Corporate History
The Company is a provider of revenue cycle services to a broad range of healthcare providers. We offer our customers integrated solutions designed around their specific business needs, including revenue cycle data analysis, contract and outsourced coding, billing, coding and compliance audits, coding education, coding consulting, physician coding services and ICD-10 education and transition services. With this approach, our customers benefit from integrated service offerings that we believe enhances their revenue integrity. As a result, we believe we help our customers achieve their business objectives and patient care objectives.
Health Revenue Assurance Holdings, Inc., formerly known as Anvex International, Inc., was formed as a Nevada corporation on December 13, 2010.
On February 10, 2012, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Health Revenue Acquisition Corp., a Nevada corporation and its wholly-owned subsidiary (“Acquisition Sub”), and HRAA, pursuant to which Acquisition Sub was merged with and into HRAA, and HRAA, as the surviving corporation, became a wholly-owned subsidiary of the Company (the “Merger”). Before the entry into the Merger Agreement, no material relationship existed between the Company and the Acquisition Sub or HRAA.
Prior to the closing of the Merger, the Company transferred all of its operating assets and liabilities to Anvex Split Corp., a Nevada corporation (the “Split-Off Subsidiary”), and contemporaneously with the closing of the Merger, the Company sold all of the outstanding capital stock of the Split-Off Subsidiary to Anna Vechera, its former sole officer, director and stockholder (the “Split-Off Buyer”). In connection with the sale, an aggregate of 3,500,000 shares of the Company’s common stock held by the Split-Off Buyer were surrendered and cancelled without further consideration.
Pursuant to the terms and conditions of the Merger Agreement, and upon the consummation of the Merger:
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Each share of HRAA’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive 1,271.111 shares of the Company’s common stock. An aggregate of 1,271,111 shares of the Company’s common stock were issued to the holders of HRAA’s common stock. Immediately prior to the Merger, HRAA had no outstanding securities other than shares of its common stock.
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Anna Vechera resigned as the Company’s sole officer and director, and simultaneously with the Merger, a new board of directors and new officers were appointed. The Company’s new board of directors consisted of Robert Rubinowitz, Andrea Clark and Keith Siddel, previously the directors of HRAA. In addition, immediately following the Merger, Andrea Clark was appointed as the Company’s President and Chief Executive Officer, Robert Rubinowitz was appointed as the Company’s Chief Operating Officer, Secretary and Treasurer and Keith Siddel was appointed as the Company’s Chief Marketing Officer. Andrea Clark, Robert Rubinowitz and Keith Siddel no longer hold these positions.
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On April 13, 2012, the Company changed its name from Anvex International, Inc. to Health Revenue Assurance Holdings, Inc.
On April 13, 2012, the board of directors authorized a 12.98-for-1 split of the Company’s common stock to stockholders of record as of April 13, 2012 (the “Stock Split”). The shares resulting from the Stock Split were issued on April 26, 2012. All share and per share amounts for all periods presented have been retroactively adjusted to reflect the Stock Split.
Private Placement Offering
Concurrently with the closing of the Merger and in contemplation of the Merger, we sold 2,676,255 shares of our common stock, $0.001 par value, for gross proceeds of $663,908, at a purchase price of $0.25 per share (the “Purchase Price”), in a private placement offering (the “Offering”). The Offering was subject to a minimum offering amount of $470,000 (the “Minimum Offering Amount”) and a maximum offering amount of $1,500,000 (the “Maximum Offering Amount”). We agreed to file a registration statement on Form S-1 registering the resale under the Securities Act of all shares sold in the Offering within 60 days after the Maximum Offering Amount was sold.
On April 12, 2012, we closed the Offering by selling an additional $349,000 at the purchase price of $0.25 and issuing 1,394,909 shares of common stock. The total raised in the Offering was $1,012,908.
In addition, as part of the Offering, (i) holders of certain convertible notes of HRAA in an aggregate principal amount of $313,908, which principal amount were included in computing the Minimum Offering Amount, automatically converted into an aggregate of 1,265,381 shares of our common stock at a conversion price of $0.25 per share which is equal to the Purchase Price, and (ii) holders of certain senior secured bridge loan promissory notes of HRAA in the aggregate principal amount of $250,000 automatically converted into an aggregate of 1,343,749 shares of our common stock at a conversion price of $0.19 per share which is equal to a discount of 25% to the Purchase Price.
Overview
The Company is a provider of revenue cycle services to a broad range of healthcare providers. We offer our customers integrated solutions designed around their specific business needs, including revenue cycle data analysis, contract and outsourced coding; billing, coding and compliance audits, coding education, coding consulting, physician coding services and ICD-10 education and transition services. With this approach, our customers benefit from integrated service offerings that we believe enhances their revenue integrity. As a result, we believe we help our customers achieve their business objectives and patient care objectives.
