UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

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 001-34746

Accretive Health, Inc.

(Exact name of registrant as specified in its charter)

Delaware	02-0698101
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
401 North Michigan Avenue Suite 2700 Chicago, Illinois	60611
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code

(312) 324-7820

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

Title of each class:	Name of each exchange on which registered:
None	None

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

Common Stock, $0.01 par value

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

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  x

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  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.  x

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the last sale price for such stock on June 28, 2013: $ 668,398,785

The number of shares outstanding of each of the registrant’s classes of common stock, as of December 1, 2014:

Common Stock, $0.01 par value 98,308,643

EXPLANATORY NOTE

Unless the context indicates otherwise, references in this Annual Report to “Accretive Health,” “Accretive,” “the Company,” “we,” “our,” and “us” mean Accretive Health, Inc. and its subsidiaries.

On March 4, 2013, the Audit Committee of our Board of Directors, based on the recommendation of management and after consultation with our independent registered public accounting firm, determined that we will restate our previously issued consolidated financial statements.

This is our first periodic report since our Quarterly Report on Form 10-Q for the period ended September 30, 2012. This report covers the fiscal years ended December 31, 2013, 2012 and 2011 (as restated), and is in lieu of filing separate reports for 2013 and 2012 and an amended report for 2011. In addition, we are restating certain financial statement line items and making other corrective adjustments to certain of our previously filed historical consolidated financial statements and related information.

Within this report, we have included restated audited results for the year ended December 31, 2011, as well as restated unaudited condensed consolidated financial statements for the quarterly periods in 2012 and 2011, which we refer to as the Restatement. Our consolidated financial statements as of and for the year ended December 31, 2011 included in this report have been restated from the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. The Restatement corrects accounting errors related to timing of recognition of net service revenue, as well as the presentation of net service revenue and cost of services, and also certain capitalized costs for internal use software, goodwill, timing and recording of various accruals, income taxes and other miscellaneous items. We have also included the restated unaudited consolidated financial statements for the years ended December 31, 2010 and 2009 in “Part II – Item 6 – Selected Consolidated Financial Data.”

For additional discussion of the accounting errors identified, and the Restatement adjustments, see “Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, Restatement of Previously Issued Consolidated Financial Statements included in “Part II – Item 8 – Consolidated Financial Statements and Supplementary Data.” “Part II – Item 6 – Selected Consolidated Financial Data” summarizes the effects of the Restatement adjustments on 2010 and 2009, and Note 14, Quarterly Financial Information (Unaudited), to the consolidated financial statements included in this Annual Report on Form 10-K presents consolidated quarterly information for 2013, 2012 and 2011. The cumulative impact of the restated financial results at the beginning of 2009, as well as the impacts to 2009 through 2013, are presented in “Part II – Item 6 – Selected Consolidated Financial Data.” For a description of the material weaknesses identified by management as a result of our internal reviews, and management’s plan to remediate those deficiencies, see “Part II – Item 9A – Controls and Procedures.”

As a result of the Restatement and review of the accounting for the related transactions, we have been unable to timely file our annual and quarterly reports with the Securities and Exchange Commission, or SEC, for the periods ended after September 30, 2012. We do not intend to file Quarterly Reports on Form 10-Q for any of the quarters for the year ended December 31, 2013, although we have included in Note 14, Quarterly Financial Information (Unaudited), to the consolidated financial statements included in this Annual Report on Form 10-K certain disclosures for those periods in this report. We have not amended, and do not intend to amend, our Quarterly Reports on Form 10-Q for 2012, 2011 or for any prior periods affected by the Restatement or our Annual Reports on Form 10-K for 2011 or for any prior periods affected by the Restatement (other than as noted in “Part II – Item 6 – Selected Consolidated Financial Data” and “Part II – Item 8 – Consolidated Financial Statements and Supplementary Data”). We have not obtained, and do not intend to obtain, an audit of our restated consolidated financial statements for the years ended December 31, 2010 and 2009. The consolidated financial statements and related financial information in our Quarterly Reports on Form 10-Q for 2012, 2011 or any prior periods affected by the Restatement and our Annual Reports on Form 10-K for 2011 or any prior periods should not be relied on as previously noted in our Current Report on Form 8-K, dated March 8, 2013. Any material adjustments for periods prior to 2011 have been recorded as adjustments to accumulated retained earnings as of December 31, 2010 in our consolidated financial statements. Information regarding the Restatement adjustments is included in Note 2, Restatement of Previously Issued Consolidated Financial Statements, “Part II – Item 6 – Selected Consolidated Financial Data”, and Note 14, Quarterly Financial Information (Unaudited) to the consolidated financial statements included in this Annual Report on Form 10-K. All amounts reflected in this report for periods prior to and including September 30, 2012 reflect the effects of the Restatement.

ACCRETIVE HEALTH, INC.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		2
Item 1A.	Risk Factors		18
Item 1B.	Unresolved Staff Comments		37
Item 2.	Properties		37
Item 3.	Legal Proceedings		38
Item 4.	Mine Safety Disclosures		39
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		40
Item 6.	Selected Consolidated Financial Data		46
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		58
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		87
Item 8.	Consolidated Financial Statements and Supplementary Data		87
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		87
Item 9A.	Controls and Procedures		88
Item 9B.	Other Information		92
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		93
Item 11.	Executive Compensation		98
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		134
Item 13.	Certain Relationships and Related Transactions, and Director Independence		137
Item 14.	Principal Accountant Fees and Services		140
PART IV
Item 15.	Exhibits and Financial Statement Schedules		141
SIGNATURES

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the federal securities laws, that involve substantial risks and uncertainties. You should not place undue reliance on these statements. All statements, other than statements of historical facts, included in this Annual Report on Form 10-K regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

• our ability to regain a listing on a national securities exchange;

• our ability to attract and retain customers;

• our financial performance;

• the advantages of our solutions as compared to those of others;

• our plans to incorporate our value based reimbursement capabilities and our physician advisory services offering within our revenue cycle management service offering;

• our ability to establish and maintain intellectual property rights;

• our ability to retain and hire necessary employees and appropriately staff our operations; and

• our estimates regarding capital requirements and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report, particularly in “Part I - Item 1A - Risk Factors,” that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Annual Report and the documents that we have filed as exhibits to the Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I

Item 1. Business

Overview

Accretive Health is a leading provider of revenue cycle services that help healthcare providers generate sustainable improvements in their operating margins and cash flows while also enhancing patient, physician and staff satisfaction for our customers. We achieve these results for our customers through an integrated approach encompassing our end-to-end revenue cycle management service offering and physician advisory services. We do so by deploying a unique operating model that leverages our extensive healthcare site experience, innovative technology and process excellence.

Our primary service offering consists of revenue cycle management, or RCM, which helps healthcare providers to more efficiently manage their revenue cycles. This encompasses patient registration, insurance and benefit verification, medical treatment documentation and coding, bill preparation and collections from patients and third-party payers. Our offering is unique in that it spans our customers’ entire revenue cycle, setting us apart from competing service providers that address only partial solutions or cost reduction efforts. We assist our RCM customers in increasing the portion of the maximum potential services revenue they receive while simultaneously reducing their revenue cycle operating costs. Together, these benefits can generate significant and sustainable improvements in operating margins and cash flows for our customers. Our management and staff supplement each customer’s existing RCM process and staff, and help operate our customers’ processes. We educate and empower our customers’ employees so that over time we can jointly deliver improved results using the proprietary technology included in our applications. Once implemented, our technology applications, processes and services are deeply embedded in our customer’s day-to-day operations. We believe this service offering is adaptable to meet an evolving healthcare regulatory environment, technology standards and market trends. Importantly, our RCM agreements typically provide that we and our customers share in the benefits that are derived on behalf of our customers, particularly revenue increases and, in most cases, cost savings resulting from the application of our solutions. We believe that this sharing of benefits aligns our objectives and interests with those of our customers.

Our physician advisory services offering, introduced as an independent offering in 2009, and which we are in the process of integrating into our RCM offering, assists hospitals in complying with third-party payers’ requirements regarding whether to classify a hospital visit as an in-patient or an out-patient observation case for billing purposes and consists of both concurrent review and retrospective chart audits. We also provide customers with retrospective appeal management service support for both governmental and commercial payers. Our physicians conduct detailed retrospective reviews of medical records to identify medical necessity for hospital services and the required documentation to appropriately support an appeal. We employ trained physicians to deliver these services.

Our population health solutions offering, which we offered on a standalone basis between the third quarter of 2010 and the third quarter of 2014, and which we previously referred to as quality and total cost of care, was designed to enable healthcare providers to more effectively manage the health of a defined patient population by identifying those individuals who are most likely to experience an adverse health event and, as a result, incur high healthcare costs in the coming years. We currently do not serve any customers for our population health solutions as an independent service offering. In the fourth quarter of 2014, we began integrating capabilities from this offering into our core revenue cycle management offering in order to enhance our value-based reimbursement capabilities for our RCM customers.

We develop and refine our offerings based in part on information, processes and management experience garnered through working with some of the largest and most prestigious hospitals and healthcare systems in the United States, as well as in anticipation of regulatory and market changes that impact our customers. Our customers typically are single or multi-hospital healthcare systems, including faith-based healthcare systems,

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community healthcare systems, academic medical centers and their respective affiliated ambulatory clinics and physician practice groups, certain of which have common affiliations to larger umbrella healthcare organizations that are also parties to our customer contracts with their respective affiliates. We have developed strategic, long-term relationships with our customers and focus on providers that we believe understand the value of our operating model and have demonstrated success in both clinical and operational outcomes.

Our Strategy

We strive to be the partner of choice for U.S. healthcare providers in RCM, a strategically important service that aligns clinical, financial and administrative functions, allowing providers to focus on delivering quality care with ever-increasing efficiency. Key elements of our strategy include:

• Delivering tangible, long-term results through an integrated offering. Our solutions are designed to help our customers achieve sustainable economic value through improvements in their operating margins and cash flows, which provides us with performance-based revenues. Our integrated offerings alleviate the need for our customers to purchase services from multiple sources, saving them time, money and integration challenges in their efforts to improve their revenue cycle activities.

• Developing, utilizing and enhancing effective and proprietary algorithms and processes to improve our customers’ revenue yield. We have developed and continue to design proprietary processes intended to help our customers to increase net revenue yields on amounts owed to them. To help improve revenue collection from third-party payers and patients, we have developed proprietary algorithms to assess risk for all of our customers’ receivables. Our methodology is designed to enable nearly 100% of outstanding claims to be reviewed, prioritized and pursued. We believe that our focus on collecting revenue from a broader range of outstanding claims and reducing the average time to collection differentiates our RCM services.

• Seeking to expand the scope of services to existing customers and diversify our customer base. We benefit from long-term relationships with some of the nation’s largest health networks such as Ascension Health, which was our founding customer and remains our largest customer, as well as Intermountain Healthcare and Catholic Health East. We seek to expand the scope of our services to healthcare providers within the network of our existing customers’ hospital systems. We also focus on marketing to other healthcare providers and seek to leverage our relationships with existing customers as references to continue to attract business from new customers.

• Developing enhanced service offerings that are designed to enable our customers and prospects to improve their operations and to effectively participate in new payment models. We plan to introduce new services that we believe will be attractive to both existing and prospective new customers. These include offerings to support the movement toward value-based reimbursement, or VBR, that is being driven through a confluence of government regulation, commercial third-party payer programs and benefit plan designs advanced by large employers and third-party payers. These new payment models are intended to shift the utilization of healthcare resources away from volume-based episodic care of patients who are sick or have chronic conditions to the pro-active management of patient populations to promote wellness and provision of care in lower acuity settings. We believe that the impact on providers, including our customers, will be that they will increasingly bear financial risk in clinical outcomes. We also may selectively pursue acquisitions and/or strategic relationships that will enable us to broaden our service offerings.

Our Services

Drawing on our combination of our extensive healthcare-site expertise, innovative technology and process excellence, we seek to deliver measurable economic value to our customers across our revenue cycle management and physician advisory solutions.

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Revenue Cycle Management Offering

Our RCM service offering consists of comprehensive, integrated technology and RCM services, that address the full spectrum of revenue cycle operational issues faced by healthcare providers.

To implement our solution, we supplement each customer’s existing RCM process and staff with our qualified RCM specialists, leaders and staff and connect our proprietary technology and analytical applications to each customer’s existing technology systems. Our employees have significant experience in healthcare management, revenue cycle operations, technology, quality control and other management disciplines. Our solution is adapted to the hospital’s organizational structure to minimize disruption to existing operation and staff. We seek to integrate our technology, personnel, our accumulated body of knowledge and our culture within each customer’s revenue cycle activities, with the expectation that we will enjoy a long-term collaborative relationship with each customer.

Our RCM agreements generally provide us with the opportunity to earn two types of performance-based fees associated with achieved efficiencies and improvements in our customer’s revenue cycle processes: net operating fees and incentive fees.

Net operating fees represent the gross base fees we charge our customers for operating the revenue cycle processes included in our agreements less corresponding costs of customers’ revenue cycle operations which we undertake to pay pursuant to our RCM agreements. For some customers, the amount of our net operating fees is reduced by an agreed upon percentage of such difference, representing the customer’s share of cost reductions resulting from our services. We help our customers reduce their revenue cycle costs by implementing new practices, technology and more efficient processes. In certain cases, we work with our customers to transfer aspects of their revenue cycle operations to our shared services centers, which typically results in lower operating costs than operating those aspects of the revenue cycle at the customers’ site.

Incentive fees represent our negotiated share of the increases in our customers’ operating revenues and are earned by:

• Improving Net Revenue Yield. We help many of our customers improve their collection of amounts owed by third-party payers and patients for healthcare services. We refer to this as net revenue yield. We use our proprietary technology or other financial metrics to calculate their improvement in net revenue yield. When using the method of calculating this improvement that employs our proprietary technology, we compare the customer’s actual cash collections for a given instance of care to the maximum potential cash receipts that the customer should have received from the instance of care. We then aggregate these calculations for all instances of care and compare the result to the aggregate calculation for a defined period before we began to provide our services to the customer. When using other financial metrics to calculate this improvement, we typically employ metrics that are already being tracked by, or easily calculated from, our customers’ respective accounting systems and compare the results of those metrics against the results for the same metrics for a defined period before we began to provide our services to the customer.

• Increasing Charge Capture. We are able to help our customers increase their charge capture by implementing optimization techniques and related processes. We use sophisticated analytics software to help improve the accuracy of claims filings and the resolution of disputed claims from third-party payers. We also overlay a range of capabilities designed to reduce missed charges, improve the clinical/reimbursement interface and produce bills that comply with third-party payer requirements and applicable healthcare regulations.

We seek to improve our customers’ processes using a variety of techniques including:

• Gathering Complete Patient and Payer Information. We focus on gathering complete patient information and validating insurance eligibility and benefits so patient care services can be recorded and

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billed to the appropriate parties. For scheduled healthcare services, we educate patients as to their potential financial responsibilities before receiving care. Through our systems we maintain an automated electronic scorecard which measures the efficiency of up-front data capture, billing and collections throughout the life cycle of any given patient account. These scorecards are analyzed in the aggregate, and the results are used to help improve work flow processes and operational decisions for our customers.

• Improving Claims Filing and Third-Party Payer Collections. Through our proprietary technology and process expertise, we identify, for each patient encounter, the amount our customer should receive from a payer if terms of the applicable contract with the payer and patient policies are followed. Over time, we compare these amounts with the actual payments collected to help identify which payers, types of medical treatments and patients represent various levels of payment risk for a customer. Using proprietary algorithms and analytics, we consider actual reimbursement patterns to predict the payment risk associated with a customer’s claims to its payers, and we then direct increased attention and time to the riskiest accounts.

• Identifying Alternative Payment Sources. We use various methods to find payment sources for uninsured patients and reimbursement for services not covered by third-party payers. Our patient financial screening technology and methodologies often identify federal, state or private grant sources to help pay for healthcare services. These techniques are designed to ease the financial burden on uninsured or underinsured patients, increase the percentage of patient bills that are actually paid, and improve the total amount of reimbursement received by our customers.

• Employing Proprietary Technology and Algorithms. We employ a variety of proprietary data analytics and algorithms. For example, we identify patient accounts with financial risk by applying proprietary analysis techniques to the data we have collected. Our systems are designed to streamline work processes through the use of proprietary algorithms that focus revenue cycle staff effort on those accounts deemed to have the greatest potential for improving net revenue yield or charge capture. We adjust our proprietary predictive algorithms to reflect changes in payer and patient behavior based upon the knowledge we obtain from our entire customer base. As new customers are added and payer and patient behavior changes, the information we use to create our algorithms expands, increasing the accuracy, reliability and value of those algorithms.

• Using Analytical Capabilities and Operational Excellence. We draw on the experience that we have gained from working with some of the best healthcare provider systems in the United States to train our customers’ staff about new and innovative RCM practices. We use sophisticated analytical procedures to identify specific opportunities to improve business processes.

• Leveraging our Shared Services Centers. We help our customers increase their revenue cycle efficiency by implementing improved practices, streamlining work flow processes and outsourcing aspects of their revenue cycle operations to our shared services centers. Examples of services that can be completed at our shared services centers in the United States and India include pre-registration, medical transcription, cash posting, reconciliation of payments to billing records, and patient and payer follow-up. By leveraging the economies of scale and experience of our shared services centers, we believe that we offer our customers better quality services at a lower cost.

We believe that these techniques are enhanced by our proprietary and integrated technology, management experience and well-developed processes. Our proprietary technology applications include workflow automation and direct payer connection capabilities that enable revenue cycle staff to focus on problem accounts rather than on manual tasks, such as searching payer websites for insurance and benefits verification for all patients. We employ technology that identifies and isolates specific cases requiring review or action, using the same interface for all users, to automate a host of tasks that otherwise can consume a significant amount of staff time. We use real-time feedback from our customers to improve the functionality and performance of our technology and processes and incorporate these improvements into our service offerings on a regular basis. We strive to apply operational excellence throughout our customers’ entire revenue cycle.

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Physician Advisory Services Offering

Our physician advisory services offering provides concurrent level of care billing classification reviews, as well as retrospective chart audits to assist hospitals in properly billing third-party payers for selected services. These services complement our RCM offering and our ability to provide our customers end-to-end management services, and, accordingly, some of our RCM customers are also customers of our physician advisory services offering. According to the policies of the Centers for Medicare & Medicaid Services, or CMS, the decision to classify a patient as an in-patient or out-patient observation case for billing purposes is based on complex medical judgment that can only be made after the physician has considered a number of factors, including the patient’s medical history and current medical needs, the severity of signs and symptoms, the medical predictability of adverse events and the patient’s anticipated length of stay. Using our secure web portal, hospital customers transmit pertinent data about the case at hand to our trained physicians, who then leverage our proprietary diagnosis guidelines and the extensive information within our knowledge database to reach an informed billing classification judgment, which we then provide to our customers as a recommendation.

We also provide customers with retrospective appeal management service support for both governmental and commercial payers. Our physicians conduct detailed retrospective reviews of medical records to identify medical necessity for hospital services and the required documentation to appropriately support an appeal.

We believe that our physician advisory services offering provides our customers with a number of operational benefits, such as

• direct physician to physician contact,

• improved service levels, and

• real-time reporting and analytics.

Population Health Solutions Offering

Our population health solutions services are designed to enable healthcare providers to partner with third-party payers for the creation and implementation of payment structures based on clinical success, measured at either the individual level or among a defined population of patients, and to assist providers in maximizing their financial performance under such compensation structures. These services are designed to help healthcare providers enhance the patient and physician experience and to assist healthcare providers in capturing a share of any reduction in healthcare costs they are able to achieve under revised compensation structures by helping them negotiate contracts with third-party payers that provide an equitable sharing of the savings in total medical costs among the payers and healthcare providers, and manage their revenue cycle process under such contracts. In the fourth quarter of 2014, we began integrating capabilities from this offering into our core RCM offering in order to enhance our value-based reimbursement capabilities for our RCM customers. We anticipate that our value based reimbursement capabilities will be a significant component of our end-to-end RCM offering. As of the fourth quarter of 2014, we currently have no customers for population health services on a stand alone basis.

Market Opportunity

The market for our service offerings consists primarily of multi-hospital systems and other healthcare providers in the United States. We believe that macroeconomic, regulatory and healthcare industry conditions will continue to impose financial pressures on healthcare providers and will increase the importance of managing their revenue cycle operations effectively and efficiently. New reimbursement models in the healthcare industry measure both financial and clinical performance metrics, and increasingly shift economic risk of clinical outcomes to providers. We believe our integrated revenue cycle offering can help providers adapt to, and improve reimbursement levels under, such risk-based compensation structures.

Segments

All of our significant operations are organized around the single business of providing end-to-end management services of revenue cycle operations for U.S.-based hospitals and other medical services providers.

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We view our operations and manage our business as one operating and reporting segment. All of our net services revenue and trade accounts receivable are derived from healthcare providers domiciled in the United States. The information about our business should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. See Note 12, Segments and Customer Concentrations, to our consolidated financial statements for information regarding our segment and customer concentrations.

Customers

Our customers typically are single or multi-hospital healthcare systems, including faith-based healthcare systems, community healthcare systems, academic medical centers and their respective affiliated ambulatory clinics and physician practice groups, certain of which have common affiliations to larger umbrella healthcare organizations that are also parties to our customer contracts with their respective affiliates. Our service offerings are best suited for healthcare organizations in which substantial improvements can be realized through the full implementation of our solutions. We focus our sales efforts on large acute hospitals and multi-hospital systems. We seek to develop strategic, long-term relationships with our customers and focus on providers that we believe understand the value of our operating model and have demonstrated success in both the provision of healthcare services and the ability to achieve financial and operational results.

Customer Agreements

We generally provide our RCM offering pursuant to managed services agreements with our customers. In rendering our services, we must comply with customer policies and procedures regarding charity care, personnel, data security, compliance and risk management, as well as applicable federal, state and local laws and regulations.

Our management services agreements with our RCM customers typically span three to five years. After the initial term of the agreement, many of our managed services agreements automatically renew unless terminated by either party upon prior written notice.

In general, our RCM agreements provide that:

• we are required to staff a sufficient number of our own employees on each customer’s premises and provide the technology necessary to implement and manage our services;

• our management and staff work cooperatively with our customers’ management and staff to achieve mutually specified objectives;

• we earn performance-based fees that are tied to the achievement of financial benchmarks related to increases in customer revenues and/or reductions in operating costs;

• the parties provide representations and indemnities to each other; and

• the agreements are subject to termination by either party in the event of a material breach which is not cured by the breaching party.

Our agreements for physician advisory services are usually multi-year arrangements which generally vary in length between one and three years. Generally, the agreements automatically renew after their initial term unless terminated by either party upon prior written notice. Customers pay a contractually negotiated fee for this service on a per-use basis.

We currently do not have any customers for our population health solutions offering and therefore do not have any managed services agreements for that service.

Sales and Marketing

Our new business opportunities are generated through a combination of high-level industry contacts of members of our senior management team and systematic relationship building by a team of senior sales

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executives. Our sales and marketing process generally begins by engaging senior executives of the prospective hospital or healthcare system, typically followed by our assessment of the prospect’s existing operations, and a review of the findings. We begin negotiations with a standardized contract that is customized as necessary after collaborative discussions of operational and management issues and our proposed working relationship. Our sales process for RCM managed services agreements typically lasts six to 18 months from the introductory meeting to the agreement’s execution, while our sales process for our physician advisory services offering typically lasts three to four months.

Technology

Technology Development

Our technology development organization operates out of various facilities in the United States and India. We are increasing the amount of resources that we invest in the improvement of our technology in order to enhance the services that we provide our customers. All customer sites run the same base set of code. We use a beta-testing environment to develop and test new technology offerings at one or more customers, while keeping the rest of our customers on production-level code.

Our applications are deployed on a highly-scalable architecture based upon Microsoft and other industry leading platforms. We offer a common experience for end-users and believe the consistent look and feel of our applications allows our customers and staff to use our software suite quickly and easily.

We devote substantial resources to our development efforts and plan at an annual, bi-annual and quarterly release level. We employ a structured system to assess the impact that potential new technologies or enhancements will have on net service revenue, costs, efficiency and customer satisfaction. The results of this analysis are evaluated in conjunction with our overall corporate goals when making development decisions. In addition to our technology development team, our operations personnel play an integral role in setting technology priorities in support of their objective of keeping our software operating 24 hours a day, 7 days a week.

