R1 RCM Inc (RCM) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the 2014 Accretive Health, Incorporated earnings conference call. My name is Denise, and I will be the operator for today.

(Operator Instructions )

As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Atif Rahim, Head of Investor Relations. Please proceed, sir.

Hello everyone, and welcome to the call. With us today we have Emad Rizk, Accretive's Health President and CEO, and Peter Csapo, our CFO and Treasurer. We'll start with prepared remarks from Emad and Peter and turn it over to Q&A. We also have Joe Flanagan, our Chief Operating Officer, and Dave Mason, our Chief Strategy Officer, available to answer your questions.

As a reminder, certain statements contained in this conference call may be considered forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. In particular, any statements about Accretive's expansion of its end-to-end revenue cycle management services, its ability to reduce the cost of revenue cycle operations, maximize appropriate fee-for-service revenue, prepare for value-based payments, and generate specified levels of cash from contracting activities and add new business are forward-looking statements.

Investors are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements made on today's call involve risks and uncertainties. Our actual results and outcomes could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the factors set forth in our annual report on form 10-K for the year ended December 31, 2014 filed with the SEC today, June 23, 2015 under the heading risk factors.

The forward-looking statements made on today's call are based on Accretive Health's current expectations and projections of our future events as of today only and should not be relied upon as representing the Company's news as of any subsequent date. While the Company may elect to update these forward-looking statements at some point in the future, Accretive Health specifically disclaims any obligation to do so to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Now, I'd like to turn the call over to Emad.

Thank you, Atif. Good afternoon, everyone. I'd like to thank all of you for joining us on the call today. We are pleased to share with you our 2014 results, which I'm happy to say are in line with the guidance we provided you last December. The team has done a tremendous job in getting us to today's filings with the SEC, and I would like to thank our employees for their continued dedication to this effort.

Since our last call, we have continued to make progress in vital areas of our business. First, we continue to improve our operating rigor as an organization with a continued focus on performance excellence in order to deliver predictable and consistent results for our customers.

We have spent an extensive amount of time this year implementing a very disciplined operating cadence across the entire organization. All critical areas and functions now have documented processes with performance metrics.

In my previous two calls, I have emphasized that operational excellence is a top priority and it is the foundation for a successful organization. With that in mind, we have implemented 21 core operating metrics. These metrics directly correlate to a hospital's financial performance.

With this new focus and structure, we have seen our performance with our customers improve. In our latest measurement period, 20 of the 21 metrics showed significant improvement year over year, with 16 of the 21 showing double-digit improvement. We will begin to share specific and granular metrics in the future.

Second, we are expanding our capabilities. Next month we plan to open a new shared services center in Michigan which will increase our capacity to serve our customers and provide scalable infrastructure as we grow the business.

We also continue to invest in technologies and analytical capabilities to enhance our revenue cycle offerings and drive further improvements in our operating performance. At the same time we are developing the tools that assist providers with managing value-based payments which will enable them to thrive in a risk-based environment.

We are also in the process of increasing the flexibility of our offerings to address specific components of the revenue cycle. This expansion of our end-to-end revenue cycle management services recognizes the needs that some providers are also seeking modular solutions to tackle key operational challenges.

For example, some of the services provided through our shared services centers can be delivered on a standalone basis, allowing us to demonstrate value very rapidly and then build on that success to broaden our customer's footprint. We have tested this approach with a few prospects and it is resonating well.

Our goals and value proposition remain the same: reduce the cost of revenue cycle operations, maximize appropriate fee-for-service revenue, prepare for value-based payments, and improve patient engagement. Our combination of software, services, and analytics allow us to deliver on these goals to both individual hospitals, as well as multi-facility health systems.

In addition we can also assist large health systems implement standardized processes and workflows as they grow through mergers and acquisitions. Standardization is a significant challenge for large health systems, and we believe we can deliver an accelerated time-to-value for such customers in an efficient and targeted manner strengthening our sales process and focus on growth.

The forces in today's healthcare market are creating risks and opportunities for numerous constituents. We remain squarely focused on managing the burdens being placed on health systems' revenue cycle operations.

Reimbursement pressures of from commercial and government payers continue to intensify. Additionally, earlier this year HHS announced a roadmap to shift volume from fee-for-service to fee-for-value.

