and the time required to resolve bid protests;

§ contract renewal discussions, which may result in delayed payments for services already performed;

§ changes in the pricing structure or other significant terms in our contract, or the scope of services we perform;

§ technological and operational issues affecting our customers, including delays in payment receipt for previously recognized revenue due to certain customers delayed processing of our findings through their systems, and restrictions on our ability to use or access certain data or a lack of integrity or quality in the data or information we receive from certain data sources;

§ adjustments to age/quality of receivables and accruals as a result of factors such as delays involving contract limitations or changes, subcontractor performance deficiencies or managerial decisions not to pursue identified claim revenue from customers;

§ the impact of service disruptions or delays in the systems or operations of subcontractors, partners, vendors and other third party providers on which we rely on to deliver a single-source solution or service to our customers;

§ changes in applicable laws;

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§ changes in accounting policies or guidelines concerning the timing of recognition of revenue; and

§ regulatory changes or general economic conditions as they affect healthcare providers and payers.

We cannot predict the extent to which future variations could occur due to these or other factors. In addition, occasionally our state and federal customers are requested by third party payers to refund payments that we previously recovered for our customers. If our state and federal customers choose to refund money in response to these requests, regardless of whether an error actually occurred in connection with the payments, we may also be required to return contingent revenue which we were previously paid associated with such refunded payment. Consequently, our operating results are subject to significant fluctuation for any particular quarter, fiscal year, or other period, and may not be indicative of future periods. Our business is also subject to seasonal patterns resulting from increased efforts at year-end by certain customers to generate additional savings, complete compliance obligations and close gaps in care. However, taken as a whole, we do not consider our operations to be seasonal to any material degree. Due to all of these factors, our revenue and operating results are difficult to predict and are subject to significant fluctuation, which may cause the market price of our common stock to decrease significantly.

We face challenges associated with forecasting the revenue under our contracts, and any failure to accurately forecast such revenue could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to accurately estimate the factors upon which we base our contract pricing, or the costs and timing for implementing and completing our contracts. For a majority of our customer contracts, the payment of our fee is contingent upon the recoveries received by our customers. We also have cost-plus or time-and-materials based contracts with the federal government where our revenue is recognized based on costs incurred plus an estimate of the negotiated fee earned. Our ability to earn a profit on these contracts requires that we accurately estimate the costs involved with these contracts and assess the probability of achieving certain outcomes or milestones within the contracted time period. In addition, we cannot predict with certainty the costs or the period in which implementation or contracts may be completed when we introduce new solutions into the marketplace. For our coordination of benefits and payment integrity services, we may face a long implementation period with a new customer or a new contract with an existing customer, making it difficult to reliably forecast revenue under those contracts. If we do not accurately estimate the costs and timing for completing projects, or if we encounter increased or unexpected costs, delays, failures, liabilities or risks, including those outside of our control, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. Although we believe that we have recorded adequate provisions in our financial statements for losses on our fixed price and cost-plus contracts where applicable, as required under U.S. GAAP, our contract loss provisions may not be adequate to cover all actual future losses.

System interruptions or failures could expose us to liability and harm our business.

Our data and operation centers are essential to our business and our operations depend on our ability to maintain and protect our information systems. We attempt to mitigate the potential adverse effects of a disruption, relocation or change in operating environment; however, the situations we plan for and the amount of insurance coverage that we maintain may not be adequate in every case. Despite systems redundancy and security measures, our systems and operations are vulnerable to damage or interruption from, among other sources:

§ power loss, transmission cable cuts and telecommunications failures;

§ fire, flood, earthquake and other natural disasters;

§ hardware failures or software defects;

§ operator error;

§ cyber security breaches; and

§ physical break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.

In addition, while there are backup systems in many of our facilities, an extended outage of utility or network services supplied by third party IT vendors may delay or disrupt the delivery or performance of the services we provide for our customers. We also utilize third-party cloud service providers to help us efficiently scale certain cloud-based solutions. If we or our cloud service providers encounter a lengthy business interruption, or in the event our business continuity plans and business interruption insurance coverage are not adequate or fail to compensate us on a timely basis, we could suffer operational disruptions, disputes with customers, civil or criminal penalties, regulatory problems, increases in administrative expenses, loss of our ability to produce timely and accurate financial and other reports, damage to our reputation or customer relationships or other adverse consequences, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Our systems and networks and those of third parties on which we rely may be subject to cyber security breaches and other disruptions that could compromise our information and harm our business.

In the ordinary course of our business, we rely heavily upon our technology systems and networks, as well as on those of third-party providers, to process, transmit, maintain, store and host the confidential, proprietary and sensitive information and data we receive from our customers and other data suppliers, including private insurance plans and financial institutions. In addition, subcontractors, teaming partners or other third-party vendors may receive or utilize this information on our behalf in support of the services we perform for our customers. The secure processing and maintenance of this information is critical to our operations and business strategy. Although we have spent significant resources to implement security and privacy programs and controls, train our workforce and augment our security measures with the implementation of new technologies and processes, our information technology and infrastructure, and those of third parties on which we rely, could continue to be subject to computer hacking or phishing efforts, acts of vandalism or theft, introduction of malware, computer viruses or other malicious codes, employee error or malfeasance issues, catastrophes, unforeseen events or other cyber-attacks. We may be unable to implement adequate preventive measures to protect against such compromises in the future or to effectively adapt our security measures to evolving security risks. As a result, our technology systems, including our data and our customers’ data, could be accessed improperly, made unavailable, improperly modified, corrupted or otherwise breached or compromised, or we could suffer system disruptions, shutdowns and denials of service. Similarly, we could be materially adversely affected by the loss of proprietary, trade secret or confidential technical and financial data if our internal networks are compromised. The occurrence of any of these events could harm the market perception of the effectiveness of our security measures, lead to reputational damage or the loss of our customers’ confidence in our solutions, negatively affect our ability to attract new customers, cause existing customers to terminate or not renew their existing contracts with us, or deter them from using our solutions or services in the future, all of which could reduce our revenue, increase our expenses and expose us to potential liability under privacy, security or other applicable laws and regulations. We could also be forced to expend significant resources in response to a security breach, including investigating the cause of the breach, repairing system damage, remediating vulnerabilities in our security procedures, increasing cyber security protection costs by deploying additional personnel and protection technologies, paying regulatory fines and penalties imposed by government regulatory agencies, and damages and other substantial costs associated with litigation, indemnification obligations as well as increased cybersecurity insurance premiums, and undertaking additional remediation efforts such as credit monitoring, all of which could increase our expenses, divert the attention of our management and key personnel away from our business operations and materially adversely affect our business, financial condition, results of operations and cash flows.

Any failure to maintain effective information processing systems and the integrity of the data in, and operations of, those systems could materially adversely affect our business, financial condition, results of operations and cash flows.

Our ability to conduct our operations and accurately report our financial results depends on the integrity of the data in our information systems and the processes performed by those systems. As a result of the services we provide, we process a number of complex transactions that require us to access, store, retrieve, manipulate, manage and transmit the information and data of our customers’ and external third parties, as well as our own data. Although we have invested a great deal of time and resources in developing systems, processes and controls that protect the integrity of the data, such measures cannot provide absolute security. It is possible that failures or errors in hardware and software, including those in third-party technology, or technical deficiencies in our systems could result in data loss or corruption, or cause the data that we collect, utilize or disseminate to be incomplete or contain inaccuracies that our customers regard as significant. In addition, these information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs, satisfy customer requests and handle our expansion and growth. Despite our testing and quality control measures, we cannot be certain that errors or system deficiencies will be found and that remediation can be done in a timeframe that is acceptable to our customers, or that customer relationships will not be impaired by the occurrence of errors or the need for remediation. In addition, implementation of upgrades and enhancements may cost more, take longer or require more testing than originally expected. Situations may also arise in which the accuracy of our data analysis or the content and quality of our work product is central to the disposition of claims, controversies or litigation between our customers and third parties that would require us to allocate significant resources to fulfilling our contractual obligations to provide our customers with full and complete access to records, analysis and back-up documentation of our work. Assuring our capacity to fulfill these obligations as well as actually fulfilling them could impose significant burdens on our infrastructure for data storage, maintenance and processing, and require us to incur increased costs to supplement our personnel, data storage and computing resources, which could materially and negatively impact other business operations.

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If we are unable to protect our proprietary technology, information, processes, know-how, and other intellectual property and intellectual property rights, or become subject to claims of infringing or misappropriating the intellectual property of third parties, the value of our solutions and services may be diminished and our business may be materially adversely affected.

Our success as a company depends in part upon our ability to protect our core technology and intellectual property. Our expanding operations and efforts to develop new solutions and services also make protection of our intellectual property more critical. We seek to protect our intellectual property and other proprietary information through a combination of patent, trademark, copyright, trade secret and unfair competition laws, confidentiality agreements and invention assignment agreements with employees, consultants and other third parties, as well as through the terms of our agreements with customers and vendors, and other security measures. However, the steps we have taken to deter misappropriation of intellectual property may be insufficient to protect our proprietary information. We may not always be successful at obtaining government registrations for our patents, trademarks, or copyrights that we seek to register. Third parties may also attempt to misuse our company name or trademarks to engage in improper or illegal conduct such as cyber-squatting or other cybercrimes using our marks, and we may not always be successful at quickly obtaining relief from agencies tasked with enforcing parties’ rights, or stopping such conduct before harm to third parties occurs. Similarly, misappropriation of our other intellectual property by third parties, or any disclosure or dissemination of our confidential and proprietary trade secrets, business intelligence, queries, algorithms and other similar information by any means, could undermine any competitive advantage we currently derive or may derive from that intellectual property. For example, our current or former employees, consultants or other third parties may unintentionally or willfully disclose our trade secrets, know-how or other confidential and proprietary information to competitors. Competitors have also attempted to use state and/or federal open records laws (such as the federal Freedom of Information Act and analogous state laws) to obtain our proposal responses and other documents we provide to our government customers. We cannot be certain that our efforts to protect the confidential and proprietary trade secret information or intellectual property in these proposals or other documents will always be successful, due to the many factors underlying the various state and federal decisions to release information in response to open records requests (even in spite of our objections and efforts to protect such information). In addition, there remains the possibility that others will independently develop competing technologies that may be equivalent or superior to ours. If our efforts to protect our intellectual property and other proprietary rights are inadequate to prevent unauthorized use or appropriation by third parties or our employees, the value of our brand and other intangible assets may be diminished and others may be able to more effectively compete with our business by offering solutions or concepts that are substantially similar to ours, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, third parties may claim that we are infringing upon or misappropriating their intellectual property, or assert other legal challenges to our intellectual property. Our exposure to risks related to the use of intellectual property may also increase as a result of acquisitions because third parties may make infringement and similar or related claims after we have acquired technology. Any of these situations could cause us to expend significant time and resources and to incur substantial costs associated with litigation or legal proceedings that may be necessary to defend ourselves or to enforce our intellectual property rights, in which we may not ultimately prevail, and could result in our being prevented from furnishing certain solutions and services.

Our business could be materially adversely affected if we fail to maintain a high level of customer retention, if our customers elect to reduce the scope of our contracts or terminate them before their scheduled expiration dates or if we fail to meet performance standards under our customer contracts.

We historically have derived and expect to continue to generate a significant portion of our revenue from a limited number of large customers at the federal and state level. Our contracts with these customers are subject to periodic renewal and some permit them to terminate their contracts on short notice, with or without cause. If a customer is dissatisfied with the quality of our work or if we fail to meet performance standards under our contracts, or if our solutions, technical infrastructure or services do not comply with the provisions of our contractual agreements or applicable regulatory requirements, customers might seek to reduce the scope of the services we perform or prematurely terminate their agreements with us, or we could incur additional costs that may impair the profitability of a contract and damage our ability to obtain additional work from that customer, or other current or prospective customers. For example, some of our contracts contain liquidated damages provisions and financial penalties related to performance failures, which if triggered, could materially adversely affect our reputation, business, financial condition, results of operations and cash flows. We also may be required to disclose such liquidated damages or other financial penalties assessed against us in connection with future bids for services with other customers.

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In addition, government customers are subject to financial pressures or pressure from stakeholders that may cause them to terminate contracts for our services that may be regarded as non-essential or to redefine or reduce the scope of our contracts by, for example, significantly reducing the volume of data that we are permitted to audit or renewing the contract at lower performance fee levels. Despite our right to prompt and full payment under the terms of our contracts, we could face challenges in obtaining timely or full payments for our properly provided services from our customers. If there is a substantial reduction in the scope of our services under, or a termination of, any of our key contracts with our major customers, or if we are exposed to significant costs, liabilities or negative publicity, our ability to compete for new contracts with current or prospective customer could be damaged and our business, financial condition, reputation, results of operations and cash flows could be materially adversely affected.

We depend on many different entities to supply information and an inability to successfully manage our relationships with a number of these suppliers may harm the quality and availability of our solutions and services.

We obtain the data used in our solutions and services from many sources, including commercial health insurance plans, financial institutions, managed care organizations, government entities and non-government entities. From time to time, challenges arise in managing and maintaining our relationships with data sources that are not our customers and that furnish information to us pursuant to a combination of voluntary cooperation and legal obligations under laws and regulations that are often subject to differing interpretations. If a number of our information sources become unable or unwilling to provide us with certain data under terms and conditions of receipt, processing or use that are acceptable to us and our customers, or if laws and regulations for use and protection of this data changes in a way that disincentivizes our suppliers, or imposes unacceptable or unreasonable conditions, costs, or risks on us, we may not be able to obtain new or favorable agreements with alternative data suppliers. In addition, our ability to normalize and fully utilize the information we receive from various data sources to enhance and improve current services for our customers is an important component of our growth strategy. Although we believe that we have the legal and contractual rights necessary to normalize and use the data we have obtained from these sources for potential or contemplated solution and service offerings, we cannot provide assurance that these entities will permit the use of their data for these purposes. If we lose a number of our data sources or our access to their data, and fail to identify and reach the requisite agreements with suitable alternative suppliers or to successfully integrate their data into our solutions and services, or if there is a lack of accuracy or integrity in the data that current or future suppliers provide, we could experience service disruptions, increased costs, reduced quality of our solutions and services, or performance penalties under our customer contracts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may rely on subcontractors and other third party providers to provide customers with a single-source solution or service or we may serve as a subcontractor to a third party prime contractor. If these parties fail to satisfy their obligations to us or if we are unable to maintain these relationships, our business, financial condition, results of operations and cash flows could be materially adversely affected.

In some areas of our business we may engage subcontractors, teaming partners, vendors or other third party providers to provide our customers with a single-source solution for a broader range of service needs. These third parties include software vendors, utility and network providers, cloud service providers and other information technology service providers and solution partners. Our ability to deliver and implement solutions and serve our customers effectively depends on these third parties meeting our service standards in both timeliness and quality, and in certain instances, on our ability to obtain customer approval for the use of these third party subcontractors. While we believe that we perform appropriate due diligence on these third parties and take adequate measures to ensure that they comply with the appropriate laws and regulations, we cannot guarantee that they will comply with the terms set forth in their agreements with us. Performance deficiencies or misconduct by subcontractors, teaming partners, vendors or other third party providers may be perceived as inadequacies in our solutions or services or cause us to fail to fulfill our contractual obligations to our customers, which could materially adversely affect our customer relationships and reputation, result in termination of a customer contract, and subject us to a dispute with our customer. In addition, if our third party service providers terminate or refuse to renew their relationships with us or offer their products to us in the future on less advantageous terms, we may not be able to perform or deliver solutions or services for existing customers as expected.

Similarly, we are and may in the future be engaged as a subcontractor to a third party prime contractor. Subcontracting arrangements where we are not the prime contractor pose unique risks to us because we do not have control over the customer relationship, and our ability to generate revenue under such subcontracts is dependent on the prime contractor, its performance and relationship with the customer, and its relationship with us. We cannot be certain that the prime contractor will provide adequate and timely services to the customer, comply with the terms of its prime contract with the customer or its subcontract agreement with us, or that it will construe its contractual rights and obligations in a reasonable way, act appropriately in dealing with us or customers, and remain in compliance with the relevant laws, rules or regulations. Any failure of the prime contractor to adequately perform its obligations under the prime contractor to comply with applicable laws, rules and regulations could materially adversely affect our reputation and subject us to a dispute with the prime contractor or the customer. In the event a prime contract is terminated, whether for non-performance by the prime contractor or otherwise, our subcontract will similarly terminate, and the resulting contract loss could materially adversely affect our business, financial condition, results of operations and cash flows.

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We obtain a portion of our business through competitive bidding in response to government requests for proposals. Reprocurements and future contracts may not be awarded through this process on the same level or our contract awards may be challenged by interested parties which could materially adversely affect our business, financial condition, results of operations and cash flows.

In order to market our solutions and compete for contracts with existing and potential state and federal customers, we are often required to respond to government-issued RFPs. These responses typically require us to assemble and submit a large volume of information within a rigid timetable, and to accurately estimate our cost structure for servicing the proposed contract, the time required to establish operations and the likely terms of proposals submitted by our competitors. We may also be required to disclose the occurrence of certain negative events suffered by our business, such as customer disputes, a government inquiry or an adverse judgment or settlement in litigation or a legal proceeding, which could impair our ability to win the contract at issue or have a material adverse effect on our reputation in the industry.

Even if we win these contracts, we may fail to secure favorable contract terms and conditions, or a government’s determination to award us the contract may be challenged by an interested party. Under the state and federal laws and regulations governing procurements of goods and services, challenges and award protests may be filed even if there are no valid legal grounds on which to base the protest. The filing of such challenges could potentially delay the start or implementation of the contract if the government agency determines to withhold a contract award or suspend contract performance while the protest is being considered, or to take corrective action on its own, such as soliciting new bids or terminating the contract award or current procurement. In the event of irregularities, we perceive or learn of in the award or bidding process, we also may be forced to file protests in response to RFP awards to other bidders. Resolution of a protest, even in our favor, could force us to expend considerable funds in disputing the potential award or to incur additional expenses to maintain our ability to timely start implementation, which may cause our actual results to differ materially and adversely from those anticipated. In addition, if we are unable to win reprocurements or protests of particular contracts, we may be precluded from entering certain customer markets for the term of the contract awarded to another party. Any failure to continue to obtain contracts in response to government RFPs, to design proposals that result in profitable contracts, to win new contracts or re-procure current contracts after they expire or to prevail in protests or challenges of contract awards could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Adverse judgments or settlements in legal proceedings could materially harm our business, financial condition, operating results and cash flows.

We are subject and may be a party to legal proceedings and claims that arise from time to time in the ordinary course of our business, which may include, but are not limited to, those related to, claims brought by our customers in connection with billing and contractual disputes, subcontracts and teaming agreements, protection of confidential information or trade secrets, claims relating to pending, terminated or completed acquisitions or dispositions, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business. We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve any pending or future litigation. In addition, litigation and other legal claims are subject to inherent uncertainties and management’s view of currently pending legal matters may change in the future. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Resolution may also require that HMS accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We may not be able to deliver our solutions and perform services efficiently if we are unable to attract and retain qualified employees.

Our successful delivery of solutions and services and ability to maintain our productivity and profitability is dependent on our ability to identify, recruit, employ, train and retain skilled personnel. The success of recruitment and retention strategies depend on a number of factors, including the competitive demands for employees having the skills we need and the level of compensation required to hire and retain such employees. Customers or competitors may seek to hire away qualified and seasoned employees, which could reduce our ability to innovate and operate effectively. We may not be able to recruit or maintain the personnel necessary to efficiently operate and support our business in the future, and even if our recruitment and retention strategies are successful, our labor costs may increase significantly. Our inability to hire sufficient personnel on a timely basis without significantly increasing our labor costs could materially adversely affect our business, financial condition, results of operations and cash flows.

Our future success depends, in part, on the continued service of members of our management team.

Our ability to execute on our business plans and future success requires that we attract, develop, motivate and retain experienced and innovative executive officers and senior leaders who have successfully managed, designed, implemented and led government services programs or information technology initiatives, or have relevant experience in other healthcare sectors, including data management and analytics. These individuals are in great demand and are likely to remain a limited resource in our industry. The loss of services of one or more members of our management team could adversely affect our business, financial condition, results of operations and cash flows. In addition, to the extent we lose an executive officer or senior leader, we may incur increased expenses in connection with the hiring, promotion or replacement of these individuals and the transition of leadership and critical knowledge.

Our outstanding indebtedness could materially adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations or capital requirements.

As of December 31, 2018, the outstanding principal balance under our Credit Agreement was $240.0 million. Our Credit Agreement provides for a senior secured revolving credit facility in an aggregate principal amount equal to $500 million and is secured, subject to certain customary carve-outs and exceptions, by a first priority lien and security interest in substantially all of our tangible and intangible assets. Our outstanding indebtedness and any additional indebtedness we incur may have important consequences for us, including, without limitation, that:

§ we may be required to use a substantial portion of our cash flow to pay the principal of and interest on our indebtedness;

§ our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressures;

§ our indebtedness may expose us to the risk of increased interest rates because certain of our borrowings are and will be at variable interest rates;

§ our ability to obtain additional financing for working capital, capital expenditures, acquisitions and for general corporate and other purposes may be limited;

§ our indebtedness and leverage may prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our business; and

§ our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

Under the Credit Agreement, we are also required to comply with specified financial and operating covenants, which may limit our ability to operate our business as we otherwise might operate it. The Credit Agreement also contains (i) certain affirmative covenants that impose certain reporting and/or performance obligations on us and our restricted subsidiaries, (ii) certain negative covenants that generally limit, subject to various exceptions, us and our restricted subsidiaries from taking certain actions, including, without limitation, incurring indebtedness, creating liens, engaging in mergers and consolidations, disposing of certain assets or property, making certain investments and acquisitions, entering into certain transactions with affiliates, swap agreements or sale-leasebacks, making certain restricted payments, including dividends and share repurchases, changing our fiscal year or the lines of business that we or our restricted subsidiaries conduct to a material extent, and prepaying certain junior indebtedness, (iii) financial covenants consisting of a maximum consolidated leverage ratio and a minimum interest coverage ratio, and (iv) customary events of default for financings of this type.

Our obligations under the Credit Agreement may be declared due and payable upon the occurrence and during the continuance of an event of default, which includes, without limitation: non-payment of principal or reimbursement obligation when due; non-payment of interest, fees and other amounts for a period of five business days after the due date; material inaccuracies of representations and warranties; failure to perform or observe covenants, conditions or agreements (subject to any applicable grace periods); cross-defaults to certain indebtedness; inability to pay debts; certain acts of bankruptcy or insolvency; certain ERISA events; failure to pay certain material judgments; and a change of control as defined in the Credit Agreement. If not cured, an event of default could result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately due and payable, and would give our lenders the right to proceed against the collateral granted to them to secure the debt, which would require us to, among other things, seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets, and/or reduce or delay planned capital or operating expenditures. Such measures might not be sufficient to enable us to service our debt, and any such financing or refinancing might not be available on economically favorable terms or at all. Our ability to make payments of principal and interest on our outstanding credit facility depends upon our future performance and our ability to generate cash flows. If we are unable to generate sufficient cash flows to meet our debt service obligations or are forced to take additional measures to be able to service our indebtedness, our business, financial condition and results of operations could be materially and adversely affected.

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Changes in, or interpretations of, tax rules and regulations may materially adversely affect our effective tax rates.

We are a United States-based company subject to various federal, state, U.S. Territory and local tax laws and regulations in multiple U.S. jurisdictions that govern numerous aspects of our business. As we expand our business, we may perform services for new customers located outside of the United States or in a U.S. Territory, which may subject us to foreign tax laws and regulations that could increase our exposure to additional tax liabilities. Our future effective tax rates could be materially affected by various factors, including changes in tax rates of jurisdictions in which we do business, changes in relevant tax and accounting rules, regulations and interpretations, increases in expenses not deductible for tax purposes, including impairments of goodwill, and changes in the valuation of our deferred tax assets and liabilities. For example, in December 2017, Congress enacted the 2017 Tax Act which, among other things, reduced the U.S. corporate tax rate, modified limitations on certain deductions for executive compensation, placed new limitations on interest deductions, repealed the Section 199 Deduction and certain capital investment deductions, and shifted U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system. Any unanticipated changes in our tax rates could affect our future results of operations.

In addition, we are subject to the continual examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result. The final determination of any of these examinations could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our health insurance coverage and self-insurance reserves may not cover future claims, which could materially adversely affect our business, financial condition, results of operations and cash flows.

We maintain various insurance policies for company employee health, workers’ compensation, general liability and property damage. We are self-insured for our health plans, and have purchased a fully-insured stop loss policy to help offset our liability for both individual and aggregate claim costs. We are also responsible for losses up to a certain limit for workers’ compensation, general liability and property damage insurance.

For policies under which we are responsible for losses, we record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances. Our prior growth could affect the accuracy of estimates based on historical experience. Should a greater amount of claims occur compared to what was estimated or medical costs increase beyond what was expected, our accrued liabilities might not be sufficient and we may be required to record additional expense. Unanticipated changes may also produce materially different amounts of expense than reported under these programs, which could materially adversely affect our business, financial condition, results of operations and cash flows.

Risks Relating to Our Industry

Our business could be materially adversely affected by changes in the U.S. healthcare environment or in laws relating to healthcare programs and policies, particularly as they relate to the ACA and the Medicare and Medicaid programs.

The healthcare industry in which we operate is subject to changing political, economic and regulatory influences that directly affect the practices and operations of federal, state and commercial healthcare organizations in the United States. When the ACA was passed, its emphasis on program integrity, cost containment and expansion of Medicaid created new opportunities to grow our business and our service offerings. However, certain provisions of the ACA have yet to be implemented and there have been a number of judicial and legal challenges to certain aspects of the ACA. In February 2018, 20 states filed suit in the U.S. District Court for the Northern District of Texas alleging that the ACA is unconstitutional in light of the repeal of the penalties associated with the individual mandate. On December 14, 2018, the Court issued a ruling that the mandate was no longer permissible under Congress’s taxing power and was thus unconstitutional. As such, the Court further found that the entire ACA is deemed to be invalid because the individual mandate is “essential” and inseverable from the ACA. Although, a stay and partial final judgment has been issued, ensuring that the ACA remains in full effect for the foreseeable future, we cannot predict the outcome of the litigation that has been filed relating to the constitutionality of the ACA. Additionally, since its adoption into law in 2010, there have been continued efforts by Congress to amend, repeal or replace all or part of the ACA. For example, under the 2017 Tax Act, the “individual mandate” introduced by the ACA was repealed effective January 1, 2019. Congress has introduced several other bills to delay, defund or repeal implementation or amend significant provisions of the ACA, though none of these other bills have passed the House and Senate. There have also been a number of proposed and adopted legislative initiatives and healthcare reform proposals from the federal and state governments. These include (i) measures that would fundamentally change the financial structure of the Medicaid program (currently funded jointly by the states and the U.S. Federal Government), which could result in early termination, reduced scopes or non-renewal of our contracts with certain state government customers, and (ii) changes at the federal level that would reduce reimbursement rates to states, establish new payment models, further limit the Medicare RAC program, or otherwise change the operating environment for our customers and transform the government’s involvement in healthcare. In addition to these legislative proposals, the President has taken several steps to limit the functionality of the ACA and advocate for its repeal and replacement since taking office. During 2017, the President signed two executive orders and other directives designed to waive, defer, grant exemptions from or delay the implementation of certain requirements mandated by the ACA.

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Another variable that impacts our business will be how state programs, commercial health plans, private employers and other healthcare payers will respond to changes during this continued period of uncertainty surrounding the ACA. These organizations may react to such changed circumstances and financial pressures by taking actions to ramp up, curtail or defer their retention of cost containment providers like us, which could impact the demand for our solutions and services and our ability to increase or maintain sales of our existing solutions and services. While certain changes may present new opportunities to us, our business, financial condition, results of operations and cash flows could be materially adversely affected if we are unable to adapt our solutions and services to meet changing requirements or expand service delivery into new areas, or if the demand for our solutions and services is reduced as a result of future legislative changes affecting Medicare, Medicaid or other publicly funded or subsidized health programs, or efforts to waive, modify or otherwise change or invalidate the ACA. Although we will continue to evaluate the effect that the ACA and its possible invalidation or repeal and replacement may have on our business, it is difficult to predict the full impact and influence that the ACA and the varying healthcare reform measures may have on the U.S. healthcare industry or policy, and any resulting changes may take time to unfold.

Healthcare spending fluctuations, simplification of the healthcare payment process or other aspects of the healthcare financing system, budgetary pressures and/or programmatic changes diminishing the scope of program benefits, or limiting payment integrity initiatives, could reduce the need for and the price of our solutions and services, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our projections and expectations are premised, in part, upon consistent growth rates in the Medicare and Medicaid programs and government spending on these programs, and the impact on the current healthcare financing system overall and need for our solutions and services within that existing framework. Our continued success as a company is based in large part on offering solutions and services that improve the ability of our customers to identify and recover revenue that would otherwise be lost often as a result of procedural inefficiencies and complexities in the healthcare delivery and payment system. However, the need for our solutions and services, the price customers are willing to pay for them and the scope and profitability of our contracts could be negatively affected by a number of factors, including, but not limited to:

§ a lower than projected growth in Medicare and Medicaid program enrollment and expenditures;

§ changes in the level of federal government spending due to budgetary or deficit considerations, including the continuance of existing programs, as well as budgetary pressures that may drive changes at the state level;

§ unanticipated reductions in the scope of healthcare program benefits (such as, for example, state decisions to eliminate coverage of optional Medicaid populations or services or shifting lives into managed care plans);

§ the transition of healthcare beneficiaries from fee-for-service plans to value-based plans;

§ modifications in provider billing behavior and habits, often in response to the success of our solutions and services or to changes that reduce healthcare spending;

§ the adoption of healthcare plans with significantly higher deductibles;

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§ customer improvements and enhancements to their internal healthcare claims and billing processes;

§ the simplification of the healthcare benefit and payment system through legislative or regulatory changes at the federal or state level (for example, legislative changes impacting the scope of mandatory audits, including limits on the look-back period for review in areas where we conduct audits);

§ limits placed on ongoing program integrity initiatives, including the Medicare RAC program and state Medicaid RAC programs (for example, limitations or reductions in the amount of reviewable claims we audit, such as the modified ADR limits and sliding scale policy implemented by CMS for the current Medicare RAC contracts, which have a significant impact on the volumes of claims that Medicare RACs are permitted to review for inpatient providers and reduce their ability to identify overpayments and underpayments); and

§ legislative healthcare reforms and developments, including the absence of near-term compliance deadlines effected by the ACA, the possible repeal or modification of the ACA, and other legislative actions to reduce program eligibility or services, or reform Medicaid spending.

The occurrence of any of these events, or other changes to the funding of the Medicare and Medicaid programs or limitations in the scope of program eligibility, benefits, initiatives and healthcare spending that materially reduce our revenue or profitability with such programs may have an adverse effect on our future business, financial condition, results of operations and cash flows.

A failure to comply with the laws and regulations that apply to companies in our industry regarding individual privacy and information security could subject us to legal actions, fines and penalties and negatively impact our reputation and operations.

As a cost containment service provider, we often receive, process, transmit and store sensitive data, including PHI and personally identifiable information of individuals, as well as other financial, confidential and proprietary information belonging to our customers, subcontractors, government agencies, data suppliers and other third parties from whom we obtain information. The use and disclosure of that information is regulated at the federal, state, international and industry levels. For example, we are subject to federal regulation under HIPAA, as amended by HITECH, and the Final Omnibus Privacy, Security, Breach Notification, and Enforcement Rule, as well as various state laws. HIPAA also imposes standards and requirements on our business associates (as defined under HIPAA). We are also obligated by our contractual requirements with customers, which may require that we comply with additional privacy regulations imposed upon certain types of customers, such as the federal Gramm-Leach-Bliley Act and other laws.

Even though we take measures to comply with all applicable regulations and to ensure our business associates and subcontractors comply with these laws, regulations and rules, we have less than complete control over our business associates’ and subcontractors’ actions and practices. We may be exposed to data breach risk if there is unauthorized access to one of our or our subcontractors’ secure facilities, or to third-party enterprise cloud storage and cloud computing application services that we use, or from lost or stolen laptops or other portable media from current or former employee theft of data containing PHI, from computer hacking, malware, computer viruses or other malicious codes, phishing or other cyber-attacks, from misdirected mailings containing PHI, or other forms of administrative or operational error. If we or our subcontractors fail to comply with applicable laws; if unauthorized parties gain physical access to one of our facilities and steal or misuse confidential information; if we erroneously use or disclose data in a way that is inconsistent with our granted rights; or if such information is misdirected, lost or stolen during transmission or transport, we may suffer damage to our reputation, potential loss of existing customers and difficulty attracting new customers. We could also be exposed to, among other things, unfavorable publicity, governmental inquiry and oversight, allegations by our customers that we have not performed our contractual obligations, costs to provide notifications or remediation (such as credit monitoring) to affected individuals, fines or other penalties imposed by government regulatory agencies, or litigation by affected parties and possible financial obligations for damages or indemnification obligations related to the theft or misuse of such information, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, laws, rules and regulations concerning the protection of personal information are subject to frequent change by legislation, regulatory issuances or administrative interpretation. As regulatory focus on privacy issues continues to increase and these laws and regulations continue to expand and become more complex, these potential risks to our business could intensify. Changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personally identifiable information, along with increased customer demands for enhanced data security infrastructure, could greatly increase our cost of providing our solutions and services, and may subject us to additional liabilities.

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We are subject to extensive government regulation, including government and customer audits and investigations relating to our compliance with the laws and regulations applicable to companies in our industry, and a negative finding or other adverse determination could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

A significant portion of our business is regulated by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect individual citizens, including government program beneficiaries, health plan members and their dependents. The federal and state governmental agencies administering these laws and regulations have broad latitude to enforce them. As such, we are subject, on an ongoing basis, to various governmental and customer reviews, audits and investigations to verify our compliance with our contracts and applicable laws and regulations, as well as legal actions and enforcement proceedings. For example, because we receive payments from federal and state governmental agencies, we are subject to laws, such as the Federal Acquisition Regulations, the U.S. Foreign Corrupt Practices Act, federal and state employment, equal opportunity and affirmative action laws, federal and state prompt pay statutes, healthcare fraud, waste and abuse laws and similar legislation. We are also subject to the Federal False Claims Act and similar state statutes, which permit government law enforcement agencies to institute suits against us for violations and, in some cases, to seek double or treble damages, penalties and assessments. In addition, private citizens, acting as whistleblowers, can sue on behalf of the government under the “qui tam” provisions of the Federal False Claims Act and similar statutory provisions in many states.

As we expand into new areas of the healthcare industry, we may develop new or enhanced solutions that may further expose us to requirements under additional statutes and legislative schemes that have previously not been relevant to our business, such as the Fair Debt Collection Practices Act and other banking and credit reporting statutes. For example, in connection with our acquisition of Eliza, we became subject to the Telephone Consumer Protection Act of 1991, state and federal audio and telephone recording laws, and other consumer laws and regulations as a result of the member engagement services that we perform. Our increased involvement in population health services and penetration into new markets, such as ACOs, PBMs and commercial self-insured employers, could increase the likelihood and incidence of our being subjected to regulatory scrutiny or legal actions by third parties other than our customers, which may impose significant costs and strain on our resources.

These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer and how we interact with customers, providers, other healthcare payers and the public. If the government discovers improper or illegal activities in the course of audits or investigations, we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions and debarment from doing business with the government. Similarly, if our customers assert that we have failed to properly perform or comply with our contractual obligations, or if the carriers to which we send billings assert that we have failed to properly comply with applicable federal or state billing rules and regulations, we may be required to provide refunds or make payments to resolve such issues. If we are found to be in violation of any applicable law or regulation, or if we receive an adverse review, audit or investigation from a government agency or customer related to our compliance with such laws or regulations or the terms of our government contracts, any resulting negative publicity, penalties or sanctions could have an adverse effect on our reputation in the industry, impair our ability to compete for new contracts or bid in response to RFPs in one or more jurisdictions, and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Federal and state governments may limit or prohibit outsourcing of certain programs or functions, refuse to grant consents or waivers necessary to permit private entities to perform such work, or impose other limitations on outsourcing or certain vendors that may obstruct cost-effective performance of our contracts.

Federal or state governments could limit or prohibit private contractors like us from operating or performing elements of certain government functions or programs. As a condition of receiving federal funding, state, and local governments may be required to operate such programs with government employees. Under current law, in order to privatize certain functions of government programs, the federal government must grant a consent and/or waiver to the petitioning state or local agency. If the federal government does not grant a necessary consent or waiver, the state or local agency will be unable to outsource that function to a commercial entity. Such a situation could eliminate a contracting opportunity or reduce the value of an existing contract.

Similarly, other state or federal limitations on outsourcing certain types of work to vendors that supplement our workforce could make it more difficult for us to fulfill our contracts in a cost-effective manner. Certain areas of our operations use or involve vendor or subcontractor personnel located outside of the United States, who may (under carefully controlled circumstances) access certain PHI in the course of assisting us with various elements of the services we provide to our customers. The federal government and a number of states have considered laws or issued rules, regulations, and orders that would limit, restrict or wholly prohibit the use of offshore labor in performance of government contracts, or impose sanctions for the use of such resources. Some of our customers have already chosen to contractually limit or restrict our ability to use offshore resources. Intensified restrictions of this type or associated penalties could raise our costs of doing business, expose us to unexpected fines or penalties, increase the prices we must charge to customers to realize a profit and eliminate or significantly reduce the value of existing contracts or potential contract opportunities, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We may be precluded from bidding on or performing certain work due to work we currently perform, which could materially adversely affect our business, financial condition, results of operations and cash flows.

Various laws, regulations and administrative policies prohibit companies from performing work for government agencies in capacities that might be viewed to create an actual or perceived conflict of interest. In particular, CMS has stringent conflict of interest rules, which can limit our bidding for specific work for CMS, or for other contracts that might conflict, or be perceived by CMS to conflict, with contractual work for CMS. State governments and managed care organizations also have conflict of interest restrictions that could limit our ability to bid for certain work and impede our overall sales strategy. As we continue to expand and diversify our business operations, the likelihood that customers or potential customers will perceive conflicts of interest between our various subsidiaries, solutions, services, activities and customer relationships may increase. Such conflicts, whether real or perceived, could result in a loss of contracts or additional internal structural barriers that delay operational efficiency. We may also need to divest certain existing businesses or reorganize our current management and personnel structure, as well as our corporate organization and entity structure, in order to qualify for new contract awards or to appropriately mitigate conflicts and otherwise accommodate the increasing complexity of our business. Our failure to devote sufficient care, attention and resources to managing these adjustments may result in technical or administrative errors that could expose us to potential liability or adverse regulatory action. In addition, conflict of interest rules and standards change frequently, and are subject to varying interpretations and varying degrees and consistency of enforcement. We may not be successful in navigating these restrictions. If we are prevented from expanding our business or are unable to effectively implement our strategic initiatives due to real or perceived conflicts of interest, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Risks Related to Our Common Stock

The market price of our common stock may be volatile, and fluctuations in the price of our common stock may materially adversely affect our business, financial condition, results of operations and cash flows and materially adversely affect our shareholders.