Technology Operations and Security

Our applications are hosted in data centers located in Alpharetta, Georgia; Philadelphia, Pennsylvania; and Salt Lake City, Utah; and our internal financial application suite is hosted in a data center in Minneapolis, Minnesota. These data centers are operated for us by third parties and are compliant with the Statement on Standards for Attestation Engagements, or SSAE, No. 16, Reporting on Controls at a Service Organization (formerly referred to as Statement on Auditing Standards, or SAS, 70). Our development, testing and quality assurance environment is operated from the third-party data center in Alpharetta, Georgia; with a separate server room in one of our Chicago, Illinois offices. We have agreements with our hardware and system software suppliers for support 24 hours a day, 7 days a week. Our operations personnel also use our resources located in our other U.S. facilities, as well as our India facilities.

Customers use high-speed internet connections or private network connections to access our business applications. We utilize commercially available hardware and a combination of custom-developed and commercially available software. We designed our primary application in this manner to permit scalable growth. For example, database servers can be added without adding web servers, and vice versa. We believe that this architecture enables us to scale our operations effectively and efficiently.

Our databases and servers are backed-up in full on a weekly basis and undergo incremental back-ups nightly. Databases are also backed-up frequently by automatically shipping log files with accumulated changes to separate sets of back-up servers. In addition to serving as a back-up, these log files update the data in our online analytical processing engine, enabling the data to be more current than if only refreshed overnight. Data and information regarding our customers’ patients is encrypted when transmitted over the internet or traveling off-site on portable media such as laptops or backup tapes.

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Customer system access requests are load-balanced across multiple application servers, allowing us to handle additional users on a per-customer basis without application changes. System utilization is monitored for capacity planning purposes.

Our software interacts with our customers’ software through a series of real-time and batch interfaces. We do not require changes to the customer’s core patient care delivery or financial systems. Instead of installing hardware or software in customer locations or data centers, we specify the information that a customer needs to extract from its existing systems in order to interface with our systems. This methodology enables our systems to operate with many combinations of customer systems, including custom and industry-standard implementations. We have successfully integrated our systems with 15 to 20 year old systems, with package and custom systems, and with major industry-standard products.

When these interfaces are in place, we provide an application suite across the hospital revenue cycle. For our purposes, the revenue cycle starts when a patient registers for future service or arrives at a hospital or clinic for unscheduled service, and ends when the hospital has collected all the appropriate revenue from all possible sources. Thus, we provide eligibility, address validation, skip tracing, charge capture, patient and payer follow-up, analytics and tracking, charge master management, contract modeling, contract “what if” analysis, collections and other functions throughout the customer’s revenue cycle.

Because our databases run on generally available hardware and software, we are able to use standard applications to develop, maintain and monitor our solutions. Databases for one or more customers can run on a single database server with disk storage being provided from a shared storage area network, or SAN, with physical separation maintained between customers. In the event of a server failure, we have maintenance contracts in place that require the service provider to have the server back on-line in four hours or less, or we move the customer processing to another server. The SAN is configured as a redundant array of inexpensive disks, or RAID, and this RAID configuration protects against disk failures having an impact on our operations.

In the event that a combination of events causes a system failure, we typically can isolate the failure to one or a small number of customers. We believe that no combination of failures by our systems can impact a customer’s ability to deliver patient care.

Our third-party data centers were designed to withstand many catastrophic events, such as blizzards and hurricanes. To protect against a catastrophic event in which our primary data center is completely destroyed and service cannot be restored within a few days, we store backups of our systems and databases off-site. In the event that we are required to move operations to a different data center, we would re-establish operations by provisioning new servers, restoring data from the off-site backups and re-establishing connectivity with our customers’ host systems. Because our systems are web-based, no changes would need to be made on customer workstations, and customers would be able to reconnect as our systems became available again.

We monitor the response time of our application in a number of ways. We monitor the response time of individual transactions by customer and place monitors inside our operations and at key customer sites to run synthetic transactions that demonstrate our systems’ end-to-end responsiveness. Our hosting provider reports on responsiveness server-by-server and identifies potential future capacity issues. In addition, we survey key customers regarding system response time to make sure customer-specific conditions are not impacting performance of our applications.

We dedicate significant resources to protecting our customers’ confidential and protected health information, or PHI. Our security strategy employs various practices and technology to control and protect access to sensitive information. In January 2013, we received certification status from the Health Information Trust Alliance, or HITRUST, the healthcare industry group that certifies an entity’s material compliance with the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations that have been issued under it, which we collectively refer to as HIPAA, and various states’ security and privacy laws regarding

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the creation, access, storage or exchange of personal health and financial information. Our certification status signifies that we exhibit and are able to maintain high security standards of electronic PHI. In January 2014, we received renewal of our HITRUST certification.

Proprietary Software Suites

Revenue Cycle Management. Our integrated suite of revenue cycle management technology provides a layer of analytics, rules processing and workflow capabilities that interface with provider systems to optimize process efficiency and effectiveness. These technologies power the detection of defects on patient accounts and enable staff workflow at point of service areas and business offices and our shared service centers.

• “AHtoAccess” powers workflow in customer central business offices and our scaled shared service centers for pre-registration, financial clearance, and financial counseling. The platform processes patient accounts through proprietary rules engines tuned to identify defects in demographic data, authorization processes, insurance benefits and eligibility, and medical necessity. Our rules engines in AHtoAccess are also used to calculate patient balance estimations and prior balance accounts receivables. For the uninsured, the platform helps staff triage patients to find coverage for their visit. Our technology enables staff to work on an exception basis eliminating the need for manual intervention on accounts with no exceptions identified.

• “AHtoLink” delivers all of the insight and defect detection capabilities of our proprietary rules engines in real-time to point of service Emergency Department and registration areas within the hospitals and clinics. When defects are detected, users receive targeted messages alerting them to resolve the issue while the patient is still in front of them.

• “AHtoContact,” our patient contact application, provides the workflow and data for patient contact center representatives. It enables effective financial discussions with patients on outstanding balances. The platform is integrated in to our call center, call-routing, auto-dialer capabilities and facilitates improved outcomes through propriety process and technology approaches.

• “AHtoContract,” our proprietary contract modeling platform, is used to accurately calculate the maximum allowed reimbursement for each claim based upon models of the hospital’s contract with each payer. This platform is used to provide insight in to the health of payer contracts and to power portions of the workflow tools described above.

• “AHtoAnalytics”, our web-based reporting and analytics platform, produces over 300 proprietary reports derived from the financial, process and productivity data that we accumulate as a result of our services, which enable us to monitor and identify areas for improvement in the efficacy of our revenue cycle management services.

• “Integrated Defect Prevention” application, which we are currently in the process of deploying through a pilot program, will classify defects in a proprietary nomenclature and distribute data to back end teams for follow up and resolution. Defects will be identified and noted on accounts as they occur. Along with our “Yield-Based Follow Up” application, this platform is designed to power customer patient financial services departments and our shared services.

These propriety technology applications run on an integrated platform built on a modern event driven architecture and rules engines that allow real-time integration of systems and operational workflows.

Physician Advisory Services. Our proprietary physician advisory services tools are designed to assist our customers in the initiation of a service request by our physician advisory team. Our platform allows for the electronic submission, tracking, reviewing and auditing of patient cases referred to us. The physician advisory services portal environment is established as a secure site that enables us to receive patient records from case managers and route them to our physicians for review. This workflow is supported by an analytics engine within the web portal that provides our customers the ability to improve their compliance and workflow with our real time reporting, dashboards and worklists.

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Value-Based Reimbursement (VBR). Our proprietary technology within our VBR capability includes a secure web-based workflow application that is designed to enable patient engagement staff, revenue cycle analysts, and physician/hospital care teams to monitor and manage gaps identified by our proprietary rules engines. Our Quality, Revenue, and Measurement Coding rules engines represent a foundational framework which leverages a central data warehouse of aggregated data from disparate sources. Gaps stemming from these rules engines will be presented in a prioritized and user-friendly manner through workflow applications that drive operational follow up and management. Our web-based application is divided across Patient Outreach, Point of Care and Reconciliation interfaces to allow for targeted resolution within operational support models across the revenue cycle. Patient Outreach leverages an auto dialer and prioritized work list to enable both proactive and reactive engagement with patients who are unscheduled, scheduled, or discharged. The Point of Care interface and report capabilities will provide actionable insights to help physicians achieve outcomes defined in value-based contracts. The Reconcile & Analyze tool allows for reporting, analysis and resolution of revenue gaps across the revenue cycle continuum. All three interfaces are supported by dashboards and analytics which enable integrated reporting and root cause analysis.

Competition

The market for our solutions is highly competitive and we expect competition to intensify in the future. We believe that competition for the services we provide is based primarily on the following factors:

• knowledge and understanding of the complex healthcare payment and reimbursement system in the United States;

• a track record of delivering revenue improvements and efficiency gains for hospitals and healthcare systems;

• the ability to deliver a solution that is fully-integrated along each step of a hospital’s revenue cycle operations;

• cost-effectiveness, including the breakdown between up-front costs and pay-for-performance incentive compensation;

• reliability, simplicity and flexibility of the technology platform;

• understanding of the healthcare industry’s regulatory environment; and

• sufficient infrastructure and financial stability.

We also believe that several aspects of our business model differentiate us from our competitors:

• we focus on performance-based compensation as a way to share in the economic value that we help create for our customers;

• we focus on optimizing our customers’ entire, end-to-end revenue cycle process, which we believe is more advantageous than models that merely focus on certain aspects or individual sub-processes within the revenue cycle; and

• our offering integrates talented personnel with our proven business methods augmented by our proprietary technology.

We believe that we compete effectively based upon all of these criteria, although our ability to acquire new customers has been and may continue to be adversely effected by unfavorable publicity in January 2012. See Item 1A Risk Factors – If we are unable to retain our existing customers, our financial conditions will suffer.

While we do not believe any single competitor delivers services in the same integrated manner as our revenue cycle management offering provides, we face competition from various sources. The internal RCM staffs of hospitals, who historically have performed the functions addressed by our services, in effect compete

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with us. Hospitals that previously have made investments in internally developed solutions sometimes choose to continue to rely on their own internal RCM staff.

We also compete with several categories of external market participants, most of which focus on separate components of hospital revenue cycle. External market participants include:

• software vendors and other technology-supported RCM business process outsourcing companies;

• traditional consultants; and

• information technology outsourcers.

These types of external participants also compete with us in the field of physician advisory services. In addition, the commercial payer community can provide information or services that are intended to assist providers in transitioning to a value based reimbursement environment, and thus we indirectly compete with those commercial payers.

Although we believe that there are barriers to replicating our end-to-end RCM solution, we expect competition to intensify in the future. Other companies may develop superior or more economical service offerings that healthcare providers could find more attractive than our offerings. Moreover, the regulatory landscape may shift in a direction that is more strategically advantageous to existing and future competitors.

Government Regulation

The customers we serve are subject to a complex array of federal and state laws and regulations. These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. We devote significant efforts, through training of personnel and monitoring, to establishing and maintaining compliance with all regulatory requirements that we believe are applicable to our business and the services we offer.

Government Regulation of Health Information

Privacy and Security Regulations. HIPAA contains substantial restrictions and requirements with respect to the use and disclosure of individuals’ PHI. HIPAA prohibits a covered entity from using or disclosing an individual’s PHI unless the use or disclosure is authorized by the individual or is specifically required or permitted under HIPAA. Under HIPAA, covered entities must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic PHI maintained or transmitted by them or by others on their behalf.

HIPAA applies to covered entities, such as healthcare providers that engage in HIPAA-defined standard electronic transactions, health plans and healthcare clearinghouses. In February 2009, HIPAA was amended by the Health Information Technology for Economic and Clinical Health, or HITECH, Act to impose certain of the HIPAA privacy and security requirements directly upon “business associates” that perform functions on behalf of, or provide services to, certain covered entities. Most of our customers are covered entities and we are a business associate to many of those customers under HIPAA as a result of our contractual obligations to perform certain functions on behalf of, and provide certain services to, those customers. As a business associate, we sometimes also act as a clearinghouse in performing certain functions for our customers. In order to provide customers with services that involve the use or disclosure of PHI, HIPAA requires our customers to enter into business associate agreements with us.

Such agreements must, among other things, provide adequate written assurances:

• as to how we will use and disclose the PHI;

• that we will implement reasonable administrative, physical and technical safeguards to protect such information from misuse;

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• that we will enter into similar agreements with our agents and subcontractors that have access to the information;

• that we will report security incidents and other inappropriate uses or disclosures of the information; and

• that we will assist the customer with certain of its duties under HIPAA.

Transaction Requirements. In addition to privacy and security requirements, HIPAA also requires that certain electronic transactions related to healthcare billing be conducted using prescribed electronic formats. For example, claims for reimbursement that are transmitted electronically to third-party payers must comply with specific formatting standards, and these standards apply whether the payer is a government or a private entity. We are contractually required to structure and provide our services in a way that supports our customers’ HIPAA compliance obligations. On October 1, 2015, the International Classification of Diseases 9, or ICD-9, used to report medical diagnoses and in-patient procedures will be replaced by ICD-10. This change will affect coding for all covered entities and will require system and business changes throughout the healthcare industry. We are working collaboratively with our customers to prepare for the transition to the new code sets.

Data Security and Breaches. In recent years, there have been well-publicized data breach incidents involving the improper dissemination of personal health and other information of individuals, both within and outside of the healthcare industry. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to data breach incidents, such as providing prompt notification of the breach to affected individuals and government authorities. In many cases, these laws are limited to electronic data, but states are increasingly enacting or considering stricter and broader requirements. Under the HITECH Act and its implementing regulations, business associates are also required to notify covered entities, which in turn are required to notify affected individuals and government authorities of data security breaches involving unsecured PHI. In addition, the U.S. Federal Trade Commission, or FTC, has prosecuted some data breach cases as unfair and deceptive acts or practices under the Federal Trade Commission Act, or FTC Act. We have implemented and maintain physical, technical and administrative safeguards intended to protect all personal data, and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and properly responding to any security incidents.

State Laws. In addition to HIPAA, most states have enacted patient confidentiality laws that protect against the unauthorized disclosure of confidential medical information, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach notification requirements. Such state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we must comply with them even though they may be subject to different interpretations by various courts and other governmental authorities.

Other Requirements. In addition to HIPAA, numerous other state and federal laws govern the collection, dissemination, use, access to and confidentiality of individually identifiable health and other information and healthcare provider information. The FTC has issued and several states have issued or are considering new regulations to require holders of certain types of personally identifiable information to implement formal policies and programs to prevent, detect and mitigate the risk of identity theft and other unauthorized access to or use of such information. Further, the U.S. Congress and a number of states have considered or are considering prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the United States.

Government Regulation of Reimbursement

Our customers are subject to regulation by a number of governmental agencies, including those that administer the Medicare and Medicaid programs. Accordingly, our customers are sensitive to legislative and regulatory changes in, and limitations on, the government healthcare programs and changes in reimbursement

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policies, processes and payment rates. During recent years, there have been numerous federal legislative and administrative actions that have affected government programs, including adjustments that have reduced or increased payments to physicians and other healthcare providers and adjustments that have affected the complexity of our work. For example, the Patient Protection and Affordable Care Act of 2010, or ACA, may reduce reimbursement for some healthcare providers while increasing reimbursement for others including primary care physicians. In addition, the ACA mandates the implementation of various programs and value and quality-based reimbursement incentives that may impact the amount of reimbursement for our customers. Some of these programs, such as the Medicare Value-Based Purchasing Program and the Hospital Readmission Reduction Program may be expanded in 2015 and 2016. It is possible that the federal or state governments will implement additional reductions, increases or changes in reimbursement in the future under government programs that adversely affect our customer base or increase the cost of providing our services. Any such changes could adversely affect our own financial condition by reducing the reimbursement rates of our customers.

Fraud and Abuse Laws

A number of federal and state laws, generally referred to as fraud and abuse laws, apply to healthcare providers, physicians and others that make, offer, seek or receive referrals or payments for products or services that may be paid for through any federal or state healthcare program and in some instances any private program. Given the breadth of these laws and regulations, they may affect our business, either directly or because they apply to our customers. These laws and regulations include:

Anti-Kickback Laws. There are numerous federal and state laws that govern patient referrals, physician financial relationships, and inducements to healthcare providers and patients. The federal healthcare anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and certain other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Courts have construed this anti-kickback law to mean that a financial arrangement may violate this law if any one of the purposes of an arrangement is to induce referrals of federal healthcare programs, patients or business, regardless of whether there are other legitimate purposes for the arrangement. There are several limited exclusions known as safe harbors that may protect certain arrangements from enforcement penalties although these safe harbors tend to be quite narrow. Penalties for federal anti-kickback violations can be severe, and include imprisonment, criminal fines, civil money penalties with triple damages and exclusion from participation in federal healthcare programs. Anti-kickback law violations also may give rise to a civil False Claims Act, or FCA, action, as described below. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to induce referrals, and some of these state laws are applicable to all patients regardless of whether the patient is covered under a governmental health program or private health plan.

False or Fraudulent Claim Laws. There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with the submission and payment of provider claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment, for example, by systematic over treatment or duplicate billing of the same services to collect increased or duplicate payments.

In particular, the federal FCA prohibits a person from knowingly presenting or causing to be presented a civil false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. The FCA also prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. The FCA was amended on May 20, 2009 by the Fraud Enforcement and Recovery Act of 2009, or FERA. Following the FERA amendments, the FCA’s “reverse false claim” provision also creates liability for persons who knowingly conceal an overpayment of government money or knowingly and improperly retain an overpayment of government funds. In addition, ACA requires providers to report and return overpayments and to explain the reason for the overpayment in writing within 60 days of the date on

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which the overpayment is identified, and the failure to do so is punishable under the FCA. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implications of the FCA amendments have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.

In addition, under the Civil Monetary Penalty Act of 1981, the Department of Health and Human Services Office of Inspector General has the authority to impose administrative penalties and assessments against any person, including an organization or other entity, who knowingly presents, or causes to be presented, to a state or federal government employee or agent certain false or otherwise improper claims.

Stark Law and Similar State Laws. The Ethics in Patient Referrals Act, known as the Stark Law, prohibits certain types of referral arrangements between physicians and healthcare entities and thus potentially applies to our customers. Specifically, under the Stark Law, absent an applicable exception, a physician may not make a referral to an entity for the furnishing of designated health service, or DHS, for which payment may be made by the Medicare program if the physician or any immediate family member has a financial relationship with that entity. Further, an entity that furnishes DHS pursuant to a prohibited referral may not present or cause to be presented a claim or bill for such services to the Medicare program or to any other individual or entity. Violations of the statute can result in civil monetary penalties and/or exclusion from federal healthcare programs. Stark law violations also may give rise to a civil FCA action. Any such violations by, and penalties and exclusions imposed upon, our customers could adversely affect their financial condition and, in turn, could adversely affect our own financial condition.

Laws in many states similarly forbid billing based on referrals between individuals and/or entities that have various financial, ownership or other business relationships. These laws vary widely from state to state.

Laws Limiting Assignment of Reimbursement Claims

Various federal and state laws, including Medicare and Medicaid, forbid or limit assignments of claims for reimbursement from government funded programs. Some of these laws limit the manner in which business service companies may handle payments for such claims and prevent such companies from charging their provider customers on the basis of a percentage of collections or charges. We do not believe that the services we provide our customers result in an assignment of claims for the Medicare or Medicaid reimbursements for purposes of federal healthcare programs. Any determination to the contrary, however, could adversely affect our ability to be paid for the services we provide to our customers, require us to restructure the manner in which we are paid, or have further regulatory consequences.

Emergency Medical Treatment and Active Labor Act

The federal Emergency Medical Treatment and Active Labor Act, or EMTALA, was adopted by the U.S. Congress in response to reports of a widespread hospital emergency room practice of “patient dumping.” At the time of EMTALA’s enactment, patient dumping was considered to have occurred when a hospital capable of providing the needed care sent a patient to another facility or simply turned the patient away based on such patient’s inability to pay for his or her care. EMTALA imposes requirements as to the care that must be provided to anyone who seeks care at facilities providing emergency medical services. In addition, CMS of the U.S. Department of Health and Human Services has issued final regulations clarifying those areas within a hospital system that must provide emergency treatment, procedures to meet on-call requirements, as well as other requirements under EMTALA. Sanctions for failing to fulfill these requirements include exclusion from participation in the Medicare and Medicaid programs and civil monetary penalties. In addition, the law creates private civil remedies that enable an individual who suffers personal harm as a direct result of a violation of the law to sue the offending hospital for damages and equitable relief. A hospital that suffers a financial loss as a direct result of another participating hospital’s violation of the law also has a similar right.

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EMTALA generally applies to our customers, and we assist our customers with the intake of their patients. Although we believe that our customers’ medical screening, stabilization and transfer practices are in compliance with the law and applicable regulations, we cannot be certain that governmental officials responsible for enforcing the law or others will not assert that we or our customers are in violation of these laws nor what obligations may be imposed by regulations to be issued in the future.

Regulation of Debt Collection Activities

The federal Fair Debt Collection Practices Act, or FDCPA, regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer debts owed or asserted to be owed to another person. Certain of our accounts receivable activities may be deemed to be subject to the FDCPA. The FDCPA establishes specific guidelines and procedures that debt collectors must follow in communicating with consumer debtors, including the time, place and manner of such communications. Further, it prohibits harassment or abuse by debt collectors, including the threat of violence or criminal prosecution, obscene language or repeated telephone calls made with the intent to abuse or harass. The FDCPA also places restrictions on communications with individuals other than consumer debtors in connection with the collection of any consumer debt and sets forth specific procedures to be followed when communicating with such third parties for purposes of obtaining location information about the consumer. In addition, the FDCPA contains various notice and disclosure requirements and prohibits unfair or misleading representations by debt collectors. Finally, the FDCPA imposes certain limitations on lawsuits to collect debts against consumers.

Debt collection activities are also regulated at the state level. Most states have laws regulating debt collection activities in ways that are similar to, and in some cases more stringent than, the FDCPA. In addition, some states require debt collection companies to be licensed. In all states where we operate, we believe that we currently hold all required state licenses or are exempt from licensing.

We are also subject to the Telephone Consumer Protection Act, or TCPA. In the process of communicating with our customers’ patients, we use a variety of communications methods. The TCPA places certain restrictions on companies that place telephone calls to consumers.

The FTC has the authority to investigate consumer complaints relating to the FDCPA and the TCPA, and to initiate or recommend enforcement actions, including actions to seek monetary penalties. State officials typically have authority to enforce corresponding state laws. In addition, affected consumers may bring suits, including class action suits, to seek monetary remedies (including statutory damages) for violations of the federal and state provisions discussed above.

Regulation of Credit Card Activities

We process, on behalf of our customers, credit card payments from their patients. Various federal and state laws impose privacy and information security laws and regulations with respect to the use of credit cards. If we fail to comply with these laws and regulations or experience a credit card security breach, our reputation could be damaged, possibly resulting in lost future business, and we could be subjected to additional legal or financial risk as a result of non-compliance.

Foreign Regulations

Our operations in India are subject to additional regulations that govern the creation, continuation and winding up of companies, as well as the relationships between the shareholders, the company, the public and the government.

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Intellectual Property

We rely upon a combination of patent, trademark, copyright and trade secret laws and contractual terms and conditions to protect our intellectual property rights, and have sought patent protection for aspects of our key innovations.

We have been issued three U.S. patents, which expire in 2028, 2030 and 2031, and have filed seven additional U.S. patent applications aimed at protecting the four domains of our AHtoAccess software suite: patient access, improving maximum potential reimbursement, follow-up and measurement. See “Business – Technology – Proprietary Software Suites” for more information. Legal standards relating to the validity, enforceability and scope of protection of patents can be uncertain. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Our patent applications may not result in the grant of patents with the scope of the claims that we seek, if at all, or the scope of the granted claims may not be sufficiently broad to protect our products and technology. Our three granted patents or any patents that may be granted in the future from pending or future applications may be opposed, contested, circumvented, designed around by a third party or found to be invalid or unenforceable. Third parties may develop technologies that are similar or superior to our proprietary technologies, duplicate or otherwise obtain and use our proprietary technologies or design around patents owned or licensed by us. If our technology is found to infringe any patent or other intellectual property right held by a third party, we could be prevented from providing our service offerings and/or subjected to significant damage awards.

We also rely, in some circumstances, on trade secrets to protect our technology. We control access to and the use of our application capabilities through a combination of internal and external controls, including contractual protections with employees, customers, contractors and business partners. We license some of our software through agreements that impose specific restrictions on our customers’ ability to use the software, such as prohibiting reverse engineering and limiting the use of copies. We also require employees and contractors to sign non-disclosure agreements and invention assignment agreements to give us ownership of intellectual property developed in the course of working for us.