Our Services
We provide the following categories of services to our customers either on a standalone basis or bundled within a comprehensive solution. Depending on a customer’s needs, we offer a mix of the following services as part of our solutions:
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Coding services
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Coding consulting services
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Education services
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Coding Services
Coding services can be performed under short term or multi-year contracts in which we assume operational responsibility for various aspects of our customers’ coding operations, including departmental or physician specialty coding, staff augmentation, or full outsource of a hospital or physician group coding operation. In the outsource contracts we typically hire part or all of the customer’s coding staff that supported these functions prior to the transition of services. We then apply our coding expertise and operating methodologies and utilize technology to increase the efficiency of the operations, which usually results in increased coding quality at a lower cost.
Coding Consulting Services
Coding consulting services are typically performed under short term contracts in which we conduct billing and coding audits. In connection with such audits, we collect and analyze the clients’ clinical documentation, the coding applied, reimbursements and provide recommendations for improvement.
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Billing and Coding Audits – We apply proven audit techniques to the review of medical records and revenue cycle operations. We assess all components of the medical record to include operative reports, nurses’ & doctors’ notes, records, and other ancillary tests and orders. Our methodology enhances our ability to identify procedures and diagnoses that may not be documented by the medical staff. The information derived these reviews enables our customers to analyze medical staff documentation and review the coding accuracy that drives reimbursements and contributes to resource utilization. In addition, the results provide a baseline for follow-on assessments enabling continuous improvement and customized coding and compliance training for departmental staff.
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Consulting –
Our consultants assist our customers keep pace with industry and regulatory changes, including consulting in health information management and revenue integrity.
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Education Services
We offer various training and educational solutions to our customers including on-site training, coding boot camps, workshops, video training, and on demand webinars.
Our Contracts
Our contracts include services priced using a variety of pricing mechanisms. In determining how to price our services, we consider the delivery, credit and pricing risk of a business relationship. Depending on a customer’s business requirements and the pricing structure of the contract, the amount of profit generated from a contract can vary significantly during a contract’s term. Fixed- or unit-priced contracts, or an outsourcing services contract will typically produce less profit at the beginning of the contract with significantly more profit being generated as efficiencies are realized later in the term. Time and materials contracts are where our billings are based on measurements such as hours, days or months and an agreed upon rate. In some cases, the rate the customer pays for a unit of time can vary over the term of contract, which may result in the customer realizing immediate savings at the beginning of a contract.
Our Significant Customers
Sales to four (4) hospital customers represented approximately 60% of our revenues for the year ended December 31, 2013. We have direct relationships with the individual hospitals and the health systems.
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Hospital Customer A
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42.0%
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Hospital Customer B
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6.0%
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Hospital Customer C
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6.0%
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Hospital Customer D
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6.0%
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Total
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60.0%
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Sales to thirteen (13) hospitals were approximately 89% of
our revenues
for the year ended December 31, 2012.
Five and four vendors represented approximately 56% and 67% of our outstanding accounts payable balance as of December 31, 2013 and December 31, 2012, respectively.
Four and one customers represented approximately 64% and 62% of our accounts receivable as of December 31, 2013 and December 31, 2012, respectively.
Our People
The markets for medical coding and billing personnel and consulting professionals are intensely competitive. A key part of our business strategy is the hiring, training, and retaining of highly motivated personnel with strong character, above average competence and leadership traits. We believe that employing people with such traits is — and will continue to be — an integral factor in differentiating us from our competitors in the revenue cycle industry. In seeking such employees, we screen candidates for employment through a rigorous interview process, skills testing and other profiling to ensure both a cultural/role fit and demonstrable skills. We continue to mature our various compensation programs to remain competitive for talented people resources.
Competition
We operate in an extremely competitive market, and the resources required to meet our customers’ needs changes with their competitive and regulatory landscape. In each of our service lines we frequently compete with companies that have greater financial resources; more sales, and marketing capacity; and larger customer bases than we do. Because many of the factors on which we compete, as discussed below, are outside of our control, we cannot be sure that we will be successful in the markets in which we compete. If we fail to compete successfully, our business, financial condition, and results of operations will be materially and adversely affected.
Competitors
We compete with a number of different revenue cycle service providers depending upon the region, and/or market we are addressing. Some of our competitors include: Precyse Solutions, LLC., KForce, Inc., VersoGenics, Inc. (d/b/a Comforce), Trust Healthcare Consulting Services, LLC, Parallon Business Solutions, Conifer Health Solutions, Inc., Kiwi Technologies, Inc., The Advisory Board Company, DocuCoders, LLC, Reimbursement Management Consultants, Inc., Optum, Inc., MedAssets Inc., Healthcare Cost Solutions, Inc., and Aviacode Incorporated. As we enter new markets or new service lines in the healthcare revenue cycle, we expect to encounter additional competitors. We also frequently compete with our customers’ own internal revenue cycle capability, which may constitute a fixed cost for our customer.