As I mentioned earlier, we are seeing continued consolidation among hospitals, physician groups, and ambulatory centers. This confluence of events means that individual hospitals and large health systems will have to be extremely efficient, sophisticated, and more robust in their revenue cycle capabilities.

As a result, revenue cycle has become a top priority as providers seek proactive insight into their patients' complex reimbursement dynamics across the entire continuum of care. Our capabilities address both, as well as the operational imperative to standardize processes with consistent results across the entire health system.

We are technology agnostic, which means we can deploy our software, process, workflow, and analytics in a rapid timeframe without significant investment by our customers or replacement of their core financial systems. Health systems understand that standardizing their revenue cycle process will reduce their cost of operations, improve their performance, and enable uniformity in how they contract with payers.

They are looking to implement sustainable changes to the revenue cycle infrastructure and address the operational challenges that commonly arise from the M&A activities. We believe we are the operating solution they seek.

As the healthcare industry undergoes this shift, we as a Company have emerged from a challenging period in our history. And now we are a stronger Company, positioned for growth and leadership in the industry.

We have completed the restatement, restructured the organization, strengthened our core offerings, expanded our capabilities, improved our operating performance, and have become a disciplined organization. Prior to completing the restatement last December, it was difficult to ask customers to come on board when we could not be fully transparent regarding our stability and financials.

The completion of our restatement and subsequent SEC filings will eliminate this barrier. Over the past six months we have built a pipeline of prospects, and a number of opportunity assessments are currently underway.

We soon expect to be current with our filings and to return to the normal operating rhythm of a public company in the coming months. My conversations with prospects and current customers underscores the importance of these milestones. We have held several productive meetings with prospective customers and remain optimistic on signing new business in 2015.

However, we also ended a couple of customer relationships in the last six months. One of these was M&A-related and the other was due to a contract dispute.

I would like to assure you that customer retention and growing our customer base is a top priority for us. The operational rigor we have instilled over the last year, along with the infrastructure improvements and enhancements to our service offerings are factors we expect to contribute to improved retention and customer wins over time.

In the revenue cycle space there are multiple EMR and services vendors. The EMR vendors were initially focused on clinical, and then they began enhancing their revenue cycle capabilities. The pure service vendors focused on business profit outsourcing, and later began to leverage technology.

Alternatively, our solutions have focused on both, revenue cycle software and services for over a decade. We leverage proprietary software, proven profits methodology, analytics, and our shared services centers.

It is the disciplined optimization of all of these capabilities that drive our efficiencies and performance. Our capabilities are not only a crucial part of our customers' organizations, but they also layer seamlessly on top of their current systems.

And beyond this distinction, our solutions are differentiated from our competitors in two key ways. We are an independent organization with no conflicts of interest with our customers, unlike some of our competitors who are owned by for-profit providers or for-profit payers. This becomes a significant factor as competition in certain markets intensifies.

Second, we operate using a co-sourced and co-governance model that aligns with the mission and needs of our customers. We work within their policies and procedures, systems, and unique environment. The demonstrate metrics are derived from the customer's own financial systems. In all, we believe value comes from deploying experienced talent, proven prophecies, agnostic proprietary technology, and executing against operating metrics.

In summary, our position in the marketplace is strong, and we expect to grow as we expand our customer base. We have a senior team with deep healthcare expertise and domain knowledge, which is critical during this complex and evolving healthcare environment.

We also had a few healthcare executives with lifelong healthcare experience join our Board recently. With this domain expertise and the operational improvements we are making, we believe we have the right formula for scalable and leveragable growth.

My team and I are encouraged by the state of our business and the progress we are making as we look forward to expanding our footprint with existing and new customers. I will now turn the call over to Peter for a discussion of our financials. Peter?

Thanks Emad, and good afternoon everyone. We've made tremendous progress in catching up with our delayed SEC filings, thanks to a remarkable effort by our finance and legal teams. We filed our 2014 10-Qs and 10-K this afternoon, and plan to follow our first quarter results in July.

Additionally, we plan to file our second quarter results in a timely manner, which will bring us back to a normal reporting cycle as a publicly-traded company. We have started the pre-application process to list our shares on one of the major exchanges, and expect to launch a formal application after we file our first-quarter results.

