HMS Holdings has reached an agreement to acquire privately held HealthDataInsights (HDI) for approximately $400 million. The transaction is not contingent upon financing and is expected to close by December 31, 2011, subject to regulatory approvals. HDI has received backing in the past from investors GRP Partners, Ticonderoga Capital and Redhills Ventures.
HMS Holdings Corp. (NASDAQ:HMSY – News) (“HMS” or the “Company”) today announced a definitive agreement to acquire privately held HealthDataInsights, Inc. (“HDI”) for approximately $400 million. The transaction is not contingent upon financing and is expected to close by December 31, 2011, subject to regulatory approvals.
HDI, a technology-enabled healthcare services company whose mission is to ensure claims integrity, identifies and recoups improper payments for health plans and government payers. Applying rules approved by the Centers for Medicare & Medicaid Services (CMS) and commercial health plan clients to identify fraud, waste and abuse, HDI reviewed more than $300 billion in paid claims last year. HDI is the exclusive Medicare Recovery Audit Contractor (RAC) in 17 states and three U.S. territories (CMS Region D), covering approximately 22% of all Medicare claims in the nation. According to CMS’s FY 2010 Report to Congress on the “Implementation of Recovery Auditing at the Centers for Medicare & Medicaid Services,” HDI’s efforts in Region D accounted for 47% of the total dollars corrected by all four Medicare RACs.
After applying HMS’s revenue recognition methodology, HDI is projected to contribute approximately $85 million of revenue to HMS in 2012. “HDI is one of the few strategic opportunities we have seen with revenue growth rates and profitability comparable to our own,” said Bill Lucia, HMS’s Chief Executive Officer.
“We believe this acquisition aligns perfectly with our long-term plan and is significantly positive for HMS and all our stakeholders,” added Lucia. “The HMS/HDI combination will create the nation’s premier provider of improper payment identification services for Federal, State, and commercial health benefit programs.”
Lucia added, “We expect that HDI’s assets will accelerate our multi-year strategy of investing in new but related products and markets, and program integrity in particular. As the Medicare RAC with the highest recoveries and highest accuracy scores, HDI has best-in-class processes and technology, purpose-built for recovery auditing. Like HMS, HDI’s services are primarily offered on a contingency-fee basis. In addition to expanding our Medicare business, the acquisition of HDI will provide us with expertise we can leverage in our state Medicaid RAC business.”
“The acquisition of HDI will also extend our reach into the commercial health plan market, and in addition, provides us with an opportunity to expand service offerings to our existing Medicaid managed care plan clients. As the government programs we serve continue to shift lives to managed care, HMS and HDI together provide a compelling solution for health plans seeking claims integrity and cost containment services.”
“I’m delighted that HDI is joining HMS,” said Andrea Benko, the President and CEO and founder of HDI. “Together we can build on our proven track record in performance-based claims integrity and our excellent relationships with healthcare payers and the provider community. We look forward to the opportunity for our employees to become part of this fast growing company in healthcare claims integrity and cost containment.”
“Fraud, waste and abuse losses account for approximately $200 billion, or 10%, of all U.S. healthcare expenditures,” said Lucia. “We believe that the integration of HMS and HDI will significantly enhance the ability of our Medicare, Medicaid and commercial payer clients to reduce this drain on our national healthcare resources, and to generate those savings more rapidly than otherwise would have been possible.”
Deal Structure and Timing
HMS will pay a total of $400 million for HDI. The $400 million will consist of $384 million in cash paid at closing and approximately $16 million in consideration in the form of assumption of unvested options. The cash component will be financed in part through a $350 million bank term loan facility that will be established in connection with the closing of the acquisition, and in part through corporate cash. The assumed options will be adjusted as to exercise price and number of shares to convert them into options for HMS stock. In connection with the closing, the Company also plans to establish a $100 million bank revolving credit facility. The Company anticipates cash balances in excess of $100 million at the end of 2011. The acquisition will result in financial leverage of approximately 2.5 times debt to adjusted EBITDA at the end of 2011.
HDI will become a wholly owned subsidiary of HMS Holdings Corp. Andrea Benko will continue in her current role and will join the HMS executive team. HDI employs approximately 400 people located at their headquarters in Las Vegas, Nevada and facilities in California and Florida.