How We Compete
We compete on the basis of a number of factors, including the attractiveness and focused professional services that we offer, pricing, brand recognition, utilization of technology, industry expertise, and quality and reliability of service. Our consulting practice also competes on our tools, process methodologies and our past successes in executing assignments. For hospitals and physician groups, we frequently compete in an environment of declining budgets and reimbursements, which creates pressure to lower our prices. In addition, the market for coding services is affected by an undersupply of coding talent, which results in upward cost pressure on our services. All of these factors may increase pricing and profit pressure on us.
Marketing
We utilize the following sales and marketing methods to reach our target markets:
Direct Sales
– We sell direct to targeted hospitals and physician groups with a focus on small hospital systems, independent community hospitals and medium to large physician groups.
Local, Federal and State Industry Associations –
We actively participate in several medical association events and our subject matter experts are published and/or speak at their events.
Trade Shows and Conferences
– We exhibit at select trade shows and industry conferences across the United States, which provide access to clients, prospects and aid our talent recruitment.
Internet Marketing & E-commerce Strategy
– We utilize Internet marketing methods to increase the brand name by search engine optimization, mining and partner links.
Public Relations and Branding
–We actively communicate our brand and position on matters important to our business through press releases and our website.
Subsidiaries
Following the Merger, HRAA became our wholly-owned subsidiary.
Dream Reachers, LLC, a Florida limited liability company (“Dream Reachers”), owns an office utilized by the Company for employees and training and is the borrower on a loan related to that office. Dream Reachers does not engage in the real estate rental business. Its office is occupied by the Company at no cost and the Company pays the related mortgage’s principal and interest, taxes and maintenance. Dream Reachers is a wholly-owned subsidiary of the Company.
Regulatory Matters/Compliance
The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Existing and new federal and state laws and regulations affecting the healthcare industry could create unexpected liabilities for us, could cause us or our clients to incur additional costs and could restrict our or our client’s operations. Many healthcare laws are complex and their application to us, our clients or the specific services and relationships we have with our clients are not always clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the comprehensive products and revenue cycle management solutions that we provide, and these laws and regulations may be applied to our products and services in ways that we do not anticipate. Our failure to accurately anticipate the application of these laws and regulations, or our other failure to comply, could create liability for us, result in adverse publicity and negatively affect our business. See Part I, Item 1A. “Risk Factors” for more information regarding the impact of government regulation on the Company.
Intellectual Property
APC AuditPro™ is our registered trademark. This Annual Report on Form 10-K contains trademarks and trade names of other organizations and corporations.
Research and Development
For the calendar year ended December 31, 2013 and December 31, 2012, the Company spent $0 and $64,386, respectively, on research and development expenses. None of these costs were borne directly by customers. There was no cost associated with compliance of environmental laws.
Cumulative software development costs previously capitalized were charged to operations as an impairment expense in an
amount
totaling $946,931 as of September 30, 2013.
Employees
As of April 8, 2014, we had 109 employees, of these employees, 94 were full-time employees. None of these employees are represented by collective bargaining agreements and the Company considers it relations with its employees to be good.
Corporation Information
Our principal executive offices are located at 8551 West Sunrise Boulevard, Unit 304, Plantation, FL 33322. Our telephone number is (954) 472-2340 and our fax number is (954) 370-0157. Our website is www.healthrevenue.com.
Other Information
News and information about us and our wholly-owned subsidiary is available on and/or may be accessed through our website, www.healthrevenue.com. In addition to news and other information about us, we have provided access through this site to our filings with the Securities and Exchange Commission (“SEC”) as soon as reasonably practicable after we file or furnish them electronically. Information on our website does not constitute part of and is not incorporated by reference into this Annual Report on Form 10-K or any other report we file or furnish with the SEC. You may also read and copy any document that we file at the public reference facilities of the SEC in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov.
RISK FACTORS
The following risks and the risks described elsewhere in this Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” could materially affect our business, prospects, financial condition, operating results and cash flows. If any these risks materialize, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
We believe that there is substantial doubt about our ability to continue as a going concern.
Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating company which is cash flow positive. We have not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations. These factors raise substantial doubt about our ability to continue as a going concern.
Key employees are essential to expanding our business.