We also continue to make progress in remediating our internal control weaknesses, which is an ongoing effort. Since we are just a few weeks away from filing our first-quarter results, we will not hold a separate conference call to discuss the results when we filed the 10-Q but instead I will provide a preliminary view of the quarter later on in this call.

For those of you who may be new to Accretive Health, I would like to provide a brief overview of our GAAP accounting and non-GAAP financial measures. Our business model generally entails entering into three- to five-year contracts with our customers, with GAAP revenue recognition typically deferred until substantially later than we deliver services, bill, and collect cash from our customers.

We typically invoice our customers and collect cash on a monthly or quarterly basis. At the same time, our direct costs of delivering services are expensed as incurred. The effect of our deferred revenue recognition is that we experience large variations in our GAAP revenue and earnings with significant upswings in periods when we have revenue recognition events, which are typically at the end of the contract or renewal when we reach agreement with customers on the value we generated.

For revenue that is not recognized until we have reached revenue recognition criteria, the amounts billed and cash collected is added to deferred customer billings and to the customer liabilities account on our balance sheet. When revenue recognition occurs, deferred customer billings are reduced by this amount.

When you look at our GAAP financials alone, it is difficult to use our reported results to understand periodic business performance. This is why we use two non-GAAP measures to provide a better view of our operations.

The first measure we use is gross cash generated from customer contracting activities, which is our reported GAAP revenue plus the change in deferred customer billings. This second measure is net cash generated from customer contracting activities, which is our reported net income before interest, taxes, depreciation and amortization, share-based compensation, restatement-related expenses, reorganization-related expenses, and certain non-recurring items, as well as the change in deferred customer billings. Effectively it is our adjusted EBITDA plus the change in deferred customer billings. These two measures are primarily how we internally measure our financial performance, and we believe it's important for investors to look at our results on this non-GAAP basis as well.

Now, let me walk you through our 2014 results based on our non-GAAP metrics. I would like to remind you that a GAAP-to-non-GAAP reconciliation is included in this afternoon's press release and in the appendix of the presentation accompanying this call.

Gross cash generated for the full year was $233.6 million, a decline of 7.2% year over year, due to the contraction of our Physician Advisory Services business, or PAS, related to the Two-Midnight Rule, a regulatory change in the healthcare industry which continues to impact the environment for these services. Our 2013 financials also included $8.2 million from a customer settlement in our former Population Health business and created at the tougher comparison to 2014. All the gross cash generated decline was attributed to the PAS and Population Health businesses.

Gross cash generated from our core RCM business was $208.9 million, up 12.3% year over year, driven primarily by net operating fee improvement. Gross cash generated from our RCM business experienced sequential improvement in each quarter during 2014 and experienced less quarterly variability than in 2013.

Cost of services was down marginally year over year to $170.9 million, primarily due to reduced volumes in the PAS business offset by increased expenses in our RCM business to drive the improvement in the RCM gross cash generated. The increase in the RCM cost of service was driven by shared services, infused management, and technology investments to drive cost reduction initiatives and revenue yield improvements for our customers. This increase in cost was partially offset by lower costs associated with supporting our legacy best possible measurement model, as we have transitioned most clients to our new alternative metrics.

SG&A expenses declined 15.2% year over year to $54.9 million as we reduced expenses in our support costs for the PAS and Population Health businesses and reduced certain corporate function expenses. At the same time we experienced higher senior management team transition costs due to overlap over the course of 2014.

Net cash generated declined to $7.8 million, down 50% year over year, due to the top-line contraction in the PAS business and the absence of the benefit from the one-time settlement in 2013, as previously mentioned. Our core RCM business posted an improvement in its year-over-year margins from increases in both net operating fees and incentive fees. Restatement and other costs increased $52.8 million year over year due to costs related to completing our financial restatement, the impact of two restructurings in 2014, and the cost associated with our transformation office during last year's CEO transition.

Turning to 2015. For the first quarter we expect gross cash generated of $53 million to $55 million and net cash generated to be flat year over year at $1 million to $3 million. The expected year-over-year decline in gross cash generated is driven by a $3 million to $4 million decline in the PAS business. We expect the RCM business to be up slightly on a year-over-year basis from higher incentive fees.