On occasion, we incorporate third-party commercial or open source software products into our technology platform. Although we prefer to develop our own technology, we periodically employ third-party software in order to simplify our development and maintenance efforts, provide a “commodity” capability, support our own technology infrastructure or test a new capability.

Financial Information About Geographic Areas

All of our customers are entities organized and located within the United States. We do not derive any customer revenue from countries outside the United States.

Employees

As of November 30, 2014, we had approximately 2,830 full-time employees, as well as approximately 70 part-time employees. Of these employees, approximately 1,345 full-time and all part-time employees were located in the U.S., and approximately 1,485 full-time employees were located in India. Our employees are not represented by a labor union and we consider our current employee relations to be good.

As a services business, our employees’ skills and experience are significant assets. We expend significant effort searching for individuals with extensive experience in healthcare or revenue process management issues in complex industries. Our less experienced employees attend training sessions. In addition, all of our employees are required to undergo mandatory compliance training, including HIPAA compliance training.

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Corporate Information

We were incorporated in Delaware under the name Healthcare Services, Inc. in July 2003 and changed our name to Accretive Health, Inc. in August 2009. Our principal executive offices are located at 401 North Michigan Avenue, Suite 2700, Chicago, Illinois 60611, and our telephone number is (312) 324-7820.

Information Availability

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.accretivehealth.com under the “Investor Relations” page as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this report, unless expressly noted otherwise. Additionally, as announced on March 8, 2013, the audit committee of our board of directors determined that we would restate our consolidated financial statements for the years ended December 31, 2009, 2010 and 2011 and the quarterly periods within those years, and for the first three quarterly periods for the year ended December 31, 2012 and that our historical consolidated financial statements could not be relied upon due to questions surrounding the timing of our revenue recognition in accordance with generally accepted accounting principles in the United States of America, or GAAP. Accordingly, investors should not rely on our consolidated financial statements for the years ended December 31, 2009, 2010 and 2011 and the quarterly periods within those years, and for the first three quarterly periods for the year ended December 31, 2012 and any of our other prior financial statements, in each case as set forth in any of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or any amendments to those reports filed prior to this Annual Report on Form 10-K.

Item 1A. Risk Factors

Risks Related to Our Financial Reporting Processes

The Restatement of our consolidated financial statements has had, and could continue to have, a material adverse impact on us.

In connection with the Restatement, we incurred substantial unanticipated costs (primarily accounting related) of approximately $23.1 million in 2013 and approximately $44.7 million in the nine months ended September 30, 2014. In addition, we have incurred and will continue to incur in 2014 additional costs related to the Restatement and related internal control remediation. We have been required to expend significant time and resources in connection with the Restatement, and the attention of our management team has been diverted by these efforts. Because of the Restatement, and the delay in completing our financial statements for the years ended December 31, 2013 and December 31, 2012, we have been unable to timely file with the SEC the required periodic reports associated with these years and the required periodic reports for 2014. As a result of these events, we have become subject to significant risks and occurrences relating to the following matters, which are described in more detail below:

• possible adverse consequences of failure to file past SEC reports;

• limitations on access to public debt and equity capital markets;

• impacts of material weaknesses in internal control over financial reporting;

• potential changes in tax liabilities; and

• civil litigation.

We have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our consolidated financial statements and have other adverse consequences.

Section 404 of the Sarbanes-Oxley Act and the related SEC rules require management of certain public companies to assess the effectiveness of their internal control over financial reporting annually and to include in Annual Reports on Form 10-K a management report on that assessment, together with an attestation report by an

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independent registered public accounting firm. Under Section 404 and the SEC rules, a company cannot conclude that its internal control over financial reporting is effective if there exist any material weaknesses in its financial controls. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified material weaknesses in our internal control over financial reporting as of December 31, 2013. These material weaknesses are described in “Part II - Item 9A - Controls and Procedures” of this Annual Report on Form 10-K. We have taken and will continue to take actions to remediate the material weaknesses and improve the effectiveness of our internal control over financial reporting. We cannot, however, assure you that we will be able to correct these material weaknesses in a timely manner. Any failure in the effectiveness of internal control over financial reporting, particularly if it results in misstatements in our financial statements, could cause us to fail to meet our reporting obligations and could adversely affect investor perceptions of our company.

As a result of our Restatement, we face limitations in registering securities for a public offering, acquisitions or equity incentive plans, which could adversely affect our business.

As a result of the Restatement and our delayed filings, we are ineligible to use “short-form” registration statements that would allow us to incorporate by reference our SEC reports into our registration statements, or to use “shelf” registration statements until we have filed all of our periodic reports in a timely manner for a period of 12 months. This could increase the costs of selling securities publicly and could significantly delay such sales and adversely affect our business. This also has resulted in our inability to permit use of our registration statement on Form S-8, which we filed to register the issuance and sales of securities under our equity incentive plans, which could adversely affect our ability to grant awards to adequately incentivize and retain employees.

Risks Relating to our Business and Industry

We may not be able to achieve or maintain profitability.

We incurred net losses in 2012 and 2011. We expect to report additional quarterly and annual losses in future periods, in accordance with GAAP. We incurred significant expenses during 2013 and 2012 related to, among other things, legal defense, crisis management costs, and stranded personnel costs arising from the lawsuit filed in January 2012 by the Minnesota Attorney General that is described in “Part I – Item 3 – Legal Proceedings.” and that we settled in 2012. We incurred significant costs for restructuring our operations in 2013 and in connection with restating our financial statements. We have incurred, and are likely to continue to incur, additional significant costs for legal proceedings, the Restatement and restructuring activities in 2014. Further, we anticipate continuing to incur significant additional costs for technology to improve the quality and reliability of the processes used to secure patient health information. We intend to continue to increase our operating expenses associated with sales and marketing in future years in an effort to expand our business. If our revenue does not increase to offset these increases in costs, our operating results would be adversely affected. You should not consider our historical operating results as indicative of future operating results, and we cannot assure you that we will be able to achieve or maintain profitability in the future. Each of the risks described in this “Risk Factors” section, as well as other factors, may adversely affect our future operating results.

Litigation has materially adversely affected our business, financial condition, operating results and cash flows and caused unfavorable publicity and is likely to continue to do so.

We were named as a defendant in a lawsuit filed in January 2012 by the Minnesota Attorney General alleging violations of federal and Minnesota state health privacy laws and regulations, Minnesota debt collection laws and Minnesota consumer protection laws resulting from, among other things, the theft in Minnesota in 2011 of an employee’s laptop that contained PHI. In addition, in April 2012, the Attorney General released to the public a “Compliance Review” alleging, or raising questions about, our non-compliance with federal and Minnesota health privacy laws, the federal Fair Credit Reporting Act, EMTALA, federal and Minnesota debt

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collections laws and Minnesota consumer protection laws. All disputes with the Minnesota Attorney General (and related investigations by the Minnesota Department of Commerce and Minnesota Department of Human Services) were fully and finally resolved in a Settlement Agreement, Release, and Consent Order dated July 30, 2012, without any admission of liability or wrongdoing by us. There have been other inquiries related to these matters, including one by the FTC. On December 31, 2013, without any admission of liability or wrongdoing and without payment of any monetary penalty or fine, we entered into a Consent Order agreement with the FTC to resolve the FTC’s investigation. Pursuant to the Consent Order, we agreed, among other things, to maintain a comprehensive information security program reasonably designed to protect the security, confidentiality and integrity of personal information collected from or about consumers. A 30-day comment period related to the Consent Order expired on January 30, 2014 and the FTC gave final approval to the Consent Order on February 24, 2014. If we fail to maintain a comprehensive information security program, we may be subject to future inquiries or litigation.

The Minnesota-related legal matters and related inquiries led to several securities-related class action and derivative lawsuits. The securities-related class actions were settled within the limits of our insurance coverage while the derivative suits remain pending.

The Restatement has also led to litigation. A securities-related class action lawsuit has been filed and amended against us, a current director, and certain of our former officers in connection with the Restatement. The SEC’s Division of Enforcement in the Chicago Regional Office is also conducting an investigation regarding the circumstances surrounding the Restatement. In addition, one of the Minnesota-related derivative suits was amended to include claims regarding the Restatement. These lawsuits and investigation are described in “Part I – Item 3 – Legal Proceedings.” The lawsuit and investigation have resulted in, and may lead to additional, unfavorable publicity for us and may have a disruptive effect upon the operation of our business and consume the time and attention of our senior management.

In addition, we incurred substantial expenses in connection with these litigation matters, including substantial fees for attorneys. Although we maintain insurance that may provide coverage for some or all of these expenses, and we have given notice to our insurers of the claims, our insurers have responded by reserving their rights under the policies, including the rights to deny coverage under various policy exclusions. There is risk that the insurers will rescind the policies, that some or all of the claims will not be covered by such policies, or that, even if covered, our ultimate liability will exceed the available insurance.

We are unable to predict the outcome of pending legal actions. The ultimate resolution of the securities class action lawsuit related to the Restatement and the pending derivative suits related to the Minnesota-related matters and the Restatement could have a material adverse effect on our financial results, financial condition or liquidity, and on the trading price of our common stock.

The above matters and attendant publicity have resulted in widespread, unfavorable publicity for us and have materially adversely affected, and may continue to materially adversely affect, our business, financial condition, operating results and cash flows in various ways, including as follows:

• in 2012, we and Fairview Health Services, or Fairview, decided to amend the RCM agreement between us to transition the management of the revenue cycle operations to Fairview leadership, and we received a notice of termination from Fairview of the population health solutions agreement between us. In December 2013, following mediation, we reached a confidential agreement to resolve all of our differences with Fairview;

• in 2012, in connection with the settlement of the Minnesota Attorney General lawsuit, as disclosed in “Part I – Item 3 – Legal Proceedings,” we voluntarily agreed to cease all remaining operations in Minnesota and have wound down our operations with our Minnesota customers;

• other customers have terminated or may seek to terminate or modify their service agreements with us;

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• we believe that potential new customers have been deterred from entering into service agreements with us, and the terms on which we are able to enter into new service agreements, or renew agreements with existing customers, in the future may be less favorable to us;

• the time and attention of management has been diverted from our business;

• we have encountered increased difficulty in attracting and retaining employees;

• we have incurred, and will continue to incur, substantial legal and other expenses in defending the pending and settled lawsuits; and

• the remaining pending lawsuits could subject us to significant liability or result in significant settlement payments.

In addition, other governmental authorities could initiate inquiries into our business practices, and additional lawsuits may be filed against us. Additional litigation could result in the incurrence of substantial additional expense, subject us to significant liability or result in significant settlement payments, further divert management’s attention from our business, and thereby materially adversely affect our business, financial condition, operating results and cash flows.

Hospital systems affiliated with Ascension Health currently account for a significant portion of our net services revenue as well as our gross cash generated from contracting activities, and we have several other customers that have each accounted for 10% or more of our gross cash generated from contracting activities in past periods. The termination or expiration of our new master professional services agreement with Ascension Health, or any significant loss of business from our large customers, would have a material adverse effect on our business, results of operations and financial condition.

In August 2012, we entered into a new five-year master professional services agreement, or MPSA, with Ascension Health. Substantially all of the hospital systems affiliated with Ascension Health for which we previously conducted RCM operations have opted in to the MPSA by executing a new supplement agreement with us. Under our prior master services agreement with Ascension Health dated December 31, 2007, which we refer to as the Legacy Agreement, we continue to provide services to one hospital system and one physician group affiliated with Ascension Health that did not execute new supplement agreements with us. In addition we ceased providing services to one other customer under the Legacy Agreement in the second quarter of 2014, which customer did not execute a supplement agreement with us.

Hospital systems affiliated with Ascension Health have accounted for a significant portion of our net services revenue each year since our formation. In 2013, 2012 and 2011, net services revenue from hospitals affiliated with Ascension Health represented 73%, 5% and 6% of our total net services revenue, respectively, in such periods. Additionally, in 2013, 2012 and 2011, gross cash generated from customer contracting activities, as defined in Part I – Item 6 – Selected Consolidated Financial Data, with hospital systems affiliated with Ascension Health represented 42%, 47% and 50%, respectively, of our total gross cash generated from contracting activities in such periods. St. John Health (an affiliate of Ascension Health) individually accounted for 28%, 1% and 3% of our total net services revenue and 7%, 10% and 12% of our gross cash generated from contracting activities in 2013, 2012 and 2011. Additionally, in 2013, Borgess Health (another affiliate of Ascension Health) individually accounted for 12% of our total net services revenue and 5% of our gross cash generated from contracting activities.

In light of the fact that we only recognize revenues for our RCM services upon the expiration or termination of the underlying RCM customer contract, or upon other defined events in accordance with our revenue recognition policies, we believe that gross cash generated from contracting activities is a more meaningful measure of our significant customers in any given period than their respective contributions to consolidated revenue during such period. Our revenue recognition policies can result in cash flow accumulations from RCM activities over three to five years prior to a revenue recognition event, and consolidated net revenues that are

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inconsistent with the cash flows from the same underlying operations. We do not believe that the loss of any of our other customers that accounted for greater than ten percent of our consolidated revenues in 2011, 2012 or 2013 would have a material adverse effect on our operations or financial results. Any of our other customers, including hospital systems affiliated with Ascension Health, can elect not to renew their managed services agreements with us upon expiration. We intend to seek renewal of all managed service agreements with our customers, but cannot assure you that any of them will be renewed or that the terms upon which they may be renewed will be as favorable to us as the terms of the initial managed services agreements. The termination of our New Ascension Health Agreement, the loss of any of our other large customers or their failure to renew their managed services agreements with us upon expiration, or a reduction in the fees for our services for these customers could have a material adverse effect on our business, results of operations and financial condition.

The early termination of certain customer agreements, including certain customer agreement terminations in connection with the Minnesota-related legal matters described above, during 2013 and 2012 has adversely affected our financial results.

In 2012, we and Fairview decided to amend the revenue cycle operations agreement between us to transition the management of those operations to Fairview leadership and we received from Fairview a notice of termination of the population health solutions agreement between us. Fairview accounted for 8%, 5% and 6% of our net services revenue in 2013, 2012 and 2011, respectively, and for, 8%, 2% and 8% of our gross cash received from contracting activities in 2013, 2012 and 2011, respectively. In connection with the settlement of the Minnesota Attorney General lawsuit as described in “Part I – Item 3 – Legal Proceedings,” we agreed to voluntarily cease all remaining operations in Minnesota and wound down our operations with one of our Minnesota based physician advisory services customers and our two Minnesota based revenue cycle customers, one of which, Fairview, was also a population health solutions customer. In addition, during 2013 and 2012, we reached settlement agreements with two other customers which provided for early terminations of those customers’ agreements.

The loss of the customer agreements noted above adversely affected our operating results in 2013 and 2012 and will negatively impact our revenues and operating results through 2016 when the initial term under the last of these customer agreements would have reached its normal expiration.

If we are unable to retain our existing customers or acquire new customers, our financial condition will suffer.

Our success depends in part upon the retention of our customers, particularly Ascension Health and its affiliated hospitals, and our ability to acquire new customers. We derive our net services revenue primarily from managed services agreements pursuant to which we receive performance-based fees. Customers can elect not to renew their managed services agreements with us upon expiration. If a managed services agreement is not renewed for any reason, we would not derive the financial benefits that we would expect to derive by serving that customer beyond the initial term of our managed services agreement. If a managed services agreement is terminated for any reason, including for example, if we are found to be in violation of certain federal or state laws or excluded from participating in federal and state healthcare programs such as Medicare and Medicaid, we will not receive the payments we would have otherwise anticipated receiving over the life of the agreement.

Some of our managed services agreements require us to adhere to extensive, complex data security, network access and other institutional procedures and requirements of our customers, and we cannot guaranty that some of our customers will not allege that we have not complied with all such procedures and requirements. If we breach a managed services agreement or, for certain of our managed services agreements, fail to perform in accordance with contractual service levels, we may be liable to the customer for damages, and either we or the customer may generally terminate an agreement for a material uncured breach by the other. Any of these events could adversely affect our business, financial condition, operating results and cash flows.

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Ascension Health and another healthcare organization with multiple affiliates that contract with us individually under a master services agreement can also terminate their agreements with us if the receipt of services under the agreement causes or will cause a material negative impact to the customer’s brand, reputation or operations, in such customer’s good faith estimation, because of the manner in which we provided services for it or any other customer. In addition, financial issues or other changes in customer circumstances, such as a customer change in control (including as a result of increasing consolidation within the healthcare provider industry), may cause us or the customer to seek to modify or terminate a managed services agreement. Increasing consolidation within the healthcare provider industry may also make it more difficult for us to acquire new customers, as consolidated healthcare systems may be more likely to have incumbent revenue cycle management providers or significant internal revenue cycle capabilities. For example, certain of our smaller customers have been acquired by larger healthcare systems and ceased to be customers.

In 2014, two of our customers provided us with notices of termination of their respective RCM agreements with us, in accordance with the terms of those agreements. As a result of those notices, one such agreement terminated in the second quarter of 2014 and the other terminated in the third quarter of 2014. However, one of those customers entered into a new managed services agreement with us to provide revenue cycle services under new terms following the termination of its existing agreement.

Also in 2014, our RCM agreement with another customer expired, although we currently continue to provide certain services to that customer under the RCM agreement in connection with the resolution of specified third-party payer accounts receivable in exchange for a fixed fee. We also entered into a new master services agreement with that customer pursuant to which we are providing certain specified RCM services.

Our agreements with certain customers require us to offer to such customer service fees that are at least as low as the fees we charge any other customer receiving comparable services at comparable or lower volumes.

Our MPSA with Ascension Health requires us to offer to Ascension Health’s affiliated hospital systems fees for our services that are at least as low as the fees we charge any other customer receiving comparable services at lower volumes. If we were to charge lower service fees to any other customer receiving comparable services at lower volumes, we would be obligated to charge such lower fees to the hospital systems affiliated with Ascension Health effective as of the date such lower charges were first implemented for such other customer. Additionally, our RCM agreement with another customer requires us to provide that customer with a gain sharing incentive rate that is as low as the rate provided to any new customer. If we offer customers lower rates than as discussed above, it could have a material adverse effect on our results of operations and financial condition.

Our agreements with hospital systems affiliated with Ascension Health and with some other customers include provisions that could impede or delay our ability to enter into managed services agreements with new customers.

Under the terms of our agreement with Ascension Health, we cannot begin to negotiate the provision of services to certain designated competitors that are in close proximity to a hospital affiliated with Ascension Health that has executed a supplement agreement with us until we have informed and discussed the situation with such Ascension Health affiliate. In addition, our managed services agreement with one customer not affiliated with Ascension Health requires us to consult with such customer before providing services to competitors specified by such customer. The obligations described above could impede or delay our ability to enter into managed services agreements with new customers.

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The markets for our RCM service offering may develop more slowly than we expect and some potential customers for our services have been and may in the future be deterred by the lawsuit initiated against us by the Minnesota Attorney General, the Restatement, and legal proceedings resulting from these challenges, and because they previously have made or in the future will make investments in internally developed solutions and choose to continue to rely on their own internal resources, which could adversely affect our revenue and our ability to achieve or maintain our profitability.

Our success depends, in part, on the willingness of hospitals, physicians and other healthcare providers to implement integrated solutions for the areas in which we provide services. Some hospitals may be reluctant or unwilling to implement our solutions for a number of reasons, including failure to perceive the need for improved revenue cycle operations or lack of knowledge about the potential benefits our solutions provide. In addition, some potential customers for our services may be deterred by the lawsuit initiated against us by the Minnesota Attorney General that we settled in 2012, or the Restatement, and the resulting related legal proceedings.

Even if potential customers recognize the need to improve revenue cycle operations, they may not select solutions such as ours because they previously have made or in the future will make investments in internally developed solutions and choose to continue to rely on their own internal resources. As a result, the markets for integrated, end-to-end revenue cycle management services may develop more slowly than we expect, which could adversely affect our revenue and operating results.

Our business operations currently include the collection, on behalf of our customers, of medical co-pays and other payments that are due to our customers from their patients. This business practice has been perceived negatively by the public and this negative perception has adversely affected (and may continue to adversely affect) our business, results of operations and financial condition.

We currently collect, on behalf of our customers, medical co-pays and other non-defaulted payments that are due to our customers from their patients, pursuant to managed services agreements with our customers. Collection of these payments from patients may become a more significant part of our RCM services as industry trends continue to increase patient responsibility as a percentage of total compensation to healthcare providers. This business practice, which has received widespread, unfavorable publicity as a result of the lawsuit initiated against us by the Minnesota Attorney General that we settled in 2012 and resulting related legal proceedings, has been negatively perceived by the public and has led us to change aspects of our business practices, made it more difficult to retain existing customers and attract new customers, extended the time it takes to enter into service agreements with new customers, and resulted in a material adverse effect on our business, results of operations and financial condition, and it may continue to do so.

We operate in a highly competitive industry, and our current or future competitors may be able to compete more effectively than we do, which could have a material adverse effect on our business, revenue, growth rates and market share.

The market for our solutions is highly competitive and we expect competition to intensify in the future. The rapid changes in the U.S. healthcare market due to financial pressures to reduce the growth in healthcare costs and from regulatory and legislative initiatives such as the ACA are increasing the level of competition. We face competition from a steady stream of new entrants, including the internal RCM staff of hospitals, as described above, and external participants. External participants that are our competitors in the revenue cycle market include software vendors and other technology-supported RCM business process outsourcing companies; traditional consultants; and information technology outsourcers. These types of external participants also compete with us in the field of population health solutions and physician advisory services (which services are being integrated into our RCM service offering). Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, regulations or customer requirements. We may not be able to compete successfully with these companies, and these or other competitors may introduce technologies or services that render our technologies or services obsolete or less marketable. Even if our technologies and services are more effective than the offerings of our competitors, current or potential

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customers might prefer competitive technologies or services to our technologies and services. Increased competition is likely to result in pricing pressures, which could adversely affect our margins, growth rate or market share.

We face a selling cycle of variable length to secure new RCM agreements, making it difficult to predict the timing of specific new customer relationships.

We face a selling cycle of variable length, typically spanning six to 18 months or longer, to secure a new managed services agreement. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in entering into a managed services agreement with that customer. In addition, we cannot accurately predict the timing of entering into managed services agreements with new customers due to the complex procurement decision processes of most healthcare providers, which often involves high-level or committee approvals. Consequently, we have only a limited ability to predict the timing of specific new customer relationships. Moreover, we believe that the unfavorable publicity we received as a result of the lawsuit initiated against us by the Minnesota Attorney General that we settled in 2012, the Restatement, and the resulting related legal proceedings have reduced our attractiveness to some potential healthcare providers and consequently, have resulted in the lengthening of the selling cycle with potential new customers.

Delayed or unsuccessful implementation of our technologies or services with our customers or implementation costs that exceed our expectations may harm our financial results.

To implement our solutions, we work with our customer’s existing vendors, management and staff and layer our proprietary technology applications on top of the customer’s existing patient accounting and clinical systems. Each customer’s situation is different, and unanticipated difficulties and delays may arise such as delays in, or the inability to, obtain approvals or access rights from our customers’ vendors. If the implementation process is not executed successfully or is delayed, our relationship with the customer may be adversely affected and our results of operations could suffer. Implementation of our solutions also requires us to integrate our own employees into the customer’s operations. The customer’s circumstances may require us to devote a larger number of our employees than anticipated, which could increase our costs and harm our financial results.

Our quarterly results of operations and cash flows fluctuate as a result of many factors, some of which may be outside of our control.

Our revenues fluctuate and will continue to fluctuate widely from quarter to quarter based on revenue recognition criteria under GAAP.

In addition, the timing of any new customer additions is not likely to be uniform throughout the year, which can also cause fluctuations in our quarterly results. Operating costs are typically higher in quarters in which we add new customers because we incur expenses to implement our operating model at those customers. Further, fees billable to customers under many of our managed services agreements experience fluctuations as they are tied contractually to the level of our customers’ cash receipts. Fees have a significant effect on our cash flows, and changes in the amount of fees can cause significant fluctuations in our quarter-to-quarter operating cash flows. Our cash flows can also be impacted by the timing of operating costs.

Our restructuring activities may negatively impact our operations.