The market price of our common stock has fluctuated widely and may continue to do so. During the 52-week period ended December 31, 2018, our common stock traded on the Nasdaq Global Select Market as high as $37.38 per share and as low as $15.06 per share. Our stock price is subject to fluctuation as a result of a variety of factors, including factors beyond our control, such as the risk factors described above and those which are related to:

§ quarterly or annual earnings results or those of other companies in our industry;

§ changes in estimates of our performance or recommendations by securities analysts or in the operating and stock price performance of other companies that investors deem comparable to our company;

§ news reports relating to trends, concerns and other issues in the healthcare industry, including perceptions in the marketplace regarding us and our competitors;

§ the financial projections we publicly provide and any changes in or failure to meet those projections;

§ future sales of shares of common stock in the public market by our executive officers or directors;

§ any changes in the number of our outstanding shares, including as a result of share repurchases;

§ actual or proposed changes in federal or state laws affecting the healthcare industry;

§ changes in accounting principles;

§ the public’s response to our press releases, or other public announcements, including our filings with the SEC;

§ securities class actions, shareholder lawsuits or other litigation; and

§ market conditions in the industry and the economy as a whole.

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In addition, the stock market often experiences significant price and volume fluctuations. These broad market fluctuations may materially adversely affect the market price of our common stock regardless of our operating performance. When the market price of a company’s stock drops significantly, shareholders may institute securities class action litigation against that company. Any litigation against us could cause us to incur substantial costs, divert the time and attention of our management and other resources or otherwise harm our business.

Because we do not intend to pay dividends, you will benefit from an investment in our common stock only if it appreciates in value.

We have not paid or declared cash dividends on any of our capital stock to date and currently intend to retain our future earnings, if any, to fund the development and continued growth of our business and repurchase shares opportunistically from time to time. As a result, we do not expect to pay any cash dividends in the foreseeable future. The success of your investment in our common stock will likely depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased your shares.

Certain provisions of our certificate of incorporation and bylaws could discourage unsolicited takeover attempts, which could depress the market price of our common stock.

Our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined by our Board of Directors. Accordingly, our Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, that could adversely affect the voting power or other rights of holders of our common stock. In the event of issuance, preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control. Although we have no present intention to issue any shares of preferred stock, it is possible that we will do so in the future. In addition, our bylaws currently require advance notice of shareholder proposals for business to be conducted at meetings of our shareholders and for nominations of candidates for election to our Board of Directors and provide for Delaware as an exclusive forum for certain disputes with our shareholders, all of which could also have the effect of discouraging a change of control.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters and other material leased properties as of December 31, 2018 are shown in the following table:

Location	Approximate Square Footage	Owned/Leased
Irving, TX (corporate headquarters)	242,260	Owned
Las Vegas, NV (office space)	63,593	Leased
Danvers, MA (office space)	38,868	Leased
New York , NY (office space)	34,759	Leased
Westerville, OH (office space)	25,212	Leased
All other locations (23)	80,759	Leased

All other locations consist principally of office space and also include data centers, which are all located in the United States. The above locations have expiration dates through 2026. A portion of the above Las Vegas, NV and New York, NY office spaces are sub-leased. In general, we believe our facilities are suitable to meet our current and reasonably anticipated future needs. See “Lease Commitments” in Note 15 to the Consolidated Financial Statements in Part II, Item 8 for additional information.

Item 3. Legal Proceedings

The information set forth under the caption “Litigation” in Note 15 to the Consolidated Financial Statements in Part II, Item 8 is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the Nasdaq Global Select Market under the symbol “HMSY”.

Holders

As of the close of business on February 15, 2019, there were 252 holders of record of our common stock.

Dividends

We have not paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Our current intention is to retain future earnings to support the continued growth of our business and possibly for the repurchase of shares from time to time. Our Board of Directors will evaluate various factors, including, without limitation, our future earnings, operating cash flows, financial condition, results of operations and capital requirements in determining whether to pay any cash dividends in the future. In addition, our Credit Agreement generally limits, subject to certain exceptions, our ability to make certain payments or distributions with respect to our capital stock, including cash dividends to our shareholders. These restrictions are described in more detail under the heading “Liquidity and Capital Resources” in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Note 10 to the Consolidated Financial Statements in Part II, Item 8.

See Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters for information relating to securities authorized for issuance under our equity compensation plans.

Repurchases of Shares of Common Stock

On November 1, 2017, the Board of Directors of the Company approved a share repurchase program authorizing the Company to repurchase up to $50.0 million of shares of its common stock from time to time on the open market or in privately negotiated or other transactions. We publicly announced the program in November 2017. The repurchase program is authorized for a period of up to two years, and may be suspended or discontinued at any time. In order to facilitate repurchases, the Company may enter into a Rule 10b5-1 plan from time to time, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws or because of a self-imposed trading blackout period. All repurchases were made under the program and using cash resources. See “Equity” in Note 11 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding share repurchases. There were no repurchases of shares of common stock in the fourth quarter of 2018.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
October 1, 2018 to October 31, 2018		-	$	-		-	$	-
November 1, 2018 to November 30, 2018		-		-		-		-
December 1, 2018 to December 31, 2018		-		-		-		-
Total		-	$	-		-	$	29,933,055

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Comparative Stock Performance Graph

The graph below compares the cumulative total shareholder return on our common stock with the cumulative total shareholder returns of the Nasdaq Composite Index, the Nasdaq Computer & Data Processing Index and the Nasdaq Health Services Index assuming an investment of $100 on December 31, 2013 and the reinvestment of dividends through the year ended December 31, 2018.

	12/31/13		12/31/14		12/31/15		12/31/16		12/31/17		12/31/18
HMS Holdings Corp.	$	100.00	$	93.13	$	54.36	$	80.00	$	74.67	$	123.92
NASDAQ Composite		100.00		114.62		122.81		133.19		172.11		165.84
NASDAQ Computer & Data Processing		100.00		113.68		140.03		150.12		209.72		212.97
NASDAQ Health Services		100.00		123.14		134.70		110.22		131.32		155.16

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act or the Exchange Act that might incorporate by reference this 2018 Form 10-K or future filings made by us under those statutes, the Comparative Stock Performance Graph is not deemed filed with the SEC, is not deemed soliciting material and shall not be deemed incorporated by reference into any of those prior filings or into any future filings we make under those statutes, except to the extent that we specifically incorporate such information by reference into a previous or future filing, or specifically request that such information be treated as soliciting material, in each case under those statutes.

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Item 6. Selected Financial Data

The following table sets forth selected consolidated financial amounts at and for each of the five fiscal years in the period ended December 31, 2018. It should be read in conjunction with Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and Notes thereto, in Part II, Item 8 of this 2018 Form 10-K.

Statement of Operations Data

	Years ended December 31,
(in thousands, except per share amounts)	2018			2017			2016			2015			2014
Revenue	$	598,290		$	521,212		$	489,720		$	474,216		$	443,225
Total operating expenses		535,052			470,781			432,051			426,644			409,021
Operating income		63,238			50,431			57,669			47,572			34,204
Interest expense		(11,310	)		(10,871	)		(8,519	)		(7,812	)		(7,931	)
Interest income		1,089			295			321			49			57
Income before income taxes		53,017			39,855			49,471			39,809			26,330
Income taxes		(1,972	)		(199	)		11,835			15,282			12,383
Net income	$	54,989		$	40,054		$	37,636		$	24,527		$	13,947
Net Income Per Common Share
Basic income per common share:
Net income per common share - basic	$	0.66		$	0.48		$	0.45		$	0.28		$	0.16
Diluted income per common share:
Net income per common share - diluted	$	0.64		$	0.47		$	0.43		$	0.28		$	0.16
Weighted average shares:
Basic		83,625			83,821			84,221			87,881			87,673
Diluted		86,144			85,088			86,987			88,361			88,164

Balance Sheet Data

	Years ended December 31,
(in thousands)	2018		2017		2016		2015		2014
Cash and cash equivalents	$	178,946	$	83,313	$	175,999	$	145,610	$	133,116
Working capital	$	328,684	$	199,967	$	277,478	$	240,456	$	226,271
Total assets	$	1,078,518	$	975,160	$	882,755	$	850,597	$	880,988
Revolving credit facility	$	240,000	$	240,000	$	197,796	$	197,796	$	197,796
Total shareholders' equity	$	713,396	$	606,229	$	556,610	$	524,702	$	533,090

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of HMS. You should read this discussion and analysis in conjunction with the other sections of this 2018 Form 10-K, including the Cautionary Note Regarding Forward-Looking Statements appearing prior to Part I, the information in Part I, Item 1A, and the Consolidated Financial Statements and Notes thereto in Part II, Item 8. The historical results set forth in Part II, Item 6, Item 7 and Item 8 of this 2018 Form 10-K should not be taken as necessarily indicative of our future operations or financial results.

Business Overview

HMS provides a broad range of cost containment solutions to help healthcare payers and at-risk providers reduce costs, improve health outcomes and enhance member experiences. Using industry-leading technology, analytics and engagement solutions, we deliver coordination of benefits, payment integrity and total population management solutions through our operating subsidiaries to move the healthcare system forward for our customers. We are managed and operate as one business segment with a single management team that reports to the Chief Executive Officer.

We serve state Medicaid programs, commercial health plans, federal government health agencies, government and private employers, CHIPs and other healthcare payers. We also serve as a subcontractor for certain business outsourcing and technology firms. As of December 31, 2018, our customer base included the following:

§	over 40 state Medicaid programs;
§	more than 325 health plans, including 23 of the top 25 health plans nationally (based on membership) in support of their multiple lines of business, including Medicaid managed care, Medicare Advantage and group and individual health;
§	over 150 private employers;
§	CMS, the Centers for Disease Control and Prevention, and the Department of Veterans Affairs; and
§	PBMs, third-party administrators and other risk-bearing entities, including independent practice associations, hospital systems, ACOs and specialty care organizations.

Outlook

We have grown our business both organically, through internal innovation and the development of new solutions and services, as well as by acquisition of businesses whose core services strengthened our overall mission to help our customers contain healthcare costs. Our largest growth during 2018 was with commercial health plan customers and we currently expect this market to present the greatest opportunity for continued growth in the year ahead. In addition to cross-sales of our total population management solutions and other internal growth initiatives in 2019, various factors related to the macro healthcare environment are expected to contribute to our expected growth, including:

§ an aging U.S. population with high-cost, chronic conditions and often co-morbidities;

§ projected growth in Medicare enrollment from 2018 to 2026 is estimated by CMS to be at 24%, with a projected increase in spending of 83% during this same time period;

§ Medicaid expenditures are projected to grow 60% from 2018 to 2026 based on CMS NHE projections;

§ government program payment error rates remain high at approximately 9%;

§ more than half of the U.S. population is projected by CMS to remain covered by employer-sponsored plans;

§ continued support for moving the focus of U.S. reimbursement models away from volume of service to quality outcomes; and

§ increased healthcare industry focus on improved population health, enhanced consumer outcomes and experience, and reduced costs.

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We plan to drive our future growth by leveraging our expertise to expand solution offerings, attracting new customers and broadening our relationships with current customers through the introduction of new services, audit strategies and claim types. Our goal is to develop and build on existing partnerships with our state, federal and commercial health plan customers to provide services that better address their business needs and promote consumer engagement and satisfaction in the constantly evolving healthcare marketplace. We also expect to continue increasing recovery yields from our current services by enhancing our operating and organizational efficiency and by implementing new technologies that will improve the quality, effectiveness and profitability of our service offerings.

We are subject to a number of significant risks in the operation of our business, including operational, strategic, financial and regulatory risks. These include risks related to legal compliance, financial performance and condition, protection of our information technology networks and systems and intellectual property, and other risks. With respect to cybersecurity, the effective operation of our information technology networks and systems, and the secure processing and maintenance of the confidential, proprietary and sensitive information and data we receive from our customers and other data suppliers are critical to our operations and business strategy. Although we have processes and procedures to attempt to mitigate many of the risks that we face, there can be no assurance that such processes or procedures will be successful. For a discussion of certain risks relating to the Company, see the information under the heading “Part I, Item 1A. Risk Factors.”

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. The accounting policies that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are below:

Revenue Recognition

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
The Company recognizes revenue when our customers realize economic benefits from our services when our services are completed.	Due to the range of solutions and services that HMS provides and the differing fee structures associated with each type of contract, revenue may be recognized in irregular increments. A portion of our revenue is recorded net of an estimate of future revenue adjustments, with an offsetting entry to accounts receivable allowance, based on historical patterns of billing adjustments, length of operating and collection cycle and customer negotiations, behaviors and payment patterns. Changes in these estimates are recorded to revenue in the period of change.	If we were to enter any new contracts with differing fee structures or performance obligations or if we were to change any of the judgments or estimates related to estimated future revenue adjustments, it could cause a material increase or decrease in the amount of revenue we report in a particular period.

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Estimated Liability for Appeals

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Under our contracts with certain commercial health plan customers and our Medicare RAC contracts with CMS, we recognize revenue when HMS claim findings are sent to the Company’s customers for offset against future claim payments to providers. These contracts permit providers 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 total estimated liability for appeals balance was $21.7 million and $30.8 million as of December 31, 2018 and December 31, 2017, respectively.  The Company’s original Medicare RAC contract with CMS expired on January 31, 2018.	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 (i) a liability for findings which have been adjudicated in favor of providers and (ii) an estimated liability based on the amount of revenue that is subject to appeals and which is probable of being adjudicated in favor of providers following their successful appeal. Our estimated liability is based on the Company’s historical experience. As a result of the original Medicare RAC 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.	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 our customer contracts, including modifications to Medicare RAC contracts, may require us to apply different assumptions that could materially affect both the Company’s revenue and estimated liability for appeals in future periods.

Business Combinations

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
We record assets acquired and liabilities assumed in a business combination based upon their acquisition date fair values. Goodwill is the excess of acquisition costs over the fair values of assets and liabilities of acquired businesses. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.	In most instances there is not a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. We determine fair value through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Significant assumptions used in those techniques include, but are not limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates.	The use of different valuation techniques and assumptions are highly subjective and inherently uncertain and, as a result, actual results may differ materially from estimates.

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Impairment of Goodwill

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Goodwill is subject to a periodic assessment for impairment. We assess goodwill for impairment on an annual basis as of June 30th of each year or more frequently if an event occurs or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Assessment of goodwill impairment is at the HMS Holdings Corp. entity level as we operate as a single reporting unit. The Company’s carrying amount of goodwill was $487.6 million as of December 31, 2018.	We have the option to perform a qualitative or quantitative assessment to determine if impairment is more likely than not to have occurred. The Company completed the annual impairment test as of June 30, 2018 electing to perform the quantitative assessment of which the first step is to compare the fair value of the reporting unit with its carrying value, including goodwill. In calculating the fair value of the reporting unit, the Company utilized a weighting across three commonly accepted valuation approaches: an income approach, a guideline public company approach, and a merger and acquisition approach. The income approach to determining fair value computes projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting. Significant assumptions in the income approach include income projections, a discount rate and a terminal growth value which are all level 3 inputs. The income projections include assumptions for revenue and expense growth which are based on internally developed business plans and largely reflect recent historical revenue and expense trends.  The discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium. The terminal growth value is Company specific and was determined analyzing inputs such as historical inflation and the GDP growth rate. The guideline public company approach and merger and acquisition approach are based on pricing multiples observed for similar publicly traded companies or similar market companies that were sold.	The results of the annual impairment assessment provide that the fair value of the reporting unit was significantly in excess of the Company’s carrying value, including goodwill; therefore, no impairment was indicated. If actual results are not consistent with our estimates or assumptions, the Company may be exposed to an impairment charge that could materially adversely impact our consolidated financial position and results of operations. There were no impairment charges related to goodwill during the years ended December 31, 2018, 2017, or 2016.

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Impairment of Long-Lived and Intangible Assets

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets.	We use significant judgment in assessing events or changes in circumstances which indicate that the carrying amount of the asset may not be recoverable.	The Company’s carrying amount of long-lived assets, including property and equipment and intangible assets was $161.6 million as of December 31, 2018. The Company did not recognize any impairment charges related to long-lived and intangible assets during the years ended December 31, 2018, 2017 or 2016. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could materially adversely impact our consolidated financial position and results of operations.

Valuation of Stock-Based Compensation

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
The determination of the fair value of the options on the grant date using the Black-Scholes pricing model and/or the Monte Carlo Simulation is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. Certain key variables include: the Company’s expected stock price volatility over the expected term of the awards; a risk-free interest rate; and any expected dividends. The fair value of all awards also includes an estimate of expected forfeitures.	We estimate stock price volatility based on the historical volatility of the Company’s common stock and estimate the expected term of the awards based on the Company’s historical option exercises for similar types of stock option awards. The assumed risk-free interest rate is based on the yield on the measurement date of a zero-coupon U.S. Treasury bond with a maturity period equal to the option’s expected term. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore, uses an expected dividend yield of zero in the option valuation models. Forfeitures are estimated based on historical experience.	If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of stock compensation expense we report in a particular period. For example, if actual forfeitures vary from estimates, a difference in compensation expense will be recognized in the period the actual forfeitures occur.

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Income Taxes

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits for net operating loss carry-forwards.	Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets to the extent their realization is not more likely than not. Uncertain income tax positions are accounted for by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. We make adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.	To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide no assurance that the final tax outcome of these matters will not be materially different.

Contingencies

Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
From time to time, we are involved in legal proceedings in the ordinary course of business. We assess the likelihood of any adverse judgments or outcomes to these contingencies as well as potential ranges or probable losses and establish reserves accordingly.	We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust the provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and updated information.	Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are beyond the Company’s control. The amount of reserves required may change in future periods due to new developments in each matter or changes in approach to a matter such as a change in settlement strategy which could have a material impact on our financial condition and operating results.

For further information on these critical accounting policies and all other significant accounting policies refer to the discussion under “Business and Summary of Significant Accounting Policies” in our Note 1 to the Consolidated Financial Statements in Part II, Item 8.

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Results of Operations

2018 Highlights

§	Revenue growth of 14.8%
§	Operating income growth of 25.4%
§	Cash flow from operations of $96.5 million
§	Repurchased approximately 384,000 shares of common stock for $6.0 million
§	Net income growth of 37.2%

Comparison of 2018 to 2017 and 2017 to 2016

dollars in millions	Year Ended December 31,									$ Change			% Change			$ Change			% Change
	2018			2017			2016			2018 vs 2017						2017 vs 2016
Revenue	$	598.3		$	521.2		$	489.7		$	77.1			14.8	%	$	31.5			6.4	%
Cost of Services :
Compensation		224.9			202.0			189.3			22.9			11.3			12.7			6.7
Information technology		53.4			45.7			37.3			7.7			16.8			8.4			22.5
Occupancy		16.0			17.2			14.0			(1.2	)		(7.0	)		3.2			22.9
Direct project costs		42.9			41.4			46.3			1.5			3.6			(4.9	)		(10.6	)
Other operating costs		31.4			28.4			27.8			3.0			10.6			0.6			2.2
Amortization of acquisition related software and intangible assets		33.0			30.4			28.0			2.6			8.6			2.4			8.6
Total Cost of Services		401.6			365.1			342.7			36.5			10.0			22.4			6.5
Selling, general and administrative expenses		113.5			105.7			89.4			7.8			7.4			16.3			18.2
Settlement expense		20.0			-			-			20.0			100.0			-			-
Total Operating Expenses		535.1			470.8			432.1			64.3			13.7			38.7			9.0
Operating Income		63.2			50.4			57.6			12.8			25.4			(7.2	)		(12.5	)
Interest expense		(11.3	)		(10.8	)		(8.5	)		(0.5	)		4.6			(2.3	)		27.2
Interest income		1.1			0.3			0.3			0.8			266.7			0.0			0.3
Income before income taxes		53.0			39.9			49.4			13.1			32.8			(9.5	)		(19.2	)
Income taxes		(2.0	)		(0.2	)		11.8			(1.8	)		900.0			(12.0	)		(101.7	)
Net Income	$	55.0		$	40.1		$	37.6		$	14.9			37.2	%	$	2.5			6.6	%

Revenue

Revenue in Millions

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2018 vs. 2017

During the year ended December 31, 2018, revenue was $598.3 million, an increase of $77.1 million or 14.8% compared to $521.2 million for the year ended December 31, 2017.

§ By solution, which consists of coordination of benefits and analytical services, and included in analytical services are our payment integrity and total population management solutions:

o Coordination of benefits product revenue increased $14.4 million or 3.8% which was attributable to yield improvements and the addition of Medicaid enrollees which entered our customer eligibility files in 2018.

o Payment integrity revenue increased $39.7 million or 38.0% which was attributable to expanded commercial health plan scopes, including the addition of health plans to current contracts and yield improvements. Within payment integrity, Medicare RAC revenue increased $17.8 million which includes an $8.4 million reserve release during the first quarter of 2018 as compared to prior year.

o Total population management revenue increased $23.0 million or 67.4% of which $21.4 million is due to Eliza (acquired in April 2017). Additionally, Essette revenue increased $1.6 million as compared to prior year.

§ By market:

o Commercial health plan market revenue increased $54.0 million or 20.1% which includes increases of $21.4 million from Eliza (acquired in April 2017) as compared to the prior year and $1.6 million from Essette as compared to prior year. The increases are due to expanded commercial health plan scopes, including the addition of health plans to current contracts and yield improvements.

o State government market revenue increased $6.9 million or 3.0%, which was attributable to expanded scopes and yield improvements.

o Federal government market and other revenue increased $16.2 million or 64.8% which includes an $8.4 million Medicare RAC reserve release.

2017 vs. 2016

During the year ended December 31, 2017, revenue was $521.2 million, an increase of $31.5 million or 6.4% compared to $489.7 million for the year ended December 31, 2016.

§ By solution, which consists of coordination of benefits and analytical services, and included in analytical services are our payment integrity and total population management solutions:

o Coordination of benefits service revenue increased $29.0 million or 8.2% which was attributable to yield improvements and the addition of Medicaid enrollees which entered our customer eligibility files in 2017.

o Payment integrity revenue decreased $30.7 million or 22.8% which was attributable to a $14.7 million decrease in Medicare RAC revenue because the Medicare RAC Region D program ceased generating revenue in late 2016, as expected, and a $16.1 million decrease due to various contract completions and expirations.

o Total population management revenue increased $33.3 million or 3746.8% almost all of which is due to the Eliza acquisition in April 2017.

§ By market:

o Commercial health plan market revenue increased $39.0 million or 17.0% which was attributable to Eliza contributing revenue of $30.4 million since its acquisition in April 2017, Essette increasing revenue $2.9 million as compared to prior year and expanded commercial health plan scopes, including the addition of health plans to current contracts and yield improvements.

o State government market revenue increased by $7.9 million or 3.6%, which was attributable to expanded scopes and yield improvements.

o Federal government market and other revenue decreased $15.4 million, which was primarily attributable to a reduction of Medicare RAC revenue because the Medicare RAC D Region D program ceased generating new claims for active auditing in 2016, as expected.

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Cost of Services

Cost of Services in millions

2018 vs. 2017

During the year ended December 31, 2018, total cost of services was $401.6 million, an increase of $36.5 million or 10.0% compared to $365.1 million for the year ended December 31, 2017. This change resulted primarily from increases in compensation expense of $22.9 million, information technology expense of $7.7 million, other operating costs of $3.0 million and amortization of intangibles expense of $2.6 million.

§	The increase in total cost of services relating to Eliza (acquired in April 2017) represented $14.4 million of the increase.
§	Excluding Eliza, total cost of services increased by $22.1 million which was primarily related to increases in compensation expenses of $17.0 million related to the overall performance of the Company and information technology expenses of $4.2 million.

2017 vs. 2016

During the year ended December 31, 2017, total cost of services was $365.1 million, an increase of $22.4 million or 6.5% compared to $342.7 million for the year ended December 31, 2016. This change resulted primarily from increases in compensation expense of $12.7 million, information technology expense of $8.4 million, and amortization of intangibles expense of $2.4 million.

§	The Eliza acquisition and the related compensation, data processing, occupancy and amortization of intangibles expenses incurred since its acquisition in April 2017 represented $23.4 million of the increase.
§	Excluding Eliza, total cost of services decreased by $1.0 million which was primarily related to a reduction in direct project costs partially offset by increases in data processing and compensation expenses.

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Selling, General and Administrative Expenses

SG&A in millions

2018 vs. 2017

During the year ended December 31, 2018, SG&A expense was $113.5 million, an increase of $7.8 million or 7.4% compared to $105.7 million for the year ended December 31, 2017.

§	Eliza (acquired in April 2017) represented $1.9 million of the increase.
§	Excluding Eliza, expenses increased by $5.9 million primarily related to increased variable compensation expense due to the overall performance of the Company.

2017 vs. 2016

During the year ended December 31, 2017, SG&A expense was $105.7 million, an increase of $16.3 million or 18.2% compared to $89.4 million for the year ended December 31, 2016.

§	The Eliza acquisition and related transaction fees and other SG&A expenses incurred since its acquisition in April 2017 represented $8.7 million of the increase.
§	Excluding Eliza, stock compensation expense also increased by $7.3 million primarily due to stock compensation expense for retirement eligible employees.

Income Taxes

2018 vs. 2017

During the year ended December 31, 2018, we recorded an income tax benefit of ($2.0) million, an increased benefit of $1.8 million compared to an income tax benefit of ($0.2) million for the year ended December 31, 2017.

§	On December 22, 2017, the 2017 Tax Act was signed into law and includes provisions reducing the federal tax rate for years beginning in 2018 from 35% to 21%.
§	Our effective tax rate was (3.7%) for the year ended December 31, 2018 compared to an effective tax rate of (0.5%) for the year ended December 31, 2017. The low 2018 effective tax rate is primarily due to favorable tax benefits related to current year credits, equity compensation, subsidiary basis write off, prior year state tax apportionment changes, uncertain tax position releases, and acquisition adjustments.
§	Our normalized effective tax rate of 25.8% for 2018 decreased from our normalized effective tax rate of 36.1% for 2017 primarily due to a lower federal tax rate. The normalized effective tax rate excludes prior years’ expense and benefit adjustments recognized in the respective fiscal year.

2017 vs. 2016

During the year ended December 31, 2017, we recorded an income tax benefit of ($0.2) million, a decrease of $12.0 million compared to the year ended December 31, 2016.

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§	Our effective tax rate was (0.5%) for the year ended December 31, 2017 compared to an effective tax rate of (23.9%) for the year ended December 31, 2016. The decrease is primarily due to the revaluation of our deferred tax liabilities based on the reduced federal tax rate described above.
§	Our normalized effective tax rate of 36.1% for 2017 is comparable to our normalized effective tax rate of 36.2% for 2016. The normalized effective tax rate excludes prior years expense and benefit adjustments recognized in the respective fiscal year.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Liquidity and Capital Resources

The following tables should be read in conjunction with the Consolidated Financial Statements and Notes thereto, in Part II, Item 8 of this 2018 Form 10-K.

Our cash and cash equivalents, working capital and available borrowings under our credit facility (based upon the borrowing base and financial covenants in our Credit Agreement) were as follows (in thousands):

	Years ended December 31,
	2018		2017
Cash and cash equivalents	$	178,946	$	83,313
Working capital	$	328,684	$	199,967
Available borrowings under credit facility	$	253,500	$	254,600

A summary of our cash flows was as follows (in thousands):

	Years ended December 31,
	2018			2017			2016
Net cash provided by operating activities	$	96,457		$	86,464		$	88,639
Net cash used in investing activities		(30,413	)		(204,364	)		(39,201	)
Net cash provided by/(used in) financing activities		29,589			25,214			(19,049	)
Net increase / (decrease) in cash and cash equivalents	$	95,633		$	(92,686	)	$	30,389

Our cash and cash equivalents and working capital increased as of December 31, 2018 as compared to December 31, 2017, primarily as a result of the cash generated by our operating activities as discussed below.

Our principal source of cash has been our cash flow from operations and our $500 million five-year revolving credit facility. Other sources of cash include proceeds from exercise of stock options and tax benefits associated with stock option exercises. The primary uses of cash are capital investments, compensation expenses, data processing, direct project costs, SG&A expenses and acquisitions. We may also use available cash to repurchase shares of our common stock.

We believe that expected cash flows from operations, available cash and cash equivalents, and funds available under our revolving credit facility will be sufficient to meet our liquidity requirements for the following year, which include:

§	the working capital requirements of our operations;
§	investments in our business;
§	business development activities;
§	repurchases of common stock; and
§	repayment of our revolving credit facility.

Any projections of future earnings and cash flows are subject to substantial uncertainty. We may need to access debt and equity markets in the future if unforeseen costs or opportunities arise, to meet working capital requirements, fund acquisitions or repay our indebtedness under the Credit Agreement. If we need to obtain new debt or equity financing in the future, the terms and availability of such financing may be impacted by economic and financial market conditions as well as our financial condition and results of operations at the time we seek additional financing.

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Cash Flows from Operating Activities

Net cash provided by operating activities for the year ended December 31, 2018 was $96.5 million, a $10.0 million increase from net cash provided by operating activities of $86.5 million for the year ended December 31, 2017. The increase was primarily due to a $14.9 million increase in net income and increases in reconciling items of $14.3 million as compared to prior year. These increases were offset by decreases in operating assets and liabilities of approximately $19.2 million.

Net cash provided by operating activities for the year ended December 31, 2017 was $86.5 million, a $2.1 million decrease from net cash provided by operating activities of $88.6 million for the year ended December 31, 2016. The decrease was primarily due to a decrease in deferred income taxes of $13.0 million related to our revaluation of the Company’s deferred tax balances from the federal tax rate of 35% to 21% under the 2017 Tax Act, offset by an increase in stock based compensation expense of $10.9 million primarily related to retirement eligible employees. The decrease was also impacted by changes in operating assets and liabilities and offset by increases in net income, and depreciation and amortization expenses.

Our DSO calculation can be derived by dividing total net accounts receivable at the end of period, by the daily average of the current quarter’s annualized revenue. For the year ended December 31, 2018, revenue was $598.3 million, an increase of $77.1 million compared to revenue of $521.2 million for the year ended December 31, 2017. DSO increased by 4 days to 119 days as of December 31, 2018, as compared to 115 days as of December 31, 2017. The change was due to timing delays in certain clients processing our findings through their systems. We do not currently anticipate collection issues with our accounts receivable, however, nor do we currently expect that any extended collections will materially impact our liquidity.

The majority of our customer relationships have been in place for several years. Our future operating cash flows could be adversely affected by a decrease in a demand for our services, delayed payments from customers or if one or more contracts with our largest customers is terminated or not renewed.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 was $30.4 million, a $174.0 million decrease compared to net cash used in investing activities of $204.4 million for the year ended December 31, 2017. This decrease was primarily due to the use of approximately $171.3 million for the Eliza acquisition in April 2017. Purchases of property and equipment and investment in capitalized software also decreased by $2.7 million year over year.

Net cash used in investing activities for the year ended December 31, 2017 was $204.4 million, a $165.2 million increase compared to net cash used in investing activities of $39.2 million for the year ended December 31, 2016. This increase was primarily due to the use of approximately $171.3 million for the Eliza acquisition in April 2017 as compared to the use of approximately $20.7 million for the Essette acquisition in September 2016. Purchases of property and equipment and investment in capitalized software also increased by $12.0 million year over year.

We currently expect to incur capital expenditures of $35-$40 million during the year ended December 31, 2019.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2018 was $29.6 million, a $4.4 million increase from net cash provided by financing activities of $25.2 million for the year ended December 31, 2017. This increase was primarily attributable to an increase of $36.0 million of proceeds from exercise of stock options over prior year and an $8.2 million decrease in repurchases of common stock as compared to prior year. Additionally, there was a $39.8 million decrease in proceeds from our credit facility net of deferred financing cost payments.

Net cash provided by financing activities for the year ended December 31, 2017 was $25.2 million, a $44.2 million increase from net cash used in financing activities of $19.0 million for the year ended December 31, 2016. This increase was primarily attributable to $42.2 million of proceeds from additional borrowings under our amended credit facility.

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Share Repurchase Program

During the year ended December 31, 2018, we repurchased 0.4 million shares of our common stock for approximately $6.0 million using cash resources. See the discussion under “Repurchases of Shares of Common Stock” under Part II, Item 5 and “Equity” in Note 11 to the Consolidated Financial Statements under Part II, Item 8 for additional information regarding share repurchases.

Credit Agreement

In May 2013, we entered into the Credit Agreement with certain lenders and Citibank, N.A. as administrative agent. The Credit Agreement originally provided for an initial $500 million five-year revolving credit facility maturing on May 3, 2018. On December 19, 2017, we entered into an amendment to the Credit Agreement that, among other things, provided for an extension of the maturity date of our then-existing senior secured revolving credit facility to December 19, 2022, which includes a $50 million sublimit for the issuance of letters of credit and a $25 million sublimit for swingline loans. In addition, the Credit Agreement includes an accordion feature that permits us to increase the revolving credit facility up to the sum of (a) the greater of $120 million and 100% of Consolidated EBITDA (as defined in the Credit Agreement) and (b) additional amounts so long as our first lien leverage ratio (as defined in the Credit Agreement) on a pro forma basis is not greater than 3.00:1.00, in each case subject to obtaining commitments from lenders therefor and meeting certain other conditions.

The obligations and amounts due under the Credit Agreement are secured by a first security priority interest in all or substantially all of our tangible and intangible assets and our material 100% owned subsidiaries’ assets. The Credit Agreement contains customary representations and warranties, affirmative and negative covenants, including financial covenants, and events of default.

As of December 31, 2018, the outstanding principal balance under our revolving credit facility was $240.0 million.

As part of a contractual agreement with a customer, the Company has an outstanding irrevocable letter of credit for $6.5 million, which is issued against our revolving credit facility and expires June 30, 2019.

As of December 31, 2018, we were in compliance with all terms of the Credit Agreement.

See Note 10 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding our Credit Agreement.

40 

Contractual Obligations

The following table represents the scheduled maturities of our contractual cash obligations and other commitments:

	Payments Due by Period (in thousands)
Contractual Obligations (1)	Total		Less than 1 year		1 - 3 years		3 -5 years		More than 5 years
Operating leases (2)	$	22,654	$	5,778	$	9,162	$	4,767	$	2,947
Revolving credit facility (3)		240,000		-		-		240,000		-
Interest expense (4)		41,687		10,494		21,016		10,177		-
Commitment fee (5)		2,610		651		1,320		639		-
Capital leases (6)		8		8		-		-		-
Letter of Credit fee (7)		49		49		-		-		-
Purchase obligations and commitments (8)		26,966		10,180		13,970		2,816		-
Total	$	333,974	$	27,160	$	45,468	$	258,399	$	2,947

(1)	The Company has excluded long-term unrecognized tax benefits, net of interest and penalties, of $4.8 million from the amounts presented as the timing of these obligations is uncertain.
(2)	Represents the future minimum lease payments under non-cancelable operating leases.
(3)	Represents scheduled repayments of principal on the revolving credit facility under the terms of our Credit Agreement. See Note 10 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding the Credit Agreement.
(4)	Represents estimates of amounts due on the revolving credit facility based on the interest rate as of December 31, 2018 and on scheduled repayments of principal. See Note 10 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding the Credit Agreement.
(5)	Represents the commitment fee due on the revolving credit facility. See Note 10 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding the Credit Agreement.
(6)	Represents the future minimum lease payments under capital leases.
(7)	Represents the fees for the letter of credit issued against the revolving credit facility. See Note 10 to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding the Credit Agreement.
(8)	Represents future purchases related to outstanding purchase orders and supplier requisitions.

Recently Issued Accounting Pronouncements

The information set forth under the caption “Summary of Significant Accounting Policies” in Note 1 to the Consolidated Financial Statements in Part II, Item 8 is incorporated herein by reference.

41 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

At December 31, 2018, we were not a party to any derivative financial instruments. We conduct all of our business in U.S. currency and hence do not have direct foreign currency risk. We are exposed to changes in interest rates, primarily with respect to our revolving credit facility under our Credit Agreement. If the effective interest rate for all of our variable rate debt were to increase by 100 basis points (1%), our annual interest expense would increase by a maximum of $2.4 million based on our debt balances outstanding at December 31, 2018. Further, we currently invest substantially all of our excess cash in short-term investments, primarily money market accounts, where returns effectively reflect current interest rates. As a result, market interest rate changes may impact our interest income or expense. The impact will depend on variables such as the magnitude of rate changes and the level of borrowings or excess cash balances. We do not consider this risk to be material. We manage such risk by continuing to evaluate the best investment rates available for short-term, high quality investments.

Item 8. Consolidated Financial Statements and Supplementary Data

The information required by Item 8 is found under Item 15 of this 2018 Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We are responsible for maintaining disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures

As required by Rule 13a-15(b) under the Exchange Act, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the 2018 Form 10-K.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of our Chief Executive Officer and our Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with U.S. GAAP.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

42 

In connection with the preparation of our annual consolidated financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018, based on criteria established in the Internal Control-Integrated Framework issued by COSO. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on that assessment, we believe that the Company’s internal control over financial reporting was effective based on those criteria as of December 31, 2018.

Our independent registered public accounting firm, Grant Thornton LLP, audited our consolidated financial statements and has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2018, a copy of which is included with this 2018 Form 10-K.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

43 

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item 10 is incorporated herein by reference to the applicable disclosure found in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act in connection with HMS Holdings Corp.’s 2019 Annual Meeting of Shareholders under the captions “Proposal One: Election of Class II Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Director Nomination Process,” “Additional Information—Shareholder Proposals and Director Nominations for 2020 Annual Meeting,” and “Board Committees and Related Matters.”

Our Board of Directors has adopted a Code of Conduct applicable to all of our directors, officers and employees, including all employees, officers, directors, contractors, contingent workers and business affiliates of HMS subsidiaries. The Code of Conduct is publicly available on our website under the “Investors—Corporate Governance” tab at http://investor.hms.com/corporate-governance.cfm and can also be obtained free of charge by sending a written request to our Corporate Secretary. To the extent permissible under the Nasdaq Marketplace Rules, we intend to disclose amendments to our Code of Conduct, as well as waivers of the provisions thereof, that relate to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions on the Company’s website under the “Investors—Corporate Governance” tab at http://investor.hms.com/corporate-governance.cfm.

Item 11. Executive Compensation

The information required by this Item 11 is incorporated herein by reference to the applicable disclosure found in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act in connection with HMS Holdings Corp.’s 2019 Annual Meeting of Shareholders under the captions “Executive Compensation,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Except as provided below, the information required by this Item 12 is incorporated herein by reference to the applicable disclosure found in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act in connection with HMS Holdings Corp.’s 2019 Annual Meeting of Shareholders under the caption “Ownership of HMS Common Stock.”

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of December 31, 2018. For additional information about our equity compensation plans see the discussion set forth under the caption “Stock-Based Compensation” in Note 13 to the Consolidated Financial Statements in Part II, Item 8.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category	(a)			(b)		(c)
Equity compensation plans approved by shareholders		5,825,734	(1)	$	17.07		4,758,398
Equity compensation plans not approved by shareholders		19,004	(2)	$	12.00		—
Total		5,844,738

(1) This includes stock options and restricted stock units granted under our 2006 Stock Plan and 2016 Omnibus Plan.

(2) This includes stock options granted under the 2011 HDI Plan, which was assumed in connection with our acquisition of HDI and approved by the Compensation Committee of our Board.

44 

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this Item 13 is incorporated herein by reference to the applicable disclosure found in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act in connection with HMS Holdings Corp.’s 2019 Annual Meeting of Shareholders under the captions “Certain Relationships and Related Transactions” and “Director Independence.”

Item 14. Principal Accounting Fees and Services

The information required by this Item 14 is incorporated herein by reference to the applicable disclosure from the proposal captioned “Ratification of the Selection of Independent Registered Public Accounting Firm” found in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A under the Exchange Act in connection with HMS Holdings Corp.’s 2019 Annual Meeting of Shareholders.

45 

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements.

The financial statements are listed in the Index to Consolidated Financial Statements on page 52.

