Extensions to Continue, New Contracts Soon, Election Results Will Have No Effect
CMS publically expressed faith in the RAC programs, wants to continue the current contract extensions, and will likely award new contracts by late summer 2015, according to at least one CMS Recovery Auditor (RAC), as reported to its investors this week. The same RAC also reports that the Global Settlement Offer will have little effect on their earnings, if any, and they do not expect the changes wrought in Washington by this week’s mid-term elections to have any effect on the RAC programs in general. The complete Earnings Call Transcript of Performant Financial (PFMT) CEO Lisa Im on Q3 2014 Results, November 6, 2014, is available at Seeking Alpha.
Investors Do Seem to be Paying Attention
The Performant CEO delivered her report, including notes about their revenue under the RAC contracts, but the very first question from investors was about the RAC programs, and their future contracts. Ms. Im replied that, “…[as of the] last communication that we received from CMS, we believe that they would like to keep the program consistent without any additional pauses. That comes from earlier in the summer, when they actually implemented this current work period in which, again, the scope was smaller, but the intent was to restart the audit and recovery of Medicare dollars. So we believe that CMS believes in the program, and we believe it is their intent and their objective to keep the program going.”
When asked about the delays in awarding the new contracts, Ms. Im replied, “…our takeaway was we thought the awards might be made by late summer.”
The amount of revenue expected for Q3 2014, Performant Chief Financial Officer, Hank Orvell stated that “…we believe that that revenue could be in the range of $3 million to $5 million. And again, we’ll see, as Lisa mentioned, what further extensions, and what further potential scope increases could be implemented as we enter into next year.” Further remarks by Mr. Orvell indicated that Performant expects to continue to run their RAC business at a better than breakeven perspective, even though at least one of the other RACs reportedly suggested that it was all they could do to run at breakeven, during these extensions.
Headcount was reduced or shifted to other ventures when the RAC contracts ran out in 2014, but a small percentage of their workforce remains, to handle the extensions work. If and when they are awarded a new contract, some headcount will be shifted back into the RAC project, and hiring will also ramp up, again.
Can a Low Performing RAC Win a New Contract?
When asked about Performant’s chances of winning the RAC contract for the newly devised DME/POS -Home Health – Hospice RAC, Ms. Im replied:
“We’re hopeful. Obviously, we believe we submitted a good response. We think our results are very strong in the program. In the last report to Congress that CMS published, we had the highest accuracy of the recovery auditors.
“On a provider basis, our results are very competitive with the best. Again, the limitations we had of hospitals that we could audit and were not periodic interim payment providers. We also believe in strong customer service to providers, so our customer service, as self-reported by hospitals, is the highest.
“And so when we look at our results, we really work hard to archive the objectives of the program and help strike the balance that we believe DMS is trying to strike between providers and program integrity. So we think our response is very strong. Again, we’re hopeful, we’d be very fortunate to get that award.
“So how confident are we? I think we’re as confident as we can be, but again, there were clearly other submissions to the RFQ, so we’ll have to wait and see.”
And Just In Case You Thought Your Vote Really Matters…
The final question from the investors was about the potential or expected effects of the ever-changing political landscape in Washington:
Toby Wan (Obsidian Research):
… with regard to the recovery audit contract, given the election’s results on Tuesday, and the change in the makeup of the Senate, any thoughts, speculative or not, with regards to kind of how the changed landscape in Washington is going to impact their thoughts on recovery audit contracting activity and CMS’s involvement in all those sorts of things? I know it’s mandated by the ACA, but the political parties certainly have different appetites for what they’re willing to allow and not allow.
Lisa Im (Performant CEO):
Interestingly, what we’ve observed is that this program is really bipartisan. And by that, I mean we have strong supporters, both on the Democrat and the Republican side, as well as opposition both in the Democrat and Republican side. It tends almost not to be a partisan issue, but more of an issue that comes from rural versus more well developed areas and communities. More of the pressure politically has come from folks on Capitol Hill who are dealing with smaller hospitals or maybe singular hospitals in a rural area. So that’s really more the divide that we have seen. So we don’t anticipate that the elections will have actually much in the way of influence on the way the program is viewed.
The transcript of this call was posted at SeekingAlpha.com on November 6, 2014 6:57 PM ET.