Tim Lankes, our chief executive officer, Evan McKeown, our chief financial officer and chief administrative officer, Denise Williams, our senior vice president of revenue integrity services, and Todd Willis, our senior vice president of coding business unit are essential to our ability to continue to grow and expand our business. They have established relationships within the industry in which we operate. If they were to leave us, our growth strategy might be hindered, which could materially affect our business and limit our ability to increase revenue.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We currently do not maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant requirements for financial reporting and internal controls. We are required to implement, document and test internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will, in the future, be able to successfully implement proper internal control over financial reporting. We cannot assure you that the measures we will take to implement in any area of financial reporting in need of internal controls will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
In order to improve our internal controls and procedures we began to take steps to address and improve these matters. As of the date of this Annual Report, we have hired an internal control consultant to assist in the design, implementation, and test of adequate controls. We have made pivotal progress to mitigate internal control weaknesses; however, we must still complete the process of design-specific control procedures and test their effectiveness, and maintaining sufficient personnel to implement these tasks before we can report that this weakness has been fully remediated.
Lack of experience as officers of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures.
Our growth is dependent on the willingness of new customers to outsource their coding work to us.
We plan to grow, in part, by capitalizing on perceived market opportunities to provide our services to new customers. These new customers must be willing to outsource functions which may otherwise have been performed within their organizations. Many customers may prefer to remain with their current provider or keep their coding in-house rather than outsource such services to us. Also, as the maintenance of accurate medical records is a critical element of a healthcare provider’s ability to deliver quality care to its patients and to receive proper and timely reimbursement for the services it renders, potential customers may be reluctant to outsource or change providers of such an important function.
Our largest customers account for a substantial portion of our revenue and profits, and the loss of any of these customers could result in decreased revenue and profits.
Our 4 largest customers accounted for 60% of our revenue for 2013. Generally, we may lose a customer as a result of a merger or acquisition, contract expiration, the selection of another provider of revenue cycle services, business failure or bankruptcy, or our performance. Our staffing and outsourcing contracts typically require us to maintain specified performance levels with respect to the services that we deliver to our customer, with the result that if we fail to perform at the specified levels, we may be required to pay or credit the customer with amounts specified in the contract. In the event of significant failures to deliver the services at the specified levels, a number of these contracts provide that the customer has the right to terminate the agreement. In addition, some of these contracts provide the customer the right to terminate the contract at the customer’s convenience. The customer’s right to terminate for convenience typically requires the customer to pay us a fee. We may not retain long-term relationships or secure renewals of short-term relationships with our large customers in the future.
If we fail to comply with the various covenants contained in our bank financing documents, we may be in default thereunder, which could limit our ability to fund our operations.
As of December 31, 2013, we had borrowed approximately $859,000 under that certain term loan, factoring agreement and mortgage. If we default on any of the financial or operating covenants in any of our agreements evidencing such indebtedness and are unable to obtain an amendment or waiver, the lenders could cause all amounts outstanding under these agreements to be due and payable immediately and, if secured, proceed to foreclose on the collateral securing the indebtedness. Our assets or cash flow may not be sufficient to repay fully the borrowings under our different forms of indebtedness, either upon maturity or if accelerated upon an event of default. A default or potential acceleration could impact our ability to attract and retain customers and could negatively impact trade credit availability and terms, which could have a material adverse effect on our business, financial condition or results of operations.
Profitability of our contracts may be materially, adversely affected if we do not accurately estimate the costs of services and the timing of the completion of projects.
The services that we provide, and projects we undertake, pursuant to our contracts are sometimes complex. Our success in accurately estimating the costs of services and the timing of the completion of projects and other initiatives to be provided pursuant to our contracts is critical to our ability to price our contracts for long-term profitability. While these estimates reflect our best judgment regarding preexisting costs, efficiencies that we will be able to deliver, and resources that will be required for implementation and performance, any increased or unexpected costs, delays or failures to achieve anticipated cost reductions could materially, adversely affect the profitability of these contracts.
Our ability to perform on contracts on which we partner with third parties may be materially and adversely affected if these third parties fail to successfully or timely deliver their commitments.
Our engagements often require that our services incorporate or coordinate with the services, software or systems of other vendors and service providers. Our ability to deliver our commitments may depend on the delivery by these vendors and service providers of their commitments. If these third parties fail to deliver their commitments on time or at all, our ability to perform may be adversely affected, which could have a material adverse effect on our business, revenue, profitability or cash flow. In addition, in some cases, we may be responsible for the performance of other vendors or service providers delivering software, systems or other requirements for our services.
Our contracts generally contain provisions that could allow customers to terminate the contracts and sometimes contain provisions that enable the customer to require changes in pricing, decreasing our revenue and profits and potentially damaging our business reputation.
Our contracts with customers generally permit termination in the event our performance is not consistent with service levels specified in those contracts. The ability of our customers to terminate contracts creates an uncertain revenue and profit stream. If customers are not satisfied with our level of performance, our reputation in the industry may suffer, which may also adversely affect our ability to market our services to other customers.
If we fail to compete successfully in the highly competitive markets in which we operate, our business, financial condition, and results of operations will be materially and adversely affected.