2. Financial Statement Schedules.

Financial Statement Schedule II-Valuation and Qualifying Accounts is set forth on page 82. All other financial statement schedules have been omitted as they are either not required, not applicable or the information is otherwise included.

3. Exhibits.

The Exhibits include agreements to which the Company is a party or has a beneficial interest. The agreements have been filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other actual information about the Company or its business or operations. In particular, the assertions embodied in any representations, warranties, and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties, and covenants in the agreements may have been used for the purpose of allocating risk between parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or operations on the date hereof.

Where an exhibit is filed by incorporation by reference to a previously filed registration statement or report, such registration statement or report is identified after the description of the exhibit.

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated December 16, 2002, among Health Management Systems, Inc., HMS Holdings Corp. and HMS Acquisition Corp. (incorporated by reference to Exhibit A to the Company’s Prospectus and Proxy Statement (Reg No. 333-100521) as filed with the SEC on January 24, 2003)
2.2	Agreement and Plan of Merger, dated July 17, 2013, by and between HMS Holdings Corp., a Delaware corporation, and HMS Holdings Corp., a New York corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/12g-3 (File No. 000-50194) as filed with the SEC on July 23, 2013)
2.3	Agreement and Plan of Merger, dated March 10, 2017, by and among HMS Holdings Corp., Echo Acquisition Sub, Inc., Eliza Holding Corp., and Parthenon Investors III, L.P., solely in its capacity as the representative for equity holders of Eliza Holding Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on June 6, 2017)
3.1	Conformed copy of Certificate of Incorporation of HMS Holdings Corp., as amended through May 23, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on August 6, 2018)

46 

Exhibit Number	Description
3.2	Second Amended and Restated Bylaws of HMS Holdings Corp. dated May 23, 2018 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on May 25, 2018)
4.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K/12g-3 (File No. 000-50194) as filed with the SEC on July 23, 2013)
10.1.1	HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on July 12, 2011)†
10.1.2	Amendment No. 1 to the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on February 29, 2012)†
10.1.3	Form of 2012 Director Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 1, 2013)†
10.1.4	Form of 2012 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 1, 2013)†
10.1.5	Form of 2013 Executive Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 1, 2013)†
10.1.6	Form of 2013 Director Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 12, 2014)†
10.1.7	Form of 2013 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 12, 2014)†
10.1.8	Form of March 2014 Executive Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 12, 2014)†
10.1.9	Form of November 2014 Executive Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on November 10, 2014)†
10.1.10	Form of 2014 Director Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 2, 2015)†
10.1.11	Form of 2014 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 2, 2015)†
10.1.12	Form of March 2015 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 11, 2015)†
10.1.13	Form of March 2015 Executive Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 11, 2015)†

47 

Exhibit Number	Description
10.1.14	Form of 2015 Director Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on February 29, 2016)†
10.1.15	Form of 2015 Director Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on February 29, 2016)†
10.1.16	Form of November 2015 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on February 29, 2016)†
10.1.17	Form of 2016 Executive and Senior Vice President Non-Qualified Stock Option Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 10, 2016)†
10.1.18	Form of 2016 Executive and Senior Vice President Restricted Stock Unit Agreement under the 2006 Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 10, 2016)†
10.2.1	HMS Holdings Corp. 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on June 27, 2016)†
10.2.2	Form of Non-Qualified Stock Option Award Agreement for Employees under the 2016 Omnibus Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on November 9, 2016)†
10.2.3	Form of Restricted Stock Unit Award Agreement for Employees under the 2016 Omnibus Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on November 9, 2016)†
10.2.4	Form of Non-Qualified Stock Option Award Agreement for Non-Employee Directors under the 2016 Omnibus Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on November 9, 2016)†
10.2.5	Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2016 Omnibus Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on November 9, 2016)†
10.3.1	Executive Employment Agreement, dated March 1, 2013, by and between William C. Lucia and HMS Holdings Corp. (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K (File No. 000-50194) as filed with the SEC on March 1, 2013)†
10.3.2	Letter of Amendment to Executive Employment Agreement, dated April 30, 2013, by and between William C. Lucia and HMS Holdings Corp. (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Annual Report on Form 10-K/A (File No. 000-50194) as filed with the SEC on April 30, 2013)†

48 

Exhibit Number	Description
10.3.3	Second Amendment to Executive Employment Agreement, dated January 20, 2015, by and between HMS Holdings Corp. and William C. Lucia (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on January 23, 2015)†
10.3.4	Third Amendment to Executive Employment Agreement, dated February 21, 2018, by and between William C. Lucia and HMS Holdings Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on February 23, 2018)†
10.4	Amended and Restated Employment Agreement, dated April 2, 2018, by and between Jeffrey S. Sherman and HMS Holdings Corp. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 7, 2018)†
10.5	Amended and Restated Employment Agreement, dated March 29, 2018, by and between Meredith W. Bjorck and HMS Holdings Corp. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 7, 2018)†
10.6	Amended and Restated Employment Agreement, dated March 29, 2018, by and between Douglas M. Williams, Jr. and HMS Holdings Corp. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 7, 2018)†
10.7	Amended and Restated Employment Agreement, dated April 2, 2018, by and between Emmet O’ Gara and HMS Holdings Corp.†
10.8	Amended and Restated Employment Agreement, dated April 2, 2018, by and between Semone Neuman and HMS Holdings Corp. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on May 7, 2018)†
10.9	Separation, Waiver and General Release Agreement, dated January 9, 2019, by and between Semone Neuman and HMS Holdings Corp.†
10.10	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on August 6, 2018)†
10.11	HMS Holdings Corp. Director Deferred Compensation Plan, as amended through June 29, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on August 9, 2016)†
10.12	HMS Holdings Corp. Annual Incentive Compensation Plan as amended and restated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on June 27, 2016)†
10.13.1	Amended and Restated Credit Agreement, dated May 3, 2013, as amended by Amendment No. 1 to Amended and Restated Credit Agreement dated as of March 8, 2017, and as further amended by Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 19, 2017, by and among HMS Holdings Corp., the Guarantors party thereto, the Lenders party thereto and Citibank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on December 21, 2017)
10.13.2	Amended and Restated Security Agreement, dated December 19, 2017, by and among HMS Holdings Corp., the Subsidiary Securing Parties party thereto and Citibank, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-50194) as filed with the SEC on December 21, 2017)
10.14	Settlement Agreement, dated June 27, 2018, by and among Dennis Demetre, Lori Lynn Lewis Demetre, John Alfred Lewis, Christopher Brandon Lewis, and HMS Holdings Corp. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-50194) as filed with the SEC on August 6, 2018)

49 

Exhibit Number	Description
21.1	HMS Holdings Corp. List of Subsidiaries
23.1	Consent of Grant Thornton LLP
23.2	Consent of KPMG LLP
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Section 1350 Certification of the Principal Executive Officer of HMS Holdings Corp., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Section 1350 Certification of the Principal Financial Officer of HMS Holdings Corp., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

______________________

†	Indicates a management contract or compensatory plan, contract or arrangement
*	The certifications attached hereto as Exhibit 32.1 and Exhibit 32.2 are furnished with this 2018 Form 10-K and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act

Item 16. Form 10-K Summary

None.

50 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on February 25, 2019.

HMS Holdings Corp.

/s/ William C. Lucia

William C. Lucia

Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 25, 2019.

Signature	Title
/s/ William C. Lucia William C. Lucia	Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
/s/ Jeffrey S. Sherman Jeffrey S. Sherman	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
/s/ Greg D. Aunan Greg D. Aunan	Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
/s/ Robert Becker Robert Becker	Director
/s/ Craig R. Callen Craig R. Callen	Director
/s/ William F. Miller III William F. Miller III	Director
/s/ Ellen A. Rudnick Ellen A. Rudnick	Director
/s/ Bart M. Schwartz Bart M. Schwartz	Director
/s/ Richard H. Stowe Richard H. Stowe	Director
/s/ Cora M. Tellez Cora M. Tellez	Director

51 

HMS HOLDINGS CORP. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page Number
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm	53
Consolidated Balance Sheets as of December 31, 2018 and 2017	56
Consolidated Statements of Income for the Years Ended December 31, 2018, 2017 and 2016	57
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016	58
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016	59
Notes to the Consolidated Financial Statements	60
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts	82

52 

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

HMS Holdings Corp.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of HMS Holdings Corp. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes and financial statement schedule included under Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 25, 2019 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2017.

Dallas, Texas

February 25, 2019

53 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

HMS Holdings Corp.:

We have audited the accompanying consolidated balance sheet of HMS Holdings Corp. and subsidiaries as of December 31, 2016, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year ended December 31, 2016. In connection with our audit of the consolidated financial statements, we also have audited financial statement schedule II as it relates to the year ended December 31, 2016. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HMS Holdings Corp. and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule as it relates to the year ended December 31, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG, LLP

Dallas, Texas

June 6, 2017

54 

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

HMS Holdings Corp.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of HMS Holdings Corp. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2018, and our report dated February 25, 2019 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Dallas, Texas

February 25, 2019

55 

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	December 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	178,946		$	83,313
Accounts receivable, net of allowance of $13,683 and $14,799, at December 31, 2018 and December 31, 2017, respectively		206,772			189,460
Prepaid expenses		19,970			16,589
Income tax receivable		18,817			1,892
Deferred financing costs, net		564			564
Other current assets		240			836
Total current assets		425,309			292,654
Property and equipment, net		94,435			98,581
Goodwill		487,617			487,617
Intangible assets, net		67,140			91,482
Deferred financing costs, net		1,673			2,237
Other assets		2,344			2,589
Total assets	$	1,078,518		$	975,160
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	74,902		$	61,900
Estimated liability for appeals		21,723			30,787
Total current liabilities		96,625			92,687
Long-term liabilities:
Revolving credit facility		240,000			240,000
Net deferred tax liabilities		18,485			21,989
Deferred rent		4,118			4,852
Other liabilities		5,894			9,403
Total long-term liabilities		268,497			276,244
Total liabilities		365,122			368,931
Commitments and contingencies
Shareholders' equity:
Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none issued		—			—
Common stock -- $0.01 par value; 175,000,000 shares authorized; 98,924,501 shares issued and 85,261,664 shares outstanding at December 31, 2018; 96,536,251 shares issued and 83,256,858 shares outstanding at December 31, 2017		989			965
Capital in excess of par value		425,748			368,721
Retained earnings		422,235			366,164
Treasury stock, at cost: 13,663,194 shares at December 31, 2018 and 13,279,393 shares at December 31, 2017		(135,576	)		(129,621	)
Total shareholders' equity		713,396			606,229
Total liabilities and shareholders' equity	$	1,078,518		$	975,160

See accompanying notes to the consolidated financial statements.

56 

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

	Year Ended December 31,
	2018			2017			2016
Revenue	$	598,290		$	521,212		$	489,720
Cost of services:
Compensation		224,893			202,049			189,271
Information technology		53,428			45,723			37,337
Occupancy		15,968			17,190			14,000
Direct project expenses		42,908			41,347			46,254
Other operating expenses		31,438			28,425			27,778
Amortization of acquisition related software and intangible assets		32,975			30,393			28,030
Total cost of services		401,610			365,127			342,670
Selling, general and administrative expenses		113,442			105,654			89,381
Settlement expense		20,000			-			-
Total operating expenses		535,052			470,781			432,051
Operating income		63,238			50,431			57,669
Interest expense		(11,310	)		(10,871	)		(8,519	)
Interest income		1,089			295			321
Income before income taxes		53,017			39,855			49,471
Income taxes		(1,972	)		(199	)		11,835
Net Income	$	54,989		$	40,054		$	37,636
Basic income per common share:
Net income per common share -- basic	$	0.66		$	0.48		$	0.45
Diluted income per common share:
Net income per common share -- diluted	$	0.64		$	0.47		$	0.43
Weighted average shares:
Basic		83,625			83,821			84,221
Diluted		86,144			85,088			86,987

See accompanying notes to the consolidated financial statements

57 

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

	Common Stock									Treasury Stock
	# of Shares Issued		Par Value		Capital in Excess of Par Value			Retained Earnings		# of Shares		Amount			Total Shareholders' Equity
Balance at January 1, 2016		95,263,461	$	952	$	330,290		$	288,474		11,273,746	$	(95,014	)	$	524,702
Net income		-		-		-			37,636		-		-			37,636
Stock-based compensation expense		-		-		13,277			-		-		-			13,277
Purchase of treasury stock		-		-		-			-		1,140,332		(20,470	)		(20,470	)
Exercise of stock options		510,512		5		2,935			-		-		-			2,940
Vesting of restricted stock awards and units, net of shares withheld for employee tax		192,879		2		(1,477	)		-		-		-			(1,475	)
Balance at December 31, 2016		95,966,852	$	959		345,025		$	326,110		12,414,078	$	(115,484	)	$	556,610
Net income		-		-		-			40,054		-		-			40,054
Stock-based compensation expense		-		-		24,143			-		-		-			24,143
Purchase of treasury stock		-		-		-			-		865,315		(14,137	)		(14,137	)
Exercise of stock options		172,326		2		2,718			-		-		-			2,720
Vesting of restricted stock awards and units, net of shares withheld for employee tax		397,073		4		(3,165	)		-		-		-			(3,161	)
Balance at December 31, 2017		96,536,251	$	965	$	368,721		$	366,164		13,279,393	$	(129,621	)	$	606,229
Adoption of accounting standard (Note 1 and 2)		-		-		-			1,082		-		-			1,082
Net income		-		-		-			54,989		-		-			54,989
Stock-based compensation expense		-		-		21,507					-		-			21,507
Purchase of treasury stock		-		-		-			-		383,801		(5,955	)		(5,955	)
Exercise of stock options		2,017,442		20		38,342			-		-		-			38,362
Vesting of restricted stock units, net of shares withheld for employee tax		370,808		4		(2,822	)		-		-		-			(2,818	)
Balance at December 31, 2018		98,924,501	$	989	$	425,748		$	422,235		13,663,194	$	(135,576	)	$	713,396

See accompanying notes to the consolidated financial statements.

58 

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
		2018			2017			2016
Operating activities:
Net income	$	54,989		$	40,054		$	37,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software		33,254			27,515			24,882
Amortization of intangible assets		24,342			22,555			20,164
Amortization of deferred financing costs		564			2,258			2,083
Stock-based compensation expense		21,507			24,143			13,277
Deferred income taxes		(3,504	)		(20,409	)		(7,368	)
(Gain) / Loss on disposal of assets		-			209			(948	)
Change in fair value of contingent consideration		(35	)		(2,865	)		-
Release of estimated liability for appeals		(8,436	)		-			-
Changes in operating assets and liabilities:
Accounts receivable		(17,312	)		(6,976	)		(3,554	)
Prepaid expenses		(3,381	)		(1,463	)		(2,399	)
Other current assets		596			165			2,066
Other assets		245			124			234
Income taxes receivable / (payable)		(16,925	)		1,462			(7,227	)
Accounts payable, accrued expenses and other liabilities		11,181			(340	)		12,116
Estimated liability for appeals		(628	)		32			(2,323	)
Net cash provided by operating activities		96,457			86,464			88,639
Investing activities:
Acquisition of a business, net of cash acquired		-			(171,321	)		(20,678	)
Proceeds from sale of cost basis investment		-			-			2,496
Purchases of property and equipment		(11,264	)		(17,318	)		(13,703	)
Investment in capitalized software		(19,149	)		(15,725	)		(7,316	)
Net cash used in investing activities		(30,413	)		(204,364	)		(39,201	)
Financing activities:
Proceeds from credit facility		-			42,204			-
Payments for deferred financing costs		-			(2,269	)		-
Proceeds from exercise of stock options		38,362			2,720			2,940
Payments of tax withholdings on behalf of employees for net-share settlements		(2,818	)		(3,161	)		(1,475	)
Payments on capital lease obligations		-			(143	)		(44	)
Purchases of treasury stock		(5,955	)		(14,137	)		(20,470	)
Net cash provided by/(used in) financing activities		29,589			25,214			(19,049	)
Net increase/(decrease) in cash and cash equivalents		95,633			(92,686	)		30,389
Cash and Cash Equivalents
Cash and cash equivalents at beginning of year		83,313			175,999			145,610
Cash and cash equivalents at end of period	$	178,946		$	83,313		$	175,999
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds	$	22,225		$	17,995		$	20,326
Cash paid for interest	$	10,326		$	9,944		$	6,196
Supplemental disclosure of non-cash activities:
Change in balance of accrued property and equipment purchases	$	1,305		$	51		$	684

See accompanying notes to the consolidated financial statements.

59 

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Summary of Significant Accounting Policies

(a) Business

HMS is an industry-leading provider of cost containment solutions in the healthcare marketplace. We use healthcare 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.

(b) Summary of Significant Accounting Policies

For certain accounting topics, the description of the accounting policy may be found in the related Note.

(i) Principles of Consolidation

The consolidated financial statements include the Company’s accounts and transactions and those of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(ii) Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(iii) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of deposits that are readily convertible into cash.

(iv) Concentration of Credit Risk

The Company’s policy is to limit credit exposure by placing cash in accounts which are exposed to minimal interest rate and credit risk. HMS maintains cash and cash equivalents in cash depository accounts with large financial institutions with a minimum credit rating of A1/P1 or better, as defined by Standard and Poor’s. The balance at these institutions generally exceeds the maximum balance insured by the Federal Deposit Insurance Corporation of up to $250,000 per entity. HMS has not experienced any losses in cash and cash equivalents and believes these cash and cash equivalents do not expose the Company to any significant credit risk.

The Company is subject to potential credit risk related to changes in economic conditions within the healthcare market. However, HMS believes that the billing and collection policies are adequate to minimize the potential credit risk. The Company performs ongoing credit evaluations of customers and generally does not require collateral.

60 

(v) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets utilizing the straight-line method. HMS amortizes leasehold improvements on a straight-line basis over the shorter of (i) the term of the lease or (ii) the estimated useful life of the improvement. Equipment leased under capital leases is depreciated over the shorter of (i) the term of the lease or (ii) the estimated useful life of the equipment. Capitalized software costs relate to software that is acquired or developed for internal use while in the application development stage. All other costs to develop software for internal use, either in the preliminary project stage or post-implementation stage, are expensed as incurred. Amortization of capitalized software is calculated on a straight-line basis over the expected economic life. Land is not depreciated.

Estimated useful lives are as follows:

Property and Equipment	Useful Life (in years)
Equipment		2	to	5
Leasehold improvements		5	to	10
Furniture and fixtures			5
Capitalized software		3	to	10
Building and building improvements			up to 39

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did not recognize any impairment charges related to property and equipment during the years ended December 31, 2018, 2017 or 2016.

(vi) Intangible assets

The Company records assets acquired and liabilities assumed in a business combination based upon their acquisition date fair values. In most instances there is not a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. The Company determines fair value through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Significant assumptions used in those techniques include, but are not limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates. The use of different valuation techniques and assumptions are highly subjective and inherently uncertain and, as a result, actual results may differ materially from estimates.

All of the Company’s intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit. Estimated useful lives are as follows:

Intangible Assets	Useful Life (in years)
Customer relationships		7	to	15
Restrictive covenants		1	to	3
Trade names		1.5	to	7
Intellectual property		4	to	6

61 

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did not recognize any impairment charges related to intangible assets during the years ended December 31, 2018, 2017 or 2016.

(vii) Goodwill

Goodwill is the excess of acquisition costs over the fair values of assets and liabilities of acquired businesses. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill is subject to a periodic assessment for impairment. The Company assesses goodwill for impairment on an annual basis as of June 30th of each year or more frequently if an event occurs or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Assessment of goodwill impairment is at the HMS Holdings Corp. entity level as the Company operates as a single reporting unit. We have the option to perform a qualitative or quantitative assessment to determine if impairment is more likely than not to have occurred. The Company completed the annual impairment test as of June 30, 2018 electing to perform the quantitative assessment of which the first step is to compare the fair value of the reporting unit with its carrying value, including goodwill. In calculating the fair value of the reporting unit, the Company utilized a weighting across three commonly accepted valuation approaches: an income approach, a guideline public company approach, and a merger and acquisition approach. The income approach to determining fair value computes projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting. Significant assumptions in the income approach include income projections, a discount rate and a terminal growth value which are all level 3 inputs. The income projections include assumptions for revenue and expense growth which are based on internally developed business plans and largely reflect recent historical revenue and expense trends.  The discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium. The terminal growth value is Company specific and was determined analyzing inputs such as historical inflation and the GDP growth rate. The guideline public company approach and merger and acquisition approach are based on pricing multiples observed for similar publicly traded companies or similar market companies that were sold. The results of the annual impairment assessment provide that the fair value of the reporting unit was significantly in excess of the Company’s carrying value, including goodwill; therefore, no impairment was indicated. There were no impairment charges related to goodwill during the years ended December 31, 2018, 2017 or 2016. There were no changes in the carrying amount of goodwill for the year ended December 31, 2018.

(viii)  Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits for net operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets to the extent their realization is not more likely than not. Uncertain income tax positions are accounted for by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company makes adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results.

62 

(ix) Expense Classifications

HMS cost of services is presented in the categories set forth below. Each category within cost of services excludes expenses relating to SG&A functions, which are presented separately as a component of total operating costs. A description of the primary expenses included in each category is as follows:

Cost of Services:

§ Compensation: Salary, fringe benefits, bonus and stock-based compensation.

§ Information technology: Hardware, software and data communication costs.

§ Occupancy: Rent, utilities, depreciation, office equipment and repair and maintenance costs.

§ Direct project expense: Variable costs incurred from third party providers that are directly associated with specific revenue generating projects and employee travel expenses.

§ Other operating expenses: Professional fees, temporary staffing, travel and entertainment, insurance and local and property tax costs.

§ Amortization of acquisition related software and intangible assets: Amortization of the cost of acquisition related software and intangible assets.

SG&A:

§ Expenses related to general management, marketing and administrative activities.

(x) Estimating Valuation Allowances and Accrued Liabilities

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. In particular, management must make estimates of the probability of collecting accounts receivable. When evaluating the adequacy of the accounts receivable allowance, management reviews the accounts receivable based on an analysis of historical revenue adjustments, bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms. As of December 31, 2018 and 2017, the accounts receivable balance was $206.8 million and $189.5 million, net of allowance of $13.7 million and $14.8 million, respectively.

(xi)  Stock-Based Compensation

Long-Term Incentive Award Plans

The Company grants stock options and restricted stock units (“equity awards”) to HMS employees and non-employee directors under the 2016 Omnibus Plan, as approved by the Company’s shareholders on June 23, 2016. The 2016 Omnibus Plan replaced and superseded the Company’s 2006 Stock Plan and 2011 HDI Plan. As of December 31, 2018, the number of securities remaining available for future issuance under equity compensation plans, excluding securities to be issued upon exercise of outstanding options and vesting of restricted stock units, is 4,758,398 shares. All of the Company’s employees as well as HMS non-employee directors are eligible to participate in the 2016 Omnibus Plan. Awards granted under the 2016 Omnibus Plan generally vest over one to four years. The exercise price of stock options granted under the 2016 Omnibus Plan may not be less than the fair market value of a share of stock on the grant date, as measured by the closing price of the Company’s common stock on the Nasdaq Global Select Market and the term of a stock option may not exceed ten years. Prior to 2018, the Company granted two types of equity awards: 1) equity awards with service conditions and 2) equity awards with market and service conditions. The market condition is based on the Company’s common stock price during the applicable measurement period. In 2018, the Company only issued equity awards with service conditions.

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Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense equal to the grant date fair value of the award on a straight-line basis over the requisite service period.

The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model. The fair value of each option grant with market and service-based conditions is estimated using a Monte Carlo simulation model. The fair value of each restricted stock unit is calculated based on the closing sale price of the Company’s common stock on the grant date.

The determination of the fair value of the options on the grant date using the Black-Scholes pricing model and/or the Monte Carlo simulation model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. Certain key variables include: the Company’s expected stock price volatility over the expected term of the awards; a risk-free interest rate; and any expected dividends. The Company estimates stock price volatility based on the historical volatility of the Company’s common stock and estimates the expected term of the awards based on the Company’s historical option exercises for similar types of stock option awards. The assumed risk-free interest rate is based on the yield on the measurement date of a zero-coupon U.S. Treasury bond with a maturity period equal to the option’s expected term. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore, uses an expected dividend yield of zero in the option valuation models. The fair value of all awards also includes an estimate of expected forfeitures. Forfeitures are estimated based on historical experience. If actual forfeitures vary from estimates, a difference in compensation expense will be recognized in the period the actual forfeitures occur. Upon the exercise of stock options or the vesting of restricted stock units, the resulting excess tax benefits or deficiencies, if any, are recognized as income tax expense or benefit.

(xii)  Fair Value of Financial Instruments

Financial instruments are categorized into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. In the event the fair value is not readily available or determinable, the financial instrument is carried at cost and referred to as a cost method investment. The fair value hierarchy is as follows:

§ Level 1: Observable inputs such as quoted prices in active markets;

§ Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

§ Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

(xiii) Leases

HMS accounts for lease agreements as either operating or capital leases, depending on certain defined criteria. Lease costs are amortized on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives such as tenant improvement allowances, are capitalized and are treated as a reduction of rental expense over the term of the lease agreement.

(xiv)  Recent Accounting Guidance

Recently Adopted Accounting Guidance

In 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 2014-09 on January 1, 2018 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 2014-09 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.

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In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”) that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows companies to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement and provides an accounting policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within such annual reporting periods with early adoption permitted. The Company elected to early adopt the new guidance in the fourth quarter of fiscal year 2016 which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than paid-in capital for all periods in fiscal year 2016. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings as of January 1, 2016, where the cumulative effect of these changes are required to be recorded. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Adoption of the new standard resulted in the recognition of net excess tax benefits in the provision for income taxes rather than paid-in capital of $1.9 million for the year ended December 31, 2016. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the 2016 periods presented on the consolidated statements of cash flow since such cash flows have historically been presented as a financing activity.

In 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 2016-15 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 a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 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.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, (“ASU 2017-09”). ASU 2017-09 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: 1) The award’s fair value (or calculated value or intrinsic value, if those measurement methods are used), 2) the award’s vesting conditions, and 3) the award’s classification as an equity or liability instrument. ASU 2017-09 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.

In 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 2 from the goodwill impairment test. Step 2 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 (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) 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 Company elected to early adopt the new guidance in the fourth quarter of fiscal year 2018. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

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On August 17, 2018 the SEC issued SEC Final Rule Release No. 33-10532, Disclosure Update and Simplification (“Final Rule”). The Final Rule amends certain disclosure requirements to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The Final Rule was effective for public entities that are SEC filers on November 5, 2018. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 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 2016-02 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 model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. ASU 2016-02 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, and therefore is adopting this guidance on January 1, 2019 and will use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods prior to the date of adoption. The Company developed a preliminary implementation plan and reviewed historical lease agreements in order to quantify the impact of adoption. Based upon the preliminary implementation plan, the Company expects the adoption of ASU 2016-02 will have a material impact on the consolidated balance sheet due to the recognition of the ROU assets and lease liabilities. The adoption of ASU 2016-02 is not expected to have a material impact on the consolidated statement of income or consolidated statement of cash flow. However, the Company continues to perform the necessary reviews and other implementation considerations, including an evaluation of the incremental borrowing rate, in order to appropriately quantify the changes. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (2) financial statement disclosures. We do not expect a significant change in our leasing activities between now and adoption. A range of undiscounted ROU assets and lease liabilities at January 1, 2019 is $28 million to $31 million. We expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments. The Company plans adopt this guidance using the optional transition method. The new standard also provides practical expedients for an entity’s existing and ongoing accounting and we expect to adopt the package of practical expedients as well as the practical expedient to not separate lease and non-lease components of our leases and the short-term lease practical expedient.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 introduces the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses. ASU 2016-13 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 2016-13 is effective for public entities for fiscal year beginning after December 15, 2019, 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.

In 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 2018-07 requires entities to apply similar accounting for share-based payment transactions with non-employees as with share-based payment transactions with employees. ASU 2018-07 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.

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2. Revenue

The Company’s revenue disaggregated by service for the year ended December 31, 2018 is as follows (in thousands):

Coordination of Benefits	$	397,095
Payment Integrity		144,063
Total Population Management		57,132
Total	$	598,290

Coordination of benefits revenue is derived from contracts with state governments and Medicaid managed care plans that typically span 1 to 5 years with the option to renew. Types of service contracts could include: (a) the identification of erroneously paid claims; (b) the delivery of verified commercial insurance coverage information; (c) the identification of paid claims where another third party is liable; and (d) the identification and enrollment of Medicaid members who have access to employer insurance. Most of these types of service contracts contain multiple promises, all of which are not distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these performance obligations is largely based on variable consideration where, based on the number of claims or amount of findings the Company identified, a contingent or fixed transaction price/recovery percentage is allocated to each distinct performance obligation. The Company utilizes the expected value method to estimate the variable consideration related to the transaction price for its service contracts. Key inputs and assumptions in determining variable consideration includes identified pricing and expected recoveries and/or savings. The expected recoveries and/or savings are based on historical experience of information received from our customers. Revenue is primarily recognized at a point in time when our customers realize economic benefits from our services when our services are completed. However, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within one to three years. Generally, coordination of benefit contract payment terms are not standardized within the respective contract; however, payment is typically due on demand and there is a clear and distinct history of customers making consistent payments.

Analytical services consists of payment integrity services and total population management.

Payment integrity services revenue is derived from contracts with federal and state governments, commercial health plans and other at-risk entities that can span several years with the option to renew. Types of service contracts could include: (a) services designed to ensure that healthcare payments are accurate and appropriate; and (b) the identification of over/(under)payments or inaccurate charges based on a review of medical records. Most of these types of service contracts contain multiple promises, all of which are not distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these performance obligations is largely based on variable consideration where, based on the number of claims or amount of findings the Company identified, a contingent or fixed transaction price/recovery percentage is allocated to each distinct performance obligation. The Company utilizes the expected value method to estimate the variable consideration related to the transaction price for its service contracts. Key inputs and assumptions in determining variable consideration includes identified pricing and expected recoveries and/or savings. The expected recoveries and/or savings are based on historical experience of information received from our customers. Revenue is primarily recognized at a point in time when our customers realize economic benefits from our services when our services are completed. However, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within one to three years. Generally, payment integrity contract payment terms are not standardized within the respective contract; however, payment is typically due on demand and there is a clear and distinct history of customers making consistent payments.

Total population management revenue is derived from contracts with health plans and other risk-bearing entities that can span several years with the option to renew. Types of service contracts could include: (a) programs designed to improve member engagement; and (b) outreach services designed to improve clinical outcomes. Most of these types of service contracts contain multiple promises, all of which are not distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these services is largely based on consideration associated with prices per order/transfer and PMPM/PMPY fees. The Company believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (1) our performance toward complete satisfaction of the performance obligation under the contract and (2) the value transferred to the customer of the services performed under the contract. The Company has elected the right to invoice practical expedient for recognition of revenue related to its performance obligations when the amount we have the right to invoice the customer corresponds directly with the value to the customer. Additionally, certain total population management contracts have distinct performance obligations related to software license and implementation fees which have historically been recognized as revenue ratably over the life of the contract. Lastly, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within one to three years. Upon adoption of ASC 606, revenue for software licenses is recognized at the beginning of the license period when control is transferred as the license is installed and revenue for implementation fees is recognized when control is transferred over time as the implementation is being performed. As the performance obligation is deemed to have been satisfied and control transferred to our customers for software licenses and implementation fees on or before December 31, 2017, the Company recorded a decrease to deferred revenue and an increase to opening retained earnings of $1.1 million, net of tax, as of January 1, 2018 for the cumulative impact of adopting ASC 606. Generally, total population management contract payment terms are stated within the contract and are due within an explicitly stated time period (e.g., 30, 45, 60 days) from the date of invoice. A portion of the payment received may relate to future performance obligations and will result in an increase to deferred revenue until the obligation has been met.

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The Company’s revenue disaggregated by market for the year ended December 31, 2018 is as follows (in thousands):

Commercial	$	323,150
State		233,921
Federal		41,219
Total	$	598,290

A portion of the Company’s services are deferred and revenue is recognized at a later time. Deferred revenue was approximately $6.4 million as of December 31, 2017; $1.1 million, net of tax, was recorded as a decrease to deferred revenue as of January 1, 2018 as discussed above; and $5.3 million of this amount was recognized as revenue during the year ended December 31, 2018. Deferred revenue was approximately and $5.6 million as of December 31, 2018. Deferred revenue is included in Accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

Contract modifications are routine in nature and often done to account for changes in the contract specifications or requirements. In most instances, contract modifications are for services that are not distinct, and, therefore, modifications are accounted for as part of the existing contract. The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is one year or less.

3. Fair Value of Financial Instruments

Financial instruments (principally cash and cash equivalents, accounts receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The Company’s long-term credit facility is carried at cost, which due to the variable interest rate associated with the revolving credit facility, cost approximates its fair value. The Company has no Level 1 or Level 2 financial instruments and there were no transfers between Level 1 or Level 2 financial instruments. Included in Other liabilities on the Consolidated Balance Sheet is a contingent consideration liability of $0 and $35 thousand at December 31, 2018 and 2017, respectively, is valued using a Monte Carlo simulation and includes unobservable inputs such as expected levels of revenues and discount rates. The liability was classified as level 3 within the fair value hierarchy. Changes in the unobservable inputs in the fair value measurement of this instrument could result in a significant change in the fair value measurement. There were no sales, settlements, purchases, issuances and/or transfers related to this level 3 instrument in 2018 or 2017. There were no other level 3 instruments.

4. Acquisitions

(a) Eliza Holding Corp.

On April 17, 2017, the Company completed the acquisition of 100% of the outstanding capital stock of Eliza, for a purchase price of $171.6 million funded with available liquidity of approximately 75% cash on hand and 25% from the Company’s existing credit line.

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The allocation of the purchase price to the fair value of the assets acquired and the liabilities assumed as of April 17, 2017, the effective date of the acquisition, is as follows (in thousands):

Cash and cash equivalents	$	435
Accounts receivable		8,902
Prepaid expenses		1,427
Property and equipment		1,146
Intangible assets		76,240
Goodwill		107,754
Other assets		63
Accounts payable		(2,620	)
Deferred tax liability		(19,681	)
Other liabilities		(2,057	)
Total purchase price	$	171,609

The purchase price allocated to the intangibles acquired was as follows (in thousands):

	Useful Life (in years)
Customer relationships		15	$	56,200
Intellectual property		6		19,600
Trade name		1.5		310
Restrictive covenants		1		130
Fair value of intangibles acquired			$	76,240

Acquisition costs recorded to selling, general and administrative expenses were as follows (in thousands):

Other operating expenses - consulting fees	$	3,515
Other operating expenses - legal fees		832
Other operating expenses - transaction costs		185
Acquisition-related costs	$	4,532

The financial results of Eliza’s operations since April 17, 2017 have been included in the Company’s consolidated financial statements. Eliza contributed $51.9 million and $30.4 million in revenue to HMS results of operations in the years ended December 31, 2018 and 2017, respectively.

(b) Essette

On September 2, 2016, the Company acquired the outstanding capital stock of Essette for a purchase price of $24.2 million funded by cash on hand. The immaterial results of Essette’s operations since September 2, 2016 have been included in the Company’s consolidated financial statements.

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5. Property and Equipment

Property and equipment consisted of the following (in thousands):

	December 31,
	2018			2017
Equipment	$	95,350		$	106,768
Leasehold improvements		7,547			8,357
Building		8,624			8,624
Building improvements		14,825			14,546
Land		2,769			2,769
Furniture and fixtures		9,404			10,352
Capitalized software		131,819			125,655
		270,338			277,071
Less: accumulated depreciation and amortization		(175,903	)		(178,490	)
Property and equipment, net	$	94,435		$	98,581

	December 31,
	2018		2017		2016
Depreciation and amortization expenses related to property and equipment	$	33,254	$	27,515	$	24,882

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6. Intangible Assets

Intangible assets consisted of the following (in thousands):

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2018
Customer relationships	$	156,790	$	(104,740	)	$	52,050	12.8
Trade names		16,246		(16,215	)		31	0.7
Intellectual property		21,700		(6,670	)		15,030	4.1
Restrictive covenants		263		(234	)		29	0.7
Total	$	194,999	$	(127,859	)	$	67,140

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2017
Customer relationships	$	159,290	$	(89,106	)	$	70,184	11.3
Trade names		16,246		(13,916	)		2,330	1.0
Intellectual property		21,700		(2,874	)		18,826	5.2
Restrictive covenants		263		(121	)		142	1.3
Total	$	197,499	$	(106,017	)	$	91,482

Amortization expense of intangible assets is expected to approximate the following (in thousands):

Year ending December 31,	Amortization
2019	$	9,195
2020		7,664
2021		7,197
2022		7,197
2023		4,822
Thereafter		31,065
Total	$	67,140

For the years ended December 31, 2018, 2017 and 2016, amortization expense related to intangible assets was $24.3 million, $22.6 million, and $20.2 million, respectively. In addition, during the year ended December 31, 2018, some of the intangible assets became fully amortized.

7. Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):

	December 31, 2018		December 31,  2017
Accounts payable, trade	$	12,394	$	19,330
Accrued compensation and other		42,833		24,072
Accrued operating expenses		19,675		18,498
Total accounts payable, accrued expenses and other liabilities	$	74,902	$	61,900

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8. Income Taxes

Income tax expense is as follows (in thousands):

	December 31,
	2018			2017			2016
Current tax expense:
Federal	$	2,965		$	17,008		$	16,274
State		(1,433	)		3,201			2,929
Total current tax expense:		1,532			20,209			19,203
Deferred tax expense (benefit):
Federal		(2,650	)		(19,425	)		(7,115	)
State		(854	)		(983	)		(253	)
Total deferred tax benefit:		(3,504	)		(20,408	)		(7,368	)
Total income tax expense (benefit)	$	(1,972	)	$	(199	)	$	11,835

A reconciliation of the income tax expense calculated using the applicable federal statutory rate to the actual income tax expense is as follows (in thousands):

	December 31,
	2018			%			2017			%			2016			%
Computed at federal statutory rate	$	11,134			21.0		$	13,949			35.0		$	17,315			35.0
State and local tax expense, net of federal benefit		2,367			4.5			2,226			5.6			2,448			5.0
Net permanent deduction and credit tax benefits from current year		(1,143	)		(2.2	)		(1,513	)		(3.8	)		(1,509	)		(3.1	)
Net permanent deduction and credit tax benefits from prior years		-			-			-			-			(6,213	)		(12.6	)
Net uncertain tax positions excluding current permanent deduction and credit benefits		(3,756	)		(7.0	)		(373	)		(0.9	)		-			-
Subsidiary basis write off		(3,423	)		(6.5	)		-			-			-			-
Equity compensation net tax windfall		(2,890	)		(5.5	)		-			-			-			-
State tax apportionment changes		(3,737	)		(7.0	)		-			-			-			-
Disallowed executive compensation		682			1.3			-			-			-			-
Tax Reform - revaluation of deferrals		-			-			(15,130	)		(38.0	)		-			-
Acquisition adjustments		(1,226	)		(2.3	)		(1,003	)		(2.5	)		-			-
Acquisition costs		-			-			697			1.7			203			0.4
Other, net		20			-			948			2.4			(409	)		(0.8	)
Total income tax expense	$	(1,972	)		(3.7	)	$	(199	)		(0.5	)	$	11,835			23.9

The Company’s effective tax rate decreased to (3.7%) for the year ended December 31, 2018 from (0.5%) for the year ended December 31, 2017, primarily from favorable tax benefits relating to current year credits, equity compensation, subsidiary basis write-off, prior year state apportionment changes, uncertain tax position releases and acquisition adjustments. The Company has no adjustments, to any previously recorded provisional amounts, relating to the Tax Cuts and Jobs Act which was enacted on December 22, 2017. During the year ended December 31, 2018 and in conjunction with the Settlement Agreement in Note 15 to the Consolidated Financial Statements, the Company determined that the common stock of its wholly owned subsidiary, Allied Management Group Special Investigation Unit, Inc. was worthless, resulting in the write off of basis for federal income tax purposes.

