(By Mani) Accretive Health, Inc.
) has reached an agreement to settle the lawsuit brought by the Minnesota Attorney General, bringing an end to the lawsuit and all of the investigations by the various Minnesota departments.
The $2.5 million settlement, which contains no admission of liability or wrongdoing, comes three days before the court was to hear the company's motion to dismiss.
As outlined in the settlement agreement, Accretive Health would wind down its remaining client services in Minnesota at this time. The company would not be allowed to reenter the state for six years unless it agrees with the Attorney General Lori Swanson.
The company may continue licensing its revenue cycle technology to the clients it served in the State and will evaluate whether or not it chooses to return to Minnesota with client services.
"Our legal experts expected at least part of the AG's case to be dismissed and viewed the case as weak in its entirety, which we believe contributed to the timing of the settlement," Oppenheimer analyst Bret Jones said in a client note.
Investors viewed the settlement on a positive note as the removal of the legal overhang should alleviate market concerns over additional AG's pursuing investigations of their own. Shares surged as much as 42 percent to $14.19.
"Even though we believe the claims against us were either baseless or exaggerated, we have used this opportunity to carefully examine our own practices in order to ensure we are setting the very highest standards for our own performance and achieving the best possible outcomes for hospitals, patients and communities." CEO Mary Tolan said in a statement.
However, losing North Memorial, its lone remaining revenue cycle management RCM client in Minnesota, and physician advisory services, reduces revenue by about $25 million a year. In 2011, the company generated revenue of about $826.3 million.
Accretive sees adjusted second quarter earnings before income tax, depreciation and amortization (EBITDA) to be "significantly lower" than that in the year-ago period when it reported EBITDA of $20.7 million, hurt by the settlement and lawsuit over Minnesota operations.
"We estimate the loss of Accretive's remaining Minnesota business will reduce 2013 EPS by approximately $0.02-$0.03," Jones said.
With the MN settlement complete, Accretive would announce a renewal with Ascension Health, which may offset the $25 million revenue loss from Minnesota.
"Removing the $25M of revenue associated with termination of Accretive's remaining MN business reduced our 2013 adjusted EPS estimate by $0.03 to $0.76," Jones added.
Accretive Health has grown dramatically since its inception in 2004 and improves the revenue cycle management (RCM) process within healthcare. The company partnered with its founding customer, Ascension Health, to develop improved work flow processes and technology to streamline the collection process and eliminate the revenue yield loss associated with bad debt, rejected claims, and uncompensated care.
Accretive differentiates itself by taking over responsibility for its clients' entire RCM operations, providing its proprietary end-to-end technology solutions and embedding its own personnel, primarily in the role of management consultants.
The outsourcing of RCM is inevitable to achieve efficiencies and drive costs out of the administrative side of the health care system, and the company's growth will more likely come in the form of a step function rather than a steep incline.
"We believe the company's rapid growth and margin expansion potential outweigh near-term variability concerns," the analyst added.