We operate in an extremely competitive market, and the resources required to meet our customers’ needs changes with market and regulatory changes. In all of our service lines, we frequently compete with companies that have greater financial resources; sales, and marketing capacity; and larger customer bases than we do. Because many of the factors on which we compete are outside of our control, we cannot be sure that we will be successful in the markets in which we compete. If we fail to compete successfully, our business, financial condition, and results of operations will be materially and adversely affected.
Increasingly complex regulatory environments may increase our costs.
Our customers are subject to complex and constantly changing regulatory environments. These regulatory environments change and in ways that cannot be predicted. For example, our customers in the hospital sector have been made subject to increasingly complex and pervasive privacy laws and regulations as well as changes to code sets used by our coders and consultants. These regulations may increase our potential liabilities if our services contribute to a failure by our customers to comply with the regulatory regime and may increase the cost to comply as regulatory requirements increase or change.
If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain allowances against receivables, but actual losses on client balances could differ from those that we currently anticipate and as a result we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. In addition, timely collection of client balances
depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations and cash flows could be adversely affected.
Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales.
Technology innovations to which our current and potential customers might have access could reduce or eliminate their need for our services. A new or other disruptive technology that reduces or eliminates the use of one or more of our services could negatively impact the need for our services. Our failure to develop, introduce or enhance our services able to compete with new technologies in a timely manner could have an adverse effect on our business, results of operation and financial condition.
Our growth objectives are largely dependent on the timing and market acceptance of our new service offerings, including our ability to continually enhance our service offerings and to bring those services to market.
Our ability to continually enhance our service offerings and bring those services to market may be adversely affected by difficulties or delays in service implementation, such as the inability to identify viable new services, or gain market acceptance of new services. There are no guarantees that new services will prove to be commercially successful.
The Department of Health and Human Services has announced a delay in initiating the implementation of the ICD-10 system.
In January 2009, the United States Department of Health and Human Services (“HHS”) published a final rule which mandated a change in medical coding in United States health care settings from the current system, International Classification of Diseases, 9th Edition, Clinical Modification (“ICD-9-CM”), to the International Classification of Diseases, 10th Edition, Clinical Modification/Procedure Coding System (“ICD-10-CM/PCS”). Compliance with this ruling was to be achieved by October 1, 2013. The new, mandated version expands the number of codes from 24,000 to 155,000, making it more precise and descriptive and more accurately describing the diagnoses and inpatient procedures of care delivered. The transition to ICD-10-CM/PCS requires significant business and systems changes throughout the health care industry and impacts both business and clinical processes.
On April 9, 2012, as published in the Federal Register, citing concerns about the ability of provider groups to meet the looming compliance deadline to adopt ICD-10-CM/PCS, HHS announced a proposed rule, which would delay the implementation date to October 1, 2014. Interested parties had the ability to comment during a period ending 30 days after the date of the announcement. On August 27, 2012 HHS Secretary Kathleen Sebelius announced the release of a rule that made final a one-year proposed delay—from October 1, 2013 to October 1, 2014 — in the compliance date for the industry's transition to ICD-10 codes. On April 1, 2014, the President signed into law legislation delaying the implementation date of ICD-10-CM/PCS until at least October 1, 2015.
If we are not able to offer new and valuable services, we may not remain competitive and our revenue and results of operations may suffer.
Our success depends on providing services that healthcare providers use to improve financial performance. Our competitors are constantly developing products and services that may become more efficient or appealing to our clients. Our services may become obsolete in light of rapidly evolving industry standards, technology and client needs, including changing regulations and provider reimbursement policies, such as the transition from fee-for-service reimbursement models to value-based payment, bundled payment and episodic care models. Additionally, some healthcare information technology providers have begun to incorporate enhanced revenue cycle management analytical tools and services into their core product and service offerings used by healthcare providers. These developments may adversely impact the demand for our services. We must invest appropriately proportional to our revenue in order to enhance our existing services, maintain or improve our service capability, competence and breadth; and introduce new high-quality services that clients and potential clients will want.
We may experience significant delays in generating, or an inability to generate, revenues if potential clients take a long time to evaluate our products and services.
Our strategy is to market our strategic outsource services directly to small and medium size healthcare providers, such as small health systems and acute care hospitals; and to increase the breadth of our services utilized by existing clients. The evaluation process is often lengthy and involves significant business risk and business case evaluation and commitment of personnel by these organizations. The use of our services may also be delayed due to an inability or reluctance to change or modify existing procedures or outsource existing functions done internally. Additionally, healthcare providers’ resources may be focused on other mission critical initiatives which could delay their evaluation of our services. If we are unable to sell additional services to existing clients, or enter into and maintain favorable relationships with other similar size healthcare providers, our revenue could grow at a slower rate or even decrease.
Unsuccessful implementation of our products and services with our clients may harm our future financial success.