As a result of an analysis performed during 2016, the Company determined certain activities it performs qualify for (i) R&D Credits provided in IRC Section 41 and (ii) the Section 199 Deduction provided in IRC Section 199. As a result, the Company recognized net tax benefits during the year ended December 31, 2016 of $6.2 million for federal and state R&D Credits and the Section 199 Deduction relating to tax years 2012 through 2015.

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Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities are as follows (in thousands):

	December 31,
	2018		2017
Deferred tax assets:
Stock-based compensation	$	9,545	$	9,980
Goodwill and intangible assets		5,874		6,524
Allowance for doubtful accounts		3,537		3,822
Deferred rent		696		909
Tenant improvements		569		669
Estimated liability for appeals		5,632		7,775
Net operating loss carry-forwards		1,527		3,358
Tax credit carry-forwards		4,076		3,667
Property and equipment		49		256
Accrued expenses and other		7,839		3,615
Total deferred tax assets		39,344		40,575
Deferred tax liabilities:
Goodwill and intangible assets		43,400		48,186
Section 481(a) adjustment		5,073		7,413
Prepaid expenses		668		624
Capitalized software cost		8,688		6,341
Total deferred tax liabilities		57,829		62,564
Total net deferred tax liabilities	$	18,485	$	21,989

Included in Other liabilities on the Consolidated Balance Sheets, are the total amount of unrecognized tax benefits of approximately $4.8 million and $8.2 million as of December 31, 2018 and 2017, respectively, net of the federal benefit for state issues that, if recognized, would favorably affect the Company’s future effective tax rate. Also included in Other Liabilities on the Consolidated Balance Sheets, are accrued liabilities for interest expense and penalties related to unrecognized tax benefits of $0.7 million and $0.6 million as of December 31, 2018 and 2017, respectively. HMS includes interest expense and penalties in the provision for income taxes in the Consolidated Statements of Income. The amount of interest expense, net of federal and state income tax benefits, and penalties in the Consolidated Statements of Income for the years ended December 31, 2018, 2017, and 2016 was $0.1 million, $0.02 million and $0.2 million, respectively. The Company believes it is reasonably possible the amount of unrecognized tax benefits may decrease by $1.7 million during 2019, due to the expiration of the statute of limitations in various jurisdictions.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows (in thousands):

	2018			2017
Unrecognized tax benefits at January 1	$	8,234		$	7,433
Additions for tax positions taken during prior periods		399			599
Additions for tax positions taken during current period including amended prior years		360			1,174
Reductions relating to settlements with taxing authorities		(2,227	)		-
Reductions related to the expiration of statutes of limitations		(1,927	)		(972	)
Unrecognized tax benefits at December 31	$	4,839		$	8,234

The Company increased the provision for unrecognized tax benefits by $0.4 million during the year ended December 31, 2018, related to tax benefits recognized for current period R&D Credits. At December 31, 2018, HMS had federal and state pre-tax net operating loss and tax credit carryforwards of approximately $24.3 million and $4.1 million, respectively, which will be available to offset future taxable income. If not used, these net operating loss and tax credit carryforwards will begin to expire in 2020 and 2019, respectively. The Company files income tax returns with the U.S. Federal government and various state, territory, and local jurisdictions. HMS is no longer subject to U.S. Federal income tax examinations for years before 2013. The Company settled an audit by the Internal Revenue Service for years 2013 and 2014 which resulted in immaterial assessments and recognition of prior unrecognized tax benefits. HMS operates in a number of state, territory and local jurisdictions. Accordingly, HMS is subject to state, territory and local income tax examinations based upon the various statutes of limitations in each jurisdiction. Previously recognized Texas refund claims were examined by the state and resulted in a favorable apportionment method change for all open tax years.

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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 PI 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 estimated liability for appeals is as follows (in thousands):

	Original RAC contract			RAC 4 contract		Commercial contracts			Total
Balance at December 31, 2016	$	28,427		$	-	$	2,328		$	30,755
Provision		2,054			-		2,729			4,783
Appeals found in providers favor		(2,665	)		-		(2,086	)		(4,751	)
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

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.

The Company continues to assess the remaining CMS liability for the original Medicare RAC contract to determine management’s best estimate of liability for any findings which have been previously adjudicated prior to the expiration of the contract. Any future changes or modifications to the Medicare RAC contracts or to the Company’s commercial customer contracts 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.

10. Credit Agreement

In May 2013, we entered into the Credit Agreement with certain lenders and Citibank, N.A. as administrative agent. The Credit Agreement originally provided for an initial $500 million five-year revolving credit facility maturing on May 3, 2018.

On December 19, 2017, the Company entered into an amendment to the Credit Agreement, which, among other things, extended the maturity of its then existing revolving credit facility by five years to December 2022. The availability of funds under the amended revolving credit facility includes sublimits for (a) up to $50 million for the issuance of letters of credit and (b) up to $25 million for swingline loans. In addition, the Company may increase the commitments under its revolving credit facility and/or add one or more incremental term loan facilities, provided that such incremental facilities do not exceed in the aggregate the sum of (i) the greater of $120 million and 100% of Consolidated EBITDA (as defined in the Credit Agreement) and (ii) an additional amount so long as our first lien leverage ratio (as defined in the Credit Agreement) on a pro forma basis is not greater than 3.00:1.00, subject to obtaining commitments from lenders therefor and meeting certain other conditions.

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During the year ended December 31, 2018, no principal payments were made against the Company’s then existing revolving credit facility. As of December 31, 2018, the outstanding principal balance under the amended revolving credit facility was $240.0 million.

Borrowings under the Credit Agreement will bear interest at a rate equal to, at the Company’s election (except with respect to swingline borrowings, which will accrue interest based only at the base rate), either:

§ a base rate determined by reference to the greatest of (a) the prime or base commercial lending rate of the administrative agent as in effect on the relevant date, (b) the federal funds effective rate plus 0.50% and (c) the one-month LIBO Rate plus 1.00%, plus an interest margin ranging from 0.50% to 1.00% based on the Company’s consolidated leverage ratio for the applicable period; or

§ an adjusted LIBO Rate, equal to the LIBO Rate for the applicable interest period multiplied by the statutory reserve rate (equal to (x) one divided by (y) one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Board of Governors of the Federal Reserve System of the United States), plus an interest margin ranging from 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the applicable period.

In addition to paying interest on the outstanding principal, the Company is required to pay unused commitment fees on the revolving credit facility during the term of the Credit Agreement ranging from 0.375% to 0.250% per annum based on the Company’s consolidated leverage ratio and letter of credit fees equal to 0.125% per annum on the aggregate face amount of each letter of credit, as well as customary agency fees.

The Company’s obligations under the Credit Agreement are secured, subject to certain customary carve-outs and exceptions, by a first priority lien and security interest in substantially all tangible and intangible assets of the Company and certain subsidiaries of the Company. The Credit Agreement contains certain restrictive covenants, which affect, among other things, the ability of the Company and its subsidiaries to incur indebtedness, create liens, make investments, sell or otherwise dispose of assets, engage in mergers or consolidations with other entities, and pay dividends or repurchase stock. The Company is also required to comply, on a quarterly basis, with two financial covenants: (i) a minimum interest coverage ratio of 3:00:1:00, and (ii) a maximum consolidated leverage ratio of 4.75:1.00 through December 2019 and 4.25:1.00 from and after January 2020. The consolidated leverage ratio is subject to a step-up to 5.25:1.00 for four full consecutive fiscal quarters following a permitted acquisition or similar investment. As of December 31, 2018, the Company was in compliance with all terms of the Credit Agreement.

Interest expense and the commitment fees on the unused portion of the Company’s revolving credit facility are as follows (in thousands):

	Years ended December 31,
	2018		2017		2016
Interest expense	$	9,294	$	7,170	$	4,837
Commitment fees		1,189		1,359		1,518

The Company deferred $2.3 million of financing fees associated with the amendment. At December 31, 2018 and 2017, the unamortized balance of deferred financing costs was $2.2 million and $2.8 million, respectively. The Company amortized deferred financing costs of $0.6 million, $2.3 million and $2.1 million in the years ended December 31, 2018, 2017 and 2016.

As part of a contractual agreement with a customer, the Company has an outstanding irrevocable letter of credit for $6.5 million, which is issued against its revolving credit facility and expires June 30, 2019.

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11. Equity

(a) Share Repurchase

Following are the Company’s quarterly repurchases of shares of common stock for fiscal year 2018, all of which were made as part of publicly announced plans or programs:

Period	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
January 1, 2018 to March 31, 2018	383,801	$	15.50	383,801	$	29,933,055
April 1, 2018 to June 30, 2018	-		-	-		-
July 1, 2018 to September 30, 2018	-		-	-		-
October 1, 2018 to December 31, 2018	-		-	-		-
Total	383,801	$	15.50	383,801	$	29,933,055

(b) Preferred Stock

The Company’s certificate of incorporation, as amended, authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined by the Company’s Board of Directors. As of December 31, 2018, no preferred stock had been issued.

12. Employee Benefit Plan

The Company sponsors the 401(k) Plan for eligible employees. Eligible employees must complete 90 days of service in order to enroll in the 401(k) Plan. Participants may make voluntary contributions to the 401(k) Plan of up to 60% of their annual base pre-tax compensation not to exceed the federally determined maximum allowable contribution. In addition, the 401(k) Plan permits the Company to make discretionary contributions. During 2018, HMS matched 100% of the first 4% of pay contributed by each eligible employee and 50% of the next 1% of pay contributed. During 2017 and 2016, HMS matched 100% of the first 3% of pay contributed by each eligible employee and 50% on the next 2% of pay contributed. These matching contributions vest immediately and are not in the form of the Company’s common stock.

For the years ended December 31, 2018, 2017 and 2016, HMS contributed $7.3 million, $5.9 million and $4.8 million, respectively, to the 401(k) Plan in the form of matching contributions.

13. Stock-Based Compensation

Stock-Based Compensation Expense

Total stock-based compensation expense in the Company’s Consolidated Statements of Income related to the Company’s long-term incentive award plans was as follows (in thousands):

	Years ended December 31,
		2018		2017		2016
Cost of services-compensation	$	7,421	$	7,354	$	3,805
Selling, general and administrative		14,086		16,789		9,472
Total	$	21,507	$	24,143	$	13,277

The total tax benefits recognized on stock-based compensation for the years ended December 31, 2018, 2017 and 2016 was $9.1 million, $4.0 million and $4.1 million, respectively.

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Stock Options

Stock-based compensation expense related to stock options was approximately $9.6 million, $10.3 million and $6.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Presented below is a summary of stock option activity for the year ended December 31, 2018 (in thousands except for weighted average exercise price and weighted average remaining contractual terms):

	Number of Options			Weighted Average Exercise Price	Weighted Average- Remaining Contractual Terms		Aggregate- Intrinsic Value
Outstanding balance at December 31, 2017	5,554		$	17.35
Granted	1,010			19.58
Exercised	(2,017	)		19.14
Forfeitures	(114	)		17.74
Expired	(31	)		22.34
Outstanding balance at December 31, 2018	4,402			17.07	5.80	$	48,339
Expected to vest at December 31, 2018	1,481		$	18.60	8.22	$	14,119
Exercisable at December 31, 2018	2,370		$	15.87	3.83	$	29,068

As of December 31, 2018 and 2017, the Company had 1,999,069 and 2,372,682, respectively, in unvested options with a weighted-average-grant-date fair value of $7.27 and $6.39, respectively. The weighted-average-grant-date fair value per share of the stock options granted during the years ended December 31, 2018, 2017 and 2016 was $7.52, $7.66 and $5.55, respectively. The weighted-average-grant-date fair value per share of stock options vested during the year ended December 31, 2018 was $6.18. The weighted-average-grant-date fair value per share of the stock options forfeited during the years ended December 31, 2018, 2017 and 2016 was $6.86, $5.24 and $6.26, respectively.

HMS estimated the fair value of each stock option grant on the date of grant using a Black-Scholes option pricing model. Weighted–average assumptions are set forth in the following table:

	Year ended December 31,
		2018		2017		2016
Expected dividend yield		-		-		-
Risk-free interest rate		2.7	%	1.8	%	1.2	%
Expected volatility		42.4	%	44.2	%	44.0	%
Expected life (years)		6.0		5.0		4.9

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HMS estimated the fair value of 2017 and 2016 market condition option grants on the date of grant using a Monte-Carlo simulation model. There were no market condition awards granted in 2018. Assumptions are set forth in the following table:

	Year ended December 31,
		2018	2017		2016
Expected dividend yield		-	-		-
Risk-free interest rate		-	2.2	%	1.6	%
Expected volatility		-	52.5	%	40.5	%
Expected life (years)		-	6.5		4.9

During the years ended December 31, 2018, 2017 and 2016, the Company issued 2,017,442, 172,326 and 510,512 shares, respectively, of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of $38.3 million, $2.7 million and $2.9 million, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $27.6 million, $0.5 million and $6.3 million, respectively.

As of December 31, 2018, there was approximately $5.5 million of total unrecognized compensation cost related to stock options outstanding, which is expected to be recognized over a weighted average period of 0.9 years.

Restricted Stock Units

Stock-based compensation expense related to restricted stock units was $11.9 million, $13.8 million and $6.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Presented below is a summary of restricted stock units activity for the year ended December 31, 2018 (in thousands, except for weighted average grant date fair value per unit):

	Number of Units			Weighted Average Grant Date Fair Value per Unit
Outstanding balance at December 31, 2017		1,346		$	17.65
Granted		766			16.80
Vesting of restricted stock units, net of units withheld for taxes		(371	)		17.06
Units withheld for taxes		(163	)		17.06
Forfeitures		(90	)		17.31
Outstanding balance at December 31, 2018		1,488		$	17.60

 As of December 31, 2018, 1,259,003 restricted stock units remained unvested and there was approximately $9.2 million of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average vesting period of 0.87 years. During the years ended December 31, 2018, 2017 and 2016, the Company’s vested restricted stock units had a fair value $9.9 million, $9.5 million, and $6.8 million, respectively. The weighted average grant date fair value per share of the restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $17.06, $15.39 and $18.64, respectively. The weighted average grant date fair value per share of the restricted stock units forfeited during the years ended December 31, 2018, 2017 and 2016 was $17.31, $15.37 and $16.95, respectively.

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14. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

	Years ended December 31,
		2018		2017		2016
Net income	$	54,989	$	40,054	$	37,636
Weighted average common shares outstanding-basic		83,625		83,821		84,221
Plus: net effect of dilutive stock options and restricted stock units		2,519		1,808		2,766
Weighted average common shares outstanding-diluted		86,144		85,629		86,987
Net income per common share-basic	$	0.66	$	0.48	$	0.45
Net income per common share-diluted	$	0.64	$	0.47	$	0.43

For the years ended December 31, 2018, 2017 and 2016: (i) 804,959, 2,646,100 and 2,070,771 stock options, respectively, and (ii) restricted stock units representing 0, 31,155 and 46,651 shares of common stock, respectively, were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive.

15. Commitments and Contingencies

(a) Lease Commitments

The Company primarily leases office space but also leases information technology equipment and software licenses under operating leases that expire on various dates through 2026. Additionally, the Company has nominal capital leases. Total lease expense, net of office space sublease income for the years ended December 31, 2018, 2017 and 2016 was $3.6 million, $5.1 million and $5.0 million, respectively.

Minimum annual lease payments to be made under operating leases, net of $8.3 million office space sublease payments to be received, for each of the next five years ending December 31 and thereafter are as follows (in thousands):

	Operating Lease Payments
2019	$	5,778
2020		5,420
2021		3,742
2022		2,531
2023		2,236
Thereafter		2,947
Total	$	22,654

(b) Litigation

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 by HMS unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price for Allied Management Group Special Investigation Unit, Inc. (“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 asserted a counterclaim against Plaintiffs for breach of contract based on contractual indemnification costs, including attorneys’ fees arising out of the Company’s defense of AMG in Kern Health Systems v. AMG, Dennis Demetre and Lori Lewis (the “California Action”), which are recoverable under the SPA. In June 2016, Kern Health Systems and AMG entered into a settlement agreement that resolved all claims in the California Action. In July 2017, the Court issued a decision on the Company’s motion for partial summary judgment and granted the motion in part, dismissing one of Plaintiffs’ breach of contract causes of action against HMS. On November 3, 2017, following a jury trial, a verdict was returned in favor of the Plaintiffs on a breach of contract claim, and the jury awarded $60 million in damages to the Plaintiffs. On March 14, 2018, the Court held a hearing on the Company’s post-trial motion for an order granting it judgment notwithstanding the verdict or, alternatively, setting aside the jury’s award of damages. On June 27, 2018, prior to the Court issuing a decision on the motion, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the Plaintiffs, John Alfred Lewis and Christopher Brandon Lewis. Pursuant to the terms of the Settlement Agreement, the Company paid $20 million to resolve all matters in controversy pertaining to the lawsuit. On July 5, 2018, the Court entered an order to discontinue the lawsuit pursuant to the Stipulation of Discontinuance with Prejudice filed by the parties.

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In February 2018, the Company received a Civil Investigative Demand (“CID”) from the Texas Attorney General, purporting to investigate possible unspecified violations of the Texas Medicaid Fraud Prevention Act. The Company provided certain documents and information in March 2018 in response to the CID. HMS has not received any further requests for information in connection with this CID.

In September 2018, a former employee filed an action in the New York County Supreme Court entitled Christopher Frey v. Health Management Systems, Inc. alleging retaliation under New York law. The complaint seeks recovery of an unspecified amount of monetary damages, including back pay and other compensatory and equitable relief. The Company has moved to dismiss the complaint and the motion is currently under consideration by the Court. The Company continues to believe that this claim is without merit and intends to vigorously defend this matter.

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, employment-related matters and post-closing disputes related to acquisitions. 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. 

16. Customer Concentration

(a) Geographic Information

The Company operates within the United States.

(b) Major Customers

For the years ended December 31, 2018, 2017 and 2016 no one individual Company customer accounted for more than 10% of the Company’s total revenue.

(c) Concentration of Revenue

The composition of the Company’s ten largest customer’s changes periodically. For the years ended December 31, 2018, 2017 and 2016, the Company’s ten largest customers represented 41.4%, 39.5% and 40.6% of HMS’ total revenue, respectively. Excluding those contracts that contain automatic renewal provisions or evergreen terms, the Company’s agreements with the ten current largest customers generally expire between 2019 and 2026. In many instances, HMS provides services pursuant to agreements that may be renewed or subject to a competitive reprocurement process. Several of the Company’s contracts, including those with some of its largest customers, may be terminated for convenience.

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17. Subsequent Events

Annual Grants to Employees

On February 14, 2019, the Compensation Committee of the Board of Directors approved approximately $21.3 million in stock option and restricted stock unit awards to employees. The awards generally will vest over three years and will be issued three business days subsequent to the filing of this 2018 Form 10-K.

In connection with the preparation of our consolidated financial statements, an evaluation of subsequent events was performed through the date of filing and there were no other events that have occurred that would require adjustments to the financial statements or disclosure.

18. Quarterly Financial Data (Unaudited)

The table below summarizes the Company’s unaudited quarterly operating results for the last two fiscal years (in thousands, except per share amounts):

2018	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Year Ended
Revenue	$	141,425	$	146,791		$	154,246	$	155,828	$	598,290
Operating income	$	11,922	$	(763	)	$	24,231	$	27,848	$	63,238
Net income	$	6,391	$	(3,367	)	$	18,574	$	33,391	$	54,989
Net income per common share - basic	$	0.08	$	(0.04	)	$	0.22	$	0.40	$	0.66
Net income per common share - diluted	$	0.07	$	(0.04	)	$	0.22	$	0.38	$	0.64

2017	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year Ended
Revenue	$	113,733	$	133,313	$	125,673	$	148,493	$	521,212
Operating income	$	3,943	$	14,361	$	12,861	$	19,266	$	50,431
Net income	$	1,442	$	6,517	$	6,372	$	25,723	$	40,054
Net income per common share - basic	$	0.02	$	0.08	$	0.08	$	0.30	$	0.48
Net income per common share - diluted	$	0.02	$	0.08	$	0.07	$	0.30	$	0.47

(1) Second quarter 2018 results include the Company's entry into the Settlement Agreement for the payment of $20.0 million, as described in Note 15.

(2) Fourth quarter 2017 results include a non-cash tax benefit of $15.1 million due to the revaluation of the Company’s deferred tax balances pursuant to the tax rate reduction included in the 2017 Tax Act.

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SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2018, 2017 and 2016

Accounts receivable allowance and Estimated liability for appeals as of December 31, 2018, 2017 and 2016 are as follows:

Accounts receivable allowance (in thousands):

	Balance at Beginning of Year		Provision		Recoveries		Charge-offs			Balance at End of Year
Year ended December 31, 2016	$	11,464	$	21,583	$	108	$	(22,383	)	$	10,772
Year ended December 31, 2017		10,772		20,233		-		(16,206	)		14,799
Year ended December 31, 2018		14,799		20,453		-		(21,569	)		13,683

Estimated liability for appeals (in thousands):

	Balance at Beginning of Year		Provision		Appeals found in providers favor			Release of estimated liability			Balance at End of Year
Year ended December 31, 2016	$	12,801	$	721	$	(2,396	)	$	-		$	11,126
Year ended December 31, 2017		11,126		83		(2,665	)		-			8,544
Year ended December 31, 2018		8,544		-		(108	)		(8,436	)		-

The above chart represents the CMS estimated reserve liability only.

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EX-10.7

Exhibit 10.7

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is effective April 2, 2018 (the “Effective Date”), and is by and between HMS Holdings Corp., a Delaware corporation (“HMS”), and Emmet O’Gara, an individual (“you”) (and, together with HMS, the “Parties”) to provide services, as directed, to the entities comprising the “Company” (HMS and its respective subsidiaries and affiliates). This Agreement amends, restates and supersedes the Employment Agreement between you and the Company dated January 2, 2018 in its entirety (the “Prior Agreement”).

WHEREAS, the Company wishes to continue to employ you, and you wish to continue to be employed by the Company.

NOW THEREFORE, in consideration of your acceptance of employment pursuant to the terms set forth in this Agreement, the Parties agree to be bound by the terms contained in this Agreement as follows:

1.       Engagement. As of the Effective Date, HMS will continue to employ you as Executive Vice President, Total Population Management. You acknowledge that the Company organizes itself across multiple entities, and that assigning you to work directly for HMS or for one of its subsidiaries or affiliates will not, in and of itself, breach this Agreement. You will report directly to the Chief Executive Officer, or his or her designee (“Supervisor”). You will have the responsibilities, duties, and authorities specified from time to time by your Supervisor, which will generally be commensurate with executives, at a similar level, of entities of similar size and character to the Company. You also agree, if so requested, to serve as an officer and director of subsidiaries of HMS.

2.       Commitment. During the Employment Period (as defined in Section 3 below), you must devote your full working time and attention to the Company. During the Employment Period, you must not engage in any employment, occupation, consulting or other similar activity without your Supervisor’s prior written consent; provided, however, that you may (i) serve in any capacity with any professional, community, industry, civic (including governmental boards), educational, charitable, or other non-profit organization, (ii) serve on any for-profit entity board, with your Supervisor’s prior written consent, and (iii) subject to the Company’s conflict of interest policies, make investments in other businesses and manage your and your family’s personal investments and legal affairs; provided that any such activities described in clauses (i)-(iii) above do not materially interfere with the performance of your duties for the Company and do not otherwise violate this Agreement or any other written agreement between the Company and you. You will perform your services under this Agreement primarily at the Company’s offices in Danvers, Massachusetts, or at such place or places as you and the Company may agree. You understand and agree that your employment will require travel from time to time in a manner consistent with Company policy.

3.       Employment Period. The Company hereby agrees to continue to employ you and you hereby accept continued employment with the Company upon the revised terms set forth in this Agreement, for the period commencing on the Effective Date and ending when and as provided in Section 6 (the “Employment Period”).

4.       Compensation.

(a)       Base Salary. You will receive an annual base salary at a monthly rate of $33,333.33, annualizing to $400,000.00 (as may be adjusted under this Agreement, the “Base Salary”). The Company will pay your Base Salary periodically in arrears not less frequently than monthly in accordance with the Company’s regular payroll practices as in effect from time to time (which currently provide for bi-weekly payments). The Board of Directors of HMS (the “Board”) or its Compensation Committee (the “Compensation Committee”) will review your Base Salary periodically and may adjust your Base Salary at that time.

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(b)       Bonus. You will be eligible to receive bonus compensation (the “Bonus”) from the Company in respect of each fiscal year (or portion thereof) during the Employment Period, in each case as the Compensation Committee may determine in its sole discretion on the basis of such performance-based or other criteria as it determines appropriate. The target bonus for your position for 2018 is 65% of Base Salary, which will not be prorated. You must be an employee of the Company at the time bonuses are paid to receive a Bonus. The Compensation Committee will review your target bonus periodically and may adjust your target bonus at that time. The Bonus, if any, will be paid when other executives receive their bonuses under comparable arrangements.

(c)       Sign-On Bonus. Within 30 days after April 1, 2018, you will also receive a special bonus of $50,000.00 (the “Sign-On Bonus”). You agree that you will repay the Sign-On Bonus within 10 days after your employment ends if your employment ends before the first anniversary of the date you receive the Sign-On Bonus because of a termination for Cause, as defined below, or your resignation without Good Reason, as defined below.

5.       Employee Benefits.

(a)       Employee Welfare, Equity Compensation, and Retirement Plans. You will, to the extent eligible, be entitled to participate at a level commensurate with your position in all employee equity compensation plans and welfare benefit and retirement plans and programs the Company provides to its executives in accordance with the terms thereof as in effect from time to time. The Company may change or terminate the benefits at any time.

(b)       Business Expenses. Upon submission of appropriate documentation in accordance with Company policies, the Company will promptly pay, or reimburse you for, all reasonable business expenses that you incur in performing your duties under this Agreement, including travel, entertainment, professional dues and subscriptions, as long as such expenses are reimbursable under the Company’s policies. Any payments or expenses provided in this Section 5(b) will be paid in accordance with Section 7(c).

(c)       Paid Time Off. You will accrue paid time off (“PTO”) at the rate of 18 hours per month (annualized to 27 days per year), or such greater number as the Company determines from time to time for its senior executive officers, provided that any accrual caps, carryover from year to year, and payment for accrued and unused PTO upon termination of employment will be subject to the Company’s generally applicable policies.

6.       Termination of Employment.

(a)       General. Subject in each case to the provisions of this Section 6 and the other provisions of this Agreement relating to the Company’s respective rights and obligations upon termination of your employment, nothing in this Agreement interferes with or limits in any way the Company’s or your right to terminate your employment at any time, for any reason or no reason, with or without notice, and nothing in this Agreement confers on you any right or obligation to continue in the Company’s employ. If your employment ceases for any or no reason, you (or your estate, as applicable) will be entitled to receive (in addition to any compensation and benefits you may be entitled to receive under Section 6(b), (d) or (e) below): (i) any earned but unpaid Base Salary and, to the extent consistent with general Company policy, accrued but unused PTO through and including the date of termination of your employment, to be paid in accordance with the Company’s regular payroll practices and with applicable law, but no later than the next regularly scheduled pay period, (ii) unreimbursed business expenses in accordance with the Company’s policies for which expenses you have provided appropriate documentation, to be paid in accordance with Section 7(c), and (iii) any amounts or benefits to which you are then entitled under the terms of the benefit plans then sponsored by the Company in accordance with their terms (and not accelerated to the extent acceleration does not satisfy Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A” of the “Code”)). Notwithstanding any other provision in this Agreement to the contrary, you will be entitled to severance, if any, solely through the terms of this Section 6, unless another Board (or Compensation Committee) approved written agreement between you and the Company expressly provides otherwise.

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(b)       Termination Without Cause or Resignation With Good Reason. If, during the Employment Period, the Company terminates your employment without Cause (defined below) or you resign with Good Reason (defined below), in addition to the amounts described in Section 6(a), the Company will pay to you the following, subject to compliance with Section 6(b)(iii):

(i)       Cash Severance. The Company will pay to you in cash an amount equal to 12 times your monthly Base Salary, paid ratably in equal installments over a 12 month period beginning in the first payroll period following the Release Effective Date (as defined below) (or such later date required by Section 7) in accordance with the Company’s standard payroll policies and procedures and in a manner consistent with Section 7;

(ii)       Benefits. The Company will pay you a lump sum amount equal to 12 times the difference between the monthly COBRA coverage premium for the same type of medical and dental coverage (single, family, or other) in which you are enrolled as of the date your employment ends and your then-monthly employee contribution. This payment will be taxable and subject to withholding. You may use the amount received for any purpose.

(iii)       Release. To receive any severance benefits provided for under this Agreement or otherwise, you must deliver to the Company a separation agreement and general release of claims in the form the Company provides (releasing all releasable claims other than to payments under Section 6 or outstanding equity and including obligations to cooperate with the Company and reaffirming your obligations under the Restrictive Covenants Agreement (as defined below)), which agreement and release must become irrevocable within 60 days (or such earlier date as the release provides) following the date of your termination of employment. Benefits under Section 6(b)(i) and (ii) will be paid or commence in the first regular payroll beginning after the release becomes effective, subject to any delays required by Section 7; provided, however, that if the last day of the 60-day period for an effective release falls in the calendar year following the year of your date of termination, the severance payments will be paid or begin no earlier than January 1 of such subsequent calendar year. The date on which your release of claims becomes effective is the “Release Effective Date.” You must continue to comply with the Restrictive Covenants Agreement to continue to receive severance benefits.

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(c)       Termination for Cause, Resignation without Good Reason.

(i)       General.  If, during the Employment Period, the Company terminates your employment for Cause or you resign from your employment (other than for Good Reason), you will be entitled only to the payments described in Section 6(a), unless applicable law otherwise requires payment. You may resign from your employment (other than for Good Reason), at any time, by giving at least 30 days’ prior written notice to the Company (the “Notice Period”). The Company may choose to respond to such notice of resignation by limiting your access and reducing your duties during the Notice Period, in which event you would remain an employee of the Company through the remainder of the Notice Period and continue to receive your Base Salary, less applicable deductions, and continue vesting under any outstanding equity grants through the end of the Notice Period. You will have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as required by law.

(ii)       Cause. For purposes of this Agreement, “Cause” means any of the following: your (i) fraud with respect to the Company; (ii) material misrepresentation to any regulatory agency, governmental authority, outside or internal auditors, internal or external Company counsel, or the Board concerning the operation or financial status of the Company; (iii) theft or embezzlement of assets of the Company; (iv) your conviction, or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), or, with respect to your employment, to any misdemeanor (other than a traffic violation); (v) material failure to follow the Company’s conduct and ethics policies that have been provided or made available to you; (vi) material breach of this Agreement or the Restrictive Covenants Agreement; and/or (vii)  continued failure to attempt in good faith to perform your duties as reasonably assigned by your Supervisor at the time. Before terminating your employment for Cause under clauses (v) – (vii) above, the Company will specify in writing to you the nature of the act, omission, refusal, or failure that it deems to constitute Cause and, if the Company reasonably considers the situation to be correctable, give you 30 days after you receive such notice to correct the situation (and thus avoid termination for Cause), unless the Company agrees to further extend the time for correction. You agree that the Company will have discretion exercised in a reasonable manner to determine whether your correction is sufficient. Nothing in this definition prevents the Company from removing you from your position with the Company at any time and for any reason.

(iii)       Good Reason. For purposes of this Agreement, “Good Reason” means, the occurrence, without your prior written consent, of any of the following events: (i) any material diminution in your authority, duties or responsibilities with the Company; (ii) a requirement that you report to an officer other than your then current Supervisor if the result is that your new Supervisor has materially diminished authority, duties, or responsibilities in comparison with your prior supervisor; (iii) a material reduction in your Base Salary; (iv) the Company requiring you to perform your principal services primarily in a geographic area more than 50 miles from the Company’s offices in Danvers, Massachusetts (or such other place of primary employment for you at which you have agreed to provide such services); or (v) a material breach by the Company of any material provision of this Agreement. No resignation will be treated as resignation for Good Reason unless (x) you have given written notice to the Company of your intention to terminate your employment for Good Reason, describing the grounds for such action, no later than 90 days after the first occurrence of such circumstances, (y) you have provided the Company with at least 30 days in which to cure the circumstances, and (z) if the Company is not successful in curing the circumstance, you end your employment within 30 days following the cure period in (y). If the Company informs you that it will not treat your resignation as for Good Reason, you may withdraw the resignation and remain employed (provided that you do so before the original notice of resignation becomes effective) or may proceed and dispute the Company’s decision.

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(d)       Death or Disability. Your employment hereunder will terminate immediately upon your death or Disability. “Disability” means the Chief Executive Officer, in consultation with the Chairman of the Compensation Committee or the Board, based upon appropriate medical evidence, determines you have become physically or mentally incapacitated so as to render you incapable of performing your usual and customary duties, with or without a reasonable accommodation, for 180 or more days, whether or not consecutive, during any 12 month period. You are also disabled if you are found to be disabled within the meaning of the Company’s long-term disability insurance coverage as then in effect (or would be so found if you applied for the coverage or benefits). Employment termination under this subsection is not covered by Section 6(b) or 6(c), and you or your heirs will receive only the benefits and compensation in Section 6(a) (together, as applicable, with any life or disability insurance payments). Nothing in this Section 6(d) prevents the Company from removing you from your position with the Company or, under Section 6(b) or 6(c), from terminating your employment at any time, subject to compliance with those subsections.

(e)       Change in Control. If, within 24 months following a Change in Control, the Company terminates your employment without Cause or you resign for Good Reason, in addition to the benefits described in Section 6(b)(ii) and subject to the release required under Section 6(b)(iii), you will receive the cash severance described in Section 6(b)(i), paid in a single lump sum on the Release Effective Date in accordance with the Company’s standard payroll policies and procedures (or such later date as either Section 6(b)(iii) or 7(a) requires). For purposes of this Agreement, “Change in Control” means:

(i)       the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”) (a “Person”) of beneficial ownership of any capital stock of HMS if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) 50.01% or more of either (x) the then-outstanding shares of common stock of HMS (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of HMS entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i) any acquisition directly from the Company will not be a Change in Control, nor will any acquisition by any individual, entity, or group pursuant to a Business Combination (as defined below) that complies with subclauses (x) and (y) of clause (ii) of this definition;

(ii)       the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving HMS or a sale or other disposition of all or substantially all (i.e., in excess of 85%) of the assets of HMS (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then- outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include a corporation that as a result of such transaction owns HMS or substantially all of HMS’s assets either directly or through one or more subsidiaries (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person beneficially owns, directly or indirectly, 50.01% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or

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(iii)       a change in the composition of the Board that results, during any one year period, in the Continuing Directors (as defined below) no longer constituting a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to HMS), where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; provided that, where required by Section 409A, the event that occurs is also a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” as defined in Treasury Reg. § 1.409A-3(i)(5).

(f)       Further Effect of Termination on Board and Officer Positions. If your employment ends for any reason, you agree that you will cease immediately to hold any and all officer or director positions you then have with the Company, absent a contrary direction from the Board (which may include either a request to continue such service or a direction to cease serving upon notice). You hereby irrevocably appoint the Company to be your attorney-in-fact to execute any documents and do anything in your name to effect your ceasing to serve as a director and officer of the Company, should you fail to resign following a request from the Company to do so. You will not be required to sign, and the Company will not sign on your behalf without your consent, documents effecting your ceasing to serve as a director that characterize your cessation of employment differently than the manner in which it is effected through Section 6 above. A written notification signed by a director or duly authorized officer of the Company that any instrument, document, or act falls within the authority conferred by this subsection will be conclusive evidence that it does so. The Company will prepare any documents, pay any filing fees, and bear any other expenses related to this Section 6(f).

7.       Effect of Section 409A of the Code.

(a)       Six Month Delay. If and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your “separation from service” (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the “New Payment Date”). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule.

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(b)       General 409A Principles. For purposes of this Agreement, a termination of employment will mean a “separation from service” as defined in Section 409A. For purposes of this Agreement, each amount to be paid or benefit to be provided will be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the “short term deferral period” as defined in Section 409A or are paid in a manner covered by Treas. Reg. Section 1.409A-1(b)(9)(iii) will not be treated as deferred compensation unless applicable law requires otherwise. Neither the Company nor you will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A. This Agreement is intended to comply with the provisions of Section 409A and this Agreement shall, to the extent practicable, be construed in accordance therewith. Terms defined in this Agreement will have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, the Company makes no representations or warranty and will have no liability to you or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Code Section 409A but not to satisfy the conditions of that section.

(c)       Expense Timing. Payments with respect to reimbursements of business expenses will be made in the ordinary course in accordance with the Company’s procedures (generally within 45 days after you have submitted appropriate documentation) and, in any case, on or before the last day of the calendar year following the calendar year in which the relevant expense is incurred. The amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year. The right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

8.       Restrictive Covenants. You have previously signed a Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the “Restrictive Covenants Agreement”), which addresses your responsibilities to the Company in connection with confidentiality, transfer and protection of intellectual property, noncompetition, nonsolicitation of employees and customers, and nondisparagement. You agree that the Restrictive Covenants Agreement remains in effect and shall survive the termination of this Agreement and termination of your employment with the Company.

9.       Cooperation. Following your separation of employment from the Company, you agree to cooperate with the Company in regard to the transition of the business matters you handled on behalf of the Company. You also agree to reasonably cooperate with the Company and its counsel in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate in any way to events or occurrences that transpired while you were employed by the Company, subject to your right to initiate communications with, or participate or cooperate in any investigation conducted by, any Federal, State or Local government agency or regulatory authority. Your cooperation in connection with such claims or actions will include, but not be limited to, participating in interviews and discussions with the Company and/or its counsel, meeting with the Company’s counsel to prepare for discovery, trial, or any legal proceeding, appearing and preparing for deposition or testimony at trial, and otherwise cooperating with HMS and its legal counsel, as requested. Nothing in this Agreement is to be construed as instructing you to testify in any particular manner, other than truthfully. To the extent possible, the Company will provide you with reasonable advance notice of the request for your cooperation. The Company will reimburse you for all reasonable, pre-approved out-of-pocket costs and expenses (but not including attorneys’ fees and costs) that you incur, and compensate you at an hourly rate based on the base salary paid to you at the time of your separation (which is intended to be a fair and reasonable estimate of the total value of your lost time) in connection with your performance of your obligations under this paragraph of the Agreement, to the extent permitted by law.

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10.       Miscellaneous.

(a)       Notices. All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service in the case of notice to the Company at its then principal headquarters, and in the case of notice to you to the current address on file with the Company. Notice to the Company must include a separate notice to the General Counsel of HMS. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 10(a).

(b)       No Mitigation. You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement, nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.

(c)       Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.

(d)       Severability. Each provision of this Agreement must be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.

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(e)       Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance; provided, however, that if such an assignment provides a basis for you to resign for Good Reason after a Change in Control, you may resign for Good Reason, and you will be entitled to severance, if any, subject to the terms of Section 6. You specifically agree that any assignment may include rights under the Restrictive Covenants Agreement without requiring your consent; provided, however, that an assignment that occurs after the termination of your employment will not expand in any manner the scope of the Restrictive Covenants Agreement. As used herein, “successor” will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. Any attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder will be null and void.