In the second quarter of 2013, we commenced a series of measures designed to better align our operational structure and to improve efficiency. As part of these measures, we recorded approximately $5.2 million of restructuring costs in 2013, consisting primarily of employee separation costs. In the first quarter of 2014, we commenced additional restructuring actions in order to allow us to more effectively and efficiently allocate necessary resources for innovation, invest in growth and enhance customer service, which included reductions in our workforce in certain corporate, administrative and management functions and the relocation of certain corporate functions from our headquarters in Chicago, Illinois. Additionally, in the fourth quarter of 2014, we commenced

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further restructuring actions in order to align our organizational structure and resources to better support our primary business of revenue cycle management. As part of these actions, we expect to record approximately $5.3 million to $5.8 million in severance and employee benefits related expenses and $2.3 million to $2.8 million in facilities-related expenses in 2014. Reductions in personnel may adversely affect or delay various sales, marketing and product development programs and activities and could have negative effects on our internal control over financial reporting. These restructuring activities could be disruptive to our business and have a material adverse effect on our financial results.

If we lose key personnel or if we are unable to attract, hire, integrate and retain our key personnel and other necessary employees, our business could be harmed.

Our future success depends in part on our ability to attract, hire, integrate and retain key personnel. Our future success also depends in part on the continued contributions of our executive officers and other key personnel, each of whom may be difficult to replace. The loss of services of any of our executive officers or key personnel, or the inability to continue to attract qualified personnel could have a material adverse effect on our business, particularly as a result of our recent and ongoing restructuring activities. Competition for the caliber and number of employees we require is intense. We may face difficulty identifying and hiring qualified personnel at compensation levels consistent with our existing compensation and salary structure. In addition, we invest significant time and expense in training each of our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring, integrating and training their replacements, and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business.

The imposition of legal responsibility for obligations related to our employees or our customers’ employees could adversely affect our business and subject us to liability.

Under our agreements with customers, we work with our customers’ employees engaged in the activities included in the scope of our services. Our managed services agreements establish the division of responsibilities between us and our customers for various personnel management matters, including compliance with and liability under various employment laws and regulations. We could, nevertheless, be found to have liability with our customers for actions against or by employees of our customers, including under various employment laws and regulations, such as those relating to discrimination, retaliation, wage and hour matters, occupational safety and health, family and medical leave, notice of facility closings and layoffs and labor relations, as well as similar liability with respect to our own employees, and any such liability could result in a material adverse effect on our business.

If we fail to manage our operations effectively, our business would be harmed.

We have not always been fully successful in managing the expansion of our operations which has led, at times to some customer dissatisfaction and weaknesses in our operating, internal and financial controls. To manage potential future growth, we will need to hire, integrate and retain highly skilled and motivated employees, and will need to work effectively with a growing number of customer employees engaged in revenue cycle operations. We will also need to continue to improve our financial, internal and management controls, reporting systems and procedures. If we do not effectively manage our operations, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality service offerings.

Disruptions in service or damage to our shared services centers and third-party operated data centers could adversely affect our business.

Our shared services centers and third-party operated data centers are essential to our business. Our operations depend on our ability to operate our shared services centers, and to maintain and protect our

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applications, which are located in data centers that are operated for us by third parties. We cannot control or assure the continued or uninterrupted availability of these third-party data centers. In addition, our information technologies and systems, as well as our data centers and shared services centers, are vulnerable to damage or interruption from various causes, including (1) acts of God and other natural disasters, war and acts of terrorism and (2) power losses, computer systems failures, internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events. We have a business continuity plan and maintain insurance against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at one of our data centers or shared services centers, but the situations we plan for and the amount of insurance coverage we maintain may not be adequate in every particular case. In addition, the occurrence of any of these events could result in interruptions, delays or cessations in service to our customers, or in interruptions, delays or cessations in the direct connections we establish between our customers and third-party payers. Any of these events could impair or inhibit our ability to provide our services, reduce the attractiveness of our services to current or potential customers and adversely affect our financial condition and results of operations.

In addition, despite the implementation of security measures, our infrastructure, data centers, shared services centers or systems that we interface with, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may be perceived as not being secure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.

Our services involve the storage and transmission of customers’ proprietary information and protected health, financial, payment and other personal information of patients. We rely on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage of such information, and because of the sensitivity of this information, the effectiveness of such security efforts is very important. The systems currently used for transmission and approval of credit card transactions, and the technology utilized in credit cards themselves, all of which can put credit card data at risk, are determined and controlled by the payment card industry, not by us. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance or otherwise, someone may be able to obtain unauthorized access to customer or patient data. Improper activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our computer systems. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, and we may be unable to anticipate these techniques or to implement adequate preventive measures. Our security measures may not be effective in preventing these types of activities, and the security measures of our third-party data centers and service providers may not be adequate. If a breach of our security occurs, we could face damages for contract breach, penalties for violation of applicable laws or regulations, possible lawsuits by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In addition, whether there is an actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose current or potential customers.

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We may be liable to our customers or third parties if we make errors in providing our services, and our anticipated net services revenue may be lower if we provide poor service.

The services we offer are complex, and we make errors from time to time. Errors can result from the interface of our proprietary technology applications and a customer’s existing technologies or we may make human errors in any aspect of our service offerings. The costs incurred in correcting any material errors may be substantial and could adversely affect our operating results. Our customers, or third parties such as our customers’ patients, may assert claims against us alleging that they suffered damages due to our errors, and such claims could subject us to significant legal defense costs in excess of our existing insurance coverage and adverse publicity regardless of the merits or eventual outcome of such claims. In addition, if we provide poor service to a customer and the customer therefore realizes less improvement in revenue yield, the incentive fee payments to us from that customer will be lower than anticipated.

We offer our services in many jurisdictions and, therefore, may be subject to federal, state and local taxes that could harm our business or that we may have inadvertently failed to pay.

We may lose sales or incur significant costs should various tax jurisdictions be successful in imposing taxes on a broader range of services. Imposition of such taxes on our services could result in substantial unplanned costs, would effectively increase the cost of such services to our customers and may adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.

Our growing operations in India expose us to risks that could have a material adverse effect on our costs of operations.

We employ a significant number of persons in India and expect to continue to add personnel in India. While there are cost and service advantages to operating in India, significant growth in the technology sector in India has increased competition to attract and retain skilled employees and has led to a commensurate increase in compensation expense. In the future, we may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure in India. In addition, our reliance on a workforce in India exposes us to disruptions in the business, political and economic environment in that region. Maintenance of a stable political environment is important to our operations, and terrorist attacks and acts of violence or war may directly affect our physical facilities and workforce or contribute to general instability. Our operations in India require us to comply with local laws and regulatory requirements, which are complex and of which we may not always be aware, and expose us to foreign currency exchange rate risk. Our Indian operations may also subject us to trade restrictions, reduced or inadequate protection for intellectual property rights, security breaches and other factors that may adversely affect our business. Negative developments in any of these areas could increase our costs of operations or otherwise harm our business.

Negative public perception in the United States regarding offshore outsourcing and proposed legislation may increase the cost of delivering our services.

Offshore outsourcing is a politically sensitive topic in the United States. For example, various organizations and public figures in the United States have expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in the United States. In addition, there has been recent publicity about the negative experience of certain companies that use offshore outsourcing, particularly in India. Current or prospective customers may elect to perform such services themselves or may be discouraged from transferring these services from onshore to offshore providers to avoid negative perceptions that may be associated with using an offshore provider. Any slowdown or reversal of existing industry trends towards offshore outsourcing would increase the cost of delivering our services if we had to relocate aspects of our services from India to the United States where operating costs are higher.

Legislation in the United States may be enacted that is intended to discourage or restrict offshore outsourcing. In the United States, federal and state legislation has been proposed, and enacted in several states, that could restrict or discourage U.S. companies from outsourcing their services to companies outside the

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United States. It is possible that legislation could be adopted that would restrict U.S. private sector companies that have federal or state government contracts, or that receive government funding or reimbursement, such as Medicare or Medicaid payments, from outsourcing their services to offshore service providers. Any changes to existing laws or the enactment of new legislation restricting offshore outsourcing in the United States may adversely affect our ability to do business, particularly if these changes are widespread, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Regulatory Risks

The healthcare industry is heavily regulated. Our failure to comply with regulatory requirements could create liability for us, result in adverse publicity and adversely affect our business.

The healthcare industry is heavily regulated and is subject to changing political, legislative, regulatory and other influences. Many healthcare laws are complex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the services that we provide. There can be no assurance that our operations will not be challenged or adversely affected by enforcement initiatives. Enforcement activity is growing and is an identified priority of federal and state governments. Our failure to accurately anticipate the application of these laws and regulations to our business, or any other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and adversely affect our business. Federal and state legislatures and agencies frequently consider proposals to revise laws that impact the healthcare industry or to revise or create additional statutory and regulatory requirements. Such proposals, if implemented, could adversely affect our operations, the attractiveness of our services to existing customers and our ability to market new services, or could create unexpected liabilities for us. We are unable to predict what changes to laws or regulations might be made in the future or how those changes could affect our business or our operating costs.

Developments in the healthcare industry, including national healthcare reform, could adversely affect our business.

The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. The timing and impact of developments in the healthcare industry are difficult to predict. We cannot be sure that the markets for our services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets. Many of the provisions of the ACA, which was enacted in 2010, first became effective in 2014. Therefore, it is not yet possible for us to accurately predict if, or how, these changes will impact our ability to develop increases in revenue yield for our customers, encourage more companies to enter our market, provide advantages to our competitors and result in the development of solutions that compete with ours. Moreover, healthcare reform remains a major policy issue at the federal level, and amendments to or the repeal of the existing legislation and additional healthcare legislation in the future could have adverse consequences for us or the customers we serve. Other material changes, such as the required transition by October 1, 2015 to ICD-10 will impose significant system and business changes throughout the healthcare industry, and could be disruptive to our customers and our business. Such disruption could result in, among other things, the imposition of significant new challenges to our ability to achieve performance targets specified under our customer contracts, as well as a need for us to redeploy resources or to obtain new resources in an effort to meet such challenges, all of which could adversely affect our business or our results of operations. Additionally, several reductions or changes to Medicare reimbursement have been enacted recently or will be implemented (such as the federal government sequestration reductions), which reductions and changes could reduce the amounts received by our customers and may have an adverse indirect effect on our business.

In addition, one aspect of the 2014 Medicare hospital inpatient prospective payment system final rule, or the Two- Midnight Rule, generally permits hospitals to classify Medicare patients as inpatients for billing purposes only if a physician documents a reasonable expectation that the patient will require inpatient hospital care for a continuous duration that covers two midnights. Congress has also extended a moratorium on Recovery Auditor

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Contractor, or RAC, audits of these billing classification decisions until March 2015. Many of our current and potential PAS customers believe that the combination of the Two-Midnight Rule and the congressional moratorium on RAC audits significantly simplifies many billing classification decisions and reduces risk associated with those decisions. As a result, the demand for our PAS offerings has declined substantially. Further, with CMS’ one time offer to pay out 68% on certain categories of pending appeals by providers, demand for PAS appeals services may continue to decline significantly.

Healthcare reform also is causing the transition of some payment methods and provider reimbursement from volume-based reimbursement to value-based reimbursement models, which can include risk-sharing, accountable care organizations, capitation, bundled payment and other innovative approaches. While such new reimbursement models may provide us with opportunities to provide new or additional services to our customers (e.g., our value based reimbursement capabilities within our RCM services offering) and to participate in incentive based payment arrangements for our services, there can be no assurance that such new models and approaches will prove to be profitable to our customers or to us. Further, such new models and approaches may require investment by us to develop technology or expertise to offer necessary and appropriate services or support to our customers, and the amount of such investment and the timing for return of such investment are not fully known at this time due to the uncertainties of healthcare reform and payment and reimbursement model transitions that are occurring. Certain new care delivery and reimbursement models are being offered as pilot programs or as limited or transitional programs, and there is no assurance that such programs will continue or be renewed. Any of these models and approaches, and changes generally in the healthcare industry, can impact the relationships between our customers and third-party payers, from which our customers derive revenue and with which revenue our customers pay for our services. Adoption of such new models and approaches may require compliance with a range of federal and state laws relating to fraud and abuse, insurance, reinsurance and managed care regulation, billing and collection, corporate practice of medicine restrictions and licensing, among others. Many states in which these new value-based structures are being developed lack regulatory guidance or a well-developed body of law for these new models and approaches, or may not have updated their laws or enacted legislation yet to reflect the new healthcare reform models. As a result, although we have structured, and will attempt to structure and conduct, our operations in accordance with our interpretation of current laws and regulations, new laws, regulations or guidance could have a material adverse effect on our current and future operations and could subject us to the risk of restructuring or terminating our customer agreements and arrangements, as well as the risk of regulatory enforcement, penalties and sanctions, if state enforcement agencies disagree with our interpretation of state laws.

If we violate HIPAA, the HITECH Act or state health information privacy laws, we may incur significant liabilities, and any such violations could make it more difficult to retain existing customers or attract new customers, extend the time it takes to enter into service agreements with new customers, and result in a material adverse effect on our business, results of operations and financial condition.

HIPAA contains substantial restrictions and requirements with respect to the use and disclosure of individuals’ PHI. Under HIPAA, covered entities, including health plans, healthcare providers, and healthcare clearinghouses that conduct HIPAA-defined standard electronic transactions, are restricted in how they use and disclose PHI and must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic PHI maintained or transmitted by them or by others on their behalf. Most of our customers are covered entities and we are a business associate to many of those customers under HIPAA as a result of our contractual obligations to perform certain functions on behalf of, and to provide certain services to, those customers. As a business associate, we sometimes also act as a clearinghouse in performing certain functions for our customers. In addition, the Minnesota Attorney General’s lawsuit, which we settled in 2012, alleged that we are a “healthcare provider” as defined in HIPAA. Although we believe that we are not a healthcare provider, if we were found to be a healthcare provider, we could have liability under the provisions of HIPAA that apply to providers as well as under state health information privacy and licensing laws. Our use and disclosure of PHI is restricted by HIPAA and the business associate agreements we are required to enter into with our covered entity customers.

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In 2009, HIPAA was amended by the HITECH Act to impose certain of the HIPAA privacy and security requirements directly upon business associates of covered entities and increase significantly the monetary penalties for violations of HIPAA. The HITECH Act also requires business associates to notify covered entities, who in turn must notify affected individuals and government authorities, of data security breaches involving unsecured PHI. Since the passage of the HITECH Act, enforcement of HIPAA violations has increased, as indicated by the announcement of a number of significant settlement agreements and/or sanctions by federal authorities, the pursuit of HIPAA violations by state attorneys general, and the roll-out of a new federal audit program for covered entities (which will in the future be extended to business associates).

In addition to HIPAA, most states have enacted patient confidentiality laws that protect against the unauthorized disclosure of confidential medical information, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach notification requirements. Such state laws, if more stringent than HIPAA, are not preempted by the federal requirements, and we must comply with them even though such state laws may be subject to different interpretations by various courts and other governmental authorities.

We have implemented and maintain physical, technical and administrative safeguards intended to protect all personal data and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and properly responding to any security incidents or breaches. We voluntarily sought, and received, HITRUST certification to help ensure compliance. A knowing breach of HIPAA’s requirements could expose us to criminal liability. A breach of our safeguards and processes that is not due to reasonable cause or involves willful neglect could expose us to significant civil penalties and the possibility of civil litigation under HIPAA and applicable state law. In 2011, a laptop computer used by one of our employees that contained PHI for patients of two customers was stolen. The laptop was password-protected but was not encrypted, in violation of company policy. We notified both customers of the 2011 theft, which customers in turn notified the affected individuals as well as the appropriate regulators. The Minnesota Attorney General subsequently initiated a lawsuit against us, which we settled in 2012, for, among other things, alleged violations of federal and Minnesota state health privacy laws and regulations arising from the laptop theft. Laptop computers used by our employees that contained PHI have also been stolen on other occasions. We do not believe that any patient data has been compromised as a result of any of these thefts. Nonetheless, these incidents have made it more difficult to retain existing customers and attract new customers. They have also extended the time it takes to enter into service agreements with new customers, and could result in a material adverse effect on our business, results of operations and financial condition.

If we fail to comply with federal and state laws governing submission of false or fraudulent claims to government healthcare programs and financial relationships among healthcare providers, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs.

A number of federal and state laws, including anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims, apply to healthcare providers, physicians and others that make, offer, seek or receive payments or split fees for referrals of products or services that may be paid for through any federal or state healthcare program and, in some instances, any private program. These laws are complex and their application to our specific services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have recently increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other healthcare reimbursement laws and rules. From time to time, participants in the healthcare industry receive inquiries or subpoenas to produce documents in connection with government investigations. We could be required to expend significant time and resources to comply with these requests, and the attention of our management team could be diverted by these efforts. Furthermore, if we are found to be in violation of any federal or state fraud and abuse laws, we could be subject to civil and criminal penalties, forced to restructure our business and excluded from participating in federal and state healthcare programs such as Medicare and Medicaid which would result in significant harm to our business and financial condition.

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The federal healthcare anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to induce referrals, and some of these state laws are applicable to all patients regardless of whether the patient is covered under a governmental health program or private health plan. New payment structures, such as accountable care organizations and other arrangements involving combinations of hospitals, physicians and other providers who share payment savings, potentially implicate anti-kickback and other fraud and abuse laws. We seek to structure our business relationships and activities to avoid any activity that could be construed to implicate the federal healthcare anti-kickback law and similar laws. We cannot assure you, however, that our arrangements and activities will be deemed outside the scope of these laws or that increased enforcement activities will not directly or indirectly have a material adverse effect on our business, financial condition or results of operations. Any determination by a federal or state agency or court that we have violated any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, could disqualify us from providing services to healthcare providers doing business with government programs, could give our customers the right to terminate our managed services agreements with them and, thus, could have a material adverse effect on our business and results of operations. Moreover, any violations by, and resulting penalties or exclusions imposed upon, our customers could adversely affect their financial condition and, in turn, have a material adverse effect on our business and results of operations.

There are also numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with the submission and payment of healthcare provider claims for reimbursement. In particular, the federal FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. The FCA may be enforced by the government or by private whistleblowers under the “qui tam” provisions of the statute. Whistleblowers are entitled to a share of any recovery in a FCA case. Changes to the FCA enacted as part of the ACA make it easier for whistleblowers to bring FCA claims. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implications of the amendments to the FCA pursuant to the FERA have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may affect our business.

These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Errors created by our proprietary applications or services that relate to entry, formatting, preparation or transmission of claim or cost report information may be determined or alleged to cause the submission of false claims or otherwise be in violation of these laws and regulations. Any failure of our proprietary applications or services to comply with these laws and regulations could result in substantial civil or criminal liability and could, among other things, adversely affect demand for our services, invalidate all or portions of some of our managed services agreements with our customers, require us to change or terminate some portions of our business, require us to refund portions of our base fee revenues and incentive payment revenues, cause us to be disqualified from serving customers doing business with government payers, and give our customers the right to terminate our managed services agreements with them, any one of which could have a material adverse effect on our business.

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We cannot be certain that governmental officials responsible for enforcing EMTALA, or other parties, will not assert that our customers are in violation of EMTALA, and defending and settling allegations of EMTALA violations could have a material adverse effect on our business even if we are ultimately not found to have contributed to such violations.

EMTALA requires Medicare-participating hospitals that have emergency departments to provide a medical screening examination and stabilizing treatment to all individuals who come to the hospital seeking treatment of an emergency medical condition, regardless of the patient’s ability to pay for the care. Sanctions for failing to fulfill these requirements include exclusion from participation in the Medicare and Medicaid programs and civil monetary penalties. In addition, the law creates private civil remedies that enable an individual who suffers personal harm as a direct result of a violation of the law to sue the offending hospital for damages and equitable relief.

In 2012, the Minnesota Attorney General’s “Compliance Review” described circumstances raising potential EMTALA concerns at Fairview and raised questions as to whether our practices contributed to any such violations. An investigation by the Minnesota Department of Health on behalf of the federal government concluded in September 2012 that Fairview had violated EMTALA and required Fairview to implement a corrective action plan. Since we are not a healthcare provider, EMTALA is not applicable to us, but we cannot be certain that governmental officials responsible for enforcing EMTALA, or other parties, will not assert that our other customers are in violation of EMTALA. If our customers are found to have violated EMTALA, they may assert claims that our management practices contributed to the violation. Defending and settling allegations of EMTALA violations could have a material adverse effect on our business even if we are ultimately not found guilty of a violation.

Our failure to comply with debt collection and other consumer protection laws and regulations could subject us to fines and other liabilities, which could harm our reputation and business, and could make it more difficult to retain existing customers or attract new customers, extend the time it takes to enter into service agreements with new customers, and result in a material adverse effect on our business, results of operations and financial condition.

The FDCPA regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer debts in default that are owed or asserted to be owed to another person. However, our business practices that involve collecting, or assisting our customers in collecting, non-defaulted amounts owed by patients for current and prior services activities may be determined to be subject to the FDCPA. Many states impose additional requirements on debt collection communications, and some of those requirements may be more stringent than the federal requirements. Moreover, regulations governing debt collection are subject to changing interpretations that may be inconsistent among different jurisdictions. Further, we are subject to the TCPA, which imposes certain restrictions on companies that place telephone calls to consumers.

We could incur costs or could be subject to fines or other penalties under the TCPA, the FDCPA and the FTC Act if we are determined to have violated the provisions of those regulations during the course of conducting our operations. We, or our customers, could be required to report such breaches to affected consumers or regulatory authorities, leading to disclosures that could damage our reputation or harm our business, financial position and operating results. As a result of the 2011 laptop theft giving rise to the Minnesota Attorney General’s lawsuit and the related FTC inquiry of our data security practices, in December 2013, we entered into a consent order with the FTC pursuant to which no fine or penalty was paid but in which we agreed, among other things, to maintain a comprehensive information security program reasonably designed to protect the security, confidentiality, and integrity of personal information collected from or about consumers. Future allegations of this type could require us to change aspects of our business practices, make it more difficult to retain existing customers or attract new customers, extend the time it takes to enter into service agreements with new customers, and result in a material adverse effect on our business, results of operations and financial condition.

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Potential additional regulation of the disclosure of health information outside the United States may increase our costs.

Federal or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on the collection, use, transmission and other disclosures of health information. Legislation has been proposed at various times at both the federal and the state levels that would limit, forbid or regulate the use or transmission of medical information pertaining to U.S. patients outside of the United States. Such legislation, if adopted, may render our operations in India impracticable or substantially more expensive. Moving such operations to the United States may involve substantial delay in implementation and increased costs.

Risks Related to Intellectual Property

We may be unable to adequately protect our intellectual property.

Our success depends, in part, upon our ability to establish, protect and enforce our intellectual property and other proprietary rights. If we fail to establish or protect our intellectual property rights, we may lose an important advantage in the market in which we compete. We rely upon a combination of patent, trademark, copyright and trade secret law and contractual terms and conditions to protect our intellectual property rights, all of which provide only limited protection. We cannot assure you that our intellectual property rights are sufficient to protect our competitive advantages. Although we have filed seven U.S. patent applications, we cannot assure you that any patents that will be issued from these applications will provide us with the protection that we seek or that any future patents issued to us will not be challenged, invalidated or circumvented. We have also been issued three U.S. patents, but we cannot assure you that they will provide us with the protection that we seek or that they will not be challenged, invalidated or circumvented. Legal standards relating to the validity, enforceability and scope of protection of patents are uncertain. Any patents that may be issued in the future from pending or future patent applications or our three issued patents may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that any trademark registrations will be issued for pending or future applications or that any of our trademarks will be enforceable or provide adequate protection of our proprietary rights.

We also rely in some circumstances on trade secrets to protect our technology. Trade secrets may lose their value if not properly protected. We endeavor to enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent unauthorized use of our technology, and adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and proprietary technology. Moreover, others may reverse engineer or independently develop technologies that are competitive to ours or infringe our intellectual property.

Accordingly, despite our efforts, we may be unable to prevent third parties from infringing or misappropriating our intellectual property and using our technology for their competitive advantage. Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition. Monitoring infringement of our intellectual property rights can be difficult and costly, and enforcement of our intellectual property rights may require us to bring legal actions against infringers. Infringement actions are inherently uncertain and therefore may not be successful, even when our rights have been infringed, and even if successful may require a substantial amount of resources and divert our management’s attention.

Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.

Our competitors protect their intellectual property rights by means such as patents, trade secrets, copyrights and trademarks. We have not conducted an independent review of patents issued to third parties. Additionally,

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because patent applications in the United States and many other jurisdictions are kept confidential for 18 months before they are published, we may be unaware of pending patent applications that relate to our proprietary technology. Although we have not been involved in any litigation related to intellectual property rights of others, from time to time we receive letters from other parties alleging, or inquiring about, possible breaches of their intellectual property rights. Any party asserting that we infringe its proprietary rights would force us to defend ourselves, and possibly our customers, against the alleged infringement. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights or interruption or cessation of our operations. The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, the risk of such a lawsuit will likely increase as our size and scope of our services and technology platforms increase, as our geographic presence and market share expand and as the number of competitors in our market increases.