Some of our new-client engagements are complex and require lengthy and significant work to implement our services. Each client’s situation may be different, and unanticipated difficulties and delays may arise as a result of failure by us or by the client to meet respective implementation responsibilities. If the client implementation process is not executed successfully or if execution is delayed, our relationships with some of our clients, and our results of operations may be adversely impacted. In addition, cancellation of any implementation of our services after it has begun may involve the loss to us of time, effort and resources invested in the cancelled implementation as well as lost opportunity for acquiring other clients over that same period of time. These factors may contribute to substantial fluctuations in our quarterly operating results.
If our services fail to provide accurate information, or if any other element of our services is associated with incorrect, inaccurate or faulty coding, billing, or claims submissions to Medicare or any other third-party payor, we could be liable to clients or the government which could adversely affect our business.
Our services and content were developed based on the laws, regulations and third-party payor rules in existence at the time such content was developed. If we interpret those laws, regulations or rules incorrectly; the laws, regulations or rules materially change at any point after the content was developed; we fail to provide up-to-date, accurate information; or our services are otherwise associated with incorrect, inaccurate or faulty coding, billing or claims submissions, then clients could assert claims against us or the government or qui tam relators on behalf of the government could assert claims against us under the Federal False Claims Act or similar state laws. The assertion of such claims and ensuing litigation, regardless of its outcome, could result in substantial costs to us, divert management’s attention from operations, damage our reputation and decrease market acceptance of our services. We attempt to limit by contract our liability to clients for damages. We cannot, however, limit liability the government could seek to impose on us under the False Claims Act. Further, the allocations of responsibility and limitations of liability set forth in our contracts may not be enforceable or otherwise protect us from liability for damages.
If we are unable to establish and maintain
healthcare strategic alliances
, we may be unable to grow our current base business.
Our business strategy includes entering into strategic alliances and affiliations with leading healthcare service and information technology providers. We work closely with our strategic partners to either expand our penetration in certain areas of the revenue cycle operations for hospitals and physician groups, or expand our market capabilities. We may not achieve our objectives through these alliances. Many of these companies have multiple relationships and they may not regard us as significant to their business. These companies may pursue relationships with our competitors or develop or acquire products and services that compete with our products and services. In addition, in many cases, these companies may terminate their relationships with us with little or no notice. If existing alliances are terminated or we are unable to enter into alliances with leading healthcare service and information technology providers, we may be unable to maintain or increase our market presence.
If we are alleged to have infringed on the rights of others, we could incur unanticipated costs and be prevented from providing our products and services.
We could be subject to intellectual property infringement claims as the number of our competitors grows and our applications’ content overlaps with competitor products. While we do not believe that we have infringed or are infringing on any proprietary rights of third parties, we cannot assure you that infringement claims will not be asserted against us or that those claims will be unsuccessful. Any intellectual property rights claim against us or our clients, with or without merit, could be expensive to litigate, cause us to incur substantial costs and divert management resources and attention in defending the claim. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense.
In addition, a number of our contracts with our clients contain indemnity provisions whereby we indemnify them against certain losses that may arise from third-party claims that are brought in connection with the use of our services.
Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have limited visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to our acquisition.
Our sources of data might restrict our use of or refuse to license data, which could adversely impact our ability to provide certain products or services.
Some of the data that we may use from time to time may either be purchased or licensed from third parties or may be obtained from our clients for specific client engagements. We may also obtain a portion of the data that we use from public records. We believe that we have all rights necessary to use the data that is incorporated into our training programs and our services. However, in the future, data providers could withdraw their data from us if there is a competitive reason to do so; if legislation is passed restricting the use of the data; or if judicial interpretations are issued restricting use of the data that we currently use in our training programs and services. Further, we cannot assure you that our licenses for information will allow us to use that information for all potential or contemplated uses. If a substantial number of data providers were to withdraw their data, our ability to provide training and services to our clients could be materially adversely impacted.
Risks Related to Regulatory Matters/Compliance
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory healthcare environment that affect the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could require us to modify our services or reduce the funds available to providers to purchase our products and services.
Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems particularly. Our ability to grow will depend upon the economic environment of the healthcare industry generally as well as our ability to increase the number of programs and services that we sell to our clients. The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses; consolidation in the healthcare industry; regulation; litigation; and general economic conditions affect the purchasing practices, operations and the financial health of healthcare organizations.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, amended by the Health Care and Education and Reconciliation Act of 2010 (collectively, the “Affordable Care Act”). The Affordable Care Act is a sweeping measure designed to expand access to affordable health insurance, control health care spending, and improve health care quality. The law includes provisions to tie Medicare provider reimbursement to health care quality and incentives; mandatory compliance programs; enhanced transparency disclosure requirements; increased funding and initiatives to address fraud and abuse; and incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services. In addition, the law provides for the establishment of a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services, which could lead to changes in the delivery of health care services. Likewise, many states have adopted or are considering changes in health care policies in part due to state budgetary shortfalls. While many of the provisions of the Affordable Care Act have begun to be implemented, we do not know what long-term effect the federal Affordable Care Act or other future changes to federal or state laws may have on our business.