(f)       No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and any executive officer of the Company (other than you) duly authorized either by the Board or the Compensation Committee.

(g)       No Conflict of Interest. You confirm that you have fully disclosed to the Company, to the best of your knowledge, all circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.

(h)       Other Agreements. You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or hinder your performance of duties and obligations under this Agreement.

(i)       Disclosure of this Agreement. You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Restrictive Covenants Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose the entire Agreement, or any portion thereof, to satisfy applicable laws and regulations.

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(j)       Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.

(k)       Withholding. The Company will be entitled to withhold, or cause to be withheld, any amount of federal, state, city or other withholding taxes or other amounts either required by law or authorized by you with respect to payments made to you in connection with your employment or the termination of your employment.

(l)       Company Policies. References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.

(m)       Governing Law; Dispute Resolution. The Parties agree that the enforcement of this Agreement shall be governed by the Federal Arbitration Act (“FAA”), 9 U.S.C. §1 et seq. The laws of the State of Texas and the National Rules (as defined below) shall apply to the interpretation of this Agreement, pursuant to section 2 of the FAA. The laws of the State of Texas shall govern the substantive merits of any legal dispute set forth herein, without regard to conflicts of law provisions. In case of any controversy or claim arising out of or related to this Agreement or relating to your employment or the termination of your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the dispute (including the arbitrability of the dispute itself, and the formation or enforceability of this Agreement) shall be settled by arbitration under the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures (the “National Rules”). A single arbitrator shall be selected in accordance with the National Rules. The dispute will be arbitrated in Danvers, Massachusetts, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 10(m) (other than as provided under the Restrictive Covenants Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 10(m) shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. The following claims are not covered by this Section 10(m): (1) claims for workers’ compensation or unemployment compensation benefits; (2) administrative charges to any federal, state or local equal opportunity or fair employment practices agency; (3) administrative charges to the National Labor Relations Board; (4) agency charges or complaints to exhaust an administrative remedy; or (5) any other charges filed with or communication to a federal, state or local government office, official or agency. Also not covered by this Section 10(m) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions (“equitable relief”) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Restrictive Covenants Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the State of Texas. Each party will pay for its own costs and attorneys’ fees, if any, provided that the arbitrator or court, as applicable, may award reasonable costs and expenses in favor of the prevailing party. The Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith will be made in the sole discretion of the arbitrator or, if applicable, the court.

Employment Agreement (Emmet O’Gara) – Page 10

Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration above must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas), and the Company and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under Section 10(a); and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.

(n)       Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to “include” or “including” should be read as though they said “without limitation” or equivalent forms.

(o)       Entire Agreement. This Agreement and any documents referred to herein, including, but not limited to, the Restrictive Covenants Agreement referenced in Section 8, represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you, including, without limitation, the Prior Agreement.

(p)       Counterparts. This Agreement may be executed in counterparts, and all so executed shall constitute one agreement which shall be binding upon all Parties hereto, notwithstanding that all Parties’ signatures do not appear on the same page.

[Signatures on Following Page(s)]

Employment Agreement (Emmet O’Gara) – Page 11

IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date set forth above.

HMS Holdings Corp.

By:	/s/ William C. Lucia	3/29/2018
	William C. Lucia	Date
Its:	Chairman, President and Chief Executive Officer
	Emmet O’Gara
	/s/ Emmet O’Gara	4/2/2018
		Date

Employment Agreement (Emmet O’Gara) – Page 12

EX-10.9

Exhibit 10.9

SEPARATION, WAIVER AND GENERAL RELEASE AGREEMENT

This Separation, Waiver and General Release Agreement (referred to herein as “Agreement” or “Release”) is entered into by and between Semone Neuman (referred to herein as “You” or “Releasor”) and HMS Holdings Corp. For purposes of this Agreement, the term “Company” shall refer to HMS Holdings Corp. and its corporate affiliates and their respective direct and indirect subsidiaries and successors and assigns. The Company, together with its past and present parents, subsidiaries, affiliates, shareholders, owners, partners, members, officers, directors, representatives, employees, agents, counsel, successors and assigns, benefit plans, benefit plan trustees and administrators are referred to collectively herein as the “Releasees.” You and the Releasees shall be referred to collectively herein as the “Parties” and individually as a “Party.”

WHEREAS, the Parties previously entered into that certain Amended and Restated Executive Employment Agreement, effective April 2, 2018 (the “Employment Agreement”), pursuant to which the Company has employed you as its Executive Vice President, Coordination of Benefits;

WHEREAS, your employment with the Company will end as of March 16, 2019 (the “Separation Date”); and

WHEREAS, in accordance with Section 6(b) of the Employment Agreement, the Company desires to offer you this Agreement in exchange for certain agreements, warranties, representations and releases on your part contained in this Agreement;

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

1.Nature of Agreement and Non-Admission of Liability

This is an agreement of settlement and compromise, and by entering into this Agreement none of the Parties agree or concede in any manner whatsoever that they violated any law or statute of any jurisdiction, breached any duty, responsibility or contract, or acted improperly in any manner. It is understood and agreed that nothing in this Agreement shall be interpreted or construed as the admission of any wrongdoing by any or all the Releasees or by any person or entity acting for or on behalf of any or all of the Releasees.

2.End of Releasor’s Employment

You agree that, effective as of January 9, 2019, you will resign from your position as Executive Vice President, Coordination of Benefits of the Company and from all other employee, officer, director, manager, and other positions and associations of any kind with the Company; provided, however, that your employment with the Company shall not terminate until the Separation Date. You agree to execute all documents and to take such further steps as may be required to effectuate such resignation(s). You agree that during the period commencing on the Effective Date (as defined in paragraph 14 below) and ending on the Separation Date, you shall assist with the transition of your current duties and responsibilities, to the extent requested by the Company’s Chief Executive Officer. The Company shall continue to employ you until the Separation Date, and your salary and all benefits will remain unchanged until such date; provided, however, that you shall no longer have any leadership or decision-making authority or take any actions, execute any documents, or make any representations on behalf of the Company. You agree that your services shall be available to the Company as needed through the Separation Date and will be subject to the same policies, standards of conduct and performance applicable to all officers and managers of the Company. From the date hereof and until the Separation Date, you shall serve as a senior advisor to the Company, and you agree to (a) cooperate fully and provide assistance, at the request of the Company and upon reasonable notice, in the orderly transitioning of your duties and responsibilities to such other persons as the Company shall designate and (b) thoroughly and diligently perform those duties and actions which are necessary or appropriate to cause such orderly transition. You acknowledge and agree that you shall receive no additional compensation for time spent assisting the Company pursuant to this paragraph 2 other than the compensation and benefits provided for in this Agreement. You agree that this Agreement fully supersedes any and all prior agreements relating to your employment with the Company, including, without limitation, the Employment Agreement (other than the Surviving Provisions and other than the Restrictive Covenant Agreement (each as defined below)).

3.No Further Monies are Due to You; Non-Waiver of Certain Rights

Other than the monies to be paid pursuant to paragraph 4, there are no other monies that you claim are owed to you which relate in any way to your employment with the Company. This includes, but is not limited to, salaries, bonuses, commissions, wages, reimbursable business expenses or contributions to employee benefit plans, vacation or severance pay. Nothing herein shall be construed or interpreted in any way to: (a) limit or deny your right to receive any vested employee benefit under a plan of the Company for which you were or are a participant; (b) alter your right to elect continued coverage of benefits pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any state equivalent law; or (c) limit your ability to seek and/or collect unemployment insurance benefits (assuming you otherwise qualify for such benefits).

4.Consideration

A.Prior to the Separation Date, you shall continue to receive your base salary, less all applicable payroll taxes and withholdings, in accordance with the Company’s normal payroll practices, and other benefits as in effect immediately prior to the Effective Date, including, without limitation, continued eligibility to receive a bonus pursuant to the Company’s annual bonus plan with respect to the 2018 performance period.

B.Provided that you comply with this Agreement, the Restrictive Covenant Agreement and the Surviving Provisions, do not revoke your signature on this Agreement (as discussed in paragraph 15), and execute the attached Exhibit B on (but not before) the Separation Date, or within seven (7) days following the Separation Date, and do not revoke it, the Company shall (on behalf of the Releasees) provide you with the following consideration after your termination of employment:

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(i)The Company will pay you an amount equal to twelve (12) times your monthly base salary (the “Separation Payment”), provided you have not secured another position with the Company. The Separation Payment shall be paid to you in bi-weekly payments, beginning on the first full payroll period after the expiration of the revocation period set forth in paragraph 15 of this Agreement. Payments of the Separation Payment will be made on the Company’s normal payroll cycle in accordance with the Company’s regular payroll practices, and are subject to all statutory deductions required by federal, state and/or local law. Payments will be reported on a tax Form W-2.

(ii)The Company will pay you a lump-sum amount equal to the difference between the COBRA coverage premium for the same type of medical, dental and vision coverage (single, family or other) in which you are enrolled as of the Separation Date and your employee contribution, which represents the amount the Company would allocate for such coverage had your coverage remained active for twelve (12) months. This payment will be made within sixty (60) days of the termination of your employment and will be taxable and subject to withholding for all required federal, state and/or local income and employment taxes. You will be responsible for ensuring the timely payment of your COBRA coverage premiums.

The Company shall have no obligation to pay the amounts or to provide the benefits described in this paragraph 4(B) unless you execute and do not revoke this Agreement and Exhibit B. The amounts payable pursuant to this paragraph 4(B) shall not be treated as compensation under the Company’s 401(k) or other retirement plan. You acknowledge and agree that you are not otherwise entitled to the amounts and benefits set forth in this paragraph 4(B).

C.Even if you choose not to sign this Agreement, or if you sign this Agreement and then revoke your signature (as explained below), you will still be paid your regular salary through the Separation Date and your accrued but unused PTO, if any, for the calendar year in which the Separation Date occurs.

5.Return of Company Property

On or before the Separation Date, you shall return to the Company all Company property in your possession, custody or control, including all keys, files, records, equipment (including computer hardware, software, printers, wireless handheld devices, cellular phones, etc.), and Company Confidential Information (as defined in paragraph 10(E)) and have left intact with, or delivered intact to, the Company all electronic Company documents, including those that you developed or helped to develop during your employment, none of which you will retain in any form or medium.

6.Release

In exchange for the consideration provided by the Company under the terms of this Agreement in paragraph 4(B), you irrevocably and unconditionally release and discharge the Releasees jointly and severally, from any and all debts, claims, liabilities, demands and causes of action of every kind, nature and description, in law, or in equity, which against the Releasees, you, your heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of time to the date you sign this Agreement. You represent that you have not assigned or otherwise transferred any interest in any claim that is the subject of this Agreement.

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This Release covers, without limitation, any claims of harassment and/or discrimination on the basis of sex, sexual orientation, gender identification, pregnancy, disability (including claims concerning a history or record of a disability, predisposing genetic condition, and claims that you were regarded as having a disability), handicap, genetic information, race, color, religion, creed, national origin, ancestry, age, citizenship, ethnic characteristics, marital status or military/veteran status and also includes, no matter how denominated or described, any claims under any federal, Texas, South Carolina (or other state) state or local law, statute, rule, regulation, ordinance or executive order of discrimination and/or retaliation and non-payment of wages, bonuses, commissions or other compensation, including, without limitation, the Age Discrimination in Employment Act of 1967 (“ADEA”), Older Workers Benefit Protection Act, Employee Retirement Income Security Act of 1974, Title VII of the Civil Rights Act of 1964, Civil Rights Act of 1866, The Civil Rights Act of 1991, Rehabilitation Act of 1973, Executive Order 11246, Executive Order 11141, Genetic Information Nondiscrimination Act of 2008, Americans with Disabilities Act of 1990 (“ADA”), ADA Amendments Act, Family and Medical Leave Act, Occupational Safety and Health Act, Fair Labor Standards Act, Worker Adjustment and Retraining Notification Act, Fair Credit Reporting Act, Texas Labor Code Annotated § 21.001 et seq. (Texas civil rights law), Texas Labor Code Annotated § 21.055 et seq. (Texas whistleblower protection law), Texas Commission on Human Rights Act, Texas Law on Communicable Diseases, Texas Breast-Feeding Rights and Policies Law, the South Carolina Human Affairs Law, as amended, the South Carolina Payment of Wages Law, as amended, and all other federal, state and local laws, including without any limitation, any claims of wrongful or tortious discharge or termination, breach of contract, breach of the implied covenant of good faith and fair dealing, written or oral, express or implied, breach of promise, public policy, negligence, intentional infliction of emotional distress, negligent infliction of emotional distress, assault, battery, false imprisonment, defamation, libel, slander, invasion of privacy, impairment of economic opportunity, loss of business opportunity, fraud, misrepresentation, and whistleblower activities, and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local law, statute, rule, regulation, ordinance or executive order not expressly referenced above.

This Release does not apply to any claims or rights that may arise after the date you sign this Release. Excluded from this Release are any claims which cannot be waived by law, including but not limited to, the right to participate in an investigation conducted by certain government agencies. You do, however, waive your right to any monetary recovery from the Company or the Releasees should any agency (e.g., the Equal Employment Opportunity Commission) pursue any claims on your behalf, unless otherwise prohibited by law. You represent and warrant that you have not filed any complaint, charge, or lawsuit against the Company with any government agency or any court.

You agree never to sue the Company or the Releasees in any forum for any claim covered by the above waiver and release language, except that you may bring a claim against the Company under the ADEA to challenge this Release. If you violate this Release by suing the Company or the Releasees, other than under the ADEA or as otherwise set forth above, you shall be liable to the Company and/or the Releasees for their reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit. Nothing in this Release is intended to reflect any party’s belief that your waiver of claims under ADEA is invalid or unenforceable, it being the interest of the Company and you that such claims are waived.

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The Parties intend this Release to be construed and interpreted to the fullest extent permitted by law as a general release. The terms of this Agreement are accepted by you as full and complete resolution, accord and satisfaction of any and all claims, demands or grievances you have made against, and/or could have made against any of the Releasees.

7.Acknowledgements

You acknowledge that you have no knowledge of any violations by the Company of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Fair Debt Collection Practices Act, the civil or criminal provisions of the federal False Claims Act, the Civil Monetary Penalties Statute, Titles XVIII and XIX of the Social Security Act (the Medicare and Medicaid statutes), the Health Care Benefit Program False Statements Statute, the Health Care Fraud Statute, any and all of the statutory provisions referenced in the Federal Health Care Offense Definitions Statute, or any other federal or state laws relating to negligence, fraud and abuse in health care (collectively, the “Health Care Laws”), or the Sarbanes Oxley Act. You have received instruction from the Company on how to report claims or violations under the Health Care Laws and the Sarbanes Oxley Act, and as of the date of executing this Agreement, have no claims to report under the Health Care Laws or the Sarbanes Oxley Act. You further certify that you have not reported to any government authority or other entity any such healthcare compliance concerns, issues, and/or violations or potential violations, which remain unanswered or unresolved. Furthermore, in connection with the foregoing acknowledgements, you have signed the Corporate Compliance Statement - Return of Company Property & Information document, attached to this agreement as Exhibit A, and hereby affirm the representations therein.

8.Non-Waiver or Release of Subsequent Rights or Claims

Nothing contained herein is intended to or shall constitute a waiver or release of any rights or claims that arise after the date you sign this Agreement.

9.Non-Waiver of Rights Under this Agreement

Nothing herein is intended to or constitutes a waiver of any rights the Parties may have under this Agreement.

10.Representations and Warranties

As a material part of this Agreement, you make the following representations and warranties:

A.You have not commenced or asserted an administrative charge or complaint, and you have not commenced or asserted, and shall not commence or assert, any lawsuit, arbitration, claim or legal proceeding, against any or all of the Releasees that is designed to remedy or seek redress for any right or rights waived and/or released by this Agreement.

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B.You agree to keep confidential all information relating to this Agreement, including its negotiation, terms and existence. You may communicate or publish any information relating to this Agreement to your immediate family (defined herein as parents, siblings, parents-in-law, spouse, domestic partner or children), legal and financial representatives, and tax preparer. Before such information is disclosed by you to any such person(s), however, you shall advise such person(s) that the information they will receive is to be kept confidential, and such person(s) must agree to maintain the confidentiality of the information they receive.

C.You are not aware of any facts or circumstances suggesting that the Company has engaged in any wrongful or unlawful conduct.

D.Non-Disparagement

You will not make or cause to be made or published any statement, written or oral, directly or indirectly, which is intended to or has the effect of having any negative impact on the Company, its business or reputation in the marketplace or otherwise, subject to your rights in paragraph 10(G).

E.Surviving Provisions; Confidentiality

You acknowledge and agree to honor and abide by your obligations under Section 8, Section 9, and Section 10 of the Employment Agreement (such sections of the Employment Agreement are referred to herein as, the “Surviving Provisions”, and shall survive the termination of your employment with the Company and the Employment Agreement and shall remain in full force and effect). You further acknowledge that as a condition of your employment with the Company, you previously entered into a Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the “Restrictive Covenant Agreement”), a copy of which is being provided to you with this Agreement, and the provisions of which are incorporated herein by reference. You agree that the terms of the Restrictive Covenant Agreement and the Surviving Provisions shall continue by their own terms in full force and effect. You agree that the terms of the Restrictive Covenant Agreement and the Surviving Provisions are reasonable and that the consideration set forth in this Agreement shall also be considered additional consideration for your ratification of the Restrictive Covenant Agreement and the Surviving Provisions. In addition, you acknowledge your duty to keep confidential Protected Health Information within the meaning of federal HIPAA regulations, including, but not limited to, any patient-specific information derived from medical or financial records or from electronic data files used in Company’s business operations. Under the terms of this Agreement, the restrictive covenants and confidentiality obligations to the Company survive the execution of this Agreement. You acknowledge that your adherence to the terms of the Restrictive Covenant Agreement, the Surviving Provisions, and compliance with your above-referenced obligations to keep confidential Protected Health Information within the meaning of federal HIPAA regulations is important to the Company’s business. You agree to familiarize yourself with the provisions of the Restrictive Covenant Agreement, the Surviving Provisions, and the federal HIPAA regulations, as your violation of these confidentiality obligations may subject you to liability.

You further acknowledge and agree that you have a common law duty of confidentiality to the Company that prevents you from using the Company’s confidential information during or after employment, except on the Company’s behalf. You agree that you will not disclose to any person or entity any Confidential Information relating to the Company or its past or present partners, shareholders, owners, officers, directors or employees. For the purposes of this Agreement, the term Confidential Information shall mean information not in the public domain relating to the Company’s past or present clients, business processes or methods, its trade secrets, marketing, promotional, public relations or other plans, or other information involving the Company; the Company’s financial, payroll or wage information; or any personal matters of any partner, shareholder, owner, officer, director or employee of the Company.

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F.Nothing in this Agreement, including paragraphs 10(A) through 10(E), shall be construed to prevent you (or any of the Releasees) from testifying truthfully, under oath, about any matter, if required to do so in any legal proceeding.

G.Nothing in this Agreement shall be construed to limit your right to initiate communications with, or participate or cooperate in any investigation conducted by, any federal, state or local government agency or regulatory authority, even if the subject matter of the communication or investigation concerns a right, claim or matter waived or released by this Agreement.

H.Nothing in this Agreement prohibits you from reporting possible violations of state or federal law or regulation to any government agency, regulator, or legal authority, or making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. You are not required to notify the Company that you have made any such reports or disclosures; provided, however, that nothing herein authorizes the disclosure of information you obtained through a communication that was subject to the attorney-client privilege, unless disclosure of the information would otherwise be permitted by an applicable law or rule. Further, pursuant to the Defend Trade Secrets Act: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret as defined in the Economic Espionage Act that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.”

I.Nothing in this Agreement shall be construed to release or waive any claim that may not be released or waived by law.

J.You understand and agree that you shall not after your Separation Date contact or communicate with employees of the Company, other than the Company’s Executive Vice President, General Counsel, its Executive Vice President, Chief Administrative & Human Resources Officer, or a member of the Company’s Human Resources department, with regard to the subject matter of this Agreement. Nothing herein shall preclude you from discussing in general terms your duties and responsibilities while at the Company.

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K.You acknowledge that you have no entitlement to severance pay or any benefit resulting from your termination. You further understand that your receiving the consideration set forth in this Agreement is conditional upon your signing this Agreement. You acknowledge that the Separation Payment to be made to you under this Agreement is in addition to anything of value to which you are already entitled.

11.Cooperation

Following the Separation Date, you agree to cooperate with the Company in regard to the transition of the business matters you handled on behalf of the Company. You also agree to reasonably cooperate with the Company and its counsel in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate in any way to events or occurrences that transpired while you were employed by the Company, subject to your rights in paragraph 10(G) above. Your cooperation in connection with such claims or actions will include, but not be limited to, being available to meet with the Company’s counsel to prepare for discovery, trial, or any legal proceeding, and to act as a witness on behalf of the Company at mutually convenient times. The Company will reimburse you for all reasonable, pre-approved out-of-pocket costs and expenses (but not including attorneys’ fees and costs) that you incur and compensate you at an hourly rate based on the base salary paid to you at the time of your separation (which is intended to be a fair and reasonable estimate of the total value of your lost time and is not intended to influence or in any way alter the substance of any testimony you may provide) in connection with your performance of your obligations under this paragraph of the Agreement, to the extent permitted by law.

12.Remedy in the Event of a Breach

In the event you breach any portion of this Agreement, you shall immediately, upon written demand, return to the Company all monies paid to you pursuant to this Agreement (except the payment(s) set forth in paragraphs 4(A) and (C)), and the Company shall retain all rights to pursue legal and equitable remedies to: (a) enforce the terms of this Agreement, and/or (b) seek damages for any breach.

13.Additional Representations

By signing this Agreement, you further acknowledge, understand, and agree that by signing this Agreement, you are knowingly and voluntarily agreeing to waive and release, among other claims, any and all claims under the ADEA and the Older Workers Benefit Protection Act you have had or may have against the Company and/or the Releasees. Further, you understand and agree that:

A.You will have a period of twenty-one (21) calendar days from the date you receive this Agreement to review and deliberate whether or not to sign it, any or all of which period you may waive;

B.You are hereby advised to consult with an attorney before executing this Agreement;

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C.You have carefully read and understand the terms of this Agreement, and have had a full and fair opportunity to review this Agreement with an attorney of your choice;

D.You have signed this Agreement freely and voluntarily and without fraud, duress or coercion and with full knowledge and understanding of its terms and of its significance and consequences and of the rights relinquished, surrendered, released and discharged hereunder; and

E.The only consideration for signing this Agreement is stated herein, and no other promise, agreement or representation of any kind has been made to you by any person or entity whatsoever to cause you to sign this Agreement.

14.Manner of Acceptance

In order to accept the terms of this Agreement, you must return a signed copy to the Company (at the address set forth in paragraph 16 hereof) by the twenty-first (21^st) calendar day after the date you receive this Agreement. In the event a timely acceptance is made, and you do not revoke your signature pursuant to paragraph 15, the Company shall provide the consideration described in paragraph 4(B).

In the event the twenty-first (21^st) day falls on a Saturday, Sunday or on a day that the Company’s office is closed, your time to accept the terms of this Agreement shall be extended until the next regular business day that the Company’s office is open.

If you do not revoke your signature to this Agreement, the eighth (8^th) day after your date of acceptance will be the effective date of this Agreement (the “Effective Date”).

15.Right to Revoke

You may revoke your signature (thereby rescinding your acceptance of the terms of this Agreement) within seven (7) calendar days from the date on which you sign this Agreement. If the seventh (7^th) day falls on a Saturday, Sunday or on a day that the Company’s office is closed, your time to revoke your signature shall be extended until the next regular business day that the Company’s office is open. In the event you wish to revoke your signature, you must give written notice to that effect pursuant to paragraph 16 hereof. If you timely revoke your signature on this Agreement, or if you do not timely sign and return this Agreement to the Company (pursuant to paragraph 14), this Agreement shall be null, void and of no effect, and you shall not be entitled to any of the consideration described in paragraph 4(B).

16.Addresses for Notices

Any notice required pursuant to this Agreement shall be sent via registered mail, return receipt requested, or overnight mail with delivery confirmation to the following addresses:

If to the Company: HMS, 5615 High Point Drive, Irving, Texas 75038, Attention: Tracy South, Human Resources Department.

If to You:

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Any Notice sent in accordance with this paragraph shall be deemed effective upon receipt. Notwithstanding anything to the contrary contained herein, at any time after the execution of this Agreement any Party may modify the address(es) (including telephone number(s)) to which it desires notices to be sent by advising the other, in writing as provided in this paragraph. Such modification shall be deemed effective upon receipt.

17.General Legal Matters

A.The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. In the event any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, unlawful or unenforceable, it shall be severed from the Agreement, and the court shall be permitted to redraft the language so as to conform the severed language to the Parties’ intent. If any provision, or portion thereof, of this Agreement is determined to be invalid under applicable statute or rule of law, only such provision, and only to the extent determined to be invalid, shall be deemed omitted from this Agreement, the remainder of which shall remain in full force and effect. In the event the general release provisions of this Agreement are determined to be invalid, you shall immediately execute a modified general release that is valid that shall be effective as of the date this Agreement becomes effective.

B.This Agreement (including the exhibits attached hereto), the Restrictive Covenant Agreement, and the Surviving Provisions reflect the entire agreement among the parties relating to the matters set forth herein and relating to your employment. With the exception of the agreements described in paragraph 10(E) and any Non-Qualified Stock Option/Restricted Stock Unit Agreement that you may have received during your employment, which agreements shall remain in full force and effect in accordance with their respective terms and conditions, any other agreements, understandings, promises or commitments among the Parties are superseded by this Agreement. This Agreement (including the exhibits attached hereto) has been negotiated, drafted and reviewed by the Parties and/or their designated counsel. No language herein shall be construed for or against the interests of any Party on the ground that either Party was the proponent or draftsperson thereof. This Agreement may not be changed unless the change is in writing and signed by you and the Company.

C.This Agreement will be governed by and construed as a sealed instrument under and in accordance with the laws of the State of Texas without regard to conflicts of law provisions. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas) and the Company and you each consents to the jurisdiction of such a court. With respect to any such court action, the Company and you (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under paragraph 16; and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process. The Company and you each hereby irrevocably waives any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.

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D.Paragraph headings used in this Agreement are for informational purposes only and shall not be construed or interpreted as part of this Agreement. Usage of the singular shall include the plural and vice versa. Use of male pronouns shall be read to include the female and vice versa.

E.This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), if and to the extent applicable, and will be interpreted and applied in a manner consistent with that intention. Toward that end, unless permitted sooner by Section 409A of the Code, severance amounts otherwise payable within six (6) months after termination of employment will be deferred until and become payable on the first (1^st) day of the seventh (7^th) month following termination of employment. Further, to the extent Section 409A of the Code is applicable, the phrase “termination of employment” shall have the same meaning as a “separation from service” as defined in Section 409A of the Code and its accompanying regulations. Notwithstanding any provision of this Agreement, to the extent required by Section 409A, if the time period in which this Agreement may be signed and revoked spans two (2) taxable years, the Separation Payments shall be made or commence in the latter year.

F.This Agreement can be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument for the same effect as if all Parties hereto had signed the same signature page. A facsimile or e-mail copy of any Party’s signature shall be deemed as legally binding as the original signature.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Page 11 of 21

I hereby provide this Separation, Waiver and General Release Agreement as of the date set forth below and acknowledge that my execution of this Separation, Waiver and General Release Agreement is in further consideration of the separation benefits that I acknowledge I would not be entitled to if I did not sign it. I intend this Separation, Waiver and General Release Agreement to become a binding agreement between the Company and me if I do not revoke my acceptance within seven (7) days of the date set forth next to my signature below.

RELEASOR:

/s/ Semone Neuman	January 9, 2019
Semone Neuman	Date

FOR THE RELEASEES:

/s/ Tracy South

By: Tracy South

Executive Vice President,

Chief Administrative & Human Resources Officer

Page 12 of 21

 

Page 13 of 21

EXHIBIT B

Waiver and General Release Agreement

This Waiver and General Release Agreement (“Release”), entered into by and between Semone Neuman (referred to herein as “You” or “Releasor”) and HMS Holdings Corp. For purposes of this Release, the term “Company” shall refer to HMS Holdings Corp and its corporate affiliates and their respective direct and indirect subsidiaries and successors and assigns. Terms used in this Release with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such terms in the Separation, Waiver and General Release Agreement, dated _________ ___, 2019, by and between you and the Company (the “Agreement”). The Company, together with its past and present parents, subsidiaries, affiliates, shareholders, owners, partners, members, officers, directors, representatives, employees, agents, counsel, successors and assigns, benefit plans, benefit plan trustees and administrators are referred to collectively herein as the “Releasees.” You and the Releasees shall be referred to collectively herein as the “Parties” and individually as a “Party.”

WHEREAS, you and the Company are parties to the Agreement; and

WHEREAS, paragraph 4(B) of the Agreement provides that you will be entitled to certain payments and benefits if you sign a release of claims agreement;

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

1.Nature of Agreement and Non-Admission of Liability

This is an agreement of settlement and compromise, and by entering into this Release none of the Parties agree or concede in any manner whatsoever that they violated any law or statute of any jurisdiction, breached any duty, responsibility or contract, or acted improperly in any manner. It is understood and agreed that nothing in this Release shall be interpreted or construed as the admission of any wrongdoing by any or all the Releasees or by any person or entity acting for or on behalf of any or all of the Releasees.

2.Release

In exchange for the consideration provided by the Company under the terms of the Agreement in paragraph 4(B), you irrevocably and unconditionally release and discharge the Releasees jointly and severally, from any and all debts, claims, liabilities, demands and causes of action of every kind, nature and description, in law, or in equity, which against the Releasees, you, your heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of time to the date you sign this Release. You represent that you have not assigned or otherwise transferred any interest in any claim that is the subject of this Release.

Page 14 of 21

This Release covers, without limitation, any claims of harassment and/or discrimination on the basis of sex, sexual orientation, gender identification, pregnancy, disability (including claims concerning a history or record of a disability, predisposing genetic condition, and claims that you were regarded as having a disability), handicap, genetic information, race, color, religion, creed, national origin, ancestry, age, citizenship, ethnic characteristics, marital status or military/veteran status and also includes, no matter how denominated or described, any claims under any federal, Texas, South Carolina (or other state) state or local law, statute, rule, regulation, ordinance or executive order of discrimination and/or retaliation and non-payment of wages, bonuses, commissions or other compensation, including, without limitation, the Age Discrimination in Employment Act of 1967 (“ADEA”), Older Workers Benefit Protection Act, Employee Retirement Income Security Act of 1974, Title VII of the Civil Rights Act of 1964, Civil Rights Act of 1866, The Civil Rights Act of 1991, Rehabilitation Act of 1973, Executive Order 11246, Executive Order 11141, Genetic Information Nondiscrimination Act of 2008, Americans with Disabilities Act of 1990 (“ADA”), ADA Amendments Act, Family and Medical Leave Act, Occupational Safety and Health Act, Fair Labor Standards Act, Worker Adjustment and Retraining Notification Act, Fair Credit Reporting Act, Texas Labor Code Annotated § 21.001 et seq. (Texas civil rights law), Texas Labor Code Annotated § 21.055 et seq. (Texas whistleblower protection law), Texas Commission on Human Rights Act, Texas Law on Communicable Diseases, Texas Breast-Feeding Rights and Policies Law, the South Carolina Human Affairs Law, as amended, the South Carolina Payment of Wages Law, as amended, and all other federal, state and local laws, and including without any limitation, any claims of wrongful or tortious discharge or termination, breach of contract, breach of the implied covenant of good faith and fair dealing, written or oral, express or implied, breach of promise, public policy, negligence, intentional infliction of emotional distress, negligent infliction of emotional distress, assault, battery, false imprisonment, defamation, libel, slander, invasion of privacy, impairment of economic opportunity, loss of business opportunity, fraud, misrepresentation, and whistleblower activities, and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local law, statute, rule, regulation, ordinance or executive order not expressly referenced above.

This Release does not apply to any claims or rights that may arise after the date you sign this Release. Excluded from this Release are any claims which cannot be waived by law, including but not limited to, the right to participate in an investigation conducted by certain government agencies. You do, however, waive your right to any monetary recovery from the Company or the Releasees should any agency (e.g., the Equal Employment Opportunity Commission) pursue any claims on your behalf, unless otherwise prohibited by law. You represent and warrant that you have not filed any complaint, charge, or lawsuit against the Company with any government agency or any court.

You agree never to sue the Company or the Releasees in any forum for any claim covered by the above waiver and release language, except that you may bring a claim against the Company under the ADEA to challenge this Release. If you violate this Release by suing the Company or the Releasees, other than under the ADEA or as otherwise set forth above, you shall be liable to the Company and/or the Releasees for their reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit. Nothing in this Release is intended to reflect any party’s belief that your waiver of claims under ADEA is invalid or unenforceable, it being the interest of the Company and you that such claims are waived.

Page 15 of 21

The Parties intend this Release to be construed and interpreted to the fullest extent permitted by law as a general release. The terms of this Release are accepted by you as full and complete resolution, accord and satisfaction of any and all claims, demands or grievances you have made against, and/or could have made against any of the Releasees.

3.Acknowledgements

You acknowledge that you have no knowledge of any violations by the Company of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Fair Debt Collection Practices Act, the civil or criminal provisions of the federal False Claims Act, the Civil Monetary Penalties Statute, Titles XVIII and XIX of the Social Security Act (the Medicare and Medicaid statutes), the Health Care Benefit Program False Statements Statute, the Health Care Fraud Statute, any and all of the statutory provisions referenced in the Federal Health Care Offense Definitions Statute, or any other federal or state laws relating to negligence, fraud and abuse in health care (collectively, the “Health Care Laws”), or the Sarbanes Oxley Act. You have received instruction from the Company on how to report claims or violations under the Health Care Laws and the Sarbanes Oxley Act, and as of the date of executing this Release, have no claims to report under the Health Care Laws or the Sarbanes Oxley Act. You further certify that you have not reported to any government authority or other entity any such healthcare compliance concerns, issues, and/or violations or potential violations, which remain unanswered or unresolved. Furthermore, in connection with the foregoing acknowledgements, you have signed the Corporate Compliance Statement - Return of Company Property & Information document, attached to the Agreement as Exhibit A, and hereby reaffirm the representations therein.

4.Non-Waiver or Release of Subsequent Rights or Claims

Nothing contained herein is intended to or shall constitute a waiver or release of any rights or claims that arise after the date you sign this Release.

5.Non-Waiver of Rights Under this Release

Nothing herein is intended to or constitutes a waiver of any rights the Parties may have under this Release.

6.Representations and Warranties

As a material part of this Release, you make the following representations and warranties:

A.You have not commenced or asserted an administrative charge or complaint, and you have not commenced or asserted, and shall not commence or assert, any lawsuit, arbitration, claim or legal proceeding, against any or all of the Releasees that is designed to remedy or seek redress for any right or rights waived and/or released by this Release.

B.You agree to keep confidential all information relating to this Release, including its negotiation, terms and existence. You may communicate or publish any information relating to this Release to your immediate family (defined herein as parents, siblings, parents-in-law, spouse, domestic partner or children), legal and financial representatives, and tax preparer. Before such information is disclosed by you to any such person(s), however, you shall advise such person(s) that the information they will receive is to be kept confidential, and such person(s) must agree to maintain the confidentiality of the information they receive.

Page 16 of 21

C.You are not aware of any facts or circumstances suggesting that the Company has engaged in any wrongful or unlawful conduct.

7.Remedy in the Event of a Breach

In the event you breach any portion of this Release, you shall immediately, upon written demand, return to the Company all monies paid to you pursuant to paragraph 4(B) of the Agreement, and the Company shall retain all rights to pursue legal and equitable remedies to: (a) enforce the terms of this Release, and/or (b) seek damages for any breach.

8.Additional Representations

By signing this Release, you further acknowledge, understand, and agree that by signing this Release, you are knowingly and voluntarily agreeing to waive and release, among other claims, any and all claims under the ADEA and the Older Workers Benefit Protection Act you have had or may have against the Company and/or the Releasees. Further, you understand and agree that:

A.You may not sign this Release until after the close of business on the Separation Date;

B.You are hereby advised to consult with an attorney before executing this Release;

C.You have carefully read and understand the terms of this Release, and have had a full and fair opportunity to review this Release with an attorney of your choice;

D.You have signed this Release freely and voluntarily and without fraud, duress or coercion and with full knowledge and understanding of its terms and of its significance and consequences and of the rights relinquished, surrendered, released and discharged hereunder; and

E.The only consideration for signing this Release is stated herein, and no other promise, agreement or representation of any kind has been made to you by any person or entity whatsoever to cause you to sign this Release.

9.Manner of Acceptance

In order to accept the terms of this Release, you must return a signed copy to the Company (at the address set forth in paragraph 11 hereof) on or within seven (7) calendar days after the Separation Date (provided that you may not sign this Release until after the close of business on the Separation Date). In the event a timely acceptance is made, and you do not revoke your signature pursuant to paragraph 10, the Company shall provide the consideration described in paragraph 4(B) of the Agreement.

Page 17 of 21

In the event the seventh (7^th) day falls on a Saturday, Sunday or on a day that the Company’s office is closed, your time to accept the terms of this Release shall be extended until the next regular business day that the Company’s office is open.

If you do not revoke your signature to this Release, the eighth (8^th) day after your date of acceptance will be the effective date of this Release.

10.Right to Revoke

You may revoke your signature (thereby rescinding your acceptance of the terms of this Release) within seven (7) calendar days from the date on which you sign this Release. If the seventh (7^th) day falls on a Saturday, Sunday or on a day that the Company’s office is closed, your time to revoke your signature shall be extended until the next regular business day that the Company’s office is open. In the event you wish to revoke your signature, you must give written notice to that effect pursuant to paragraph 11 hereof. If you timely revoke your signature on this Release, or if you do not timely sign and return this Release to the Company (pursuant to paragraph 9), this Release shall be null, void and of no effect, and you shall not be entitled to any of the consideration described in paragraph 4(B) of the Agreement.

11.Addresses for Notices

Any notice required pursuant to this Release shall be sent via registered mail, return receipt requested, or overnight mail with delivery confirmation to the following addresses:

If to the Company: HMS, 5615 High Point Drive, Irving, Texas 75038, Attention: Tracy South, Human Resources Department.

If to You:

Any Notice sent in accordance with this paragraph shall be deemed effective upon receipt. Notwithstanding anything to the contrary contained herein, at any time after the execution of this Release any Party may modify the address(es) (including telephone number(s)) to which it desires notices to be sent by advising the other, in writing as provided in this paragraph. Such modification shall be deemed effective upon receipt.

12.General Legal Matters

A.The invalidity or unenforceability of any provision of this Release shall not affect the validity or enforceability of any other provision hereof. In the event any provision of this Release is determined by a court of competent jurisdiction to be invalid, unlawful or unenforceable, it shall be severed from the Release, and the court shall be permitted to redraft the language so as to conform the severed language to the Parties’ intent. If any provision, or portion thereof, of this Release is determined to be invalid under applicable statute or rule of law, only such provision, and only to the extent determined to be invalid, shall be deemed omitted from this Release, the remainder of which shall remain in full force and effect. In the event the general release provisions of this Release are determined to be invalid, you shall immediately execute a modified general release that is valid that shall be effective as of the date this Release becomes effective.