Any such claims or litigation could:

• be time-consuming and expensive to defend, whether meritorious or not;

• require us to stop providing the services that use the technology that infringes the other party’s intellectual property;

• divert the attention of our technical and managerial resources;

• require us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable, if at all;

• prevent us from operating all or a portion of our business or force us to redesign our services and technology platforms, which could be difficult and expensive and may make the performance or value of our service offerings less attractive;

• subject us to significant liability for damages or result in significant settlement payments; or

• require us to indemnify our customers, as we are required by contract to indemnify some of our customers for certain claims based upon the infringement or alleged infringement of any third party’s intellectual property rights resulting from our customers’ use of our intellectual property.

Intellectual property litigation can be costly. Even if we prevail, the cost of such litigation could deplete our financial resources. Litigation is also time-consuming and could divert management’s attention and resources away from our business. Furthermore, during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual property litigation could materially adversely affect our business. Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could significantly limit our ability to continue our operations and could harm our relationships with current and prospective customers. Any of the foregoing could disrupt our business and have a material adverse effect on our operating results and financial condition.

Risks Related to the Ownership of Shares of Our Common Stock

Our common stock has been delisted from the New York Stock Exchange, or NYSE, and is not listed on any other national securities exchange, which may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Our common stock was suspended from trading on the NYSE prior to the opening of the market on March 17, 2014 (and subsequently delisted) and began trading under the symbol “ACHI” through the facilities of the OTC Markets Group, Inc. on that date.

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We can provide no assurance that we will be able to relist our common stock on a national securities exchange or that the stock will continue being traded on the over-the-counter, or OTC, marketplace. The trading of our common stock on the OTC marketplace rather than the NYSE may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Securities traded in the OTC market generally have significantly less liquidity than securities traded on a national securities exchange due to factors such as the reduced number of investors that will consider investing in the securities, the reduced number of market makers in the securities, and the reduced number of securities analysts that follow such securities. As a result, holders of our common stock may find it difficult to resell their shares at prices quoted in the market or at all. Furthermore, because of the limited market and low volume of trading in our common stock that could occur, the share price of our common stock could more likely be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties. The lack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future.

The trading price of our common stock has been volatile and may continue to be volatile.

Since December 31, 2010, our common stock has traded at a price per share as high as $32.82 and as low as $6.92. The trading price of our common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors. In addition to the risks described in this section, factors that may cause the market price of our common stock to fluctuate include:

• the Restatement and the related SEC investigation;

• fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

• changes in estimates of our financial results;

• failure to meet expectations of securities analysts;

• the loss of service agreements with customers;

• lawsuits filed against us by governmental authorities or stockholders;

• unfavorable publicity concerning our operations or business practices;

• our common stock’s eligibility for stock exchange listing;

• investors’ general perception of us; and

• changes in general economic, industry, regulatory and market conditions.

In addition, if the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.

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Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our restated certificate of incorporation and amended and restated bylaws:

• authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

• provide for a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

• require that directors only be removed from office for cause and only upon a supermajority stockholder vote;

• provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

• limit who may call special meetings of stockholders; prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and

• require supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and amended and restated bylaws.

We may not pay any cash dividends on our capital stock in the foreseeable future.

Although we paid cash dividends on our capital stock prior to our May 2010 initial public offering, or IPO, there is no assurance that we will pay cash dividends on our common stock in the foreseeable future. Any future dividend payments will be within the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease our existing facilities and do not own any real estate property.

Our corporate headquarters occupy approximately 43,000 square feet in Chicago, Illinois under a lease expiring on August 31, 2020. In addition, we have a right of first offer to lease an additional 11,100 square feet of space on another floor in the same building. We also lease office space and other facilities in Chicago, Illinois; Kalamazoo, Michigan; Warren, Michigan; Southfield, Michigan; Birmingham, Alabama; Jupiter, Florida; Cape Girardeau, Missouri; and two facilities near New Delhi, India. Pursuant to our managed services agreements with customers, we occupy space on-site at all hospitals where we provide our RCM services. We generally do not pay customers for our use of space provided by them for our use in the provision of RCM services to that customer.

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We believe that our facilities are sufficient for our current needs. We intend to add new facilities or expand existing facilities as we add employees or expand or change our geographic markets and office locations, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

Item 3. Legal Proceedings

On January 19, 2012, the State of Minnesota, by its Attorney General, filed a complaint against us in the United States District Court for the District of Minnesota, alleging violations of federal and Minnesota state health privacy laws and regulations, Minnesota debt collection laws, and Minnesota consumer protection laws resulting from, among other things, the theft in Minnesota in July 2011 of an employee’s laptop that contained PHI. On January 25, 2012, the Commissioner of the Minnesota Department of Commerce served us an administrative subpoena seeking information and documents about our debt collection practices and the privacy of personal and health data within our possession or control. On February 3, 2012, we entered into a Consent Cease and Desist Order with the Commissioner, voluntarily agreeing to cease all debt collection activity in the State of Minnesota. As previously disclosed, on July 30, 2012, without any admission of liability or wrongdoing, we entered into a Settlement Agreement, Release and Order with the Minnesota Attorney General to settle the lawsuit filed by the Minnesota Attorney General and the investigation commenced by the Minnesota Department of Commerce and to resolve fully all disputes which in any way related to, arose out of, emanated from, or otherwise involved such lawsuit or investigation and all investigations by the Minnesota Attorney General, the Minnesota Department of Commerce, and the Minnesota Department of Human Services relating to us. As part of the settlement, we paid a monetary penalty of $2.5 million and voluntarily agreed to cease all remaining operations in Minnesota.

On March 27, 2012, the FTC issued us a Civil Investigative Demand, to determine whether we may have violated Section 5 of the FTC Act, as it relates to deceptive or unfair acts or practices related to consumer privacy and/or data security, or the Fair Credit Reporting Act, or the FDCPA. Pursuant to the FTC’s demand, the FTC sought documents and responses that primarily concerned the collection, use, security, and privacy of personal and health data within our possession or control, statements to consumers about such data, the use of various forms of scoring, and policies and practices regarding collection of data. On December 31, 2013, without any admission of liability or wrongdoing, and without payment of any monetary penalty or fine, we entered into a Consent Order with the FTC to resolve its demand. Pursuant to the Consent Order, we agreed, among other things, to maintain a comprehensive information security program reasonably designed to protect the security, confidentiality, and integrity of personal information collected from or about consumers. The FTC gave final approval to the Consent Order on February 24, 2014.

On April 26, 2012 and May 1, 2012, we, along with certain of our former officers, were named as a defendant in two putative securities class action lawsuits filed in the U.S. District Court for the Northern District of Illinois, which were consolidated as Wong v. Accretive Health et al. The primary allegations are that our public statements, including filings with the SEC, were false and/or misleading about our violations of certain federal and Minnesota privacy and debt collection laws. On September 26, 2013, without any admission of liability or wrongdoing, we entered into a Settlement Agreement to resolve these suits for $14 million, which has been funded into escrow by our insurance carriers. On April 30, 2014, the U.S. District Court for the Northern District of Illinois granted final approval of the Settlement Agreement. A single objector to the Settlement Agreement appealed to the U.S. Court of Appeals for the Seventh Circuit, and, on December 9, 2014, the court of appeals affirmed the district court’s approval of the settlement.

In addition, we along with certain of our directors and former officers have been named in several putative shareholder derivative lawsuits filed in the U.S. District Court for the Northern District of Illinois on May 3, 2012 and July 31, 2012 (consolidated as Maurras Trust v. Accretive Health et al.), in the Circuit Court of Cook County, Illinois on June 23, 2012 and June 27, 2012 (consolidated as In re Accretive Health, Inc. Derivative Litigation) and in the Court of Chancery of the State of Delaware on November 5, 2012 (Doyle v. Tolan et al.).

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The primary allegations are that our directors and officers breached their fiduciary duties in connection with the alleged violations of certain federal and Minnesota privacy and debt collection laws.

On July 11, 2013, the Court of Chancery of the State of Delaware granted our motion to stay Doyle v. Tolan et al., in favor of the action pending in the U.S. District Court for the Northern District of Illinois. On September 24, 2013, the U.S. District Court for the Northern District of Illinois granted our motion to dismiss without prejudice, giving plaintiffs in that case leave to file an amended consolidated complaint, which plaintiffs filed on October 22, 2013, amending their complaint to also include allegations with respect to the Restatement. We believe that we have meritorious defenses in all of these cases and intend to vigorously defend ourselves and our directors and officers against these claims. The outcome of these matters is not presently determinable.

On June 12, 2012, the Illinois Department of Financial and Professional Regulation issued an administrative complaint seeking to impose reciprocal “sister state discipline” against our Illinois debt collection license based on the February 3, 2012 Consent Cease and Desist Order, with the Commissioner of the Minnesota Department of Commerce. On September 11, 2013, an administrative law judge dismissed the complaint without prejudice.

On May 17, 2013, we along with certain of our directors and former officers were named as a defendant in a putative securities class action lawsuit filed in the U.S. District Court for the Northern District of Illinois (Hughes v. Accretive Health, Inc. et al.). The primary allegations, relating to our March 8, 2013 announcement that we would be restating our prior period financials, are that our public statements, including filings with the SEC, were false and/or misleading with respect to our revenue recognition and earnings prospects. On November 27, 2013, plaintiffs voluntarily dismissed our directors (other than Mary Tolan). On January 31, 2014, we filed a motion to dismiss the Complaint. On September 25, 2014, the Court granted our motion to dismiss without prejudice, however the plaintiffs filed a second amended complaint on October 23, 2014. We continue to believe we have meritorious defenses and intend to vigorously defend ourselves, Mary Tolan, and our former officers against these claims. The outcome is not presently determinable.

The SEC’s Division of Enforcement in the Chicago Regional Office is also conducting an investigation regarding the circumstances surrounding our March 8, 2013 announcement. We are fully cooperating with the investigation.

On February 11, 2014, we were named as a defendant in a putative class action lawsuit filed in the U.S. District Court for the Southern District of Alabama (Church v. Accretive Health, Inc.). The primary allegations are that we attempted to collect debts without providing the notice required by the FDCPA and attempted to collect debts after they were discharged in bankruptcy. We believe that we have meritorious defenses and intend to vigorously defend ourselves against these claims. The outcome is not presently determinable.

On July 22, 2014, we were named as a defendant in a putative class action lawsuit filed in the U.S. District Court for the Eastern District of Michigan (Anger v. Accretive Health, Inc.). The primary allegations are that we attempted to collect debts without providing the notice required by the FDCPA. We believe that we have meritorious defenses and intend to vigorously defend ourselves against these claims. The outcome is not presently determinable.

We have also been party to a confidential binding arbitration with Fairview Health Services. On December 31, 2013, we entered into a negotiated, confidential settlement to resolve all differences with Fairview following a confidential mediation.

From time to time we may become subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of our business. While the outcome of these other claims cannot be predicted with certainty, we do not believe that the outcome of any of these other legal matters will have a material adverse effect on our results of operations, financial condition or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

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

Our common stock has traded on the OTC market under the symbol “ACHI” since March 17, 2014 and is quoted through the facilities of the OTC Markets Group, Inc. Our common stock traded on the NYSE under the symbol “AH” from May 20, 2010 through March 14, 2014. Our common stock was suspended from trading on the NYSE prior to the opening of the market on March 17, 2014 (and subsequently delisted) and began trading under the symbol “ACHI” through the facilities of the OTC Markets Group, Inc. on that date. Prior to May 20, 2010, there was no public market for our common stock.

The following table sets forth the high and low intraday sales prices per share of our common stock, as reported by the NYSE, for the periods indicated:

	Price Range
	High		Low
2011
Quarter ended March 31, 2011	$	27.97	$	16.00
Quarter ended June 30, 2011	$	30.65	$	21.20
Quarter ended September 30, 2011	$	32.82	$	20.35
Quarter ended December 31, 2011	$	29.10	$	19.31
2012
Quarter ended March 31, 2012	$	28.46	$	19.40
Quarter ended June 30, 2012	$	20.27	$	7.75
Quarter ended September 30, 2012	$	14.19	$	9.92
Quarter ended December 31, 2012	$	12.68	$	10.36
2013
Quarter ended March 31, 2013	$	13.54	$	8.55
Quarter ended June 30, 2013	$	11.58	$	8.91
Quarter ended September 30, 2013	$	11.15	$	8.86
Quarter ended December 31, 2013	$	9.55	$	7.98

The closing sale price per share of our common stock, as reported by the OTC Markets Group, Inc., on December 22, 2014 was $8.65. As of December 18, 2014, there were approximately 72 stockholders of record of our common stock and approximately 3,083 beneficial holders.

Dividends

We did not pay any dividends during the years ended December 31, 2013, 2012 and 2011. We currently intend to retain earnings, if any, to finance the growth and development of our business, and we do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, capital expenditure requirements, contractual restrictions, provisions of applicable law, and other factors the board deems relevant.

Equity Compensation Plan Information

We maintain a 2006 Second Amended and Restated Stock Option Plan, which we refer to as the 2006 Plan. In April 2010 in connection with our IPO, we adopted a new 2010 Stock Incentive Plan, or the 2010 Plan, and, together with the 2006 Plan, the Plans. Under the 2010 Plan we may issue (up to a maximum of 24,374,756 shares) including any shares that remained available for issuance under the 2006 Plan as of the date of the IPO and any shares subject to awards that were outstanding under the 2006 Plan as of the date of the IPO that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us without the issuance of shares

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thereunder. We will not make any further grants under the 2006 Plan. The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, or RSAs, and other share-based awards. As of December 31, 2013, an aggregate of 15,944,775 shares were subject to outstanding options and RSAs under the Plans, 10,109,036 shares had been issued pursuant to the exercise of options issued under the Plans, and 2,883,113 shares were available for future grants of awards under the 2010 Plan. However, to the extent that previously granted awards under the 2006 Plan or 2010 Plan expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us, the number of shares available for future awards under the 2010 Plan will increase. The following table summarizes information about the securities authorized for issuance under our equity compensation plans as of December 31, 2013:

	(a)		(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options		Weighted- Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities reflected in Column (a))
Equity compensation plans approved by stockholders (1)(2)		15,836,472	$	12.27		2,883,113
Equity compensation plans not approved by stockholders (3)(4)		4,703,801	$	10.09		—
Total		20,540,273	$	11.77		2,883,113

(1) Includes all outstanding stock options awarded under our 2006 Plan and 2010 Plan.

(2) Excludes 108,303 shares of restricted stock that were unvested and not forfeited as of December 31, 2013.

(3) Represents stock option inducement grants made pursuant to the NYSE inducement grant rules.

(4) Excludes 349,996 shares of restricted stock that were unvested and not forfeited as of December 31, 2013.

We entered into a Stock Option Agreement with Stephen Schuckenbrock on April 3, 2013, as an inducement award pursuant to an exemption from the NYSE’s stockholder approval requirements in connection with Mr. Schuckenbrock’s appointment as our then-chief executive officer. Pursuant to this agreement, we granted Mr. Schuckenbrock a non-statutory stock option for the purchase of up to 2,903,801 shares of our common stock with an exercise price of $9.56 per share, which options vest in substantially equal monthly installments over 48 months subject to continued service with us (including service as a member of our board of directors). See Agreement for Mr. Stephen Schuckenbrock in Part III - Item 11 - “Executive Compensation” for more details.

We entered into a Non-Statutory Stock Option Agreement and a Restricted Stock Award Agreement with Joseph Flanagan on June 3, 2013, each as an inducement award pursuant to an exemption from the NYSE’s stockholder approval requirements in connection with Mr. Flanagan’s appointment as our chief operating officer. Pursuant to the Non-Statutory Stock Option Agreement, we granted Mr. Flanagan a non-statutory stock option for the purchase of up to 800,000 shares of our common stock with an exercise price of $11.47 per share and pursuant to the Restricted Stock Award Agreement, we granted Mr. Flanagan 400,000 shares of our common stock. These equity awards to Mr. Flanagan vest in substantially equal monthly installments over 48 months subject to continued service with us. See Agreement for Mr. Joseph Flanagan in Part III - Item 11 - “Executive Compensation” for more details.

We also entered into a Non-Statutory Stock Option Agreement with Richard Kimball on April 30, 2013, as an inducement award pursuant to an exemption from the NYSE’s stockholder approval requirements in connection with Mr. Kimball’s appointment as our then-chief strategy officer. Pursuant to this agreement, we granted Mr. Kimball a non-statutory stock option for the purchase of up to 1,000,000 shares of our common stock with an exercise price of $10.54 per share. That stock option vested with respect to the first 250,000 shares ratably on a quarterly basis during the first year of Mr. Kimball’s employment, and with respect to the remaining 750,000 shares, the stock option was to vest ratably on each of the second through fourth anniversaries of

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Mr. Kimball’s employment, in each case subject to continued service with us. Mr. Kimball resigned from our company on August 31, 2014, at which time his option had vested with respect to 250,000 of the options, and was forfeited with respect to the remaining 750,000 options. The vested portion of Mr. Kimball’s option was also terminated sixty days after Mr. Kimball’s resignation.

Sales of Unregistered Securities and Use of Proceeds

Use of IPO Proceeds. The SEC declared the Registration Statement on Form S-1 (File No. 333-162186) related to our initial public offering or IPO effective on May 19, 2010. From the effective date of the registration statement through December 31, 2013, we used all the net proceeds from our IPO in funding our operations. Please refer to “Item 7 – Management’s Discussion and Analysis of Financial Condition” and “Item 8 – Consolidated Financial Statements and Supplementary Data” for a discussion of our operating expenses.

Recent Sales of Unregistered Securities

We granted options to purchase an aggregate of 4,482,689 shares of our common stock during the nine month period ended September 30, 2014 with exercise prices ranging from $7.38 to $9.45 per share, and 7,939,600 shares of common stock during 2013 with exercise prices ranging from $8.14 to $11.47 per share. Additionally we issued 2,365,000 shares of restricted stock during the nine month period ended September 30, 2014 and 508,303 shares of restricted stock during 2013, to employees and directors pursuant to the 2010 Plan and/or in reliance upon the exemption from the registration requirements of the Securities Act of 1933, or Securities Act, provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering, as set forth in the tables below. No underwriters were involved in the foregoing transactions. All of such unregistered shares of common stock are deemed restricted securities for purposes of the Securities Act. No such options have been exercised.

The following table sets forth the dates on which such options were granted and the number of shares of common stock subject to such options, the exercise price and the number of employees and directors granted options on each date from January 1, 2014 through September 30, 2014:

Date of Grant	Common Stock Subject to Options Granted		Exercise Price		Number of Employees and Directors Granted Options
1/2/2014		17,376	$	9.14		5
1/3/2014		28,275	$	9.09		4
1/7/2014		218,946	$	9.45		2
2/4/2014		154,000	$	8.83		1
3/4/2014		160,000	$	8.61		1
4/1/2014		22,540	$	8.38		6
4/2/2014		13,488	$	8.53		2
4/29/2014		700,000	$	8.05		2
5/2/2014		6,526	$	7.70		2
6/3/2014		10,000	$	7.38		2
7/1/2014		23,706	$	8.00		6
7/2/2014		97,462	$	8.00		4
7/21/2014		2,700,000	$	8.98		1
8/4/2014		10,000	$	8.35		1
8/12/2014		300,000	$	8.15		1
9/3/2014		20,370	$	8.10		1
		4,482,689

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The following table sets forth the dates on which such options were granted and the number of shares of common stock subject to such options, the exercise price and the number of employees and directors granted options on each date during the year ended December 31, 2013:

Date of Grant	Common Stock Subject to Options Granted		Exercise Price		Number of Employees and Directors Granted Options
3/4/2013		35,000	$	9.40		4
4/1/2013		20,092	$	10.25		6
4/2/2013		168,086	$	10.00		7
4/3/2013		2,903,801	$	9.56		1
4/30/2013		1,000,000	$	10.54		1
5/2/2013		1,300,500	$	10.39		116
5/7/2013		103,174	$	10.38		1
6/3/2013		800,000	$	11.47		1
6/4/2013		100,000	$	11.40		5
7/1/2013		17,304	$	11.05		6
7/2/2013		12,782	$	10.85		2
8/2/2013		91,000	$	9.98		8
8/26/2013		300,000	$	9.94		1
9/4/2013		428,000	$	9.30		12
10/1/2013		21,028	$	9.07		6
10/2/2013		398,833	$	9.04		7
11/4/2013		15,000	$	8.20		2
12/3/2013		225,000	$	8.14		4
		7,939,600

The following table sets forth the dates on which such shares of restricted stock were granted, the number of shares of restricted stock and the number of employees and directors granted restricted stock on each date from January 1, 2014 through September 30, 2014:

Date of Grant	Number of Shares of Restricted Common Stock Granted		Number of Employees and Directors Granted Restricted Stock
1/24/2014		750,000		19
4/29/2014		375,000		2
7/9/2014		40,000		1
7/21/2014		1,000,000		1
8/12/2014		200,000		1
		2,365,000

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The following table sets forth the dates on which such shares of restricted stock were granted, the number of shares of restricted stock and the number of employees and directors granted restricted stock on each date during the year ended December 31, 2013:

Date of Grant	Number of Shares of Restricted Common Stock Granted		Number of Employees and Directors Granted Restricted Stock
6/3/2013		400,000		1
6/4/2013		108,303		1
		508,303

Issuer Purchases of Equity Securities

The following table provides information about our repurchases of common stock during the periods indicated (in thousands, except share and per share data):

Period	Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced  Plans or Programs(1)		Maximum Dollar Value of Shares that May Yet be Purchased  Under Publicly Announced Plans or Programs
September 1, 2012 – September 30, 2012		1,127,600	$	11.67		1,127,600	$	36,886
October 1, 2012 – October 31, 2012		1,362,200		11.65		1,362,200		20,978
November 1, 2012 – November 30, 2012		1,418,099		11.48		1,418,099		4,701
December 1, 2012 – December 31, 2012		399,463		11.77		399,463		—
For the year ended December 31, 2012		4,307,362	$	11.61		4,307,362		—
For the year ended December 31, 2013(2)		—		—		—	$	50,000

(1) On September 4, 2012, our board of directors authorized the repurchase of up to $50.0 million of our common stock from time to time in the open market or in privately negotiated transactions, or the 2012 Repurchase Program. The timing and amount of any shares repurchased was determined by our management based on its evaluation of market conditions and other factors. In 2012, we repurchased 4,307,362 shares of common stock valued at approximately $50.0 million, pursuant to the repurchase program. As of December 31, 2012, no common stock remained available for repurchase pursuant to the 2012 Repurchase Program.

(2) On November 13, 2013, our board of directors authorized, subject to the completion of the Restatement, the repurchase of up to $50 million of our common stock from time to time in the open market or in privately negotiated transactions, or the 2013 Repurchase Program. The timing and amount of any shares repurchased under the 2013 Repurchase Program will be determined by our management based on its evaluation of market conditions and other factors. The 2013 Repurchase Program may be suspended or discontinued at any time. We currently intend to fund any repurchases from cash on hand. The 2013 Repurchase Program was not in effect during 2013 or 2014 and accordingly we did not repurchase any shares of common stock under the 2013 Repurchase Program during 2013 or 2014.

Treasury stock also includes repurchases of our stock related to employees’ tax withholding upon vesting of RSAs. See Note 6, Share-Based Compensation, to our consolidated financial statements.

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Stock Price Performance Graph

The following graph compares the change in the cumulative total return (including the reinvestment of dividends) on our common stock to the change in the cumulative total return on the stocks included in the NYSE Composite Index and Morningstar Healthcare Information Services Index over the period from May 20, 2010, the date our shares of common stock began trading on the NYSE through December 31, 2013. The graph assumes an investment of $100 made in our common stock at a price of $12.00 per share, which was the per share price to the public in our IPO and an investment in each of the other indices on May 20, 2010, the first day of trading of our shares of common stock on the NYSE. We did not pay any dividends during the period reflected in the graph.