The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012 and the Bipartisan Budget Act of 2013, established a budget process known as sequestration that imposes across-the-board federal spending cuts (with certain exceptions) to meet budget targets. Under this process, a two percent reduction to Medicare provider and plan payments has been in effect since April 1, 2013, and this reduction will continue through 2023 unless additional Congressional action is taken to achieve alternative budget savings or otherwise modify the terms of sequestration. There can be no assurances that reimbursement reductions under sequestration or alternative federal or state budgetary actions will not have an adverse impact on our clients and in turn our business.
If our clients who operate as not-for profit entities lose their tax-exempt status, those clients would suffer significant adverse tax consequences which, in turn, could adversely impact their ability to purchase products or services from us.
State tax authorities have challenged the tax-exempt status of hospitals and other healthcare facilities claiming such status on the basis that they are operating as charitable and/or religious organizations. The outcome of these cases has been mixed with some facilities retaining their tax-exempt status while others have been denied the ability to continue operating as not-for profit, tax-exempt entities under state law. In addition, many states have removed sales tax exemptions previously available to not-for-profit entities, and both the internal revenue service (“IRS”) and the United States Congress are investigating the practices of not-for profit hospitals. The Affordable Care Act added new requirements for hospitals operating as charitable organizations, which the IRS is in the process of implementing through regulations. Those facilities denied tax exemptions could be subject to the imposition of tax penalties and assessments which could have a material adverse impact on their cash flow, financial strength and possibly ongoing viability. If the tax exempt status of any of our clients is revoked or compromised by new legislation, regulation, or interpretation of existing legislation or regulation, that client’s financial health could be adversely affected, which could adversely impact our sales and revenue.
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.
We are subject to federal and state laws and regulations designed to protect patients, governmental healthcare programs, and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex and their application to our specific products, 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 reimbursement laws and rules. From time to time participants in the healthcare industry have received inquiries or subpoenas to produce documents in connection with such activities. 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 to 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, and we could be excluded from participating in federal and state healthcare programs such as Medicare and Medicaid. The occurrence of any of these events could significantly harm our business and financial condition.
Provisions in Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibit the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to induce referrals which are applicable to all patients regardless of whether the patient is covered under a governmental health program or private health plan. We attempt to scrutinize our business relationships and activities to comply with the federal anti-kickback statute and similar laws; and we attempt to structure our arrangements in a manner that is consistent with the requirements of applicable safe harbors to these laws. We cannot assure you, however, that our arrangements will be protected by such safe harbors or that such increased enforcement activities will not directly or indirectly have an adverse effect on our business financial condition or results of operations. Any determination by a state or federal agency that any of our activities or those of our vendors or clients violate any of these laws could subject us to civil or criminal penalties; could require us to change or terminate some portions of or operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs; and, thus could have an adverse effect on our business.
Our business, particularly our provision of contract billing and coding services, is also subject to numerous federal and state laws that forbid the submission or “causing the submission” of false or fraudulent information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, federal healthcare programs or private health plans. These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Errors created by our products or services that relate to entry, formatting, preparation or transmission of claim or cost report information may be determined or alleged to be in violation of these laws and regulations. Any failure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability; could adversely affect demand for our services; could invalidate all or portions of some of our client contracts; could require us to change or terminate some portions of our business; could require us to refund portions of our services fees; could cause us to be disqualified from serving clients doing business with government payors; and could have an adverse effect on our business.
Federal and state privacy and security laws may increase the costs of operation and expose us to civil and criminal sanctions.
We must comply with extensive federal and state requirements regarding the use, disclosure, retention and security of patient healthcare information. The Health Insurance Portability and Accountability Act of 1996 and its implementing regulations, as amended by the regulations promulgated pursuant to the HITECH Act, which we refer to collectively as HIPAA, contain substantial restrictions and requirements with respect to the use and disclosure of individuals’ protected health information. These restrictions and requirements are set forth in the HIPAA Privacy, Security and Breach Notification Rules. The HIPAA Privacy Rule prohibits a covered entity from using or disclosing an individual’s protected health information unless the use or disclosure is subject to the terms of a business associate agreement; is authorized by the individual; or is specifically required or permitted under the Privacy Rule. The Privacy Rule imposes a complex set of requirements on covered entities for complying with this basic standard. Under the HIPAA Security Rule, covered entities must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic protected health information created, received, maintained or transmitted by them or by others on their behalf. The Breach Notification Rule requires covered entities to report breaches of unsecured protected health information to affected individuals, the Secretary of HHS, and, in some circumstances, the media.