Page 18 of 21

B.This Release, together with the Agreement, reflects the entire agreement among the parties relating to the matters set forth herein and relating to your employment. With the exception of the Agreement, the agreements described in paragraph 10(E) of the Agreement and any Non-Qualified Stock Option/Restricted Stock Unit Agreement that you may have received during your employment, which agreements shall remain in full force and effect in accordance with their respective terms and conditions, any other agreements, understandings, promises or commitments among the Parties are superseded by this Release. This Release, together with the Agreement, has been negotiated, drafted and reviewed by the Parties and/or their designated counsel. No language herein shall be construed for or against the interests of any Party on the ground that either Party was the proponent or draftsperson thereof. This Release may not be changed unless the change is in writing and signed by you and the Company.

C.This Release will be governed by and construed as a sealed instrument under and in accordance with the laws of the State of Texas without regard to conflicts of law provisions. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Release must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas) and the Company and you each consents to the jurisdiction of such a court. With respect to any such court action, the Company and you (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under paragraph 11; and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process. The Company and you each hereby irrevocably waives any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Release.

D.Paragraph headings used in this Release are for informational purposes only and shall not be construed or interpreted as part of this Release. Usage of the singular shall include the plural and vice versa. Use of male pronouns shall be read to include the female and vice versa.

E.This Release is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), if and to the extent applicable, and will be interpreted and applied in a manner consistent with that intention. Toward that end, unless permitted sooner by Section 409A of the Code, severance amounts otherwise payable within six (6) months after termination of employment will be deferred until and become payable on the first (1^st) day of the seventh (7^th) month following termination of employment. Further, to the extent Section 409A of the Code is applicable, the phrase “termination of employment” shall have the same meaning as a “separation from service” as defined in Section 409A of the Code and its accompanying regulations. Notwithstanding any provision of this Release, to the extent required by Section 409A, if the time period in which this Release may be signed and revoked spans two (2) taxable years, the Separation Payments shall be made or commence in the latter year.

F.This Release can be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument for the same effect as if all Parties hereto had signed the same signature page. A facsimile or e-mail copy of any Party’s signature shall be deemed as legally binding as the original signature.

Page 19 of 21

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Page 20 of 21

I hereby provide this Waiver and General Release Agreement as of the date set forth below and acknowledge that my execution of this Waiver and General Release Agreement is in further consideration of the separation benefits that I acknowledge I would not be entitled to if I did not sign it. I intend this Waiver and General Release Agreement to become a binding agreement between the Company and me if I do not revoke my acceptance within seven (7) days of the date set forth next to my signature below.

RELEASOR:

Semone Neuman Date

FOR THE RELEASEES:

By: Tracy South

Executive Vice President,

Chief Administrative & Human Resources Officer

Page 21 of 21

EX-21.1

Exhibit 21.1

HMS HOLDINGS CORP.

LIST OF SUBSIDIARIES

Name of Subsidiary	State or Other Jurisdiction of Incorporation or Organization
HealthDataInsights, Inc.	Nevada
Health Management Systems, Inc.	New York
Permedion, Inc.(1)	New York
HMS Care Analytics, Inc.	Delaware
Essette, Inc.(2)	Colorado
Eliza Holding Corp.(2)	Delaware
Eliza Corporation(3)	Delaware
ElizaLive, Inc.(4)	Delaware
IntegriGuard, LLC (DBA – HMS Federal)	Delaware
Reimbursement Services Group Inc.	New York

_______________________

(1) Wholly-owned by Health Management Systems, Inc.

(2) Wholly-owned by HMS Care Analytics, Inc.

(3) Wholly-owned by Eliza Holding Corp.

(4) Wholly-owned by Eliza Corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated February 25, 2019, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of HMS Holdings Corp. on Form 10-K for the year ended December 31, 2018. We consent to the incorporation by reference of said reports in the Registration Statements of HMS Holdings Corp. on Forms S-8 (File No. 333-161415, 333-149836, 333-139025, 333-178752, 333-183361, and 333-212319).

/s/ Grant Thornton, LLP

Dallas, Texas

February 25, 2019

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

HMS Holdings Corp.:

We consent to the incorporation by reference in the registration statements (No. 333-161415, 333-149836, 333-139025, 333-178752, 333-183361, and 333-212319) on Form S-8 of HMS Holdings Corp. of our report dated June 6, 2017, with respect to the consolidated balance sheet of HMS Holdings Corp. as of December 31, 2016, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year ended December 31, 2016, and the related financial statement schedule, which report appears in the December 31, 2018 annual report on Form 10-K of HMS Holdings Corp.

/s/ KPMG, LLP

Dallas, Texas

February 25, 2019

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William C. Lucia, certify that:

1. I have reviewed this Annual Report on Form 10-K of HMS Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     February 25, 2019	/s/ William C. Lucia
	William C. Lucia
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey S. Sherman, certify that:

1. I have reviewed this Annual Report on Form 10-K of HMS Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     February 25, 2019	/s/ Jeffrey S. Sherman
	Jeffrey S. Sherman
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of HMS Holdings Corp. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William C. Lucia, Chief Executive Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William C. Lucia

William C. Lucia

Chief Executive Officer

(Principal Executive Officer)

February 25, 2019

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of HMS Holdings Corp. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey S. Sherman, Chief Financial Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jeffrey S. Sherman

Jeffrey S. Sherman

Chief Financial Officer

(Principal Financial Officer)

February 25, 2019

XML

Document And Entity Information - USD ($) $ in Billions	12 Months Ended
	Dec. 31, 2018	Feb. 15, 2019	Jun. 29, 2018
Document Information [Line Items]
Entity Registrant Name	HMS HOLDINGS CORP
Entity Central Index Key	0001196501
Trading Symbol	hmsy
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		85,271,867
Entity Public Float			$ 1.8
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Shell Company	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 178,946	$ 83,313
Accounts receivable, net of allowance of $13,683 and $14,799, at December 31, 2018 and December 31, 2017, respectively	206,772	189,460
Prepaid expenses	19,970	16,589
Income tax receivable	18,817	1,892
Deferred financing costs, net	564	564
Other current assets	240	836
Total current assets	425,309	292,654
Property and equipment, net	94,435	98,581
Goodwill	487,617	487,617
Intangible assets, net	67,140	91,482
Deferred financing costs, net	1,673	2,237
Other assets	2,344	2,589
Total assets	1,078,518	975,160
Current liabilities:
Accounts payable, accrued expenses and other liabilities	74,902	61,900
Estimated liability for appeals	21,723	30,787
Total current liabilities	96,625	92,687
Long-term liabilities:
Revolving credit facility	240,000	240,000
Net deferred tax liabilities	18,485	21,989
Deferred rent	4,118	4,852
Other liabilities	5,894	9,403
Total long-term liabilities	268,497	276,244
Total liabilities	365,122	368,931
Commitments and contingencies
Shareholders' equity:
Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none issued	0	0
Common stock -- $0.01 par value; 175,000,000 shares authorized; 98,924,501 shares issued and 85,261,664 shares outstanding at December 31, 2018; 96,536,251 shares issued and 83,256,858 shares outstanding at December 31, 2017	989	965
Capital in excess of par value	425,748	368,721
Retained earnings	422,235	366,164
Treasury stock, at cost: 13,663,194 shares at December 31, 2018 and 13,279,393 shares at December 31, 2017	(135,576)	(129,621)
Total shareholders' equity	713,396	606,229
Total liabilities and shareholders' equity	$ 1,078,518	$ 975,160

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts receivable, allowance for doubtful accounts	$ 13,683	$ 14,799
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	175,000,000	175,000,000
Common stock, shares issued (in shares)	98,924,501	96,536,251
Common stock, shares outstanding (in shares)	85,261,664	83,256,858
Treasury cost, shares (in shares)	13,663,194	13,279,393

XML

Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenue	$ 598,290	$ 521,212	$ 489,720
Cost of services:
Compensation	224,893	202,049	189,271
Information technology	53,428	45,723	37,337
Occupancy	15,968	17,190	14,000
Direct project expenses	42,908	41,347	46,254
Other operating expenses	31,438	28,425	27,778
Amortization of acquisition related software and intangible assets	32,975	30,393	28,030
Total cost of services	401,610	365,127	342,670
Selling, general and administrative expenses	113,442	105,654	89,381
Settlement expense	20,000
Total operating expenses	535,052	470,781	432,051
Operating income	63,238	50,431	57,669
Interest expense	(11,310)	(10,871)	(8,519)
Interest income	1,089	295	321
Income before income taxes	53,017	39,855	49,471
Income taxes	(1,972)	(199)	11,835
Net Income	$ 54,989	$ 40,054	$ 37,636
Basic income per common share:
Net income (loss) per common share - basic (in dollars per share)	$ 0.66	$ 0.48	$ 0.45
Diluted income per common share:
Net income (loss) per common share - diluted (in dollars per share)	$ 0.64	$ 0.47	$ 0.43
Weighted average shares:
Basic (in shares)	83,625	83,821	84,221
Diluted (in shares)	86,144	85,088	86,987

XML

Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 31, 2015	95,263,461			11,273,746
Balance at Dec. 31, 2015	$ 952	$ 330,290	$ 288,474	$ (95,014)	$ 524,702
Net income			37,636		37,636
Stock-based compensation expense		13,277			13,277
Total Number of Shares Purchased (in shares)				1,140,332
Purchase of treasury stock				$ (20,470)	$ (20,470)
Exercise of stock options (in shares)	510,512				510,512
Exercise of stock options	$ 5	2,935			$ 2,940
Vesting of restricted stock awards and units, net of shares withheld for employee tax (in shares)	192,879
Vesting of restricted stock awards and units, net of shares withheld for employee tax	$ 2	(1,477)			(1,475)
Balance (in shares) at Dec. 31, 2016	95,966,852			12,414,078
Balance at Dec. 31, 2016	$ 959	345,025	326,110	$ (115,484)	556,610
Net income			40,054		40,054
Stock-based compensation expense		24,143			24,143
Total Number of Shares Purchased (in shares)				865,315
Purchase of treasury stock				$ (14,137)	$ (14,137)
Exercise of stock options (in shares)	172,326				172,326
Exercise of stock options	$ 2	2,718			$ 2,720
Vesting of restricted stock awards and units, net of shares withheld for employee tax (in shares)	397,073
Vesting of restricted stock awards and units, net of shares withheld for employee tax	$ 4	(3,165)			(3,161)
Balance (in shares) at Dec. 31, 2017	96,536,251			13,279,393
Balance at Dec. 31, 2017	$ 965	368,721	366,164	$ (129,621)	606,229
Net income			54,989		54,989
Stock-based compensation expense		21,507			$ 21,507
Total Number of Shares Purchased (in shares)				383,801	383,801
Purchase of treasury stock				$ (5,955)	$ (5,955)
Exercise of stock options (in shares)	2,017,442				2,017,442
Exercise of stock options	$ 20	38,342			$ 38,362
Vesting of restricted stock awards and units, net of shares withheld for employee tax (in shares)	370,808
Vesting of restricted stock awards and units, net of shares withheld for employee tax	$ 4	(2,822)			(2,818)
Adoption of accounting standard (Note 1 and 2) (Accounting Standards Update 2014-09 [Member]) at Dec. 31, 2017			1,082		1,082
Balance (in shares) at Dec. 31, 2018	98,924,501			13,663,194
Balance at Dec. 31, 2018	$ 989	$ 425,748	$ 422,235	$ (135,576)	$ 713,396

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Operating activities:
Net income	$ 54,989	$ 40,054	$ 37,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expenses related to property and equipment	33,254	27,515	24,882
Amortization of intangible assets	24,342	22,555	20,164
Amortization of deferred financing costs	564	2,258	2,083
Stock-based compensation expense	21,507	24,143	13,277
Deferred income taxes	(3,504)	(20,408)	(7,368)
(Gain) / Loss on disposal of assets		209	(948)
Change in fair value of contingent consideration	(35)	(2,865)
Release of estimated liability	(8,436)
Changes in operating assets and liabilities:
Accounts receivable	(17,312)	(6,976)	(3,554)
Prepaid expenses	(3,381)	(1,463)	(2,399)
Other current assets	596	165	2,066
Other assets	245	124	234
Income taxes receivable / (payable)	(16,925)	1,462	(7,227)
Accounts payable, accrued expenses and other liabilities	11,181	(340)	12,116
Estimated liability for appeals	(628)	32	(2,323)
Net cash provided by operating activities	96,457	86,464	88,639
Investing activities:
Acquisition of a business, net of cash acquired		(171,321)	(20,678)
Proceeds from sale of cost basis investment			2,496
Purchases of property and equipment	(11,264)	(17,318)	(13,703)
Investment in capitalized software	(19,149)	(15,725)	(7,316)
Net cash used in investing activities	(30,413)	(204,364)	(39,201)
Financing activities:
Proceeds from credit facility		42,204
Payments for deferred financing costs		(2,269)
Proceeds from exercise of stock options	38,362	2,720	2,940
Payments of tax withholdings on behalf of employees for net-share settlements	(2,818)	(3,161)	(1,475)
Payments on capital lease obligations		(143)	(44)
Purchases of treasury stock	(5,955)	(14,137)	(20,470)
Net cash provided by/(used in) financing activities	29,589	25,214	(19,049)
Net increase/(decrease) in cash and cash equivalents	95,633	(92,686)	30,389
Cash and Cash Equivalents
Cash and cash equivalents at beginning of year	83,313	175,999	145,610
Cash and cash equivalents at end of period	178,946	83,313	175,999
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds	22,225	17,995	20,326
Cash paid for interest	10,326	9,944	6,196
Supplemental disclosure of non-cash activities:
Change in balance of accrued property and equipment purchases	$ 1,305	$ 51	$ 684

XML

Note 1 - Business and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

1. Business and Summary of Significant Accounting Policies

(a) Business

HMS is an industry-leading provider of cost containment solutions in the healthcare marketplace. We use healthcare 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.

(b) Summary of Significant Accounting Policies

For certain accounting topics, the description of the accounting policy

may

be found in the related Note.

(i) Principles of Consolidation

The consolidated financial statements include the Company’s accounts and transactions and those of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

(ii) Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(iii) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of

three

months or less to be cash equivalents. Cash equivalents consist of deposits that are readily convertible into cash.

(iv) Concentration of Credit Risk

The Company’s policy is to limit credit exposure by placing cash in accounts which are exposed to minimal interest rate and credit risk. HMS maintains cash and cash equivalents in cash depository accounts with large financial institutions with a minimum credit rating of

A1/P1

or better, as defined by Standard and Poor’s. The balance at these institutions generally exceeds the maximum balance insured by the Federal Deposit Insurance Corporation of up to

$250,000

per entity. HMS has

not

experienced any losses in cash and cash equivalents and believes these cash and cash equivalents do

not

expose the Company to any significant credit risk.

The Company is subject to potential credit risk related to changes in economic conditions within the healthcare market. However, HMS believes that the billing and collection policies are adequate to minimize the potential credit risk. The Company performs ongoing credit evaluations of customers and generally does

not

require collateral.

(v) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets utilizing the straight-line method. HMS amortizes leasehold improvements on a straight-line basis over the shorter of (i) the term of the lease or (ii) the estimated useful life of the improvement. Equipment leased under capital leases is depreciated over the shorter of (i) the term of the lease or (ii) the estimated useful life of the equipment. Capitalized software costs relate to software that is acquired or developed for internal use while in the application development stage. All other costs to develop software for internal use, either in the preliminary project stage or post-implementation stage, are expensed as incurred. Amortization of capitalized software is calculated on a straight-line basis over the expected economic life. Land is

not

depreciated.

Estimated useful lives are as follows:

Property and Equipment	Useful Life (in years)
Equipment		2	to	5
Leasehold improvements		5	to	10
Furniture and fixtures			5
Capitalized software		3	to	10
Building and building improvements			up to 39

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did

not

recognize any impairment charges related to property and equipment during the years ended

December 31, 2018,

2017

or

2016.

(vi) Intangible assets

The Company records assets acquired and liabilities assumed in a business combination based upon their acquisition date fair values. In most instances there is

not

a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. The Company determines fair value through various valuation techniques including discounted cash flow models, quoted market values and

third

party independent appraisals, as considered necessary. Significant assumptions used in those techniques include, but are

not

limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates. The use of different valuation techniques and assumptions are highly subjective and inherently uncertain and, as a result, actual results

may

differ materially from estimates.

All of the Company’s intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit. Estimated useful lives are as follows:

Intangible Assets	Useful Life (in years)
Customer relationships		7	to	15
Restrictive covenants		1	to	3
Trade names		1.5	to	7
Intellectual property		4	to	6

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did

not

recognize any impairment charges related to intangible assets during the years ended

December 31, 2018,

2017

or

2016.

(vii) Goodwill

Goodwill is the excess of acquisition costs over the fair values of assets and liabilities of acquired businesses. During the measurement period, which is up to

one

year from the acquisition date, the Company

may

record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill is subject to a periodic assessment for impairment. The Company assesses goodwill for impairment on an annual basis as of

June

30th

of each year or more frequently if an event occurs or changes in circumstances would more likely than

not

reduce the fair value of a reporting unit below its carrying amount. Assessment of goodwill impairment is at the HMS Holdings Corp. entity level as the Company operates as a single reporting unit. We have the option to perform a qualitative or quantitative assessment to determine if impairment is more likely than

not

to have occurred. The Company completed the annual impairment test as of

June 30, 2018

electing to perform the quantitative assessment of which the

first

step is to compare the fair value of the reporting unit with its carrying value, including goodwill. In calculating the fair value of the reporting unit, the Company utilized a weighting across

three

commonly accepted valuation approaches: an income approach, a guideline public company approach, and a merger and acquisition approach. The income approach to determining fair value computes projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting. Significant assumptions in the income approach include income projections, a discount rate and a terminal growth value which are all level

3

inputs. The income projections include assumptions for revenue and expense growth which are based on internally developed business plans and largely reflect recent historical revenue and expense trends.  The discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium. The terminal growth value is Company specific and was determined analyzing inputs such as historical inflation and the GDP growth rate. The guideline public company approach and merger and acquisition approach are based on pricing multiples observed for similar publicly traded companies or similar market companies that were sold. The results of the annual impairment assessment provide that the fair value of the reporting unit was significantly in excess of the Company’s carrying value, including goodwill; therefore,

no

impairment was indicated. There were

no

impairment charges related to goodwill during the years ended

December 31, 2018,

2017

or

2016.

There were

no

changes in the carrying amount of goodwill for the year ended

December 31, 2018.

(viii)  Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits for net operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets to the extent their realization is

not

more likely than

not.

Uncertain income tax positions are accounted for by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide

no

assurance that the final tax outcome of these matters will

not

be materially different. The Company makes adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results.

(ix) Expense Classifications

HMS cost of services is presented in the categories set forth below. Each category within cost of services excludes expenses relating to SG&A functions, which are presented separately as a component of total operating costs. A description of the primary expenses included in each category is as follows:

Cost of Services:

§ Compensation: Salary, fringe benefits, bonus and stock-based compensation.

§ Information technology: Hardware, software and data communication costs.

§ Occupancy: Rent, utilities, depreciation, office equipment and repair and maintenance costs.

§ Direct project expense: Variable costs incurred from third party providers that are directly associated with specific revenue generating projects and employee travel expenses.

§ Other operating expenses: Professional fees, temporary staffing, travel and entertainment, insurance and local and property tax costs.

§ Amortization of acquisition related software and intangible assets: Amortization of the cost of acquisition related software and intangible assets.

SG&A:

§ Expenses related to general management, marketing and administrative activities.

( x ) Estimating Valuation Allowances and Accrued Liabilities

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. In particular, management must make estimates of the probability of collecting accounts receivable. When evaluating the adequacy of the accounts receivable allowance, management reviews the accounts receivable based on an analysis of historical revenue adjustments, bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms. As of

December 31, 2018

and

2017,

the accounts receivable balance was

$206.8

million and

$189.5

million, net of allowance of

$13.7

million and

$14.8

million, respectively.

(xi)   Stock-Based Compensation

Long-Term Incentive Award Plans

The Company grants stock options and restricted stock units (“equity awards”) to HMS employees and non-employee directors under the

2016

Omnibus Plan, as approved by the Company’s shareholders on

June 23, 2016.

The

2016

Omnibus Plan replaced and superseded the Company’s

2006

Stock Plan and

2011

HDI Plan. As of

December 31, 2018,

the number of securities remaining available for future issuance under equity compensation plans, excluding securities to be issued upon exercise of outstanding options and vesting of restricted stock units, is

4,758,398

shares. All of the Company’s employees as well as HMS non-employee directors are eligible to participate in the

2016

Omnibus Plan. Awards granted under the

2016

Omnibus Plan generally vest over

one

to

four

years. The exercise price of stock options granted under the

2016

Omnibus Plan

may

not

be less than the fair market value of a share of stock on the grant date, as measured by the closing price of the Company’s common stock on the Nasdaq Global Select Market and the term of a stock option

may

not

exceed

ten

years. Prior to

2018,

the Company granted

two

types of equity awards:

1

) equity awards with service conditions and

2

) equity awards with market and service conditions. The market condition is based on the Company’s common stock price during the applicable measurement period. In

2018,

the Company only issued equity awards with service conditions.

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense equal to the grant date fair value of the award on a straight-line basis over the requisite service period.

The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model. The fair value of each option grant with market and service-based conditions is estimated using a Monte Carlo simulation model. The fair value of each restricted stock unit is calculated based on the closing sale price of the Company’s common stock on the grant date.

The determination of the fair value of the options on the grant date using the Black-Scholes pricing model and/or the Monte Carlo simulation model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. Certain key variables include: the Company’s expected stock price volatility over the expected term of the awards; a risk-free interest rate; and any expected dividends. The Company estimates stock price volatility based on the historical volatility of the Company’s common stock and estimates the expected term of the awards based on the Company’s historical option exercises for similar types of stock option awards. The assumed risk-free interest rate is based on the yield on the measurement date of a

zero

-coupon U.S. Treasury bond with a maturity period equal to the option’s expected term. The Company does

not

anticipate paying any cash dividends in the foreseeable future and therefore, uses an expected dividend yield of

zero

in the option valuation models. The fair value of all awards also includes an estimate of expected forfeitures. Forfeitures are estimated based on historical experience. If actual forfeitures vary from estimates, a difference in compensation expense will be recognized in the period the actual forfeitures occur. Upon the exercise of stock options or the vesting of restricted stock units, the resulting excess tax benefits or deficiencies, if any, are recognized as income tax expense or benefit.

(xii)   Fair Value of Financial Instruments

Financial instruments are categorized into a

three

-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into

three

broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level

1

) and the lowest priority to unobservable inputs (Level

3

). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. In the event the fair value is

not

readily available or determinable, the financial instrument is carried at cost and referred to as a cost method investment. The fair value hierarchy is as follows:

§ Level 1: Observable inputs such as quoted prices in active markets;

§ Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

§ Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

(xiii) Leases

HMS accounts for lease agreements as either operating or capital leases, depending on certain defined criteria. Lease costs are amortized on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives such as tenant improvement allowances, are capitalized and are treated as a reduction of rental expense over the term of the lease agreement.

(xiv)   Recent Accounting Guidance

Recently Adopted Accounting Guidance

In

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

-

09

on

January 1, 2018

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

-

09

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.

In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation – Stock Compensation

(Topic

718

):

Improvements to Employee Share-Based Payment Accounting

, (“ASU

2016

-

09”

) that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will

no

longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows companies to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement and provides an accounting policy election to account for forfeitures as they occur. ASU

2016

-

09

is effective for annual reporting periods beginning after

December 15, 2016,

including interim periods within such annual reporting periods with early adoption permitted. The Company elected to early adopt the new guidance in the

fourth

quarter of fiscal year

2016

which requires us to reflect any adjustments as of

January 1, 2016,

the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than paid-in capital for all periods in fiscal year

2016.

 Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had

no

impact to retained earnings as of

January 1, 2016,

where the cumulative effect of these changes are required to be recorded. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Adoption of the new standard resulted in the recognition of net excess tax benefits in the provision for income taxes rather than paid-in capital of

$1.9

million for the year ended

December 31, 2016.

The presentation requirements for cash flows related to employee taxes paid for withheld shares had

no

impact to any of the

2016

periods presented on the consolidated statements of cash flow since such cash flows have historically been presented as a financing activity.

In

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

-

15

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

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

Business Combinations

(Topic

805

) –

Clarifying the Definition of a Business

(“ASU

2017

-

01”

). ASU

2017

-

01

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.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

Compensation – Stock Compensation

(Topic

718

):

Scope of Modification Accounting

, (“ASU

2017

-

09”

). ASU

2017

-

09

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:

1

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

2

) the award’s vesting conditions, and

3

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

2017

-

09

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.

In

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

2

from the goodwill impairment test. Step

2

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 (

1

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

2

) 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 Company elected to early adopt the new guidance in the

fourth

quarter of fiscal year

2018.

The adoption of this guidance did

not

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

On

August 17, 2018

the SEC issued SEC Final Rule Release

No.

33

-

10532,

Disclosure Update and Simplification

(“Final Rule”). The Final Rule amends certain disclosure requirements to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The Final Rule was effective for public entities that are SEC filers on

November 5, 2018.

The adoption of this guidance did

not

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

Recent Accounting Guidance

Not

Yet Adopted

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 Leases (Topic

842

) (“ASU

2016

-

02”

). ASU

2016

-

02

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

-

02

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 model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than

12

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

2016

-

02

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, and therefore is adopting this guidance on

January 1, 2019

and will use the effective date as our date of initial application. Consequently, financial information will

not

be updated and the disclosures required under the new standard will

not

be provided for dates and periods prior to the date of adoption. The Company developed a preliminary implementation plan and reviewed historical lease agreements in order to quantify the impact of adoption. Based upon the preliminary implementation plan, the Company expects the adoption of ASU

2016

-

02

will have a material impact on the consolidated balance sheet due to the recognition of the ROU assets and lease liabilities. The adoption of ASU

2016

-

02

is

not

expected to have a material impact on the consolidated statement of income or consolidated statement of cash flow. However, the Company continues to perform the necessary reviews and other implementation considerations, including an evaluation of the incremental borrowing rate, in order to appropriately quantify the changes. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (

1

) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (

2

) financial statement disclosures. We do

not

expect a significant change in our leasing activities between now and adoption. A range of undiscounted ROU assets and lease liabilities at

January 1, 2019

is

$28

million to

$31

million. We expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments. The Company plans adopt this guidance using the optional transition method. The new standard also provides practical expedients for an entity’s existing and ongoing accounting and we expect to adopt the package of practical expedients as well as the practical expedient to

not

separate lease and non-lease components of our leases and the short-term lease practical expedient.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Financial Instruments – Credit Losses

(“ASU

2016

-

13”

). ASU

2016

-

13

introduces the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses. ASU

2016

-

13

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

-

13

is effective for public entities for fiscal year beginning after

December 15, 2019,

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.

In

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

-

07

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

2018

-

07

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.

XML

Note 2 - Revenue

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

2. Revenue

The Company’s revenue disaggregated by service for the year ended

December 31, 2018

is as follows (

in thousands

):

Coordination of Benefits	$	397,095
Payment Integrity		144,063
Total Population Management		57,132
Total	$	598,290

Coordination of benefits revenue is derived from contracts with state governments and Medicaid managed care plans that typically span

1

to

5

years with the option to renew. Types of service contracts could include: (a) the identification of erroneously paid claims; (b) the delivery of verified commercial insurance coverage information; (c) the identification of paid claims where another

third

party is liable; and (d) the identification and enrollment of Medicaid members who have access to employer insurance. Most of these types of service contracts contain multiple promises, all of which are

not

distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these performance obligations is largely based on variable consideration where, based on the number of claims or amount of findings the Company identified, a contingent or fixed transaction price/recovery percentage is allocated to each distinct performance obligation. The Company utilizes the expected value method to estimate the variable consideration related to the transaction price for its service contracts. Key inputs and assumptions in determining variable consideration includes identified pricing and expected recoveries and/or savings. The expected recoveries and/or savings are based on historical experience of information received from our customers. Revenue is primarily recognized at a point in time when our customers realize economic benefits from our services when our services are completed. However, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within

one

to

three

years. Generally, coordination of benefit contract payment terms are

not

standardized within the respective contract; however, payment is typically due on demand and there is a clear and distinct history of customers making consistent payments.

Analytical services consists of payment integrity services and total population management.

Payment integrity services revenue is derived from contracts with federal and state governments, commercial health plans and other at-risk entities that can span several years with the option to renew. Types of service contracts could include: (a) services designed to ensure that healthcare payments are accurate and appropriate; and (b) the identification of over/(under)payments or inaccurate charges based on a review of medical records. Most of these types of service contracts contain multiple promises, all of which are

not

distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these performance obligations is largely based on variable consideration where, based on the number of claims or amount of findings the Company identified, a contingent or fixed transaction price/recovery percentage is allocated to each distinct performance obligation. The Company utilizes the expected value method to estimate the variable consideration related to the transaction price for its service contracts. Key inputs and assumptions in determining variable consideration includes identified pricing and expected recoveries and/or savings. The expected recoveries and/or savings are based on historical experience of information received from our customers. Revenue is primarily recognized at a point in time when our customers realize economic benefits from our services when our services are completed. However, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within

one

to

three

years. Generally, payment integrity contract payment terms are

not

standardized within the respective contract; however, payment is typically due on demand and there is a clear and distinct history of customers making consistent payments.

Total population management revenue is derived from contracts with health plans and other risk-bearing entities that can span several years with the option to renew. Types of service contracts could include: (a) programs designed to improve member engagement; and (b) outreach services designed to improve clinical outcomes. Most of these types of service contracts contain multiple promises, all of which are

not

distinct within the context of the contract. Therefore, the promises represent a single, distinct performance obligation for the types of services we offer. Revenue derived from these services is largely based on consideration associated with prices per order/transfer and PMPM/PMPY fees. The Company believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (

1

) our performance toward complete satisfaction of the performance obligation under the contract and (

2

) the value transferred to the customer of the services performed under the contract. The Company has elected the right to invoice practical expedient for recognition of revenue related to its performance obligations when the amount we have the right to invoice the customer corresponds directly with the value to the customer. Additionally, certain total population management contracts have distinct performance obligations related to software license and implementation fees which have historically been recognized as revenue ratably over the life of the contract. Lastly, we have a limited number of fixed fee arrangements where revenue is recognized over time as performance obligations are satisfied within

one

to

three

years. Upon adoption of ASC

606,

revenue for software licenses is recognized at the beginning of the license period when control is transferred as the license is installed and revenue for implementation fees is recognized when control is transferred over time as the implementation is being performed. As the performance obligation is deemed to have been satisfied and control transferred to our customers for software licenses and implementation fees on or before

December 31, 2017,

the Company recorded a decrease to deferred revenue and an increase to opening retained earnings of

$1.1

million, net of tax, as of

January 1, 2018

for the cumulative impact of adopting ASC

606.

Generally, total population management contract payment terms are stated within the contract and are due within an explicitly stated time period (e.g.,

30,

45,

60

days) from the date of invoice. A portion of the payment received

may

relate to future performance obligations and will result in an increase to deferred revenue until the obligation has been met.

The Company’s revenue disaggregated by market for the year ended

December 31, 2018

is as follows (

in thousands

):

Commercial	$	323,150
State		233,921
Federal		41,219
Total	$	598,290

A portion of the Company’s services are deferred and revenue is recognized at a later time. Deferred revenue was approximately

$6.4

million as of

December 31, 2017;

$1.1

million, net of tax, was recorded as a decrease to deferred revenue as of

January 1, 2018

as discussed above; and

$5.3

million of this amount was recognized as revenue during the year ended

December 31, 2018.

Deferred revenue was approximately and

$5.6

million as of

December 31, 2018.

Deferred revenue is included in Accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

Contract modifications are routine in nature and often done to account for changes in the contract specifications or requirements. In most instances, contract modifications are for services that are

not

distinct, and, therefore, modifications are accounted for as part of the existing contract. The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is

one

year or less.

XML

Note 3 - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

3. Fair Value of Financial Instruments

Financial instruments (principally cash and cash equivalents, accounts receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The Company’s long-term credit facility is carried at cost, which due to the variable interest rate associated with the revolving credit facility, cost approximates its fair value. The Company has

no

Level

1

or Level

2

financial instruments and there were

no

transfers between Level

1

or Level

2

financial instruments. Included in Other liabilities on the Consolidated Balance Sheet is a contingent consideration liability of

$0

and

$35

thousand at

December 31, 2018

and

2017,

respectively, is valued using a Monte Carlo simulation and includes unobservable inputs such as expected levels of revenues and discount rates. The liability was classified as level

3

within the fair value hierarchy. Changes in the unobservable inputs in the fair value measurement of this instrument could result in a significant change in the fair value measurement. There were

no

sales, settlements, purchases, issuances and/or transfers related to this level

3

instrument in

2018

or

2017.

There were

no

other level

3

instruments.

XML

Note 4 - Acquisition

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4. Acquisitions

(a) Eliza Holding Corp.

On

April 17, 2017,

the Company completed the acquisition of

100%

of the outstanding capital stock of Eliza, for a purchase price of

$171.6

million funded with available liquidity of approximately

75%

cash on hand and

25%

from the Company’s existing credit line.

The allocation of the purchase price to the fair value of the assets acquired and the liabilities assumed as of

April 

17,

2017,

the effective date of the acquisition, is as follows (

in thousands

):

Cash and cash equivalents	$	435
Accounts receivable		8,902
Prepaid expenses		1,427
Property and equipment		1,146
Intangible assets		76,240
Goodwill		107,754
Other assets		63
Accounts payable		(2,620	)
Deferred tax liability		(19,681	)
Other liabilities		(2,057	)
Total purchase price	$	171,609

The purchase price allocated to the intangibles acquired was as follows (

in thousands

):

	Useful Life (in years)
Customer relationships		15	$	56,200
Intellectual property		6		19,600
Trade name		1.5		310
Restrictive covenants		1		130
Fair value of intangibles acquired			$	76,240

Acquisition costs recorded to selling, general and administrative expenses were as follows (

in thousands

):

Other operating expenses - consulting fees	$	3,515
Other operating expenses - legal fees		832
Other operating expenses - transaction costs		185
Acquisition-related costs	$	4,532

The financial results of Eliza’s operations since

April 17, 2017

have been included in the Company’s consolidated financial statements. Eliza contributed

$51.9

million and

$30.4

million in revenue to HMS results of operations in the years ended

December 31, 2018

and

2017,

respectively.

(b) Essette

On

September 2, 2016,

the Company acquired the outstanding capital stock of Essette for a purchase price of

$24.2

million funded by cash on hand. The immaterial results of Essette’s operations since

September 2, 2016

have been included in the Company’s consolidated financial statements.

XML

Note 5 - Property and Equipment

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

5. Property and Equipment

Property and equipment consisted of the following (

in thousands

):

	December 31,
	2018			2017
Equipment	$	95,350		$	106,768
Leasehold improvements		7,547			8,357
Building		8,624			8,624
Building improvements		14,825			14,546
Land		2,769			2,769
Furniture and fixtures		9,404			10,352
Capitalized software		131,819			125,655
		270,338			277,071
Less: accumulated depreciation and amortization		(175,903	)		(178,490	)
Property and equipment, net	$	94,435		$	98,581

	December 31,
	2018		2017		2016
Depreciation and amortization expenses related to property and equipment	$	33,254	$	27,515	$	24,882

XML

Note 6 - Intangible Assets

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

6. Intangible Assets

Intangible assets consisted of the following (

in thousands

):

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2018
Customer relationships	$	156,790	$	(104,740	)	$	52,050	12.8
Trade names		16,246		(16,215	)		31	0.7
Intellectual property		21,700		(6,670	)		15,030	4.1
Restrictive covenants		263		(234	)		29	0.7
Total	$	194,999	$	(127,859	)	$	67,140

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2017
Customer relationships	$	159,290	$	(89,106	)	$	70,184	11.3
Trade names		16,246		(13,916	)		2,330	1.0
Intellectual property		21,700		(2,874	)		18,826	5.2
Restrictive covenants		263		(121	)		142	1.3
Total	$	197,499	$	(106,017	)	$	91,482

Amortization expense of intangible assets is expected to approximate the following (

in thousands

):

Year ending December 31,	Amortization
2019	$	9,195
2020		7,664
2021		7,197
2022		7,197
2023		4,822
Thereafter		31,065
Total	$	67,140

For the years ended

December 31, 2018,

2017

and

2016,

amortization expense related to intangible assets was

$24.3

million,

$22.6

million, and

$20.2

million, respectively. In addition, during the year ended

December 31, 2018,

some of the intangible assets became fully amortized.

XML

Note 7 - Accounts Payable, Accrued Expenses and Other Liabilities

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

7. Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities consisted of the following (

in thousands

):

	December 31, 2018		December 31,  2017
Accounts payable, trade	$	12,394	$	19,330
Accrued compensation and other		42,833		24,072
Accrued operating expenses		19,675		18,498
Total accounts payable, accrued expenses and other liabilities	$	74,902	$	61,900

XML

Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

8. Income Taxes

Income tax expense is as follows (

in thousands

):

	December 31,
	2018			2017			2016
Current tax expense:
Federal	$	2,965		$	17,008		$	16,274
State		(1,433	)		3,201			2,929
Total current tax expense:		1,532			20,209			19,203
Deferred tax expense (benefit):
Federal		(2,650	)		(19,425	)		(7,115	)
State		(854	)		(983	)		(253	)
Total deferred tax benefit:		(3,504	)		(20,408	)		(7,368	)
Total income tax expense (benefit)	$	(1,972	)	$	(199	)	$	11,835

A reconciliation of the income tax expense calculated using the applicable federal statutory rate to the actual income tax expense is as follows (

in thousands

):

	December 31,
	2018			%			2017			%			2016			%
Computed at federal statutory rate	$	11,134			21.0		$	13,949			35.0		$	17,315			35.0
State and local tax expense, net of federal benefit		2,367			4.5			2,226			5.6			2,448			5.0
Net permanent deduction and credit tax benefits from current year		(1,143	)		(2.2	)		(1,513	)		(3.8	)		(1,509	)		(3.1	)
Net permanent deduction and credit tax benefits from prior years		-			-			-			-			(6,213	)		(12.6	)
Net uncertain tax positions excluding current permanent deduction and credit benefits		(3,756	)		(7.0	)		(373	)		(0.9	)		-			-
Subsidiary basis write off		(3,423	)		(6.5	)		-			-			-			-
Equity compensation net tax windfall		(2,890	)		(5.5	)		-			-			-			-
State tax apportionment changes		(3,737	)		(7.0	)		-			-			-			-
Disallowed executive compensation		682			1.3			-			-			-			-
Tax Reform - revaluation of deferrals		-			-			(15,130	)		(38.0	)		-			-
Acquisition adjustments		(1,226	)		(2.3	)		(1,003	)		(2.5	)		-			-
Acquisition costs		-			-			697			1.7			203			0.4
Other, net		20			-			948			2.4			(409	)		(0.8	)
Total income tax expense	$	(1,972	)		(3.7	)	$	(199	)		(0.5	)	$	11,835			23.9

The Company’s effective tax rate decreased to (

3.7%

) for the year ended

December 31, 2018

from (

0.5%

) for the year ended

December 31, 2017,

primarily from favorable tax benefits relating to current year credits, equity compensation, subsidiary basis write-off, prior year state apportionment changes, uncertain tax position releases and acquisition adjustments. The Company has

no

adjustments, to any previously recorded provisional amounts, relating to the Tax Cuts and Jobs Act which was enacted on

December 22, 2017.