COMPARISON OF CUMULATIVE TOTAL RETURN

		5/20/2010		6/30/2010		12/31/2010		6/30/2011		12/31/2011		6/30/2012		12/31/2012		6/30/2013		12/31/2013
Accretive Health, Inc.	Return %				15.18		22.83		77.17		-20.18		-52.31		5.66		-6.65		-15.26
	Cum $		100.00		115.18		141.47		250.65		200.06		95.42		100.82		94.11		79.75
NYSE Composite Index	Return %				-2.44		24.63		5.86		-8.91		5.92		9.76		9.40		15.53
	Cum $		100.00		97.56		121.58		128.71		117.25		124.19		136.31		149.12		172.28
Morningstar Health Information Services	Return %				-1.86		19.90		20.00		-6.81		10.22		-7.82		22.30		18.26
	Cum $		100.00		98.14		117.67		141.20		131.59		145.03		133.69		163.50		193.37

Company/Market/ Peer Group	5/20/2010		6/30/2010		12/31/2010		6/30/2011		12/31/2011		6/30/2012		12/31/2012		6/30/2013		12/31/2013
Accretive Health, Inc.	$	100.00	$	115.18	$	141.47	$	250.65	$	200.06	$	95.42	$	100.82	$	94.11	$	79.75
NYSE Composite Index (a)	$	100.00	$	97.56	$	121.58	$	128.71	$	117.25	$	124.19	$	136.31	$	149.12	$	172.28
Morningstar Health Information Services (a)	$	100.00	$	98.14	$	117.67	$	141.20	$	131.59	$	145.03	$	133.69	$	163.50	$	193.37

(a) Companies included in these indices change from year to year; therefore, cumulative returns for historical periods may differ from previously issued reports.

The comparisons shown in the graph above are based on historical data and we caution that the stock price performance shown in the graph above is not indicative of, and is not intended to forecast, the potential future performance of our common stock. The information in this “Stock Price Performance Graph” section shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, or the Securities Act, or the Securities Exchange Act of 1934, or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

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Item 6. Selected Consolidated Financial Data

The selected consolidated financial data presented below should be read in conjunction with “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 8, Consolidated Financial Statements and Supplementary Data,” included elsewhere in this Form 10-K. We have restated certain consolidated financial data presented in this Annual Report on Form 10-K as of, and for, the years ended, December 31, 2011, 2010 and 2009. The Restatement reflects adjustments related to revenue recognition and other items identified by management, as further described in Note 2, Restatement of Previously Issued Consolidated Financial Statements, included in “Part II – Item 8 – Consolidated Financial Statements and Supplemental Data.”

We derived the consolidated statements of operations and comprehensive income (loss) data for the years ended December 31, 2013, 2012 and 2011, and the consolidated balance sheet data as of December 31, 2013, 2012 and 2011 from our audited restated consolidated financial statements, which are included in this Annual Report on Form 10-K. We derived the consolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2010 and 2009, and the consolidated balance sheet data as of December 31, 2010 and 2009, from our unaudited restated consolidated financial statements.

The Restatement adjustments that relate to years prior to 2009 are reflected in beginning accumulated deficit for 2009. The cumulative impact of these adjusting entries, net of taxes increased our accumulated deficit by $121.6 million, at the beginning of 2009.

Selected Financial Data

	Year Ended December 31,
	2013		2012			2011			2010			2009
						As restated (1)			As restated (1)(2)			As restated (2)
									(Unaudited)			(Unaudited)
	(In thousands, except share and per share data)
Consolidated Statement of Operations Data:
Net services revenue	$	504,768	$	72,254		$	101,966		$	26,945		$	22,045
Operating expenses:
Cost of services		186,752		188,666			158,715			113,607			87,751
Selling, general and administrative		79,951		67,750			63,268			39,870			30,454
Restatement and other		33,963		3,714			—			—			—
Total operating expenses		300,666		260,130			221,983			153,477			118,205
Income (loss) from operations		204,102		(187,876	)		(120,017	)		(126,532	)		(96,160	)
Net interest income (expense)		330		141			26			29			(9	)
Net income (loss) before income tax provision		204,432		(187,735	)		(119,991	)		(126,503	)		(96,169	)
Income tax provision (benefit)		74,349		(67,995	)		(48,246	)		(46,586	)		(86,192	)
Net income (loss)	$	130,083	$	(119,740	)	$	(71,745	)	$	(79,917	)	$	(9,977	)
Dividends on preferred shares		—		—			—			—			(8,044	)
Net income (loss) applicable to common shareholders	$	130,083	$	(119,740	)	$	(71,745	)	$	(79,917	)	$	(18,021	)
Net income (loss) per common share
Basic	$	1.36	$	(1.21	)	$	(0.74	)	$	(1.13	)	$	(0.49	)
Diluted	$	1.34	$	(1.21	)	$	(0.74	)	$	(1.13	)	$	(0.49	)

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	As of December 31,
	2013			2012			2011			2010			2009
							As restated (1)			As restated (2)			As restated (2)
										(Unaudited)			(Unaudited)
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	228,891		$	176,956		$	196,725		$	156,067		$	43,659
Working capital (3)	$	124,045		$	139,852		$	161,539		$	93,995		$	(7,263	)
Total assets	$	509,991		$	557,377		$	476,280		$	344,602		$	160,057
Non-current liabilities	$	202,799		$	85,848		$	65,074		$	337,551		$	206,742
Total stockholders’ equity (deficit)	$	(85,612	)	$	(236,200	)	$	(101,431	)	$	(95,755	)	$	(124,854	)

(1) For adjustments related to 2011, see Note 2, Restatement of Previously Issued Consolidated Financial Statements, to the consolidated financial statements included in this Annual Report on Form 10-K.

(2) Restated consolidated financial data related to the periods ended December 31, 2010 and 2009 has not been audited by our independent registered public accounting firm and, accordingly, has been marked as unaudited.

(3) We define working capital as total current assets excluding the current portion of deferred tax assets pertaining to the current portion of deferred customer billings, less total current liabilities excluding the current portion of deferred customer billings. We exclude the current portion of deferred customer billings and related deferred tax assets from the definition of working capital due to the nature of these balances.

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2010 and 2009 Consolidated Financial Statements (Unaudited)

The table below summarizes the effects of the Restatement adjustments on the Consolidated Balance Sheet at December 31, 2010 (in thousands):

	2010 As reported (1)			Adjustments			2010 As restated
	(Unaudited)			(Unaudited)			(Unaudited)
Assets
Current assets:
Cash and cash equivalents (2)	$	155,573		$	494		$	156,067
Accounts receivable, net		53,894			(48,597	)		5,297
Prepaid income taxes		11,436			229			11,665
Current deferred tax asset		—			16,518			16,518
Other current assets		4,842			(662	)		4,180
Total current assets		225,745			(32,018	)		193,727
Property, equipment and software, net		21,698			(6,748	)		14,950
Non-current deferred tax asset		11,405			123,753			135,158
Goodwill and other assets, net		3,771			(3,004	)		767
Total assets	$	262,619		$	81,983		$	344,602
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	30,073		$	(27,557	)	$	2,516
Current portion of customer liabilities		60,506			22,436			82,942
Accrued compensation and benefits		13,331			(822	)		12,509
Deferred tax liability		6,016			(6,016	)		—
Other accrued expenses		6,062			(1,223	)		4,839
Total current liabilities		115,988			(13,182	)		102,806
Non-current portion of customer liabilities		—			331,361			331,361
Other non-current liabilities		3,912			2,278			6,190
Total liabilities		119,900			320,457			440,357
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock		948			—			948
Additional paid-in capital		159,780			38			159,818
Non-executive employee loans for stock option exercises		(41	)		—			(41	)
Accumulated deficit		(17,834	)		(238,661	)		(256,495	)
Accumulated other comprehensive income (loss)		(134	)		149			15
Total stockholders’ equity (deficit)		142,719			(238,474	)		(95,755	)
Total liabilities and stockholders’ equity (deficit)	$	262,619		$	81,983		$	344,602

(1) In connection with the Restatement, the Company has also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

(2) Adjustment of $494 pertains to the incorrect classification of bank deposits as other current assets in the as reported balance sheet.

48

The table below summarizes the effects of the Restatement adjustments on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2010 (in thousands, except share and per share amounts):

	As reported (1)			Adjustments			As restated
	(Unaudited)			(Unaudited)			(Unaudited)
Net services revenue	$	606,294		$	(579,349	)	$	26,945
Operating expenses:
Cost of services (4)		542,305			(428,698	)		113,607
Selling, general and administrative (4)		41,671			(1,801	)		39,870
Total operating expenses		583,976			(430,499	)		153,477
Income (loss) from operations		22,318			(148,850	)		(126,532	)
Net interest income		29			—			29
Net income (loss) before income tax provision		22,347			(148,850	)		(126,503	)
Income tax provision (benefit)		9,729			(56,315	)		(46,586	)
Net income (loss)	$	12,618		$	(92,535	)	$	(79,917	)
Net income (loss) per common share
Basic	$	0.18					$	(1.13	)
Diluted	$	0.13					$	(1.13	)
Weighted-average shares used in calculating net income (loss) per common share (2), (3)
Basic		70,732,791						70,732,791
Diluted		94,206,677						70,732,791
Other comprehensive income (loss):
Foreign currency translation adjustments	$	(100	)	$	156		$	56
Comprehensive income (loss)	$	12,518		$	(92,379	)	$	(79,861	)

(1) In connection with the Restatement, the Company has also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

(2) Due to the net loss, 15,749,404 common share equivalents, comprised of outstanding stock options, have been excluded from the diluted net loss per common share calculation for the year ended December 31, 2010.

(3) Due to the restatement and resultant loss, shares presented as the restated diluted shares are the basic weighted average shares as the as reported dilutive weighted average shares are anti-dilutive on a restated basis.

(4) Share-based compensation expense of $8,262 and $8,287 is recorded in Cost of services and Selling, general and administrative, respectively, for the year ended December 31, 2010.

49

The table below summarizes the effects of the Restatement adjustments on the Consolidated Statement of Cash Flows for the year ended December 31, 2010 (in thousands):

	As reported (1)			Adjustments			As restated
	(Unaudited)			(Unaudited)			(Unaudited)
Operating activities
Net income (loss)	$	12,618		$	(92,535	)	$	(79,917	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		6,157			(2,709	)		3,448
Employee share-based compensation		16,549			—			16,549
Provision for doubtful receivables		—			200			200
Deferred income taxes		(3,736	)		(57,040	)		(60,776	)
Excess tax benefit from share-based awards		(11,910	)		—			(11,910	)
Changes in operating assets and liabilities:
Accounts receivable		(26,374	)		23,887			(2,487	)
Prepaid income taxes		3,939			92			4,031
Other assets		(1,379	)		1,894			515
Accounts payable		18,093			(16,711	)		1,382
Customer liabilities		10,154			138,676			148,830
Accrued compensation and benefits		1,210			(822	)		388
Other liabilities		6,675			(1,586	)		5,089
Net cash provided by operating activities		31,996			(6,654	)		25,342
Investing activities
Purchases of property, equipment, and software		(15,025	)		5,097			(9,928	)
Proceeds from note receivable		(1,844	)		1,844			—
Net cash used in investing activities		(16,869	)		6,941			(9,928	)
Financing activities
Excess tax benefit from share-based awards		11,910			—			11,910
Proceeds from IPO		83,756			38			83,794
Exercise of vested stock options		1,253			—			1,253
Liquidation preference payment		(866	)		—			(866	)
Warrant exercises		934			—			934
Collection of non-executive employee loans		79			—			79
Net cash provided by financing activities		97,066			38			97,104
Effect of exchange rate changes in cash		(279	)		169			(110	)
Net increase in cash and cash equivalents		111,914			494			112,408
Cash and cash equivalents, at beginning of year		43,659			—			43,659
Cash and cash equivalents, at end of year	$	155,573			494		$	156,067

(1) In connection with the Restatement, the Company also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

50

The table below summarizes the effects of the Restatement adjustments on the Consolidated Balance Sheet at December 31, 2009 (in thousands):

	As reported (1)			Adjustments			As restated
	(Unaudited)			(Unaudited)			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	43,659		$	—		$	43,659
Accounts receivable, net		27,519			(24,510	)		3,009
Prepaid income taxes		3,465			—			3,465
Current deferred tax asset		—			8,347			8,347
Other current assets		3,402			4,675			8,077
Total current assets		78,045			(11,488	)		66,557
Property, equipment and software, net		12,901			(4,463	)		8,438
Non-current deferred tax asset		7,739			76,738			84,477
Goodwill and other assets, net		4,779			(4,194	)		585
Total assets	$	103,464		$	56,593		$	160,057
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	11,967		$	(10,846	)	$	1,121
Current portion of customer liabilities		50,352			11,056			61,408
Accrued compensation and benefits		12,114			—			12,114
Current deferred tax liability		4,163			(4,163	)		—
Other accrued expenses		3,589			(63	)		3,526
Total current liabilities		82,185			(4,016	)		78,169
Non-current portion of customer liabilities		—			204,067			204,067
Other non-current liabilities		—			2,675			2,675
Total liabilities		82,185			202,726			284,911
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock		95			—			95
Preferred stock		13			—			13
Additional paid-in capital		51,777			—			51,777
Non-executive employee loans for stock option exercises		(120	)		—			(120	)
Accumulated deficit		(30,452	)		(146,126	)		(176,578	)
Accumulated other comprehensive loss		(34	)		(7	)		(41	)
Total stockholders’ equity (deficit)		21,279			(146,133	)		(124,854	)
Total liabilities and stockholders’ equity (deficit)	$	103,464		$	56,593		$	160,057

(1) In connection with the Restatement, the Company has also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

51

The table below summarizes the effects of the Restatement adjustments on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2009 (in thousands, except share and per share data):

	As reported (1)			Adjustments			As restated
	Unaudited			(Unaudited)			(Unaudited)
Net services revenue	$	510,192		$	(488,147	)	$	22,045
Operating expenses:
Cost of services (4)		462,474			(374,723	)		87,751
Selling, general and administrative (4)		30,153			301			30,454
Total operating expenses		492,627			(374,422	)		118,205
Income (loss) from operations		17,565			(113,725	)		(96,160	)
Net interest expense		9			—			9
Net income (loss) before income tax provision		17,556			(113,725	)		(96,169	)
Provision for income taxes		2,966			(89,158	)		(86,192	)
Net income (loss)	$	14,590		$	(24,567	)	$	(9,977	)
Dividends on preferred shares		(8,044	)		—			(8,044	)
Net income (loss) applicable to common shareholders	$	6,546		$	(24,567	)	$	(18,021	)
Net income (loss) per common share
Basic	$	0.18					$	(0.49	)
Diluted	$	0.15					$	(0.49	)
Weighted-average shares used in calculating net income (loss) per common share (2)(3)
Basic		36,725,194						36,725,194
Diluted		43,955,167						36,725,194
Other comprehensive income (loss):
Foreign currency translation adjustments		188						188
Comprehensive income (loss)	$	14,778		$	(24,567	)	$	(9,789	)

(1) In connection with the Restatement, the Company has also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

(2) Due to the net loss, 59,173,417 common share equivalents, comprised of convertible preferred shares, warrants, and stock options, have been excluded from the diluted net loss per common share calculation for the year ended December 31, 2009.

(3) Due to the restatement and resultant loss, shares presented as the restated diluted shares are the basic weighted average shares as the as reported dilutive weighted average shares are anti-dilutive on a restated basis.

(4) Share-based compensation expense of $4,064 and $2,853 is recorded in Cost of services and Selling, general and administrative, respectively, for the year ended December 31, 2009.

52

The table below summarizes the effects of the Restatement adjustments of the Consolidated Statement of Cash Flows for the year ended December 31, 2009 (in thousands):

	As reported (1)			Adjustments			As restated
	(Unaudited)			(Unaudited)			(Unaudited)
Operating activities
Net income (loss)	$	14,590		$	(24,567	)	$	(9,977	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		3,921			(1,772	)		2,149
Employee stock-based compensation		6,917			—			6,917
Expense associated with issuance of stock warrants		4,509			—			4,509
Deferred income taxes		(3,552	)		(89,273	)		(92,825	)
Excess tax benefit from share-based awards		(1,539	)		—			(1,539	)
Changes in operating assets and liabilities:
Accounts receivable		(7,313	)		11,036			3,723
Prepaid income taxes		(2,206	)		119			(2,087	)
Other assets		528			(94	)		434
Accounts payable		(6,113	)		4,214			(1,899	)
Customer liabilities		3,818			97,223			101,041
Accrued compensation and benefits		2,960			—			2,960
Other liabilities		(1,421	)		216			(1,205	)
Net cash provided by operating activities		15,099			(2,898	)		12,201
Investing activities
Purchases of property, equipment, and software		(7,862	)		3,769			(4,093	)
Other		618			(618	)		—
Net cash used in investing activities		(7,244	)		3,151			(4,093	)
Financing activities
Excess tax benefit from share-based awards		1,539			—			1,539
Deferred offering costs		(2,939	)		—			(2,939	)
Payment of dividends		(14,941	)		—			(14,941	)
Proceeds from issuance of common stock from employee stock option exercise		214			—			214
Repurchase of common stock		(13	)		—			(13	)
Collection of non-executive employee loans		143			—			143
Net cash provided by financing activities		(15,997	)		—			(15,997	)
Effect of exchange rate changes in cash		145			(126	)		19
Net increase in cash and cash equivalents		(7,997	)		127			(7,870	)
Cash and cash equivalents at beginning of year		51,656			(127	)		51,529
Cash and cash equivalents at end of year	$	43,659			—		$	43,659

(1) In connection with the Restatement, the Company has also reclassified certain amounts in the historical consolidated financial statements to conform to the current presentation. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, to the consolidated financial statements included in this Annual Report on Form 10-K, for further information.

53

The following is a summary of customer liabilities at December 31, 2010 and 2009 (in thousands) (unaudited):

	December 31,
	2010		2009
Deferred customer billing, current	$	5,102	$	7,182
Accrued service costs, current		63,068		36,384
Customer deposits, current		14,616		17,689
Deferred revenue, current		156		153
Current portion of customer liabilities		82,942		61,408
Deferred customer billing, non-current		327,816		199,958
Deferred revenue, non-current		3,545		4,109
Non-current portion of customer liabilities		331,361		204,067
Total customer liabilities	$	414,303	$	265,475

The table below summarizes the effects of the cumulative Restatement adjustments on previously reported net income (loss) for the years ended December 31, 2010 and 2009, with the adjustments categorized by the nature of the error (in thousands) (unaudited):

	December 31,
	2010			2009
Net income (loss), as reported		12,618			14,590
Revenue recognition
RCM service fees		(146,745	)		(110,436	)
Other revenues		(178	)		(1,420	)
Revenue recognition:		(146,923	)		(111,856	)
Goodwill, software development and licenses		(2,120	)		(1,772	)
Other adjustments		234			(95	)
Restatement tax impacts		56,274			89,156
Net impact of adjustments)		(92,535	)		(24,567	)
Net loss, as restated		(79,917	)		(9,977	)

The following is the weighted average share information for 2010 and 2009 (in thousands except for share and per share information) (unaudited):

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)		RSAs		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term (in years)
Outstanding at January 1, 2009		8,159,519		$	3.77		7.9	$	85,342		—	$	—		—
Granted		2,757,720			13.37
Exercised		(121,520	)		1.76
Cancelled		(136,220	)		1.33
Forfeited		(457,405	)		9.50
Outstanding at December 31, 2009		10,202,094			6.16		7.5		86,074		—		—		—
Granted		6,763,529			14.06
Exercised		(550,695	)		2.28
Cancelled		(107,904	)		10.93
Forfeited		(557,620	)		11.76
Outstanding at December 31, 2010		15,749,404			9.45		7.5		107,120		—		—		—

54

Selected Non-GAAP Measures

The following table presents selected non-GAAP measures for each of the periods indicated. See below for an explanation of how we calculate and use these non-GAAP measures, and for a reconciliation of these non-GAAP measures to the most comparable GAAP measures.

	Year End December 31,
	2013		2012			2011			2010			2009
						(As restated)			(As restated)			(As restated)
	(In thousands)
Non-GAAP Measures:
Adjusted EBITDA	$	268,689	$	(152,509	)	$	(89,969	)	$	(106,535	)	$	(82,585	)
Net cash generated from customer contracting activities	$	15,562	$	47,605		$	55,828		$	19,243		$	7,538
Gross cash generated from customer contracting activities	$	251,641	$	272,368		$	247,763		$	152,723		$	112,168

Use of Non-GAAP Financial Information

We typically invoice customers for net operating fees and incentive fees on a quarterly or monthly basis, and typically receive cash from customers on a similar basis. For GAAP reporting purposes, we only recognize these net operating fees and incentive fees as net services revenue to the extent that all the criteria for revenue recognition are met, which is generally upon contract renewal, termination or other contractual agreement event, as defined in Note 3, Summary of Significant Accounting Policies to the consolidated financial statements included in this Annual Report on Form 10-K. As such, net operating and incentive fees are typically recognized for GAAP purposes in periods subsequent to the periods in which the services are provided. Therefore, our net services revenue and other items in our GAAP consolidated financial statements and adjusted EBITDA will typically include the effects of billings and collections from periods prior to the period in which revenue is recognized. See Note 3, Summary of Significant Accounting Policies to the consolidated financial statements for additional information.

In order to provide a more comprehensive understanding of the information used by our management team in financial and operational decision-making, we supplement our GAAP consolidated financial statements with the following non-GAAP financial measures: gross and net cash generated from customer contracting activities, and adjusted EBITDA.

Our Board and management team use these non-GAAP measures as (i) one of the primary methods for planning and forecasting overall expectations and for evaluating actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentive compensation plans for employees.

Gross and Net Cash Generated from Customer Contracting Activities

Gross and net cash generated from customer contracting activities reflect the change in the deferred customer billings, relative to GAAP net services revenue, and adjusted EBITDA (defined below), respectively. Deferred customer billings include the portion of both (i) invoiced net operating fees and (ii) cash collections of incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities balance in the consolidated balance sheet. Deferred customer billings are reduced by the amounts of revenue recognized when a revenue recognition event occurs. Gross cash generated from customer contracting activities is defined as GAAP net services revenue, plus the change in deferred customer billings. Accordingly, gross cash generated from customer contracting activities is the sum of (i) invoiced net operating fees, (ii) cash collections on incentive fees and (iii) other services fees.

55

Net cash generated from customer contracting activities is defined as adjusted EBITDA, plus the change in deferred customer billings.

These non-GAAP measures are used throughout this Form 10-K including Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Gross and net cash generated from customer contracting activities include invoices issued to customers that may remain uncollected or may be subject to credits, and cash collected may be returned to our customers in the form of concessions or other adjustments. Customer concessions and other adjustments have occurred in the past and we cannot determine the likelihood that they will again occur in the future.

Adjusted EBITDA

We define adjusted EBITDA as net income before net interest income (expense), income tax provision, depreciation and amortization expense, share-based compensation, and certain non-recurring items (one-time costs). The use of adjusted EBITDA to measure operating and financial performance is limited by our revenue recognition criteria, pursuant to which GAAP net services revenue is recognized at the end of a contract or other contractual agreement event, as defined in Note 3, Summary of Significant Accounting Policies to the consolidated financial statements included in this Annual Report on Form 10-K. Adjusted EBITDA does not adequately match corresponding cash flows resulting from customer contracting activities. Accordingly, as described above, in order to better compare our cash flows from customer contracting activities to our operating performance, we use additional non-GAAP measures, gross and net cash generated from customer contracting activities. We use adjusted EBITDA in our reconciliation of net cash generated from customer contracting activities to our GAAP consolidated financial statements.

We understand that, although non-GAAP measures are frequently used by investors, securities analysts, and others in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:

• Gross and net cash generated from customer contracting activities include invoiced net operating fees, and invoiced as well as collected incentive fees which may be subject to adjustment or concession prior to the end of a contract or other contractual agreement event, as defined in Note 3, Summary of Significant Accounting Policies to the consolidated financial statements included in this Annual Report on Form 10-K;

• Gross and net cash generated from customer contracting activities include progress billings on incentive fees that have been collected for a number of our RCM contracts. These progress billings have, from time-to-time been subject to adjustments, and the fees included in these non-GAAP measures may be subject to adjustments in the future;

• Net cash generated from customer contracting activities and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

• Net cash generated from customer contracting activities and adjusted EBITDA do not reflect share-based compensation expense;

• Net cash generated from customer contracting activities and adjusted EBITDA do not reflect income tax expenses or cash requirements to pay taxes;

• Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and net cash generated from customer contracting activities and adjusted EBITDA do not reflect cash requirements for such replacements or other purchase commitments, including lease commitments; and

• Other companies in our industry may calculate gross or net cash generated from customer contracting activities or adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

56

Reconciliation of GAAP and Non-GAAP Measures: The following table presents a reconciliation of adjusted EBITDA and net cash generated from customer contracting activities to net income (loss), and gross cash generated from customer contracting activities to net services revenue the most comparable GAAP measures, for each of the periods indicated.