Our healthcare provider clients that engage in HIPAA-defined standard electronic transactions, and our own business operations as a healthcare clearinghouse, are directly subject to the HIPAA Privacy, Security and Breach Notification Rules governing “covered entities.” Additionally, because some of our clients are covered entities who disclose protected health information to us so that we may use that information to provide certain consulting or other services to those clients, we are a “business associate” of those clients. In these cases, in order to provide clients with services that involve the use or disclosure of protected health information, the HIPAA Privacy and Security Rules require us to enter into business associate agreements with our clients. Such agreements must, among other things, provide adequate written assurances:
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as to how we will use and disclose the protected health information;
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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 agreements with our subcontractors that create, receive, maintain or transmit the information on our behalf that impose the same restrictions and conditions that apply to us with respect to such information;
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that we will report breaches of unsecured protected health information, security incidents and other inappropriate uses or disclosures of the information; and
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that we will assist the covered entity with certain of its duties under the Privacy Rule.
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On January 25, 2013, the Office for Civil Rights of HHS published a major final rule modifying the HIPAA Privacy, Security, Breach Notification and Enforcement Rules, including revisions and changes made pursuant to the HITECH Act. Among other things, this rule expanded the security and certain privacy requirements for business associates that create, receive, maintain or transmit protected health information for or on behalf of covered entities, increased penalties for noncompliance, and strengthened requirements for reporting of breaches of unsecured protected health information. The rule also made business associates and their subcontractors directly liable for civil monetary penalties for impermissible uses and disclosures of protected health information. The rule went into effect March 23, 2013, and as a covered entity and business associate we were, with limited exceptions, required to comply with the applicable requirements of this final rule by September 23, 2013.
Any failure or perceived failure of our products or services to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty and/or enforcement risks and could adversely affect demand for our products and services, and force us to expend significant capital, research and development and other resources to modify our products or services to address the privacy and security requirements of our clients and HIPAA.
In addition to our obligations under HIPAA, most states have enacted patient confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, and data security breach notification requirements. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them as well.
We are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect our business or the associated costs of compliance. For example, the federal Office of the National Coordinator for Health Information Technology (“ONCHIT”), created in 2004, through an Executive Order, and legislatively mandated in the Health Information Technology for Economic and Clinical Health Act (HITECH Act) of 2009, is coordinating the development of national standards for creating an interoperable health information technology infrastructure based on the widespread adoption of EHRs in the healthcare sector. Several organizations, selected as ONCHIT-Authorized Testing and Certification Bodies for EHR certification, test and certify that EHR products are compliant with the standards, implementation specifications, and certification criteria adopted by the U.S. Department of Health and Human Services. Certified EHR technologies are eligible to be used for the CMS EHR Incentive Programs. Eligible providers may use EHR technology that is certified to 2011 edition certification criteria, 2014 edition certification criteria, or a combination of 2011 and 2014 edition certification criteria. We are yet unable to predict what, if any, impact the development and ongoing refinement of such standards and related ONCHIT activities will have on our products, services or compliance costs.
Failure by us to comply with any of the federal and state standards regarding patient privacy, identity theft prevention and detection, and data security may subject us to penalties, including civil monetary penalties and in some circumstances, criminal penalties. In addition, such failure may injure our reputation and adversely affect our ability to retain clients and attract new clients.
HIPAA and its implementing regulations also mandate format, data content and provider identifier standards that must be used in certain electronic transactions, such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these requirements, some payers and healthcare clearinghouses with which we conduct business may interpret HIPAA transaction requirements differently than we do or may require us to use legacy formats or include legacy identifiers as they make the transition to full compliance. In cases where payers or healthcare clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful transactions, we attempt to comply with their requirements, but may be subject to enforcement actions as a result.
Risks Related to Our Securities
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because we were engaged in a reverse merger, it may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we were engaged in a “reverse merger.” Securities analysts of brokerage firms may not provide coverage of the Company since there is little incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Our common stock will be considered a “penny stock” which may be subject to restrictions on marketability, so you may not be able to sell your shares.
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
OTCBB securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent than those of the listed stock exchanges.
Patterns of fraud and abuse include:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
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Our management is aware of the abuses that have occurred historically in the penny stock market.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our common stock. We plan to retain any future earning to finance growth.
We are an “Emerging Growth Company,” and any decision on our part to comply only with curtained reduced disclosure requirements applicable to “Emerging Growth Company” could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to opt in to the extended transition period for complying with the revised accounting standards.
Because we have elected to defer compliance with new or revised accounting standards, our financial statement disclosure may not be comparable to similar companies.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of our election, our consolidated financial statements may not be comparable to companies that comply with public company effective dates.
Our status as an “Emerging Growth Company” under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.