During the year ended

December 31, 2018

and in conjunction with the Settlement Agreement in Note

15

to the Consolidated Financial Statements, the Company determined that the common stock of its wholly owned subsidiary, Allied Management Group Special Investigation Unit, Inc. was worthless, resulting in the write off of basis for federal income tax purposes.

As a result of an analysis performed during

2016,

the Company determined certain activities it performs qualify for (i) R&D Credits provided in IRC Section

41

and (ii) the Section

199

Deduction provided in IRC Section

199.

As a result, the Company recognized net tax benefits during the year ended

December 31, 2016 

of

$6.2

million for federal and state R&D Credits and the Section

199

Deduction relating to tax years

2012

through

2015.

Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities are as follows

(in thousands

):

	December 31,
	2018		2017
Deferred tax assets:
Stock-based compensation	$	9,545	$	9,980
Goodwill and intangible assets		5,874		6,524
Allowance for doubtful accounts		3,537		3,822
Deferred rent		696		909
Tenant improvements		569		669
Estimated liability for appeals		5,632		7,775
Net operating loss carry-forwards		1,527		3,358
Tax credit carry-forwards		4,076		3,667
Property and equipment		49		256
Accrued expenses and other		7,839		3,615
Total deferred tax assets		39,344		40,575
Deferred tax liabilities:
Goodwill and intangible assets		43,400		48,186
Section 481(a) adjustment		5,073		7,413
Prepaid expenses		668		624
Capitalized software cost		8,688		6,341
Total deferred tax liabilities		57,829		62,564
Total net deferred tax liabilities	$	18,485	$	21,989

Included i

n Other liabilities on the Consolidated Balance Sheets, are the total amount of unrecognized tax benefits of approximately

$4.8

million and

$8.2

million as of

December 31, 2018

and

2017,

respectively, net of the federal benefit for state issues that, if recognized, would favorably affect the Company’s future effective tax rate. Also included in Other Liabilities on the Consolidated Balance Sheets, are accrued liabilities for interest expense and penalties related to unrecognized tax benefits of

$0.7

million and

$0.6

million as of

December 31, 2018

and

2017,

respectively. HMS includes interest expense and penalties in the provision for income taxes in the Consolidated Statements of Income. The amount of interest expense, net of federal and state income tax benefits, and penalties in the Consolidated Statements of Income for the years ended

December 31, 2018,

2017,

and

2016

was

$0.1

million,

$0.02

million and

$0.2

million, respectively. The Company believes it is reasonably possible the amount of unrecognized tax benefits

may

decrease by

$1.7

million during

2019,

due to the expiration of the statute of limitations in various jurisdictions.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows (

in thousands

):

	2018			2017
Unrecognized tax benefits at January 1	$	8,234		$	7,433
Additions for tax positions taken during prior periods		399			599
Additions for tax positions taken during current period including amended prior years		360			1,174
Reductions relating to settlements with taxing authorities		(2,227	)		-
Reductions related to the expiration of statutes of limitations		(1,927	)		(972	)
Unrecognized tax benefits at December 31	$	4,839		$	8,234

The Company increased the provision for unrecognized tax benefits by

$0.4

million during the year ended

December 31, 2018,

related to tax benefits recognized for current period R&D Credits. At

December 31, 2018,

HMS had federal and state pre-tax net operating loss and tax credit carryforwards of approximately

$24.3

million and

$4.1

million, respectively, which will be available to offset future taxable income. If

not

used, these net operating loss and tax credit carryforwards will begin to expire in

2020

and

2019,

respectively. The Company files income tax returns with the U.S. Federal government and various state, territory, and local jurisdictions. HMS is

no

longer subject to U.S. Federal income tax examinations for years before

2013.

The Company settled an audit by the Internal Revenue Service for years

2013

and

2014

which resulted in immaterial assessments and recognition of prior unrecognized tax benefits. HMS operates in a number of state, territory and local jurisdictions. Accordingly, HMS is subject to state, territory and local income tax examinations based upon the various statutes of limitations in each jurisdiction. Previously recognized Texas refund claims were examined by the state and resulted in a favorable apportionment method change for all open tax years.

XML

Note 9 - Estimated Liability for Appeals

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Estimated Liability and Allowance for Appeals [Text Block]

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 PI 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 estimated liability for appeals is as follows (

in thousands

):

	Original RAC contract			RAC 4 contract		Commercial contracts			Total
Balance at December 31, 2016	$	28,427		$	-	$	2,328		$	30,755
Provision		2,054			-		2,729			4,783
Appeals found in providers favor		(2,665	)		-		(2,086	)		(4,751	)
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

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.

The Company continues to assess the remaining CMS liability for the original Medicare RAC contract to determine management’s best estimate of liability for any findings which have been previously adjudicated prior to the expiration of the contract. Any future changes or modifications to the Medicare RAC contracts or to the Company’s commercial customer contracts

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.

XML

Note 10 - Credit Agreement

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

10. Credit Agreement

In

May 2013,

we entered into the Credit Agreement with certain lenders and Citibank, N.A. as administrative agent. The Credit Agreement originally provided for an initial

$500

million

five

-year revolving credit facility maturing on

May 3, 2018.

On

December 19, 2017,

the Company entered into an amendment to the Credit Agreement, which, among other things, extended the maturity of its then existing revolving credit facility by

five

years to

December 2022.

The availability of funds under the amended revolving credit facility includes sublimits for (a) up to

$50

million for the issuance of letters of credit and (b) up to

$25

million for swingline loans. In addition, the Company

may

increase the commitments under its revolving credit facility and/or add

one

or more incremental term loan facilities, provided that such incremental facilities do

not

exceed in the aggregate the sum of (i) the greater of

$120

million and

100%

of Consolidated EBITDA (as defined in the Credit Agreement) and (ii) an additional amount so long as our

first

lien leverage ratio (as defined in the Credit Agreement) on a pro forma basis is

not

greater than

3.00:1.00,

subject to obtaining commitments from lenders therefor and meeting certain other conditions.

During the year ended

December 31, 2018,

no

principal payments were made against the Company’s then existing revolving credit facility. As of

December 31, 2018,

the outstanding principal balance under the amended revolving credit facility was

$240.0

million.

Borrowings under the Credit Agreement will bear interest at a rate equal to, at the Company’s election (except with respect to swingline borrowings, which will accrue interest based only at the base rate), either:

§ a base rate determined by reference to the greatest of (a) the prime or base commercial lending rate of the administrative agent as in effect on the relevant date, (b) the federal funds effective rate plus 0.50% and (c) the one -month LIBO Rate plus 1.00%, plus an interest margin ranging from 0.50% to 1.00% based on the Company’s consolidated leverage ratio for the applicable period; or

§ an adjusted LIBO Rate, equal to the LIBO Rate for the applicable interest period multiplied by the statutory reserve rate (equal to ( x ) one divided by (y) one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Board of Governors of the Federal Reserve System of the United States), plus an interest margin ranging from 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the applicable period.

In addition to paying interest on the outstanding principal, the Company is required to pay unused commitment fees on the revolving credit facility during the term of the Credit Agreement ranging from

0.375%

to

0.250%

per annum based on the Company’s consolidated leverage ratio and letter of credit fees equal to

0.125%

per annum on the aggregate face amount of each letter of credit, as well as customary agency fees.

The Company’s obligations under the Credit Agreement are secured, subject to certain customary carve-outs and exceptions, by a

first

priority lien and security interest in substantially all tangible and intangible assets of the Company and certain subsidiaries of the Company. The Credit Agreement contains certain restrictive covenants, which affect, among other things, the ability of the Company and its subsidiaries to incur indebtedness, create liens, make investments, sell or otherwise dispose of assets, engage in mergers or consolidations with other entities, and pay dividends or repurchase stock. The Company is also required to comply, on a quarterly basis, with

two

financial covenants: (i) a minimum interest coverage ratio of

3:00:1:00,

and (ii) a maximum consolidated leverage ratio of

4.75:1.00

through

December 2019

and

4.25:1.00

from and after

January 2020.

The consolidated leverage ratio is subject to a step-up to

5.25:1.00

for

four

full consecutive fiscal quarters following a permitted acquisition or similar investment. As of

December 31, 2018,

the Company was in compliance with all terms of the Credit Agreement.

Interest expense and the commitment fees on the unused portion of the Company’s revolving credit facility are as follows

(in thousands

):

	Years ended December 31,
	2018		2017		2016
Interest expense	$	9,294	$	7,170	$	4,837
Commitment fees		1,189		1,359		1,518

The Company deferred

$2.3

million of financing fees associated with the amendment. At

December 31, 2018

and

2017,

the unamortized balance of deferred financing costs was

$2.2

million and

$2.8

million, respectively. The Company amortized deferred financing costs of

$0.6

million,

$2.3

million and

$2.1

million in the years ended

December 31, 2018,

2017

and

2016.

As part of a contractual agreement with a customer, the Company has an outstanding irrevocable letter of credit for

$6.5

million, which is issued against its revolving credit facility and expires

June 30, 2019.

XML

Note 11 - Equity

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

11. Equity

(a) Share Repurchase

Following are the Company’s quarterly repurchases of shares of common stock for fiscal year

2018,

all of which were made as part of publicly announced plans or programs:

Period	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
January 1, 2018 to March 31, 2018	383,801	$	15.50	383,801	$	29,933,055
April 1, 2018 to June 30, 2018	-		-	-		-
July 1, 2018 to September 30, 2018	-		-	-		-
October 1, 2018 to December 31, 2018	-		-	-		-
Total	383,801	$	15.50	383,801	$	29,933,055

(b) Preferred Stock

The Company’s certificate of incorporation, as amended, authorizes the issuance of up to

5,000,000

shares of “blank check” preferred stock with such designations, rights and preferences as

may

be determined by the Company’s Board of Directors. As of

December 31, 2018,

no

preferred stock had been issued.

XML

Note 12 - Employee Benefit Plan

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Compensation and Employee Benefit Plans, Other than Share-based Compensation [Text Block]

12. Employee Benefit Plan

The Company sponsors the

401

(k) Plan for eligible employees. Eligible employees must complete

90

 days of service in order to enroll in the

401

(k) Plan. Participants

may

make voluntary contributions to the

401

(k) Plan of up to

60%

of their annual base pre-tax compensation

not

to exceed the federally determined maximum allowable contribution. In addition, the

401

(k) Plan permits the Company to make discretionary contributions. During

2018,

HMS matched

100%

of the

first

4%

of pay contributed by each eligible employee and

50%

of the next

1%

of pay contributed. During

2017

and

2016,

HMS matched

100%

of the

first

3%

of pay contributed by each eligible employee and

50%

on the next

2%

of pay contributed. These matching contributions vest immediately and are

not

in the form of the Company’s common stock.

For the years ended

December 31, 2018,

2017

and

2016,

HMS contributed

$7.3

million,

$5.9

million and

$4.8

million, respectively, to the

401

(k) Plan in the form of matching contributions.

XML

Note 13 - Stock-based Compensation

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

13. Stock-Based Compensation

Stock-Based Compensation Expense

Total stock-based compensation expense in the Company’s Consolidated Statements of Income related to the Company’s long-term incentive award plans was as follows (

in thousands

):

	Years ended December 31,
		2018		2017		2016
Cost of services-compensation	$	7,421	$	7,354	$	3,805
Selling, general and administrative		14,086		16,789		9,472
Total	$	21,507	$	24,143	$	13,277

The total tax benefits recognized on stock-based compensation for the years ended

December 31, 2018,

2017

and

2016

was

$9.1

million,

$4.0

million and

$4.1

million, respectively.

Stock Options

Stock-based compensation expense related to stock options was approximately

$9.6

million,

$10.3

million and

$6.9

million for the years ended

December 31, 2018,

2017

and

2016,

respectively.

Presented below is a summary of stock option activity for the year ended

December 31, 2018 (

in thousands except for weighted average exercise price and weighted average remaining contractual terms

):

	Number of Options			Weighted Average Exercise Price	Weighted Average- Remaining Contractual Terms		Aggregate- Intrinsic Value
Outstanding balance at December 31, 2017	5,554		$	17.35
Granted	1,010			19.58
Exercised	(2,017	)		19.14
Forfeitures	(114	)		17.74
Expired	(31	)		22.34
Outstanding balance at December 31, 2018	4,402			17.07	5.80	$	48,339
Expected to vest at December 31, 2018	1,481		$	18.60	8.22	$	14,119
Exercisable at December 31, 2018	2,370		$	15.87	3.83	$	29,068

As of

December 31, 2018

and

2017,

the Company had

1,999,069

and

2,372,682,

respectively, in unvested options with a weighted-average-grant-date fair value of

$7.27

and

$6.39,

respectively. The weighted-average-grant-date fair value per share of the stock options granted during the years ended

December 31, 2018,

2017

and

2016

was

$7.52,

$7.66

and

$5.55,

respectively. The weighted-average-grant-date fair value per share of stock options vested during the year ended

December 31, 2018

was

$6.18.

The weighted-average-grant-date fair value per share of the stock options forfeited during the years ended

December 31, 2018,

2017

and

2016

was

$6.86,

$5.24

and

$6.26,

respectively.

HMS estimated the fair value of each stock option grant on the date of grant using a Black-Scholes option pricing model. Weighted–average assumptions are set forth in the following table:

	Year ended December 31,
		2018		2017		2016
Expected dividend yield		-		-		-
Risk-free interest rate		2.7	%	1.8	%	1.2	%
Expected volatility		42.4	%	44.2	%	44.0	%
Expected life (years)		6.0		5.0		4.9

HMS estimated the fair value of

2017

and

2016

market condition option grants on the date of grant using a Monte-Carlo simulation model. There were

no

market condition awards granted in

2018.

Assumptions are set forth in the following table:

	Year ended December 31,
		2018	2017		2016
Expected dividend yield		-	-		-
Risk-free interest rate		-	2.2	%	1.6	%
Expected volatility		-	52.5	%	40.5	%
Expected life (years)		-	6.5		4.9

During the years ended

December 31, 2018,

2017

and

2016,

the Company issued

2,017,442,

172,326

and

510,512

shares, respectively, of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of

$38.3

million,

$2.7

million and

$2.9

million, respectively. The total intrinsic value of stock options exercised during the years ended

December 31, 2018,

2017

and

2016

was

$27.6

million,

$0.5

million and

$6.3

million, respectively.

As of

December 31, 2018,

there was approximately

$5.5

million of total unrecognized compensation cost related to stock options outstanding, which is expected to be recognized over a weighted average period of

0.9

years.

Restricted Stock Units

Stock-based compensation expense related to restricted stock units was

$11.9

million,

$13.8

million and

$6.4

million for the years ended

December 31, 2018,

2017

and

2016,

respectively.

Presented below is a summary of restricted stock units activity for the year ended

December 31, 2018 (

in thousands, except for weighted average grant date fair value per unit

):

	Number of Units			Weighted Average Grant Date Fair Value per Unit
Outstanding balance at December 31, 2017		1,346		$	17.65
Granted		766			16.80
Vesting of restricted stock units, net of units withheld for taxes		(371	)		17.06
Units withheld for taxes		(163	)		17.06
Forfeitures		(90	)		17.31
Outstanding balance at December 31, 2018		1,488		$	17.60

As of

December 31, 2018,

1,259,003

restricted stock units remained unvested and there was approximately

$9.2

million of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average vesting period of

0.87

years. During the years ended

December 31, 2018,

2017

and

2016,

the Company’s vested restricted stock units had a fair value

$9.9

million,

$9.5

million, and

$6.8

million, respectively. The weighted average grant date fair value per share of the restricted stock units vested during the years ended

December 31, 2018,

2017

and

2016

was

$17.06,

$15.39

and

$18.64,

respectively. The weighted average grant date fair value per share of the restricted stock units forfeited during the years ended

December 31, 2018,

2017

and

2016

was

$17.31,

$15.37

and

$16.95,

respectively.

XML

Note 14 - Earnings Per Share

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

14. Earnings per Share

The f

ollowing table sets forth the computation of basic and diluted earnings per share

(in thousands, except per share amounts)

:

	Years ended December 31,
		2018		2017		2016
Net income	$	54,989	$	40,054	$	37,636
Weighted average common shares outstanding-basic		83,625		83,821		84,221
Plus: net effect of dilutive stock options and restricted stock units		2,519		1,808		2,766
Weighted average common shares outstanding-diluted		86,144		85,629		86,987
Net income per common share-basic	$	0.66	$	0.48	$	0.45
Net income per common share-diluted	$	0.64	$	0.47	$	0.43

For the years ended

December 31, 2018,

2017

and

2016:

(i)

804,959,

2,646,100

and

2,070,771

stock options, respectively, and (ii) restricted stock units representing

0,

31,155

and

46,651

shares of common stock, respectively, were

not

included in the diluted earnings per share calculation because the effect would have been anti-dilutive.

XML

Note 15 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

15. Commitments and Contingencies

(a) Lease Commitments

The Company primarily leases office space but also leases information technology equipment and software licenses under operating leases that expire on various dates through

2026.

Additionally, the Company has nominal capital leases. Total lease expense, net of office space sublease income for the years ended

December 

31,

2018,

2017

and

2016

was

$3.6

million,

$5.1

million and

$5.0

 million, respectively.

Minimum annual lease payments to be made under operating leases, net of

$8.3

million office space sublease payments to be received, for each of the next

five

years ending

December 

31

and thereafter are as follows (

in thousands

):

	Operating Lease Payments
2019	$	5,778
2020		5,420
2021		3,742
2022		2,531
2023		2,236
Thereafter		2,947
Total	$	22,654

(b) Litigation

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 by HMS unlawfully deprived the Plaintiffs of the acquisition earn-out portion of the purchase price for Allied Management Group Special Investigation Unit, Inc. (“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 asserted a counterclaim against Plaintiffs for breach of contract based on contractual indemnification costs, including attorneys’ fees arising out of the Company’s defense of AMG in Kern Health Systems v. AMG, Dennis Demetre and Lori Lewis (the “California Action”), which are recoverable under the SPA. In

June 2016,

Kern Health Systems and AMG entered into a settlement agreement that resolved all claims in the California Action. In

July 2017,

the Court issued a decision on the Company’s motion for partial summary judgment and granted the motion in part, dismissing

one

of Plaintiffs’ breach of contract causes of action against HMS. On

November 3, 2017,

following a jury trial, a verdict was returned in favor of the Plaintiffs on a breach of contract claim, and the jury awarded

$60

million in damages to the Plaintiffs. On

March 14, 2018,

the Court held a hearing on the Company’s post-trial motion for an order granting it judgment notwithstanding the verdict or, alternatively, setting aside the jury’s award of damages. On

June 27, 2018,

prior to the Court issuing a decision on the motion, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with the Plaintiffs, John Alfred Lewis and Christopher Brandon Lewis. Pursuant to the terms of the Settlement Agreement, the Company paid

$20

million to resolve all matters in controversy pertaining to the lawsuit. On

July 5, 2018,

the Court entered an order to discontinue the lawsuit pursuant to the Stipulation of Discontinuance with Prejudice filed by the parties.

In

February 2018,

the Company received a Civil Investigative Demand (“CID”) from the Texas Attorney General, purporting to investigate possible unspecified violations of the Texas Medicaid Fraud Prevention Act. The Company provided certain documents and information in

March 2018

in response to the CID. HMS has

not

received any further requests for information in connection with this CID.

In

September 2018,

a former employee filed an action in the New York County Supreme Court entitled Christopher Frey v. Health Management Systems, Inc. alleging retaliation under New York law. The complaint seeks recovery of an unspecified amount of monetary damages, including back pay and other compensatory and equitable relief. The Company has moved to dismiss the complaint and the motion is currently under consideration by the Court. The Company continues to believe that this claim is without merit and intends to vigorously defend this matter.

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, employment-related matters and post-closing disputes related to acquisitions. 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. 

XML

Note 16 - Customer Concentration

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

16. Customer Concentration

(a) Geographic Information

The Company operates within the United States.

(b) Major Customers

For the years ended

December 31, 2018,

2017

and

2016

no

one

individual Company customer accounted for more than

10%

of the Company’s total revenue.

(c) Concentration of Revenue

The composition of the Company’s

ten

largest customer’s changes periodically. For the years ended

December 

31,

2018,

2017

and

2016,

the Company’s

ten

largest customers represented

41.4%,

39.5%

and

40.6%

of HMS’ total revenue, respectively. Excluding those contracts that contain automatic renewal provisions or evergreen terms, the Company’s agreements with the

ten

current largest customers generally expire between

2019

and

2026.

In many instances, HMS provides services pursuant to agreements that

may

be renewed or subject to a competitive reprocurement process. Several of the Company’s contracts, including those with some of its largest customers,

may

be terminated for convenience.

XML

Note 17 - Subsequent Events

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

17. Subsequent Events

Annual Grants to Employees

On

February 14, 2019,

the Compensation Committee of the Board of Directors approved approximately

$21.3

million in stock option and restricted stock unit awards to employees. The awards generally will vest over

three

years and will be issued

three

business days subsequent to the filing of this

2018

Form

10

-K.

In connection with the preparation of our consolidated financial statements, an evaluation of subsequent events was performed through the date of filing and there were

no

other events that have occurred that would require adjustments to the financial statements or disclosure.

XML

Note 18 - Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Quarterly Financial Information [Text Block]

18. Quarterly Financial Data (Unaudited)

The table below summarizes the Company’s unaudited quarterly operating results for the last

two

fiscal years (

in thousands, except per share amounts

):

2018	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Year Ended
Revenue	$	141,425	$	146,791		$	154,246	$	155,828	$	598,290
Operating income	$	11,922	$	(763	)	$	24,231	$	27,848	$	63,238
Net income	$	6,391	$	(3,367	)	$	18,574	$	33,391	$	54,989
Net income per common share - basic	$	0.08	$	(0.04	)	$	0.22	$	0.40	$	0.66
Net income per common share - diluted	$	0.07	$	(0.04	)	$	0.22	$	0.38	$	0.64

2017	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year Ended
Revenue	$	113,733	$	133,313	$	125,673	$	148,493	$	521,212
Operating income	$	3,943	$	14,361	$	12,861	$	19,266	$	50,431
Net income	$	1,442	$	6,517	$	6,372	$	25,723	$	40,054
Net income per common share - basic	$	0.02	$	0.08	$	0.08	$	0.30	$	0.48
Net income per common share - diluted	$	0.02	$	0.08	$	0.07	$	0.30	$	0.47

(

1

) Second quarter

2018

results include the Company's entry into the Settlement Agreement for the payment of

$20.0

million, as described in Note

15.

(

2

) Fourth quarter

2017

results include a non-cash tax benefit of

$15.1

million due to the revaluation of the Company’s deferred tax balances pursuant to the tax rate reduction included in the

2017

Tax Act.

XML

Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

SEC Schedule, 12-09, Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the years ended

December 31, 2018,

2017

and

2016

Accounts receivable allowance and Estimated liability for appeals as of

December 31, 2018,

2017

and

2016

are as follows:

Accounts receivable allowance

(in thousands)

:

	Balance at Beginning of Year		Provision		Recoveries		Charge-offs			Balance at End of Year
Year ended December 31, 2016	$	11,464	$	21,583	$	108	$	(22,383	)	$	10,772
Year ended December 31, 2017		10,772		20,233		-		(16,206	)		14,799
Year ended December 31, 2018		14,799		20,453		-		(21,569	)		13,683

Estimated liability for appeals

(in thousands)

:

	Balance at Beginning of Year		Provision		Appeals found in providers favor			Release of estimated liability			Balance at End of Year
Year ended December 31, 2016	$	12,801	$	721	$	(2,396	)	$	-		$	11,126
Year ended December 31, 2017		11,126		83		(2,665	)		-			8,544
Year ended December 31, 2018		8,544		-		(108	)		(8,436	)		-

The above chart represents the CMS estimated reserve liability only.

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

(i) Principles of Consolidation

The consolidated financial statements include the Company’s accounts and transactions and those of the Company’s wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

(ii) Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents, Policy [Policy Text Block]

(iii) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of

three

months or less to be cash equivalents. Cash equivalents consist of deposits that are readily convertible into cash.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

(iv) Concentration of Credit Risk

The Company’s policy is to limit credit exposure by placing cash in accounts which are exposed to minimal interest rate and credit risk. HMS maintains cash and cash equivalents in cash depository accounts with large financial institutions with a minimum credit rating of

A1/P1

or better, as defined by Standard and Poor’s. The balance at these institutions generally exceeds the maximum balance insured by the Federal Deposit Insurance Corporation of up to

$250,000

per entity. HMS has

not

experienced any losses in cash and cash equivalents and believes these cash and cash equivalents do

not

expose the Company to any significant credit risk.

The Company is subject to potential credit risk related to changes in economic conditions within the healthcare market. However, HMS believes that the billing and collection policies are adequate to minimize the potential credit risk. The Company performs ongoing credit evaluations of customers and generally does

not

require collateral.

Property, Plant and Equipment, Policy [Policy Text Block]

(v) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets utilizing the straight-line method. HMS amortizes leasehold improvements on a straight-line basis over the shorter of (i) the term of the lease or (ii) the estimated useful life of the improvement. Equipment leased under capital leases is depreciated over the shorter of (i) the term of the lease or (ii) the estimated useful life of the equipment. Capitalized software costs relate to software that is acquired or developed for internal use while in the application development stage. All other costs to develop software for internal use, either in the preliminary project stage or post-implementation stage, are expensed as incurred. Amortization of capitalized software is calculated on a straight-line basis over the expected economic life. Land is

not

depreciated.

Estimated useful lives are as follows:

Property and Equipment	Useful Life (in years)
Equipment		2	to	5
Leasehold improvements		5	to	10
Furniture and fixtures			5
Capitalized software		3	to	10
Building and building improvements			up to 39

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did

not

recognize any impairment charges related to property and equipment during the years ended

December 31, 2018,

2017

or

2016.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

(vi) Intangible assets

The Company records assets acquired and liabilities assumed in a business combination based upon their acquisition date fair values. In most instances there is

not

a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. The Company determines fair value through various valuation techniques including discounted cash flow models, quoted market values and

third

party independent appraisals, as considered necessary. Significant assumptions used in those techniques include, but are

not

limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates. The use of different valuation techniques and assumptions are highly subjective and inherently uncertain and, as a result, actual results

may

differ materially from estimates.

All of the Company’s intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit. Estimated useful lives are as follows:

Intangible Assets	Useful Life (in years)
Customer relationships		7	to	15
Restrictive covenants		1	to	3
Trade names		1.5	to	7
Intellectual property		4	to	6

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized and charged to earnings is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets. The Company did

not

recognize any impairment charges related to intangible assets during the years ended

December 31, 2018,

2017

or

2016.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

(vii) Goodwill

Goodwill is the excess of acquisition costs over the fair values of assets and liabilities of acquired businesses. During the measurement period, which is up to

one

year from the acquisition date, the Company

may

record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill is subject to a periodic assessment for impairment. The Company assesses goodwill for impairment on an annual basis as of

June

30th

of each year or more frequently if an event occurs or changes in circumstances would more likely than

not

reduce the fair value of a reporting unit below its carrying amount. Assessment of goodwill impairment is at the HMS Holdings Corp. entity level as the Company operates as a single reporting unit. We have the option to perform a qualitative or quantitative assessment to determine if impairment is more likely than

not

to have occurred. The Company completed the annual impairment test as of

June 30, 2018

electing to perform the quantitative assessment of which the

first

step is to compare the fair value of the reporting unit with its carrying value, including goodwill. In calculating the fair value of the reporting unit, the Company utilized a weighting across

three

commonly accepted valuation approaches: an income approach, a guideline public company approach, and a merger and acquisition approach. The income approach to determining fair value computes projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting. Significant assumptions in the income approach include income projections, a discount rate and a terminal growth value which are all level

3

inputs. The income projections include assumptions for revenue and expense growth which are based on internally developed business plans and largely reflect recent historical revenue and expense trends.  The discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium. The terminal growth value is Company specific and was determined analyzing inputs such as historical inflation and the GDP growth rate. The guideline public company approach and merger and acquisition approach are based on pricing multiples observed for similar publicly traded companies or similar market companies that were sold. The results of the annual impairment assessment provide that the fair value of the reporting unit was significantly in excess of the Company’s carrying value, including goodwill; therefore,

no

impairment was indicated. There were

no

impairment charges related to goodwill during the years ended

December 31, 2018,

2017

or

2016.

There were

no

changes in the carrying amount of goodwill for the year ended

December 31, 2018.

Income Tax, Policy [Policy Text Block]

(viii)  Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits for net operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets to the extent their realization is

not

more likely than

not.

Uncertain income tax positions are accounted for by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide

no

assurance that the final tax outcome of these matters will

not

be materially different. The Company makes adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results.

Cost of Sales and Selling General and Administrative Expense [Policy Text Block]

(ix) Expense Classifications

HMS cost of services is presented in the categories set forth below. Each category within cost of services excludes expenses relating to SG&A functions, which are presented separately as a component of total operating costs. A description of the primary expenses included in each category is as follows:

Cost of Services:

§ Compensation: Salary, fringe benefits, bonus and stock-based compensation.

§ Information technology: Hardware, software and data communication costs.

§ Occupancy: Rent, utilities, depreciation, office equipment and repair and maintenance costs.

§ Direct project expense: Variable costs incurred from third party providers that are directly associated with specific revenue generating projects and employee travel expenses.

§ Other operating expenses: Professional fees, temporary staffing, travel and entertainment, insurance and local and property tax costs.

§ Amortization of acquisition related software and intangible assets: Amortization of the cost of acquisition related software and intangible assets.

SG&A:

§ Expenses related to general management, marketing and administrative activities.

Estimating Valuation Allowances and Accrued Liabilities, Such as Bad Debt, Policy [Policy Text Block]

( x ) Estimating Valuation Allowances and Accrued Liabilities

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. In particular, management must make estimates of the probability of collecting accounts receivable. When evaluating the adequacy of the accounts receivable allowance, management reviews the accounts receivable based on an analysis of historical revenue adjustments, bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms. As of

December 31, 2018

and

2017,

the accounts receivable balance was

$206.8

million and

$189.5

million, net of allowance of

$13.7

million and

$14.8

million, respectively.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

(xi)   Stock-Based Compensation

Long-Term Incentive Award Plans

The Company grants stock options and restricted stock units (“equity awards”) to HMS employees and non-employee directors under the

2016

Omnibus Plan, as approved by the Company’s shareholders on

June 23, 2016.

The

2016

Omnibus Plan replaced and superseded the Company’s

2006

Stock Plan and

2011

HDI Plan. As of

December 31, 2018,

the number of securities remaining available for future issuance under equity compensation plans, excluding securities to be issued upon exercise of outstanding options and vesting of restricted stock units, is

4,758,398

shares. All of the Company’s employees as well as HMS non-employee directors are eligible to participate in the

2016

Omnibus Plan. Awards granted under the

2016

Omnibus Plan generally vest over

one

to

four

years. The exercise price of stock options granted under the

2016

Omnibus Plan

may

not

be less than the fair market value of a share of stock on the grant date, as measured by the closing price of the Company’s common stock on the Nasdaq Global Select Market and the term of a stock option

may

not

exceed

ten

years. Prior to

2018,

the Company granted

two

types of equity awards:

1

) equity awards with service conditions and

2

) equity awards with market and service conditions. The market condition is based on the Company’s common stock price during the applicable measurement period. In

2018,

the Company only issued equity awards with service conditions.

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense equal to the grant date fair value of the award on a straight-line basis over the requisite service period.

The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model. The fair value of each option grant with market and service-based conditions is estimated using a Monte Carlo simulation model. The fair value of each restricted stock unit is calculated based on the closing sale price of the Company’s common stock on the grant date.

The determination of the fair value of the options on the grant date using the Black-Scholes pricing model and/or the Monte Carlo simulation model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. Certain key variables include: the Company’s expected stock price volatility over the expected term of the awards; a risk-free interest rate; and any expected dividends. The Company estimates stock price volatility based on the historical volatility of the Company’s common stock and estimates the expected term of the awards based on the Company’s historical option exercises for similar types of stock option awards. The assumed risk-free interest rate is based on the yield on the measurement date of a

zero

-coupon U.S. Treasury bond with a maturity period equal to the option’s expected term. The Company does

not

anticipate paying any cash dividends in the foreseeable future and therefore, uses an expected dividend yield of

zero

in the option valuation models. The fair value of all awards also includes an estimate of expected forfeitures. Forfeitures are estimated based on historical experience. If actual forfeitures vary from estimates, a difference in compensation expense will be recognized in the period the actual forfeitures occur. Upon the exercise of stock options or the vesting of restricted stock units, the resulting excess tax benefits or deficiencies, if any, are recognized as income tax expense or benefit.

Fair Value of Financial Instruments, Policy [Policy Text Block]

(xii)   Fair Value of Financial Instruments

Financial instruments are categorized into a

three

-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into

three

broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level

1

) and the lowest priority to unobservable inputs (Level

3

). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. In the event the fair value is

not

readily available or determinable, the financial instrument is carried at cost and referred to as a cost method investment. The fair value hierarchy is as follows:

§ Level 1: Observable inputs such as quoted prices in active markets;

§ Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

§ Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Lessee, Leases [Policy Text Block]

(xiii) Leases

HMS accounts for lease agreements as either operating or capital leases, depending on certain defined criteria. Lease costs are amortized on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives such as tenant improvement allowances, are capitalized and are treated as a reduction of rental expense over the term of the lease agreement.

New Accounting Pronouncements, Policy [Policy Text Block]

(xiv)   Recent Accounting Guidance

Recently Adopted Accounting Guidance

In

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

-

09

on

January 1, 2018

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

-

09

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.

In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation – Stock Compensation

(Topic

718

):

Improvements to Employee Share-Based Payment Accounting

, (“ASU

2016

-

09”

) that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will

no

longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows companies to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flows statement and provides an accounting policy election to account for forfeitures as they occur. ASU

2016

-

09

is effective for annual reporting periods beginning after

December 15, 2016,

including interim periods within such annual reporting periods with early adoption permitted. The Company elected to early adopt the new guidance in the

fourth

quarter of fiscal year

2016

which requires us to reflect any adjustments as of

January 1, 2016,

the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of excess tax benefits in the provision for income taxes rather than paid-in capital for all periods in fiscal year

2016.

 Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had

no

impact to retained earnings as of

January 1, 2016,

where the cumulative effect of these changes are required to be recorded. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Adoption of the new standard resulted in the recognition of net excess tax benefits in the provision for income taxes rather than paid-in capital of

$1.9

million for the year ended

December 31, 2016.

The presentation requirements for cash flows related to employee taxes paid for withheld shares had

no

impact to any of the

2016

periods presented on the consolidated statements of cash flow since such cash flows have historically been presented as a financing activity.

In

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

-

15

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

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

Business Combinations

(Topic

805

) –

Clarifying the Definition of a Business

(“ASU

2017

-

01”

). ASU

2017

-

01

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.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

Compensation – Stock Compensation

(Topic

718

):

Scope of Modification Accounting

, (“ASU

2017

-

09”

). ASU

2017

-

09

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:

1

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

2

) the award’s vesting conditions, and

3

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

2017

-

09

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.

In

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

2

from the goodwill impairment test. Step

2

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 (

1

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

2

) 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 Company elected to early adopt the new guidance in the

fourth

quarter of fiscal year

2018.

The adoption of this guidance did

not

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

On

August 17, 2018

the SEC issued SEC Final Rule Release

No.

33

-

10532,

Disclosure Update and Simplification

(“Final Rule”). The Final Rule amends certain disclosure requirements to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The Final Rule was effective for public entities that are SEC filers on

November 5, 2018.

The adoption of this guidance did

not

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

Recent Accounting Guidance

Not

Yet Adopted

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 Leases (Topic

842

) (“ASU

2016

-

02”

). ASU

2016

-

02

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

-

02

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 model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than

12

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

2016

-

02

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, and therefore is adopting this guidance on

January 1, 2019

and will use the effective date as our date of initial application. Consequently, financial information will

not

be updated and the disclosures required under the new standard will

not

be provided for dates and periods prior to the date of adoption. The Company developed a preliminary implementation plan and reviewed historical lease agreements in order to quantify the impact of adoption. Based upon the preliminary implementation plan, the Company expects the adoption of ASU

2016

-

02

will have a material impact on the consolidated balance sheet due to the recognition of the ROU assets and lease liabilities. The adoption of ASU

2016

-

02

is

not

expected to have a material impact on the consolidated statement of income or consolidated statement of cash flow. However, the Company continues to perform the necessary reviews and other implementation considerations, including an evaluation of the incremental borrowing rate, in order to appropriately quantify the changes. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (

1

) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (

2

) financial statement disclosures. We do

not

expect a significant change in our leasing activities between now and adoption. A range of undiscounted ROU assets and lease liabilities at

January 1, 2019

is

$28

million to

$31

million. We expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments. The Company plans adopt this guidance using the optional transition method. The new standard also provides practical expedients for an entity’s existing and ongoing accounting and we expect to adopt the package of practical expedients as well as the practical expedient to

not

separate lease and non-lease components of our leases and the short-term lease practical expedient.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

Financial Instruments – Credit Losses

(“ASU

2016

-

13”

). ASU

2016

-

13

introduces the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses. ASU

2016

-

13

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

-

13

is effective for public entities for fiscal year beginning after

December 15, 2019,

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.

In

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

-

07

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

2018

-

07

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.