	Year End December 31,
	2013			2012			2011			2010			2009
							As restated (1)			As restated (1)			As restated (1)
	( in thousands)
Net income (loss)	$	130,083		$	(119,740	)	$	(71,745	)	$	(79,917	)	$	(9,977	)
Net interest (income) expense		(330	)		(141	)		(26	)		(29	)		9
Income tax provision (benefit)		74,349			(67,995	)		(48,246	)		(46,586	)		(86,192	)
Depreciation and amortization expense		6,823			6,355			4,862			3,448			2,149
Share-based compensation expense (2)		23,801			25,298			25,186			16,549			6,917
Stock warrant expense (3)		—			—			—			—			4,509
Restatement and other costs (3)		33,963			3,714			—			—			—
Adjusted EBITDA		268,689			(152,509	)		(89,969	)		(106,535	)		(82,585	)
Change in deferred customer billings (4)		(253,127	)		200,114			145,797			125,778			90,123
Net cash generated from customer contracting activities	$	15,562		$	47,605		$	55,828		$	19,243		$	7,538
Net services revenue (GAAP basis)		504,768			72,254			101,966			26,945			22,045
Change in deferred customer billings (4)		(253,127	)		200,114			145,797			125,778			90,123
Gross cash generated from customer contracting activities	$	251,641		$	272,368		$	247,763		$	152,723		$	112,168

(1) For adjustments related to 2011, see Note 2, Restatement of Previously Issued Consolidated Financial Statements to the consolidated financial statements included in this Annual Report on Form 10-K.

(2) Share-based compensation expense represents the non-cash expense associated with stock options and restricted shares granted, as reflected in our Consolidated Statements of Operations. See Note 6, Share-Based Compensation, to the consolidated financial statements included in this Annual Report on Form 10-K for the detail of the amounts of share-based compensation expense.

(3) One-time costs are comprised of restatement and other costs. In 2013, we incurred $23.1 million in restatement costs. These costs were incurred to complete this Annual Report on Form 10-K and restate historical consolidated financial statements. We also experienced a reduction in workforce in certain corporate, administrative and management functions. These costs include severance payments, healthcare benefits, and outplacement job training. In 2009, we incurred $4.5 million of expense to settle stock warrants.

(4) Deferred customer billings include the portion of both (i) invoiced net operating fees and (ii) cash collections on incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities balance in the consolidated balance sheets. Deferred customer billings are reduced by revenue recognized when revenue recognition occurs. Change in deferred customer billings represents the net change in the cumulative net operating fees and incentive fees that have not met revenue recognition criteria.

57

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. Please review the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Restatement of Previously Issued Consolidated Financial Statements

Following an internal analysis of the timing of recognition of revenue of our Revenue Cycle Management contracts, the Audit Committee of our Board of Directors determined on March 4, 2013, based on the recommendation of management and after consultation with our independent registered public accounting firm that we would restate our financial statements and that our financial statements for the years ended December 31, 2009, 2010 and 2011 and the quarterly periods within those years, and for the first three quarterly periods for the year ended December 31, 2012 and any of our other prior financial statements could not be relied upon. We determined that customer billings under our complex performance based revenue cycle management contracts did not meet the fixed or determinable criteria for revenue recognition under GAAP. We made the determination largely due to the fact that the measurement of our incentive fees in any specific period under most of these contracts is dependent upon performance metrics measured from the beginning of the contract through the end of the relevant period, and new information, or changes in facts or circumstances from prior periods, can affect the cumulative amount of fees calculated under these contracts. The initial focus of our Restatement was the timing of revenue recognition; however based on a review of our field operations we later expanded the scope to include the presentation of base fees. We also expanded the scope of our review to include the capitalization of internally developed software, lease agreements and other areas of our operations. An extensive review of our customer contracts, accounting policies, controls and field operations identified information that was not previously considered or not appropriately considered in our revenue recognition accounting previously. This extensive review also provided information to allow us to determine the appropriate application of GAAP accounting for our customer contracts and our business. The Restatement was complex in nature due to the expanded scope, the number of fiscal periods affected, the complexity of our incentive fee calculations under some of our revenue cycle management contracts, and the change in presentation of gross base fees to net operating fees.

As part of the process of completing our Restatement, including an extensive review of our customer contracts and operations, we have adopted and implemented the appropriate GAAP accounting treatment for our business, and we have identified non-GAAP measures to assist in understanding the performance of our business. We have also carried out a number of changes to our senior management, including the hiring of executives with significant additional health care industry experience, and we have added members to our Board of Directors with both health care industry and other relevant experience. Finally, we have also initiated remediation efforts to address the material weaknesses in our control environment that were identified by our management during the Restatement. See “Remediation of Material Weakness in Internal Control Over Financial Reporting” in Item – 9A – Controls and Procedures.

In connection with the Restatement, we evaluated the facts and circumstances that resulted in accounting errors, which included errors related to timing of recognition of revenue, as well as presentation of revenue and cost of services, and also certain capitalized costs for internal use software, goodwill, timing and recording of various accruals, income taxes and other miscellaneous items.

Any material adjustments for periods prior to 2011 have been recorded as adjustments to accumulated deficit as of December 31, 2010, in our consolidated financial statements. Additional information, including the

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adjustments required to correct the errors in the consolidated financial statements as a result of completing the Restatement, is described in Note 2, Restatement of Previously Issued Consolidated Financial Statements, in “Part II – Item 8 – Consolidated Financial Statements and Supplementary Data.” Accordingly, this MD&A reflects the effects of the Restatement.

Background

Our goal is to help our healthcare provider customers deliver high-quality care and serve their communities, and do so in a financially sustainable way. We help our customers more efficiently manage their revenue cycle process and strive to help prepare them for the evolving dynamics of the healthcare industry, particularly the challenges and opportunities presented by the shift to value-based reimbursement which is designed to reward the value, rather than the volume, of healthcare services provided.

While we cannot control the changes in the regulatory environment imposed on our customers, we believe that our role becomes increasingly more important to our customers as macroeconomic, regulatory and healthcare industry conditions continue to impose financial pressure on healthcare providers to manage their operations effectively and efficiently.

Revenue Cycle Management, or RCM, continues to be our primary service offering. Our RCM offering helps our customers more efficiently manage their revenue cycle process. This encompasses patient registration, insurance and benefit verification, medical treatment documentation and coding, bill preparation and collections. We focus on optimizing our customers’ entire, end-to-end revenue cycle process, which we believe is more advantageous than alternative approaches that merely focus on certain aspects or sub-processes within the revenue cycle. Physician advisory services complement our RCM offering by strengthening our customer’s compliance with certain third-party payer requirements and limiting denials of claims. For example, our physician advisory services helps customers determine whether to classify a hospital visit as an in-patient or an out-patient observation case for billing purposes. We believe that the population health capabilities we are integrating into our RCM offering will enhance our value-based reimbursement capabilities to help providers enter into risk-bearing arrangements with payers.

We operate our business as a single segment configured with our significant operations and offerings organized around the business of providing end-to-end RCM services to U.S.-based hospitals and other healthcare providers.

Summary of Operations

Through 2011, we experienced strong growth in the number of hospitals with which we had RCM agreements and in gross cash generated from customer contracting activities. We also expanded our physician advisory services offering. To support our growth, we invested in technology, shared service centers, and increased headcount.

In January 2012, the Minnesota Attorney General filed a lawsuit against us alleging violations of federal and Minnesota state health privacy laws and regulations, Minnesota debt collection laws and Minnesota consumer protection laws resulting from, among other matters, the theft in Minnesota in July 2011 of an employee’s unencrypted laptop that contained personal health information, or PHI. In connection with the settlement of the Minnesota litigation, which we reached in July 2012, we voluntarily agreed to cease all remaining business operations in Minnesota. Additionally, we lost certain RCM customers through terminations or expirations, and were not able to grow our RCM business as we had prior to 2012.

In 2012, we generated an increase in gross cash from customer contracting activities in our RCM business, driven by payments from new customers added in 2011 and maturing relationships with preexisting customers, offset in part by customer losses resulting from the Minnesota litigation, non-renewal by a customer due to a

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change in control, and a decline in a supplemental service offering that we have since exited. Our physician advisory business continued to grow in 2012. Our cost of services increased in 2012 as we invested in our Information Technology, or IT, capabilities, new shared service center capabilities and back office infrastructure to support future growth. Starting in late 2012, we incurred additional costs associated with compliance and IT investments in response to the Minnesota litigation. We also continued to invest in our population health offering. Despite these challenges, we generated $29.2 million in cash from operating activities for the year ended December 31, 2012, a portion of which was derived from changes in working capital.

In response to the Minnesota litigation, we have implemented and maintained physical, technical and administrative safeguards intended to protect all personal data and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and properly responding to any security incidents or breaches. Additionally, we voluntarily sought, and received, HITRUST Common Security Framework, or CSF, certified status. This status assures that we are meeting the health care industry’s highest standards in managing risk and protecting health information. We believe that achieving this status is vital as electronic health record-sharing expands, and that this designation indicates the care and diligence we take to achieve health information privacy objectives in our day-to-day work.

We continued to experience operating challenges in 2013, with the RCM business posting a decline in cash generated from customer contracting activities due to the full year effect of customer losses in 2012. Although we entered into several customer renewals in 2013, which resulted in the recognition of a significant amount of revenue related to services provided in previous years, these renewals caused downward pressure on our cash generated from customer contracting activities. Our physician advisory business continued to grow through the third quarter of 2013, but was negatively impacted starting in the fourth quarter of 2013 by the two-midnight rule, a regulatory change in the healthcare industry related to billing classifications for certain hospital patients. The revenue and profitability of our physician advisory business continued to be negatively impacted by the two-midnight rule in 2014. In the fourth quarter of 2013, we benefitted from a $14.0 million settlement agreement from one former Minnesota customer. Selling, general, and administrative expenses increased significantly in 2013 due to management changes (discussed in more detail below) which resulted in transition-related expenses, as well as additional accruals for incentive compensation. In the year ended December 31, 2013, we generated cash from operating activities of $54.4 million, substantially all of which was derived from changes in working capital.

In 2013, we focused our efforts on several key strategic and operational imperatives aimed at delivering on our critical customer obligations and continued to expand the depth and breadth of our services. During the year, we took steps to position ourselves to capture growth opportunities in the U.S. healthcare market. These steps included meetings with and solicitation of feedback from our customers, aimed at improving our service execution. In addition, we continue to pursue the following initiatives intended to create value for our customers:

• Increasing investment in IT: Developing new proprietary technology and investing in capabilities that enable more seamless integration with our customers’ existing technology.

• Strengthening front-line teams: Improving the capabilities and quality of our workforce in the field through better training and improvements in our hiring and retention processes.

• Simplifying our measurement model: Taking the complexity out of our customer measurement model to improve customer satisfaction.

We also commenced a series of restructuring measures designed to allow us to more effectively and efficiently allocate necessary resources for innovation, growth and enhanced customer service. Specific changes include optimizing our geographic facilities footprint by transitioning certain functions housed at our headquarters to locations close to our customers or our shared service centers. Additionally, in 2013, we hired Steve Schuckenbrock as President and Chief Executive Officer, Sean Orr as Chief Financial Officer and Treasurer, and Joe Flanagan as Chief Operating Officer, and in 2014, we hired Emad Rizk, M.D. as President and Chief Executive Officer, and Peter Csapo as Chief Financial Officer and Treasurer. Mr. Schuckenbrock continues to serve on our board of directors, and Mr. Orr continues to serve as Senior Vice President, Finance.

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We believe these initiatives will position us to help our healthcare provider customers deliver high-quality care and serve their communities, and do so in a financially sustainable way. We expect to be able to grow gross cash generated from contracting activities in the RCM business in 2015 and beyond.

Net Services Revenue

Our primary service offering is our RCM offering, which helps healthcare providers to more efficiently manage their revenue cycles. Revenues from our RCM agreements consist of net operating fees and incentive fees that are primarily performance based and/or contingent fees. The vast majority of our operations relate to our RCM offering, however, the criteria for recognition of revenue for RCM services results in substantial variability in the net services revenue recognized between periods.

Other services revenue is primarily derived from our physician advisory services.

The following table summarizes the composition of our net services revenue for the years ended December 31, 2013, 2012 and 2011:

	Year ended December 31,
	2013				2012				2011
									As restated
RCM services: net operating fees	$	224,937	44.6	%	$	9,888	13.7	%	$	34,923	34.2	%
RCM services: incentive fees		210,303	41.7	%		928	1.3	%		25,946	25.5	%
Other services		69,528	13.7	%		61,438	85.0	%		41,097	40.3	%
Total net services revenue	$	504,768	100.0	%	$	72,254	100.0	%	$	101,966	100.0	%

Cost of Services

Our cost of services includes:

• Infused management and technology expenses. We incur costs related to our management and staff employees who are devoted to customer operations. These expenses consist primarily of the wages, bonuses, benefits, share-based compensation, travel and other costs associated with deploying our employees to customer sites to guide and manage our customers’ revenue cycle or population health management operations. The employees we deploy to customer sites typically have significant experience in revenue cycle operations, care coordination, technology, quality control or other management disciplines. Included in these expenses is an allocation of the costs associated with maintaining, improving and deploying our integrated proprietary technology suite.

• Shared services center costs. We incur expenses related to salaries and benefits of employees in our shared services centers, as well as non-payroll costs associated with operating our shared services centers.

• Other expenses. We incur expenses related to our employees who manage physician advisory services and other services. These expenses consist primarily of wages, bonuses, benefits, share-based compensation and other costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of expenses for executives, sales, corporate IT, legal, regulatory compliance, finance and human resources personnel, professional service fees related to external legal, tax, audit and advisory services, insurance premiums, facility charges, and other corporate expenses.

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Restatement and Other Costs

Restatement and other costs include Restatement, reorganization and other costs considered unusual in nature. Restatement-related costs were incurred starting in early 2013, following our determination to restate financial results. We also reduced our workforce in certain corporate, administrative, operations and management functions as part of a reorganization effort beginning in June 2013. Reorganization costs consist of severance payments, healthcare benefits, and outplacement job training. We continued spending on both the Restatement and reorganization in 2014.

Interest Income

Interest income is derived from the return achieved from our cash and cash equivalents.

Income Taxes

Income tax expense consists of federal and state income taxes in the United States and other local taxes in India.

Application of Critical Accounting Policies and Use of Estimates

Our consolidated financial statements reflect the assets, liabilities and results of operations of Accretive Health, Inc. and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Our consolidated financial statements have been prepared in accordance with GAAP.

The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base estimates on historical experience and on assumptions that we believe to be reasonable given our operating environment. Estimates are based on our best knowledge of current events and the actions we may undertake in the future. Although we believe all adjustments considered necessary for fair presentation have been included, our actual results may differ materially from our estimates.

We believe that the accounting policies described below involve our more significant judgments, assumptions and estimates, and therefore, could have the greatest potential impact on our consolidated financial statements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements contained in this Annual Report on Form 10-K. For further information on our critical and other significant accounting policies, see Note 2, Restatement of Previously Issued Consolidated Financial Statements, and Note 3, Summary of Significant Accounting Policies, to the consolidated financial statements included in this Annual Report on Form 10-K.

Revenue Recognition

Revenue is generally recognized when all of the following criteria are met; (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Our primary source of revenue is RCM service fees. We also generate revenue from other fixed fee consulting or transactional fee engagements. Net service fees, as reported in the consolidated statement of operations and comprehensive income (loss), consist of: (a) RCM service fees, and (b) professional service fees earned on a fixed fee, transactional fee, or time and materials basis. RCM service fees are primarily contingent, but along with fixed fees are viewed as one deliverable. To the extent that certain RCM service fees are fixed and not subject to refund, adjustment or concession, these fees are recognized into revenue on a straight-line basis over the term of the contract.

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RCM service fees that are contingent in nature are recognized as revenue once all the criteria for revenue recognition are met, which is generally at the end of a contract or other contractual agreement events. Revenue is recognized for RCM service fees upon the contract reaching the end of its stated term (such that the customer relationship will not continue) to the extent that cash has been received for invoiced fees and there are no disputes at the conclusion of the term of the contract.

If fees or services are disputed by a customer at the end of a contract, a settlement agreement entered into with the customer triggers a revenue recognition event. An “other contractual agreement event” occurs when a renewal or amendment to an existing contract is executed in which the parties reach agreement on prior fees. We recognize revenue up to the amount covered by such agreements.

RCM service fees consist of two types of contingent fees: (i) net operating fees and (ii) incentive fees.

Net Operating Fees

We generate net operating fees to the extent that we are able to assist customers in reducing the cost of their revenue cycle operations. Our net operating fees consist of (i) gross base fees invoiced to customers; less (ii) corresponding costs of customers’ revenue cycle operations which we undertake to pay pursuant to our RCM agreements. These costs consist of salaries and benefits associated with personnel in their RCM departments, and related third-party vendor costs, less any cost savings we share with customers.

Net operating fees are recorded in deferred customer billings until we recognize revenue on a customer contract at the end of a contract or upon reaching another contractual agreement event. The amount of unpaid costs of customers’ revenue cycle operations and shared cost savings are reported as accrued service costs within customer liabilities on our consolidated balance sheet.

Incentive Fees

We also generate revenue in the form of performance-based fees when we improve our customers’ revenue yield. These performance metrics vary by customer contract. However, certain contracts contain a contract-to-date performance metric that is not resolved until the end of the term of the contract. In some cases, when a customer agreement is extended under an evergreen provision or other amendment, fees may not be considered finalized until the end of the customer relationship. Incentive fees are considered contingent fees.

Estimates of Cost of Customers’ Revenue Cycle Operations

Cost of customers’ revenue cycle operations consist of invoiced costs from customers and estimated costs not yet invoiced. These costs consist of payroll and third-party non-payroll costs. Customers’ payroll costs are reasonably estimable; however we are significantly dependent upon information generated from our customers’ records to determine the amount of third-party non-payroll costs. Furthermore, because our customers report information on a cash basis, rather than on an accrual basis, we estimate the amount of non-payroll costs incurred but not invoiced in order to properly calculate the deferred customer billings balance of the end of each reporting period. These estimated costs are based on contractually allowable expenses, historical reimbursed costs, and estimated lag in the timing of receipt of information for third-party non-payroll costs. The timing difference includes the lag between the services rendered by third-party vendors and their billings to our customers. The accruals for such costs are included in accrued service costs and are part of the net operating fees included in deferred customer billings within the customer liabilities balance in the consolidated balance sheet. These estimates are based on the best available information and are subject to future adjustments based on additional information received from our customers. Due to the variable nature of these estimates, the adjustments can have a significant impact on the deferred customer billings balance for any reporting period in the future.

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Income Taxes

We account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for future income tax consequences that are attributable to differences between the carrying amount of assets and liabilities for financial statement purposes and the income tax bases of such assets and liabilities. We base the measurement of deferred tax assets and liabilities on enacted tax rates that we expect will apply to taxable income in the year we expect to settle or recover those temporary differences. We recognize the effect on deferred income tax assets and liabilities of any change in income tax rates in the period that includes the enactment date.

The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies, and are based on management’s assumptions and estimates about future operating results and levels of taxable income, and judgments regarding the interpretation of the provisions of current accounting principles. We provide a valuation allowance for deferred tax assets if, based upon the weight of all available evidence, both positive and negative, it is more likely than not that some or all of the deferred tax assets will not be realized. We have established a partial valuation allowance with respect to certain separate state income net operating loss carryforward deferred tax assets.

The estimated effective tax rate for the year is applied to our quarterly operating results. In the event that there is a significant unusual or discrete item recognized, or expected to be recognized, in our quarterly operating results, the tax attributable to that item would be separately calculated and recorded at the same time as the unusual or discrete item, such as the resolution of prior-year tax matters.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Interest and penalties related to income taxes are recognized in our tax provision in the consolidated statement of operations and comprehensive income (loss). See Note 9, Income Taxes, to our consolidated financial statements incorporated into this Annual Report on Form 10-K for additional information on income taxes.

Share-Based Compensation Expense

We determine the expense for all employee share-based compensation awards by estimating their fair value and recognizing that value as an expense, on a ratable basis, in our consolidated financial statements over the requisite service period in which our employees earn the awards. We use the Black-Scholes-Merton option pricing model to determine the grant date fair value of options.

To determine the fair value of a share-based award using the Black-Scholes-Merton option pricing model, we make assumptions regarding the risk-free interest rate, expected future volatility, expected life of the award, and expected forfeitures of the awards. These inputs are subjective and generally require significant analysis and judgment to develop. We aggregate all employees into one pool for valuation purposes. The risk-free rate is based on the U.S. treasury yield curve in effect at the time of grant. We estimate the expected volatility of our share price by reviewing the historical volatility levels of our common stock in conjunction with that of public companies that operate in similar industries or are similar in terms of stage of development or size and then projecting this information toward its future expected volatility. We exercise judgment in selecting these companies, as well as in evaluating the available historical and implied volatility for these companies. We calculate the expected term in years for each stock option using a simplified method based on the average of each option’s vesting term and original contractual term. We apply an estimated forfeiture rate derived from our historical data and our estimates of the likely future actions of option holders when recognizing the share-based compensation expense of the options.

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We recognize compensation expense, net of forfeitures, using a straight-line method over the applicable vesting period. Quarterly, the share-based compensation expense is adjusted to reflect all expense for options that vested during the period.

We account for stock options issued to non-employees based on their estimated fair value determined using the Black-Scholes-Merton option pricing model. However, the fair value of the equity awards granted to non-employees is remeasured on each balance sheet date until the awards vest, and the related expense is adjusted based on the resulting change in value, if any. The non-employee share-based compensation expense is recognized over the performance period, which is the vesting period. Upon vesting, the performance of the non-employee is deemed complete and the vested awards are not remeasured subsequently.

The fair value of modifications to share-based awards is generally estimated using the Black-Scholes-Merton option pricing model. If a share-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.

New Accounting Standards

For additional information regarding new accounting guidance, see Note 3, Summary of Significant Accounting Policies, to our consolidated financial statements included in this Annual Report on Form 10-K, which provides a summary of our significant accounting policies and recently adopted accounting standards and disclosures.

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Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

The following table provides consolidated operating results and other operating data for the periods indicated:

	Year Ended December 31,						2013 vs. 2012 Change
	2013			2012			Amount			%
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	224,937		$	9,888		$	215,049			n.m.
RCM service: incentive fees		210,303			928			209,375			n.m.
Other service fees		69,528			61,438			8,090			13.2	%
Total net services revenue		504,768			72,254			432,514			n.m.
Operating expenses:
Cost of services		186,752			188,666			(1,914	)		(1.0	%)
Selling, general and administrative		79,951			67,750			12,201			18.0	%
Restatement and other costs		33,963			3,714			30,249			n.m.
Total operating expenses		300,666			260,130			40,536			15.6	%
Income (loss) from operations		204,102			(187,876	)		391,978			n.m.
Net interest income		330			141			189			n.m.
Net income (loss) before income tax provision		204,432			(187,735	)		392,167			n.m.
Income tax provision (benefit)		74,349			(67,995	)		142,344			n.m.
Net income (loss)		130,083			(119,740	)		249,823			n.m.
Net interest income		(330	)		(141	)		(189	)		n.m.
Income tax provision (benefit)		74,349			(67,995	)		142,344			n.m.
Depreciation and amortization expense		6,823			6,355			468			7.4	%
Share-based compensation expense		23,801			25,298			(1,497	)		(5.9	%)
Restatement and other costs		33,963			3,714			30,249			n.m.
Adjusted EBITDA		268,689			(152,509	)		421,198			n.m.
Change in deferred customer billings		(253,127	)		200,114			(453,241	)		n.m.
Net cash generated from customer contracting activities	$	15,562		$	47,605		$	(32,043	)		(67.3	%)
Net service revenue	$	504,768		$	72,254		$	432,514			n.m.
Change in deferred customer billings		(253,127	)		200,114			(453,241	)		n.m.
Gross cash generated from customer contracting activities	$	251,641		$	272,368		$	(20,727	)		(7.6	%)
Components of Gross Cash Generated from Customer Contracting Activities:
RCM service: net operating fee	$	106,453		$	118,030		$	(11,577	)		(9.8	%)
RCM service: incentive fee		75,660			92,900			(17,240	)		(18.6	%)
Total RCM service fees		182,113			210,930			(28,817	)		(13.7	%)
Other service fees		69,528			61,438			8,090			13.2	%
Gross cash generated from customer contracting activities	$	251,641		$	272,368		$	(20,727	)		(7.6	%)

n.m.—Not meaningful

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Net Services Revenue

Net services revenue increased to $504.8 million for the year ended December 31, 2013, from $72.3 million for the year ended December 31, 2012. The $432.5 million increase was primarily driven by our Ascension Health RCM contractual agreement event in the quarter ended June 30, 2013, resulting in revenue recognition of $360.5 million, and $35.0 million in net service revenue attributable to other customer contractual agreement events. RCM service fees increased by $28.9 million as a result of revenue recognized in the quarter ended December 31, 2013, after reaching a settlement agreement with a former Minnesota customer. Other service fees increased by $8.1 million in 2013 as compared to 2012, driven by an $11 million increase which included an $8.2 million contribution from the settlement of a population health contract in the quarter ended December 31, 2013. This increase was partially offset by a decrease in physician advisory services revenue of approximately $2.9 million in the year ended December 31, 2013, as compared to the year ended December 31, 2012, resulting from the impact of the two-midnight rule, a regulatory change in the healthcare industry related to billing classifications for certain hospital patients. Physician advisory services revenue and profitability continue to be negatively impacted in 2014 by the two-midnight rule.

Gross Cash Generated from Customer Contracting Activities (Non-GAAP)

Gross cash generated from customer contracting activities totaled $251.6 million for 2013 compared to $272.4 million for 2012, a decrease of $20.7 million. The decrease in gross cash generated from customer contracting activities was primarily a result of credits of $20.1 million given to customers affiliated with Ascension Health during 2013 in accordance with the terms of the new agreements entered into with such customers. Gross cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use gross cash generated from customer contracting activities and for its reconciliation to net services revenue, the most comparable GAAP measure.

Cost of Services

Total cost of services decreased by $1.9 million, or 1.0%, from $188.7 million for the year ended December 31, 2012, to $186.8 million for the year ended December 31, 2013. The decrease in cost of services was primarily a result of lower cost of services in the population health business.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $12.2 million, or 18.0%, to $80.0 million for the year ended December 31, 2013, from the year ended December 31, 2012. The $12.2 million increase was primarily due to our senior management transition costs, increased investment spending in IT, internal audit and compliance areas and short term incentive compensation costs.

Net Cash Generated from Customer Contracting Activities (Non-GAAP)

The net cash generated from customer contracting activities totaled $15.6 million in 2013 compared to a generation of $47.6 million in cash for 2012. This change of $32.0 million was primarily due to lower gross cash generated by $20.7 million and increased SG&A expenses by $12.2 million, as described above. Net cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.

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Restatement and other Costs

Restatement and other costs amounted to $34.0 million for the year ended December 31, 2013, compared to $3.7 million for the year ended December 31, 2012. The increase was primarily driven by Restatement related costs of $23.1 million, $3.3 million of litigation-related costs, and reorganization related costs of $5.2 million. These costs are considered unusual in nature by management and are reported separately under the caption “Restatement and other” in the accompanying consolidated statement of operations and comprehensive income (loss). We continue to experience substantial costs in 2014 related to Restatement and reorganizing activities. There were no similar costs for Restatement and other costs recorded in the years ended December 31 2011, 2010 or 2009.

Income Taxes

Tax expense increased by $142.3 million, to $74.3 million for the year ended December 31, 2013, from a $68.0 million tax benefit for the year ended December 31, 2012. The increase was attributable to our revenue recognition event for affiliates of Ascension Health (see above). Our effective tax rate for the years ended December 31, 2013 and 2012 was approximately 36% of our pre-tax income (loss).

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

The following table sets forth consolidated operating results and other operating data for the periods indicated:

	Three Months Ended September 30,						2013 vs. 2012 Change
	2013			2012			Amount			%
				As restated
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	792		$	1,091		$	(299	)		(27.4	%)
RCM service: incentive fees		—			—			—			—
Other service fees		17,550			15,031			2,519			16.8	%
Total net services revenue		18,342			16,122			2,220			13.8	%
Operating expenses:
Cost of services		47,544			44,948			2,596			5.8	%
Selling, general and administrative		22,562			17,718			4,844			27.3	%
Restatement and other costs		9,182			1,343			7,839			n.m.
Total operating expenses		79,288			64,009			15,279			23.9	%
Loss from operations		(60,946	)		(47,887	)		(13,059	)		(27.3	%)
Net interest income		47			35			12			34.3	%
Loss before income tax provision benefit		(60,899	)		(47,852	)		(13,047	)		(27.3	%)
Income tax benefit		(23,328	)		(16,447	)		(6,881	)		(41.8	%)
Net Loss	$	(37,571	)	$	(31,405	)	$	(6,166	)		(19.6	%)

n.m.—Not meaningful

68

Reconciliation of GAAP and Non-GAAP Measures: The following table presents a reconciliation of adjusted EBITDA and gross and net cash generated from customer contracting activities to net loss, the most comparable GAAP measure, for each of the periods indicated.

	Three Months Ended September 30,						2013 vs. 2012 Change
	2013			2012			Amount			%
				As restated
	(In thousands)
Net Loss	$	(37,571	)	$	(31,405	)	$	(6,166	)		(19.6	%)
Net interest income		(47	)		(35	)		(12	)		(34.3	%)
Income tax benefit		(23,328	)		(16,447	)		(6,881	)		(41.8	%)
Depreciation and amortization expense		1,709			1,748			(39	)		(2.2	%)
Share-based compensation expense		5,576			5,737			(161	)		(2.8	%)
Restatement and other costs		9,182			1,343			7,839			n.m.
Adjusted EBITDA		(44,479	)		(39,059	)		(5,420	)		(13.9	%)
Change in deferred customer billings		37,800			53,804			(16,004	)		(29.7	%)
Net cash generated from customer contracting activities	$	(6,679	)	$	14,745		$	(21,424	)		n.m.
Net service revenue	$	18,342		$	16,122		$	2,220			13.8	%
Change in deferred customer billings		37,800			53,804			(16,004	)		(29.7	%)
Gross cash generated from customer contracting activities	$	56,142		$	69,926		$	(13,784	)		(19.7	%)
Components of Gross Cash Generated from Customer Contracting Activities:
RCM service: net operating fee	$	28,105		$	27,462		$	643			2.3	%
RCM service: incentive fee		10,487			27,433			(16,946	)		(61.8	%)
Total RCM service fees		38,592			54,895			(16,303	)		(29.7	%)
Other service fees		17,550			15,031			2,519			16.8	%
Gross cash generated from customer contracting activities	$	56,142		$	69,926		$	(13,784	)		(19.7	%)

n.m.—Not meaningful

Net Services Revenue

Net services revenue increased by $2.2 million, or 13.8%, to $18.3 million for the three months ended September 30, 2013, from $16.1 million for the three months ended September 30, 2012. The increase was primarily attributable to other service fees, which increased by $2.5 million to $17.6 million for the three months ended September 30, 2013, due to growth in physician advisory service fees and other services.

Gross Cash Generated from Customer Contracting Activities (Non-GAAP)

Gross cash generated from customer contracting activities decreased by $13.8 million for the three months ended September 30, 2013, compared with the same period in 2012. The decrease was primarily due to lower cash received from certain RCM customers. Gross cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use gross cash generated from customer contracting activities and please see above for its reconciliation to net services revenue, the most comparable GAAP measure.

Cost of Services

Our cost of services increased by $2.6 million, or 5.8%, to $47.5 million for the three months ended September 30, 2013, from $44.9 million for the three months ended September 30, 2012. This increase in cost of services was primarily attributable to increased infused management expenses of approximately $2.2 million in RCM, and a $1.0 million increase in cost of services for physician advisory services.

69

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $4.8 million or 27.3% to $22.6 million for the three months ended September 30, 2013, from $17.7 million for the three months ended September 30, 2012. This increase was primarily driven by increases in expenses associated with our management transition, salaries, benefits and incentive compensation accruals.

Net Cash Generated from Customer Contracting Activities (Non-GAAP)

The net cash generated from customer contracting activities totaled a use of $6.7 million for the three months ended September 30, 2013, compared to $14.7 million generated for the three months ended September 30, 2012. The reduction of $21.4 million in net cash generation from customer contracting activities is primarily due to lower gross cash generated from customer contracting activities, increased cost of services, and increased selling, general, and administrative expenses. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.

Restatement and other costs

Restatement and other costs amounted to $9.2 million for the three months ended September 30, 2013, compared to $1.3 million for the three months ended September 30, 2012. The increase was driven by Restatement related expenses of $7.8 million.

Income Taxes

Our income tax benefit increased by $6.9 million, to $23.3 million for the three months ended September 30, 2013, from $16.4 million for three months ended September 30, 2012. Our effective tax rate for the three months ended September 30, 2013 and 2012 were approximately 38% and 34% respectively. Our tax rate is affected by recurring items, permanent differences and state income taxes. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year.

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

The following table sets forth consolidated operating results and other operating data for the periods indicated:

	Three Months Ended June 30,					2013 vs. 2012		Change
	2013		2012			Amount		%
			As restated
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	181,503	$	1,615		$	179,888		n.m.
RCM service: incentive fees		176,366		—			176,366		—
Other service fees		16,539		14,659			1,880		12.8	%
Total net services revenue		374,408		16,274			358,134		n.m.
Operating expenses:
Cost of services		49,926		49,387			539		1.1	%
Selling, general and administrative		18,675		15,424			3,251		21.1	%
Restatement and other costs		8,253		588			7,665		n.m.
Total operating expenses		76,854		65,399			11,455		17.5	%
Income (loss) from operations		297,554		(49,125	)		346,679		n.m.
Net interest income		57		20			37		n.m.
Net income (loss) before income tax provision		297,611		(49,105	)		346,716		n.m.
Income tax provision (benefit)		109,878		(17,734	)		127,612		n.m.
Net income (loss)	$	187,733	$	(31,371	)	$	219,104		n.m.

n.m.—Not meaningful

70

Reconciliation of GAAP and Non-GAAP Measures: The following table presents a reconciliation of adjusted EBITDA and gross and net cash generated from customer contracting activities to net income (loss), the most comparable GAAP measure, for each of the periods indicated.

	Three Months Ended June 30,						2013 vs. 2012 Change
	2013			2012			Amount			%
				As restated
	(In thousands)
Net income (loss)	$	187,733		$	(31,371	)	$	219,104			n.m.
Net interest income		(57	)		(20	)		(37	)		n.m.
Income tax provision (benefit)		109,878			(17,734	)		127,612			n.m.
Depreciation and amortization expense		1,771			1,430			341			23.8	%
Share-based compensation expense		5,876			5,406			470			8.7	%
Restatement and other costs		8,253			588			7,665			n.m.
Adjusted EBITDA		313,454			(41,701	)		355,155			n.m.
Change in deferred customer billings		(324,930	)		48,662			(373,592	)		n.m.
Net cash generated from customer contracting activities	$	(11,476	)	$	6,961		$	(18,437	)		n.m.
Net service revenue	$	374,408		$	16,274		$	358,134			n.m.
Change in deferred customer billings		(324,930	)		48,662			(373,592	)		n.m.
Gross cash generated from customer contracting activities	$	49,478		$	64,936		$	(15,458	)		(23.8	%)
Components of Gross Cash Generated from Customer Contracting Activities:
RCM service: net operating fee	$	19,984		$	29,645		$	(9,661	)		(32.6	%)
RCM service: incentive fee		12,955			20,632			(7,677	)		(37.2	%)
Total RCM service fees		32,939			50,277			(17,338	)		(34.5	%)
Other service fees		16,539			14,659			1,880			12.8	%
Gross cash generated from customer contracting activities	$	49,478		$	64,936		$	(15,458	)		(23.8	%)

n.m.—Not meaningful

Net Services Revenue

Net services revenue increased to $374.4 million for the three months ended June 30, 2013, from $16.3 million for the three months ended June 30, 2012. The increase was primarily attributable to RCM customers affiliated with Ascension Health that reached a contractual agreement event in the three months ended June 30, 2013, resulting in revenue recognition of $361.4 million.

Gross Cash Generated from Customer Contracting Activities (Non-GAAP)

Gross cash generated from customer contracting activities decreased $15.5 million for the three months ended June 30, 2013, compared to the same period in 2012. The decrease was attributable to our RCM operations, primarily as a result of credits of $15.1 million given to customers affiliated with Ascension Health in accordance with the terms of the new agreements entered into with such customers. This decrease in total gross cash generated from customer contracting activities was partly offset by a $1.6 million increase in cash generated in the physician advisory business. Gross cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use gross cash generated from customer contracting activities and please see above for its reconciliation to net services revenue, the most comparable GAAP measure.

71

Cost of Service

Cost of services increased by $0.5 million, or 1.1%, to $49.9 million for the three months ended June 30, 2013, from $49.4 million for the three months ended June 30, 2012. The increase was primarily driven by increased infused management expenses related to RCM services.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $3.3 million, or 21.1%, to $18.7 million for the three months ended June 30, 2013, from $15.4 million for the three months ended June 30, 2012. This increase was primarily related to increases in expenses associated with our management transition, salaries, benefits and incentive compensation accruals.

Net Cash Generated from Customer Contracting Activities (Non-GAAP)

The net cash generated from customer contracting activities totaled a use of $11.5 million for the three months ended June 30, 2013, compared with $7.0 million generated for the three months ended June 30, 2012. The decrease of $18.4 million in net cash generation from customer contracting activities is primarily due to lower gross cash generated from customer contracting activities and increased selling, general and administrative expenses. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.

Restatement and Other Costs

Restatement and other costs amounted to $8.3 million for the three months ended June 30, 2013, compared with $0.6 million for the three months ended June 30, 2012. The increase was driven by restatement related cost of $4.4 million and reorganization costs of $3.2 million consisting primarily of severance, modified stock based compensation and related type costs.

Income Taxes

Income tax expense increased by $127.6 million, to $109.9 million for the three months ended June 30, 2013, from a benefit of $17.7 million for the three months ended June 30, 2012. Our effective tax rate for the three months ended June 30, 2013 and 2012 were approximately 37% and 36%, respectively. Our tax rate is affected by recurring items, permanent differences and state income taxes. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year.

72

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

The following table sets forth consolidated operating results and other operating data for the periods indicated:

	Three Months Ended March 31,						2013 vs. 2012 Change
	2013			2012			Amount			%
				As restated
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	10,421		$	5,383		$	5,038			93.6	%
RCM service: incentive fees		1,544			—			1,544			—
Other service fees		16,192			15,711			481			3.1	%
Total net services revenue		28,157			21,094			7,063			33.5	%
Operating expenses:
Cost of services		47,533			47,318			215			0.5	%
Selling, general and administrative		22,057			17,772			4,285			24.1	%
Restatement and other costs		1,031			—			1,031			—
Total operating expenses		70,621			65,090			5,531			8.5	%
Loss from operations		(42,464	)		(43,996	)		1,532			3.5	%
Net interest income		61			22			39			n.m.
Loss before income tax benefit		(42,403	)		(43,974	)		1,571			3.6	%
Income tax benefit		(15,938	)		(15,921	)		(17	)		(0.1	%)
Net loss	$	(26,465	)	$	(28,053	)	$	1,588			5.7	%

n.m.—Not meaningful

Reconciliation of GAAP and Non-GAAP Measures: The following table presents a reconciliation of adjusted EBITDA and gross and net cash generated from customer contracting activities to net loss, the most comparable GAAP measure, for each of the periods indicated.

	Three Months Ended March 31,						2013 vs. 2012 Change
	2013			2012			Amount			%
				As restated
	(In thousands)
Net Loss	$	(26,465	)	$	(28,053	)	$	1,588			5.7	%
Net interest income		(61	)		(22	)		(39	)		n.m.
Income tax benefit		(15,938	)		(15,921	)		(17	)		(0.1	%)
Depreciation and amortization expense		1,751			1,488			263			17.7	%
Share-based compensation expense		6,532			7,913			(1,381	)		(17.5	%)
Restatement and other costs		1,031			—			1,031			—
Adjusted EBITDA		(33,150	)		(34,595	)		1,445			4.2	%
Change in deferred customer billings		30,792			36,252			(5,460	)		(15.1	%)
Net cash generated from customer contracting activities	$	(2,358	)	$	1,657		$	(4,015	)		n.m.
Net service revenue	$	28,157		$	21,094		$	7,063			33.5	%
Change in deferred customer billings		30,792			36,252			(5,460	)		(15.1	%)
Gross cash generated from customer contracting activities	$	58,949		$	57,346		$	1,603			2.8	%
Components of Gross Cash Generated from Customer Contracting Activities:
RCM service: net operating fee	$	29,529		$	31,123		$	(1,594	)		(5.1	%)
RCM service: incentive fee		13,228			10,512			2,716			25.8	%
Total RCM service fees		42,757			41,635			1,122			2.7	%
Other service fees		16,192			15,711			481			3.1	%
Gross cash generated from customer contracting activities	$	58,949		$	57,346		$	1,603			2.8	%

n.m.—Not meaningful

73

Net Services Revenue

Net services revenue increased by $7.1 million, or 33.5%, to $28.2 million for the three months ended March 31, 2013, from $21.1 million for the three months ended March 31, 2012. The increase was primarily attributable to revenue recognized of $6.5 million as a result of reaching the end of a customer contract in the three months ended March 31, 2013.

Gross Cash Generated from Customer Contracting Activities (Non-GAAP)

Gross cash generated from customer contracting activities increased by $1.6 million for the three months ended March 31, 2013 as a result of an increase in cash received from certain RCM customers. Gross cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” for an explanation of how we calculate and use gross cash generated from customer contracting activities and please see above for its reconciliation to net services revenue, the most comparable GAAP measure.

Cost of Services

Cost of services increased by $0.2 million, or 0.5%, to $47.5 million for the three months ended March 31, 2013, from $47.3 million for the three months ended March 31, 2012. This increase was primarily driven by infused management expenses related to RCM services.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $4.3 million, or 24.1%, to $22.1 million for the three months ended March 31, 2013, from $17.8 million for the three months ended March 31, 2012. This increase was primarily related to increases in salaries, benefits and incentive compensation accruals.

Net Cash Generated from Customer Contracting Activities (Non-GAAP)

The net cash generated from customer contracting activities totaled a use of $2.4 million for the three months ended March 31, 2013, compared with $1.7 million in net cash generation for the three months ended March 31, 2012. The decrease of $4.0 million in net cash generation from customer contracting activities is primarily due to increased selling, general and administrative expenses, partially offset by increased gross cash generated from customer contracting activities. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.

Restatement and Other Costs

Restatement and other costs amounted to $1.0 million for the three months ended March 31, 2013, primarily related to Minnesota litigation-related costs. We did not incur any restatement and other costs during the three months ended March 31, 2012.

Income Taxes

Our income tax benefit was $15.9 million for the three months ended March 31, 2013 and March 31, 2012. Our effective tax rate for the three months ended March 31, 2013 and 2012 were approximately 38% and 36%, respectively. Our tax rate is affected by recurring items, permanent differences and state income taxes. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year.

74

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

The following table sets forth consolidated operating results and other operating data for the periods indicated:

	Year Ended December 31,						2012 vs. 2011 Change
	2012			2011			Amount			%
				As restated
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	9,888		$	34,923		$	(25,035	)		(71.7	%)
RCM service: incentive fees		928			25,946			(25,018	)		(96.4	%)
Other service fees		61,438			41,097			20,341			49.5	%
Total net services revenue		72,254			101,966			(29,712	)		(29.1	%)
Operating expenses:
Cost of services		188,666			158,715			29,951			18.9	%
Selling, general and administrative		67,750			63,268			4,482			7.1	%
Restatement and other costs		3,714			—			3,714			—
Total operating expenses		260,130			221,983			38,147			17.2	%
Loss from operations		(187,876	)		(120,017	)		(67,859	)		(56.5	%)
Net interest income		141			26			115			n.m.
Loss before income tax benefit		(187,735	)		(119,991	)		(67,744	)		(56.5	%)
Income tax benefit		(67,995	)		(48,246	)		(19,749	)		(40.9	%)
Net Loss		(119,740	)		(71,745	)		(47,995	)		(66.9	%)
Net interest income		(141	)		(26	)		(115	)		n.m.
Income tax benefit		(67,995	)		(48,246	)		(19,749	)		(40.9	%)
Depreciation and amortization expense		6,355			4,862			1,493			30.7	%
Share-based compensation expense		25,298			25,186			112			0.4	%
Restatement and other costs		3,714			—			3,714			—
Adjusted EBITDA		(152,509	)		(89,969	)		(62,540	)		(69.5	%)
Change in deferred customer billings		200,114			145,797			54,317			37.3	%
Net cash generated from customer contracting activities	$	47,605		$	55,828		$	(8,223	)		(14.7	%)
Net service revenue	$	72,254		$	101,966		$	(29,712	)		(29.1	%)
Change in deferred customer billings		200,114			145,797			54,317			37.3	%
Gross cash generated from customer contracting activities	$	272,368		$	247,763		$	24,605			9.9	%
Components of Gross Cash Generated from Customer Contracting Activities:
RCM service: net operating fee		118,030			121,800		$	(3,770	)		(3.1	%)
RCM service: incentive fee		92,900			84,866			8,034			9.5	%
Total RCM service fees		210,930			206,666			4,264			2.1	%
Other service fees		61,438			41,097			20,341			49.5	%
Gross cash generated from customer contracting activities	$	272,368		$	247,763		$	24,605			9.9	%

n.m.—Not meaningful

75

Net Services Revenue

Net services revenue decreased by $29.7 million, or 29.1%, to $72.3 million for the year ended December 31, 2012, from $102.0 million for the year ended December 31, 2011. The decrease of $50.0 million in RCM fees was primarily attributable to revenue recognized as a result of two customers reaching the end of their contracts in the year ended December 31, 2011.

This decrease was offset in part by an increase in other service fees of $20.3 million to $61.4 million for the year ended December 31, 2012, from $41.1 million for the year ended December 31, 2011. This increase is primarily attributed to physician advisory service fees in 2012 resulting in $56.5 million revenue in 2012 as compared to $30.5 revenue in 2011.

Gross Cash Generated from Customer Contracting Activities (Non-GAAP)

Gross cash generated from customer contracting activities increased by $24.6 million for the year ended December 31, 2012, compared to the year ended December 31, 2011. The increase was primarily a result of an increase in other services revenue of $20.3 million due to continued growth in the physician advisory services. Gross cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and us gross cash generated from customer contractive activities and for its reconciliation to net services revenue, the most comparable GAAP measure.

Cost of Services

Our cost of services increased by $30.0 million, or 18.9%, to $188.7 million for the year ending December 31, 2012, from $158.7 million for the year ended December 31, 2011. This increase was primarily attributable to a $9.2 million increase in physician advisory services costs, an $11.0 million increase in shared services costs, and a $10.6 million increase in infused management costs.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses increased by $4.5 million, or 7.1%, to $67.8 million for the year ended December 31, 2012, from $63.3 million for the year ended December 31, 2011. This increase was driven by increases in salaries, benefits and incentive compensation accruals.

Net Cash Generated from Customer Contracting Activities (Non-GAAP)

The net cash generated from customer contracting activities totaled $47.6 million in 2012 compared to $55.8 million generated in 2011. The reduction of $8.2 million was primarily due to increased spending in cost of services, SG&A, and litigation (as discussed above), during fiscal 2013, partially offset by increases in deferred customer billings. Net cash generated from customer contracting activities is a non-GAAP measure. Please see “Selected Non-GAAP Measures” in “Part II – Item 6 – Selected Consolidated Financial Statements” for an explanation of how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.

Restatement and Other Costs

For the year ended December 31, 2012, we incurred costs arising from the Minnesota litigation totaling $3.7 million, net of insurance recoveries, comprising primarily of legal costs. We did not incur any Restatement and related similar costs for the year ended December 31, 2011.

Income Taxes

Our tax benefit increased by $19.7 million, to $68.0 million for the year ended December 31, 2012, from $48.2 million for the year ended December 31, 2011. The decrease in our effective tax rate from 40% for the year ended December 31, 2011, to 36% for the year ended December 31, 2012, was primarily attributable to the enactment of lower state tax rates in State of Michigan.

76

Three Months Ended September 30, 2012, Compared to Three Months Ended September 30, 2011

The following table sets forth consolidated operating results and other operating data for the periods indicated:

	Three Months Ended September 30,				2012 vs. 2011 Change
	2012		2011		Amount			%
	As restated		As restated
	(In thousands)
Consolidated Statement of Operations Data:
RCM service: net operating fees	$	1,091	$	3,310	$	(2,219	)		(67.0	%)
RCM service: incentive fees		—		—		—			—
Other service fees		15,031		14,717		314			2.1	%