XML

Note 1 - Business and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Property and Equipment, Estimated Useful Life [Table Text Block]

Property and Equipment	Useful Life (in years)
Equipment		2	to	5
Leasehold improvements		5	to	10
Furniture and fixtures			5
Capitalized software		3	to	10
Building and building improvements			up to 39

Useful Lives of Intangible Assets [Table Text Block]

Intangible Assets	Useful Life (in years)
Customer relationships		7	to	15
Restrictive covenants		1	to	3
Trade names		1.5	to	7
Intellectual property		4	to	6

XML

Note 2 - Revenue (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

Coordination of Benefits	$	397,095
Payment Integrity		144,063
Total Population Management		57,132
Total	$	598,290

Commercial	$	323,150
State		233,921
Federal		41,219
Total	$	598,290

XML

Note 4 - Acquisition (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Cash and cash equivalents	$	435
Accounts receivable		8,902
Prepaid expenses		1,427
Property and equipment		1,146
Intangible assets		76,240
Goodwill		107,754
Other assets		63
Accounts payable		(2,620	)
Deferred tax liability		(19,681	)
Other liabilities		(2,057	)
Total purchase price	$	171,609

Schedule of Acquired Finite-Lived Intangible Assets by Major Class [Table Text Block]

	Useful Life (in years)
Customer relationships		15	$	56,200
Intellectual property		6		19,600
Trade name		1.5		310
Restrictive covenants		1		130
Fair value of intangibles acquired			$	76,240

Business Combination, Separately Recognized Transactions [Table Text Block]

Other operating expenses - consulting fees	$	3,515
Other operating expenses - legal fees		832
Other operating expenses - transaction costs		185
Acquisition-related costs	$	4,532

XML

Note 5 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	December 31,
	2018			2017
Equipment	$	95,350		$	106,768
Leasehold improvements		7,547			8,357
Building		8,624			8,624
Building improvements		14,825			14,546
Land		2,769			2,769
Furniture and fixtures		9,404			10,352
Capitalized software		131,819			125,655
		270,338			277,071
Less: accumulated depreciation and amortization		(175,903	)		(178,490	)
Property and equipment, net	$	94,435		$	98,581

	December 31,
	2018		2017		2016
Depreciation and amortization expenses related to property and equipment	$	33,254	$	27,515	$	24,882

XML

Note 6 - Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2018
Customer relationships	$	156,790	$	(104,740	)	$	52,050	12.8
Trade names		16,246		(16,215	)		31	0.7
Intellectual property		21,700		(6,670	)		15,030	4.1
Restrictive covenants		263		(234	)		29	0.7
Total	$	194,999	$	(127,859	)	$	67,140

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Weighted Average Amortization Period in Years
December 31, 2017
Customer relationships	$	159,290	$	(89,106	)	$	70,184	11.3
Trade names		16,246		(13,916	)		2,330	1.0
Intellectual property		21,700		(2,874	)		18,826	5.2
Restrictive covenants		263		(121	)		142	1.3
Total	$	197,499	$	(106,017	)	$	91,482

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year ending December 31,	Amortization
2019	$	9,195
2020		7,664
2021		7,197
2022		7,197
2023		4,822
Thereafter		31,065
Total	$	67,140

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Note 7 - Accounts Payable, Accrued Expenses and Other Liabilities (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	December 31, 2018		December 31,  2017
Accounts payable, trade	$	12,394	$	19,330
Accrued compensation and other		42,833		24,072
Accrued operating expenses		19,675		18,498
Total accounts payable, accrued expenses and other liabilities	$	74,902	$	61,900

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Note 8 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	December 31,
	2018			2017			2016
Current tax expense:
Federal	$	2,965		$	17,008		$	16,274
State		(1,433	)		3,201			2,929
Total current tax expense:		1,532			20,209			19,203
Deferred tax expense (benefit):
Federal		(2,650	)		(19,425	)		(7,115	)
State		(854	)		(983	)		(253	)
Total deferred tax benefit:		(3,504	)		(20,408	)		(7,368	)
Total income tax expense (benefit)	$	(1,972	)	$	(199	)	$	11,835

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	December 31,
	2018			%			2017			%			2016			%
Computed at federal statutory rate	$	11,134			21.0		$	13,949			35.0		$	17,315			35.0
State and local tax expense, net of federal benefit		2,367			4.5			2,226			5.6			2,448			5.0
Net permanent deduction and credit tax benefits from current year		(1,143	)		(2.2	)		(1,513	)		(3.8	)		(1,509	)		(3.1	)
Net permanent deduction and credit tax benefits from prior years		-			-			-			-			(6,213	)		(12.6	)
Net uncertain tax positions excluding current permanent deduction and credit benefits		(3,756	)		(7.0	)		(373	)		(0.9	)		-			-
Subsidiary basis write off		(3,423	)		(6.5	)		-			-			-			-
Equity compensation net tax windfall		(2,890	)		(5.5	)		-			-			-			-
State tax apportionment changes		(3,737	)		(7.0	)		-			-			-			-
Disallowed executive compensation		682			1.3			-			-			-			-
Tax Reform - revaluation of deferrals		-			-			(15,130	)		(38.0	)		-			-
Acquisition adjustments		(1,226	)		(2.3	)		(1,003	)		(2.5	)		-			-
Acquisition costs		-			-			697			1.7			203			0.4
Other, net		20			-			948			2.4			(409	)		(0.8	)
Total income tax expense	$	(1,972	)		(3.7	)	$	(199	)		(0.5	)	$	11,835			23.9

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,
	2018		2017
Deferred tax assets:
Stock-based compensation	$	9,545	$	9,980
Goodwill and intangible assets		5,874		6,524
Allowance for doubtful accounts		3,537		3,822
Deferred rent		696		909
Tenant improvements		569		669
Estimated liability for appeals		5,632		7,775
Net operating loss carry-forwards		1,527		3,358
Tax credit carry-forwards		4,076		3,667
Property and equipment		49		256
Accrued expenses and other		7,839		3,615
Total deferred tax assets		39,344		40,575
Deferred tax liabilities:
Goodwill and intangible assets		43,400		48,186
Section 481(a) adjustment		5,073		7,413
Prepaid expenses		668		624
Capitalized software cost		8,688		6,341
Total deferred tax liabilities		57,829		62,564
Total net deferred tax liabilities	$	18,485	$	21,989

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	2018			2017
Unrecognized tax benefits at January 1	$	8,234		$	7,433
Additions for tax positions taken during prior periods		399			599
Additions for tax positions taken during current period including amended prior years		360			1,174
Reductions relating to settlements with taxing authorities		(2,227	)		-
Reductions related to the expiration of statutes of limitations		(1,927	)		(972	)
Unrecognized tax benefits at December 31	$	4,839		$	8,234

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Note 9 - Estimated Liability for Appeals (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Activity in the Estimated Liability for Appeals [Table Text Block]

	Original RAC contract			RAC 4 contract		Commercial contracts			Total
Balance at December 31, 2016	$	28,427		$	-	$	2,328		$	30,755
Provision		2,054			-		2,729			4,783
Appeals found in providers favor		(2,665	)		-		(2,086	)		(4,751	)
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

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Note 10 - Credit Agreement (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Interest Expense and Commitment Fees on Debt Instrument [Table Text Block]

	Years ended December 31,
	2018		2017		2016
Interest expense	$	9,294	$	7,170	$	4,837
Commitment fees		1,189		1,359		1,518

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Note 11 - Equity (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Class of Treasury Stock [Table Text Block]

Period	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
January 1, 2018 to March 31, 2018	383,801	$	15.50	383,801	$	29,933,055
April 1, 2018 to June 30, 2018	-		-	-		-
July 1, 2018 to September 30, 2018	-		-	-		-
October 1, 2018 to December 31, 2018	-		-	-		-
Total	383,801	$	15.50	383,801	$	29,933,055

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Note 13 - Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Years ended December 31,
		2018		2017		2016
Cost of services-compensation	$	7,421	$	7,354	$	3,805
Selling, general and administrative		14,086		16,789		9,472
Total	$	21,507	$	24,143	$	13,277

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Options			Weighted Average Exercise Price	Weighted Average- Remaining Contractual Terms		Aggregate- Intrinsic Value
Outstanding balance at December 31, 2017	5,554		$	17.35
Granted	1,010			19.58
Exercised	(2,017	)		19.14
Forfeitures	(114	)		17.74
Expired	(31	)		22.34
Outstanding balance at December 31, 2018	4,402			17.07	5.80	$	48,339
Expected to vest at December 31, 2018	1,481		$	18.60	8.22	$	14,119
Exercisable at December 31, 2018	2,370		$	15.87	3.83	$	29,068

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Year ended December 31,
		2018		2017		2016
Expected dividend yield		-		-		-
Risk-free interest rate		2.7	%	1.8	%	1.2	%
Expected volatility		42.4	%	44.2	%	44.0	%
Expected life (years)		6.0		5.0		4.9

	Year ended December 31,
		2018	2017		2016
Expected dividend yield		-	-		-
Risk-free interest rate		-	2.2	%	1.6	%
Expected volatility		-	52.5	%	40.5	%
Expected life (years)		-	6.5		4.9

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Number of Units			Weighted Average Grant Date Fair Value per Unit
Outstanding balance at December 31, 2017		1,346		$	17.65
Granted		766			16.80
Vesting of restricted stock units, net of units withheld for taxes		(371	)		17.06
Units withheld for taxes		(163	)		17.06
Forfeitures		(90	)		17.31
Outstanding balance at December 31, 2018		1,488		$	17.60

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Note 14 - Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Years ended December 31,
		2018		2017		2016
Net income	$	54,989	$	40,054	$	37,636
Weighted average common shares outstanding-basic		83,625		83,821		84,221
Plus: net effect of dilutive stock options and restricted stock units		2,519		1,808		2,766
Weighted average common shares outstanding-diluted		86,144		85,629		86,987
Net income per common share-basic	$	0.66	$	0.48	$	0.45
Net income per common share-diluted	$	0.64	$	0.47	$	0.43

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Note 15 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Future Minimum Lease Payments for Leases [Table Text Block]

	Operating Lease Payments
2019	$	5,778
2020		5,420
2021		3,742
2022		2,531
2023		2,236
Thereafter		2,947
Total	$	22,654

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Note 18 - Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Quarterly Financial Information [Table Text Block]

2018	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Year Ended
Revenue	$	141,425	$	146,791		$	154,246	$	155,828	$	598,290
Operating income	$	11,922	$	(763	)	$	24,231	$	27,848	$	63,238
Net income	$	6,391	$	(3,367	)	$	18,574	$	33,391	$	54,989
Net income per common share - basic	$	0.08	$	(0.04	)	$	0.22	$	0.40	$	0.66
Net income per common share - diluted	$	0.07	$	(0.04	)	$	0.22	$	0.38	$	0.64

2017	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year Ended
Revenue	$	113,733	$	133,313	$	125,673	$	148,493	$	521,212
Operating income	$	3,943	$	14,361	$	12,861	$	19,266	$	50,431
Net income	$	1,442	$	6,517	$	6,372	$	25,723	$	40,054
Net income per common share - basic	$	0.02	$	0.08	$	0.08	$	0.30	$	0.48
Net income per common share - diluted	$	0.02	$	0.08	$	0.07	$	0.30	$	0.47

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Schedule II - Valuation and Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Valuation and Qualifying Accounts Disclosure [Table Text Block]

	Balance at Beginning of Year		Provision		Recoveries		Charge-offs			Balance at End of Year
Year ended December 31, 2016	$	11,464	$	21,583	$	108	$	(22,383	)	$	10,772
Year ended December 31, 2017		10,772		20,233		-		(16,206	)		14,799
Year ended December 31, 2018		14,799		20,453		-		(21,569	)		13,683

	Balance at Beginning of Year		Provision		Appeals found in providers favor			Release of estimated liability			Balance at End of Year
Year ended December 31, 2016	$	12,801	$	721	$	(2,396	)	$	-		$	11,126
Year ended December 31, 2017		11,126		83		(2,665	)		-			8,544
Year ended December 31, 2018		8,544		-		(108	)		(8,436	)		-

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Note 1 - Business and Summary of Significant Accounting Policies (Details Textual)	12 Months Ended
	Dec. 31, 2018 USD ($) shares	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Number of Businesses	1
Maximum Balance Per Bank Account Insured by Federal Deposit Insurance Corporation	$ 250,000
Impairment of Intangible Assets (Excluding Goodwill), Total	0	$ 0	$ 0
Goodwill, Impairment Loss	0	0	0
Goodwill, Period Increase (Decrease), Total	0
Accounts Receivable, Net, Current, Total	206,772,000	189,460,000
Allowance for Doubtful Accounts Receivable, Current, Ending Balance	$ 13,683,000	$ 14,799,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%
Recognition of Net Excess Tax Benefits in the Provision for Income Taxes Rather Than Paid-in Capital [Member]
Current Period Reclassification Adjustment			$ 1,900,000
The 2016 Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | shares	4,758,398
The 2016 Omnibus Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
The 2016 Omnibus Plan [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
The 2016 Omnibus Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years

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Note 1 - Business and Summary of Significant Accounting Policies - Estimated Useful Lives of Property and Equipment (Details)	12 Months Ended
	Dec. 31, 2018
Furniture and Fixtures [Member]
Equipment (Year)	5 years
Building and Building Improvements [Member]
Equipment (Year)	39 years
Minimum [Member] | Equipment [Member]
Equipment (Year)	2 years
Minimum [Member] | Leasehold Improvements [Member]
Equipment (Year)	5 years
Minimum [Member] | Software and Software Development Costs [Member]
Equipment (Year)	3 years
Maximum [Member] | Equipment [Member]
Equipment (Year)	5 years
Maximum [Member] | Leasehold Improvements [Member]
Equipment (Year)	10 years
Maximum [Member] | Software and Software Development Costs [Member]
Equipment (Year)	10 years

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Note 1 - Business and Summary of Significant Accounting Policies - Estimated Useful Lives of Intangible Assets (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Customer Relationships [Member]
Intangible assets, estimated useful life (Year)	12 years 292 days	11 years 109 days
Customer Relationships [Member] | Minimum [Member]
Intangible assets, estimated useful life (Year)	7 years
Customer Relationships [Member] | Maximum [Member]
Intangible assets, estimated useful life (Year)	15 years
Restrictive Covenant [Member]
Intangible assets, estimated useful life (Year)	255 days	1 year 109 days
Restrictive Covenant [Member] | Minimum [Member]
Intangible assets, estimated useful life (Year)	1 year
Restrictive Covenant [Member] | Maximum [Member]
Intangible assets, estimated useful life (Year)	3 years
Trade Names [Member]
Intangible assets, estimated useful life (Year)	255 days	1 year
Trade Names [Member] | Minimum [Member]
Intangible assets, estimated useful life (Year)	1 year 182 days
Trade Names [Member] | Maximum [Member]
Intangible assets, estimated useful life (Year)	7 years
Intellectual Property [Member]
Intangible assets, estimated useful life (Year)	4 years 36 days	5 years 73 days
Intellectual Property [Member] | Minimum [Member]
Intangible assets, estimated useful life (Year)	4 years
Intellectual Property [Member] | Maximum [Member]
Intangible assets, estimated useful life (Year)	6 years

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Note 2 - Revenue (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Retained Earnings (Accumulated Deficit), Ending Balance	$ 422,235	$ 366,164
Contract with Customer, Liability, Total	5,600	$ 6,400
Contract with Customer, Liability, Revenue Recognized	5,300
Accounting Standards Update 2014-09 [Member]
Retained Earnings (Accumulated Deficit), Ending Balance	$ 1,100
Minimum [Member]
Contracts With Customers, Term	1 year
Maximum [Member]
Contracts With Customers, Term	5 years

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Note 2 - Revenue - Revenues Disaggregated by Revenue Source and Market (Details) - USD ($) $ in Thousands	3 Months Ended										12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	[1]	Mar. 31, 2018	Dec. 31, 2017	[2]	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenues	$ 155,828	$ 154,246	$ 146,791		$ 141,425	$ 148,493		$ 125,673	$ 133,313	$ 113,733	$ 598,290	$ 521,212	$ 489,720
Sales Channel, Commercial [Member]
Revenues											323,150
Sales Channel, State [Member]
Revenues											233,921
Sales Channel, Federal [Member]
Revenues											41,219
Coordination of Benefits [Member]
Revenues											397,095
Payment Integrity [Member]
Revenues											144,063
Total Population Management [Member]
Revenues											$ 57,132

[1] Second quarter 2018 results include the Company's entry into the Settlement Agreement for the payment of $20 million, as described in Note 14.

[2] Fourth quarter 2017 results include a non-cash tax benefit of $15.1 million due to the revaluation of the Company’s deferred tax balances pursuant to the tax rate reduction included in the 2017 Tax Act.

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Note 3 - Fair Value of Financial Instruments (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Contingent Consideration Liability [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Sales	$ 0	$ 0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Settlements	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Purchases	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Issuances	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers Into Level 3	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers out of Level 3	0	0
Other Liabilities [Member] | Fair Value, Inputs, Level 3 [Member]
Business Combination, Contingent Consideration, Liability, Total	$ 0	$ 35,000

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Note 4 - Acquisition (Details Textual) - Eliza Holding Corp [Member] - USD ($) $ in Millions			12 Months Ended
	Apr. 17, 2017	Sep. 02, 2016	Dec. 31, 2018	Dec. 31, 2017
Business Acquisition, Percentage of Voting Interests Acquired	100.00%
Payments to Acquire Businesses, Gross	$ 171.6
Business Acquisition, Funding Source, Cash on Hand, Percentage	75.00%
Business Acquisition, Funding Source, Existing Credit Line, Percentage	25.00%
Business Acquisition, Pro Forma Revenue			$ 51.9	$ 30.4
Business Combination, Consideration Transferred, Total		$ 24.2

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Note 4 - Acquisition - Preliminary Allocation of the Purchase Price (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Apr. 17, 2017
Goodwill	$ 487,617	$ 487,617
Eliza Holding Corp [Member]
Cash and cash equivalents			$ 435
Accounts receivable			8,902
Prepaid expenses			1,427
Property and equipment			1,146
Intangible assets			76,240
Goodwill			107,754
Other assets			63
Accounts payable			(2,620)
Deferred tax liability			(19,681)
Other liabilities			(2,057)
Total purchase price			$ 171,609

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Note 4 - Acquisition - Preliminary Purchase Price Allocated to the Intangibles Acquired (Details) - Eliza Holding Corp [Member] $ in Thousands	Apr. 17, 2017 USD ($)
Fair value of intangibles acquired	$ 76,240
Customer Relationships [Member]
Intangibles acquired, useful life (Year)	15 years
Fair value of intangibles acquired	$ 56,200
Intellectual Property [Member]
Intangibles acquired, useful life (Year)	6 years
Fair value of intangibles acquired	$ 19,600
Trade Names [Member]
Intangibles acquired, useful life (Year)	1 year 182 days
Fair value of intangibles acquired	$ 310
Restrictive Covenant [Member]
Intangibles acquired, useful life (Year)	1 year
Fair value of intangibles acquired	$ 130

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Note 4 - Acquisition - Acquisition Costs (Details) - Cost of Services [Member] - Eliza Holding Corp [Member] $ in Thousands	Apr. 17, 2017 USD ($)
Acquisition-related costs	$ 4,532
Other Operating Expenses, Consulting Fees [Member]
Acquisition-related costs	3,515
Other Operating Expenses, Legal Fees [Member]
Acquisition-related costs	832
Other Operating Expenses, Transaction Costs [Member]
Acquisition-related costs	$ 185

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Note 5 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Property and equipment, gross	$ 270,338	$ 277,071
Less: accumulated depreciation and amortization	(175,903)	(178,490)
Property and equipment, net	94,435	98,581
Depreciation and amortization expenses related to property and equipment	33,254	27,515	$ 24,882
Equipment [Member]
Property and equipment, gross	95,350	106,768
Leasehold Improvements [Member]
Property and equipment, gross	7,547	8,357
Building [Member]
Property and equipment, gross	8,624	8,624
Building Improvements [Member]
Property and equipment, gross	14,825	14,546
Land [Member]
Property and equipment, gross	2,769	2,769
Furniture and Fixtures [Member]
Property and equipment, gross	9,404	10,352
Software and Software Development Costs [Member]
Property and equipment, gross	$ 131,819	$ 125,655

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Note 6 - Intangible Assets (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Amortization of Intangible Assets, Total	$ 24,342	$ 22,555	$ 20,164

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Note 6 - Intangible Assets - Summary of Intangible Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Gross Carrying Amount	$ 194,999	$ 197,499
Accumulated Amortization	(127,859)	(106,017)
Net Carrying Amount	67,140	91,482
Customer Relationships [Member]
Gross Carrying Amount	156,790	159,290
Accumulated Amortization	(104,740)	(89,106)
Net Carrying Amount	$ 52,050	$ 70,184
Intangible assets, estimated useful life (Year)	12 years 292 days	11 years 109 days
Trade Names [Member]
Gross Carrying Amount	$ 16,246	$ 16,246
Accumulated Amortization	(16,215)	(13,916)
Net Carrying Amount	$ 31	$ 2,330
Intangible assets, estimated useful life (Year)	255 days	1 year
Intellectual Property [Member]
Gross Carrying Amount	$ 21,700	$ 21,700
Accumulated Amortization	(6,670)	(2,874)
Net Carrying Amount	$ 15,030	$ 18,826
Intangible assets, estimated useful life (Year)	4 years 36 days	5 years 73 days
Restrictive Covenant [Member]
Gross Carrying Amount	$ 263	$ 263
Accumulated Amortization	(234)	(121)
Net Carrying Amount	$ 29	$ 142
Intangible assets, estimated useful life (Year)	255 days	1 year 109 days

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Note 6 - Intangible Assets - Estimated Amortization Expense of Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
2019	$ 9,195
2020	7,664
2021	7,197
2022	7,197
2023	4,822
Thereafter	31,065
Total	$ 67,140	$ 91,482

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Note 7 - Accounts Payable, Accrued Expenses and Other Liabilities - Summary of Accounts Payable, Accrued Expenses and Other Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts payable, trade	$ 12,394	$ 19,330
Accrued compensation and other	42,833	24,072
Accrued operating expenses	19,675	18,498
Total accounts payable, accrued expenses and other liabilities	$ 74,902	$ 61,900

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Note 8 - Income Taxes (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Effective Income Tax Rate Reconciliation, Percent, Total	(3.70%)	(0.50%)	23.90%
Effective Income Tax Rate Reconciliation, Deduction, Qualified Production Activity, Amount			$ 6,200
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 4,800	$ 8,200
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued, Total	700	600
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total	100	20	$ 200
Decrease in Unrecognized Tax Benefits is Reasonably Possible	1,700
Unrecognized Tax Benefits, Increase Resulting from Current Period Tax Positions	360	$ 1,174
Operating Loss Carryforwards, Total	$ 4,100
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member]
Income Tax Examination, Year under Examination	2013 2014

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Note 8 - Income Taxes - Summary of Income Tax Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Current tax expense:
Federal	$ 2,965	$ 17,008	$ 16,274
State	(1,433)	3,201	2,929
Total current tax expense:	1,532	20,209	19,203
Deferred tax expense (benefit):
Federal	(2,650)	(19,425)	(7,115)
State	(854)	(983)	(253)
Total deferred tax benefit:	(3,504)	(20,408)	(7,368)
Total income tax expense (benefit)	$ (1,972)	$ (199)	$ 11,835

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Note 8 - Income Taxes - Reconciliation of Income Tax Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Computed at federal statutory rate	$ 11,134	$ 13,949	$ 17,315
Computed at federal statutory rate, percentage	21.00%	35.00%	35.00%
State and local tax expense, net of federal benefit	$ 2,367	$ 2,226	$ 2,448
State and local tax expense, net of federal benefit, percentage	4.50%	5.60%	5.00%
Net permanent deduction and credit tax benefits from current year	$ (1,143)	$ (1,513)	$ (1,509)
Net permanent deduction and credit tax benefits from current year, percentage	(2.20%)	(3.80%)	(3.10%)
Net permanent deduction and credit tax benefits from prior years			$ (6,213)
Net permanent deduction and credit tax benefits from prior years, percentage			(12.60%)
Net uncertain tax positions excluding current permanent deduction and credit benefits	$ (3,756)	$ (373)
Net uncertain tax positions excluding current permanent deduction and credit benefits, percentage	(7.00%)	(0.90%)
Subsidiary basis write off	$ (3,423)
Subsidiary basis write off, percentage	(6.50%)
Equity compensation net tax windfall	$ (2,890)
Equity compensation net tax windfall, percentage	(5.50%)
State tax apportionment changes	$ (3,737)
State tax apportionment changes, percentage	(7.00%)
Disallowed executive compensation	$ 682
Disallowed executive compensation, percentage	1.30%
Tax Reform - revaluation of deferrals		$ (15,130)
Tax Reform - Revaluation of Deferrals, precentage		(38.00%)
Acquisition adjustments	$ (1,226)	$ (1,003)
Acquisition adjustments, percentage	(2.30%)	(2.50%)
Acquisition costs		$ 697	$ 203
Acquisition costs, precentage		1.70%	0.40%
Other, net	$ 20	$ 948	$ (409)
Other, net, percentage		2.40%	(0.80%)
Total income tax expense (benefit)	$ (1,972)	$ (199)	$ 11,835
Total income tax expense, percentage	(3.70%)	(0.50%)	23.90%

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Note 8 - Income Taxes - Summary of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deferred tax assets:
Stock-based compensation	$ 9,545	$ 9,980
Goodwill and intangible assets	5,874	6,524
Allowance for doubtful accounts	3,537	3,822
Deferred rent	696	909
Tenant improvements	569	669
Estimated liability for appeals	5,632	7,775
Net operating loss carry-forwards	1,527	3,358
Tax credit carry-forwards	4,076	3,667
Property and equipment	49	256
Accrued expenses and other	7,839	3,615
Total deferred tax assets	39,344	40,575
Deferred tax liabilities:
Goodwill and intangible assets	43,400	48,186
Section 481(a) adjustment	5,073	7,413
Prepaid expenses	668	624
Capitalized software cost	8,688	6,341
Total deferred tax liabilities	57,829	62,564
Total net deferred tax liabilities	$ 18,485	$ 21,989

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Note 8 - Income Taxes - Reconciliation of Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Unrecognized tax benefits at January 1	$ 8,234	$ 7,433
Additions for tax positions taken during prior periods	399	599
Additions for tax positions taken during current period including amended prior years	360	1,174
Reductions relating to settlements with taxing authorities	(2,227)
Reductions related to the expiration of statutes of limitations	(1,927)	(972)
Unrecognized tax benefits at December 31	$ 4,839	$ 8,234

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Note 9 - Estimated Liability for Appeals (Details Textual) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Estimated Liability for Appeals Gain (Loss) Included in Earnings	$ 8,400	$ 8,436

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Note 9 - Estimated Liability for Appeals - Activity in Estimated Liability for Appeals (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Balance	$ 30,787	$ 30,787	$ 30,755
Provision		2,166	4,783
Appeals found in providers favor		(2,794)	(4,751)
Release of estimated liability	(8,400)	(8,436)
Balance		21,723	30,787	30,755
Original RAC Contract [Member]
Balance	27,816	27,816	28,427
Provision		108	2,054
Appeals found in providers favor		(108)	(2,665)
Release of estimated liability		(8,436)
Balance		19,380	27,816	28,427
RAC 4 Contract [Member]
Balance
Provision		20
Appeals found in providers favor
Release of estimated liability
Balance		20
Commercial Contracts [Member]
Balance	$ 2,971	2,971	2,328
Provision		2,038	2,729
Appeals found in providers favor		(2,686)	(2,086)
Release of estimated liability
Balance		$ 2,323	$ 2,971	$ 2,328

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Note 10 - Credit Agreement (Details Textual) $ in Thousands		1 Months Ended	12 Months Ended
	Dec. 19, 2017 USD ($)	May 31, 2013 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Amortization of Debt Issuance Costs			$ 564	$ 2,258	$ 2,083
Credit Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 500,000
Line of Credit Facility, Expiration Period	5 years	5 years
Debt Agreement, Maximum Borrowing Capacity	$ 120,000
Debt Agreement, Maximum Borrowing Capacity, Percent of Consolidated EBITDA	100.00%
Debt Issuance Costs, Net, Total			2,300
Credit Agreement [Member] | Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.125%
Credit Agreement [Member] | Swingline Loans [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 25,000
Credit Agreement [Member] | Revolving Credit Facility [Member]
Repayments of Long-term Lines of Credit			0
Long-term Line of Credit, Total			240,000
Debt Instrument, Secured Leverage Ratio	5.25
Debt Issuance Costs, Net, Total			2,200	2,800
Amortization of Debt Issuance Costs			600	$ 2,300	$ 2,100
Letters of Credit Outstanding, Amount			$ 6,500
Credit Agreement [Member] | Revolving Credit Facility [Member] | Federal Funds Effective Swap Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	0.50%
Credit Agreement [Member] | Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Credit Agreement [Member] | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument, Covenant, Interest Coverage Ratio	3
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.375%
Credit Agreement [Member] | Revolving Credit Facility [Member] | Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	0.50%
Credit Agreement [Member] | Revolving Credit Facility [Member] | Minimum [Member] | One-month LIBOR Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
Credit Agreement [Member] | Revolving Credit Facility [Member] | Maximum [Member]
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.25%
Debt Instrument, Secured Leverage Ratio	3
Credit Agreement [Member] | Revolving Credit Facility [Member] | Maximum [Member] | Through December 2019 [Member]
Debt Instrument, Secured Leverage Ratio	4.75
Credit Agreement [Member] | Revolving Credit Facility [Member] | Maximum [Member] | From and After January 2020 [Member]
Debt Instrument, Secured Leverage Ratio	4.25
Credit Agreement [Member] | Revolving Credit Facility [Member] | Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Credit Agreement [Member] | Revolving Credit Facility [Member] | Maximum [Member] | One-month LIBOR Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	2.00%

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Note 10 - Credit Agreement - Summary of Interest Expense and Commitment Fees on Unused Portion of Revolving Credit Facility (Details) - Revolving Credit Facility [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest expense	$ 9,294	$ 7,170	$ 4,837
Commitment fees	$ 1,189	$ 1,359	$ 1,518

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Note 11 - Equity (Details Textual) - shares	Dec. 31, 2018	Dec. 31, 2017
Preferred Stock, Shares Authorized	5,000,000	5,000,000
Preferred Stock, Shares Issued, Total	0	0

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Note 11 - Equity - Summary of Repurchases of Common Stock (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2018		Sep. 30, 2018		Jun. 30, 2018		Mar. 31, 2018		Dec. 31, 2018
Total Number of Shares Purchased (in shares)							383,801		383,801
Average Price Paid Per Share (in dollars per share)							$ 15.50		$ 15.50
Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program	$ 29,933,055						$ 29,933,055		$ 29,933,055
Total Number of Shares Purchased (in shares)							383,801		383,801
Publicly Announced Share Repurchase Program [Member]
Total Number of Shares Purchased (in shares)		[1]		[1]		[1]	383,801	[1]	383,801
Total Number of Shares Purchased (in shares)		[1]		[1]		[1]	383,801	[1]	383,801

[1] Represents shares repurchased through the Company's Share Repurchase Program publicly announced in November 2017.

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Note 12 - Employee Benefit Plan (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	60.00%
Defined Contribution Plan, Cost	$ 7.3	$ 5.9	$ 4.8
Amount Contributed on Percentage of Pay, Tier One [Member] | The 401(k) Plan [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	100.00%	100.00%	100.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	4.00%	3.00%	3.00%
Amount Contributed on Percentage of Pay, Tier Two [Member] | The 401(k) Plan [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	50.00%	50.00%	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	1.00%	2.00%	2.00%

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Note 13 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Expense (Benefit), Total	$ (1,972)	$ (199)	$ 11,835
Allocated Share-based Compensation Expense, Total	$ 21,507	$ 24,143	$ 13,277
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares, Ending Balance	1,999,069	2,372,682
Share-based Compensation Arrangement by Share-based Payment Award, Option, Nonvested, Weighted Average Exercise Price, Ending Balance	$ 7.27	$ 6.39
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	7.52	7.66	$ 5.55
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value	6.18
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Weighted Average Grant Date Fair Value	$ 6.86	$ 5.24	$ 6.26
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	2,017,442	172,326	510,512
Proceeds from Stock Options Exercised	$ 38,362	$ 2,720	$ 2,940
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	27,600	500	6,300
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	5,500
Employee Stock Option [Member]
Income Tax Expense (Benefit), Total	9,100	4,000	4,100
Allocated Share-based Compensation Expense, Total	$ 9,600	10,300	6,900
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	328 days
Restricted Stock Units (RSUs) [Member]
Allocated Share-based Compensation Expense, Total	$ 11,900	13,800	6,400
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	317 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	1,259,003
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 9,200
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 9,900	$ 9,500	$ 6,800
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 17.06	$ 15.39	$ 18.64
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value	$ 17.31	$ 15.37	$ 16.95

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Note 13 - Stock-based Compensation - Summary of Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Allocated Share-based Compensation Expense	$ 21,507	$ 24,143	$ 13,277
Cost of Sales [Member]
Allocated Share-based Compensation Expense	7,421	7,354	3,805
Selling, General and Administrative Expenses [Member]
Allocated Share-based Compensation Expense	$ 14,086	$ 16,789	$ 9,472

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Note 13 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Beginning Balance, Shares (in shares)	5,554,000
Beginning Balance, Weighted Average Exercise Price (in dollars per share)	$ 17.35
Granted, Shares (in shares)	1,010,000
Granted, Weighted Average Exercise Price (in dollars per share)	$ 19.58
Exercised, Shares (in shares)	(2,017,442)	(172,326)	(510,512)
Exercised, Weighted Average Exercise Price (in dollars per share)	$ 19.14
Forfeitures, Shares (in shares)	(114,000)
Forfeitures, Weighted Average Exercise Price (in dollars per share)	$ 17.74
Expired, Shares (in shares)	(31,000)
Expired, Weighted Average Exercise Price (in dollars per share)	$ 22.34
Ending Balance, Shares (in shares)	4,402,000	5,554,000
Ending Balance, Weighted Average Exercise Price (in dollars per share)	$ 17.07	$ 17.35
Ending Balance, Weighted Average Remaining Contractual Terms (Year)	5 years 292 days
Outstanding, Aggregate intrinsic value	$ 48,339
Expected to Vest, Shares (in shares)	1,481,000
Expected to Vest, Weighted Average Exercise Price (in dollars per share)	$ 18.60
Expected to Vest, Weighted Average Remaining Contractual Terms (Year)	8 years 80 days
Expected to Vest, Aggregate Intrinsic Value	$ 14,119
Exercisable, Shares (in shares)	2,370,000
Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 15.87
Exercisable, Weighted Average Remaining Contractual Terms (Year)	3 years 302 days
Exercisable, Aggregate Intrinsic Value	$ 29,068

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Note 13 - Stock-based Compensation - Weighted Average Assumptions Used in Valuation of Stock Options (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Expected dividend yield	0.00%
Employee Stock Option [Member] | Black Scholes Model [Member]
Expected dividend yield
Risk-free interest rate	2.70%	1.80%	1.20%
Expected volatility	42.40%	44.20%	44.00%
Expected life (Year)	6 years	5 years	4 years 328 days
Employee Stock Option [Member] | Monte Carlo Model [member]
Expected dividend yield
Risk-free interest rate		2.20%	1.60%
Expected volatility		52.50%	40.50%
Expected life (Year)		6 years 182 days	4 years 328 days

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Note 13 - Stock-based Compensation - Summary of Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares shares in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Beginning balance, shares (in shares)	1,346
Beginning balance, weighted average grant date fair value per unit (in dollars per share)	$ 17.65
Granted, shares (in shares)	766
Granted, weighted average grant date fair value per unit (in dollars per share)	$ 16.80
Vesting of restricted stock units, net of units withheld for taxes (in shares)	(371)
Vesting of restricted stock units, net of units withheld for taxes, weighted average grant date fair value per unit (in dollars per share)	$ 17.06	$ 15.39	$ 18.64
Units withheld for taxes (in shares)	(163)
Units withheld for taxes, weighted average grant date fair value per unit (in dollars per share)	$ 17.06
Forfeitures, shares (in shares)	(90)
Forfeitures, weighted average grant date fair value per unit (in dollars per share)	$ 17.31	$ 15.37	$ 16.95
Ending balance, shares (in shares)	1,488	1,346
Ending balance, weighted average grant date fair value per unit (in dollars per share)	$ 17.60	$ 17.65

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Note 14 - Earnings Per Share (Details Textual) - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	804,959	2,646,100	2,070,771
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	31,155	46,651

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Note 14 - Earnings Per Share - Summary of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended										12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	[1]	Mar. 31, 2018	Dec. 31, 2017	[2]	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net income	$ 33,391	$ 18,574	$ (3,367)		$ 6,391	$ 25,723		$ 6,372	$ 6,517	$ 1,442	$ 54,989	$ 40,054	$ 37,636
Basic (in shares)											83,625	83,821	84,221
Plus: net effect of dilutive stock options and restricted stock units (in shares)											2,519	1,808	2,766
Weighted average common shares outstanding-diluted (in shares)											86,144	85,088	86,987
Net income (loss) per common share - basic (in dollars per share)	$ 0.40	$ 0.22	$ (0.04)		$ 0.08	$ 0.30		$ 0.08	$ 0.08	$ 0.02	$ 0.66	$ 0.48	$ 0.45
Net income (loss) per common share - diluted (in dollars per share)	$ 0.38	$ 0.22	$ (0.04)		$ 0.07	$ 0.30		$ 0.07	$ 0.08	$ 0.02	$ 0.64	$ 0.47	$ 0.43

[1] Second quarter 2018 results include the Company's entry into the Settlement Agreement for the payment of $20 million, as described in Note 14.

[2] Fourth quarter 2017 results include a non-cash tax benefit of $15.1 million due to the revaluation of the Company’s deferred tax balances pursuant to the tax rate reduction included in the 2017 Tax Act.

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Note 15 - Commitments and Contingencies (Details Textual) - USD ($) $ in Millions			3 Months Ended	12 Months Ended
	Jun. 27, 2018	Nov. 03, 2017	Jun. 30, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Operating Leases, Rent Expense, Net, Total				$ 3.6	$ 5.1	$ 5.0
Operating Leases, Future Minimum Payments Due, Future Minimum Sublease Rentals				$ 8.3
Suit Against HMS Holdings Related to the Acquisition of Allied Management Group [Member]
Loss Contingency, Damages Awarded, Value		$ 60.0
Litigation Settlement, Amount Awarded to Other Party	$ 20.0		$ 20.0

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Note 15 - Commitments and Contingencies - Minimum Annual Lease Payments (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Operating lease payments, 2019	$ 5,778
Operating lease payments, 2020	5,420
Operating lease payments, 2021	3,742
Operating lease payments, 2022	2,531
Operating lease payments, 2023	2,236
Operating lease payments, Thereafter	2,947
Total	$ 22,654

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Note 16 - Customer Concentration (Details Textual)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Ten Largest Customers [Member]
Concentration Risk, Percentage	41.40%	39.50%	40.60%

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Note 17 - Subsequent Events (Details Textual) - Subsequent Event [Member] $ in Millions	Feb. 14, 2019 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award, Authorized Amount	$ 21.3
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years

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Note 18 - Quarterly Financial Data (Unaudited) (Details Textual) - USD ($) $ in Millions		3 Months Ended
	Jun. 27, 2018	Jun. 30, 2018	Dec. 31, 2017
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability			$ (15.1)
Suit Against HMS Holdings Related to the Acquisition of Allied Management Group [Member]
Litigation Settlement, Amount Awarded to Other Party	$ 20.0	$ 20.0

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Note 18 - Quarterly Financial Data (Unaudited) - Summary of Unaudited Quarterly Operating Results (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended										12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	[1]	Mar. 31, 2018	Dec. 31, 2017	[2]	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenues	$ 155,828	$ 154,246	$ 146,791		$ 141,425	$ 148,493		$ 125,673	$ 133,313	$ 113,733	$ 598,290	$ 521,212	$ 489,720
Operating income	27,848	24,231	(763)		11,922	19,266		12,861	14,361	3,943	63,238	50,431	57,669
Net income	$ 33,391	$ 18,574	$ (3,367)		$ 6,391	$ 25,723		$ 6,372	$ 6,517	$ 1,442	$ 54,989	$ 40,054	$ 37,636
Net income (loss) per common share - basic (in dollars per share)	$ 0.40	$ 0.22	$ (0.04)		$ 0.08	$ 0.30		$ 0.08	$ 0.08	$ 0.02	$ 0.66	$ 0.48	$ 0.45
Net income (loss) per common share - diluted (in dollars per share)	$ 0.38	$ 0.22	$ (0.04)		$ 0.07	$ 0.30		$ 0.07	$ 0.08	$ 0.02	$ 0.64	$ 0.47	$ 0.43

[1] Second quarter 2018 results include the Company's entry into the Settlement Agreement for the payment of $20 million, as described in Note 14.

[2] Fourth quarter 2017 results include a non-cash tax benefit of $15.1 million due to the revaluation of the Company’s deferred tax balances pursuant to the tax rate reduction included in the 2017 Tax Act.

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Schedule II - Valuation and Qualifying Accounts - Summary of Allowance for Doubtful Accounts and Estimated Liability for Appeals (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
SEC Schedule, 12-09, Allowance, Credit Loss [Member]
Balance at Beginning of Year	$ 14,799	$ 10,772	$ 11,464
Provision	20,453	20,233	21,583
Recoveries			108
Charge-offs	(21,569)	(16,206)	(22,383)
Balance at End of Year	13,683	14,799	10,772
Estimated Liability for Appeals and Estimated Allowance for Appeals [Member]
Balance at Beginning of Year	8,544	11,126	12,801
Provision		83	721
Recoveries	(108)	(2,665)	(2,396)
Charge-offs	(8,436)
Balance at End of Year		$ 8,544	$ 11,126