Costs of services is expected to be $40 million to $42 million, down year over year, once again driven primarily by the decline in the PAS business. SG&A expenses are expected to be $12 million to $13 million, down year over year, driven by expense reductions in the PAS business.

Despite a near 50% decline in gross cash generated by the PAS business, the margins in PAS are expected to improve year over year due to the management actions taken last year. Restatement and other costs are expected to decline approximately $28 million to $29 million year over year as the company laps restatement-related costs and restructuring charges in 2014. For the first quarter, expect these expenses to be in the range of $1 million to $2 million, primarily to fund controlled remediation activities.

Our cash balance at the end of March was $132 million, a decline of $13.2 million from the end of 2014. We utilized cash in the quarter to pay vendors involved in completing our financial restatement at the end of last year and payments to employees who were impacted by the two restructuring actions taken in 2014.

Capital expenditures are expected to be in the $1.5 million to $2.5 million range in the quarter. During the first quarter we reclassified $5 million of restricted cash in cash balance following a decision not to renew a letter of credit.

As the year progresses, we expect gross and the net cash generate to be higher in the second half of the year due to the seasonality of incentive fee collections and improvements in net operating fees. However, our PAS business continues to face headwinds due to the extension of the moratorium on claims filed subject to the Two-Midnight Rule.

Our guidance at the end of 2014 contemplated that the moratorium would be lifted at the end of March 2015, but it has now been extended by CMS through the end of September of this year. The PAS business is currently trending at an annualized revenue run rate of $10 million to $13 million relative to $20.9 million generated for all of 2014.

Due to the compression in the PAS business, both on a year-over-year basis and year-to-date basis, we expect gross cash generated from customer contracting activities for 2015 to be in the range of $230 million to $240 million, or $10 million below our prior range. Consequently, we expect cost of services to be in the range of $150 million to $160 million, or $5 million below the prior range. We now expect our net cash generated in 2015 to come in at the lower end of our $30 million to $40 million guidance.

It's important to note that our core revenue cycle business is unaffected by dynamics in the PAS business and continues to post steady improvement in delivering customer cost reduction initiatives and increasing revenue yield for customers by leveraging our existing infused management cost structure. Improved operational performance in the RCM business is the largest driver of the growth in net cash generated from 2014 to 2015.

Additionally, the restructuring activities announced last November are also yielding benefits to our bottom line, especially in the PAS business where we expect improved profitability in 2015 compared to 2014 despite top-line compression. The repositioning of our Population Health capabilities into our value-based reimbursement offering has also yielding year-over-year improvements in gross cash and net cash generated.

With our financial reporting structure largely back on track, new customer growth is our top business priority. As Emad mentioned, the selling window only opened up following completion of the reinstatement less than six months ago.

We are actively qualifying prospects, moving opportunities through our sales funnel, and building our pipeline. We remain optimistic about signing new business in 2015 and will keep you updated as the year progresses. And now I'd like to turn the call over to the operator for Q&A. Operator?

(Operator Instructions )

Charles Rhyee, Cowen and Company.

Hey, guys. Thanks for taking the questions here. Emad, if we can go back to some of your earlier comments. Obviously the NPR looks like it went down about $500 million from the last update. I think you talked about a couple clients, one from M&A.

But I want to focus on the one on the customer dispute. Can you give us a little more detail of sort of why this one, this client decided to part ways with you? And does it have anything to do with any of the past issues back in Minnesota? Thanks.

Thanks, Charles. It's good to hear from you. I appreciate you joining the call. Let me start with the latter part of your question, it does not have anything to do with the issues in Minnesota.

If you remember the last time we spoke, we used to have an analysis that we used to do which is called best possible. And the best possible was a very complex sort of equation in terms -- of estimating value. And at that point, about a year ago, there was change in management.

We talked to them through the outcomes of this best possible methodology and we're now, most of our business is transitioning off of best possible. So there's a little bit of a dispute that we have between us and them in terms of what the outcomes of the best possible model is. That's mostly it, but it was not related to anything in Minnesota.

Okay. And maybe can you talk about, then, if we think about the sales pipeline, and in these last six months have we had any kind of new -- I mean, because it looks like you raised the guidance back in March a little bit, now we've taken it down again. Can you give us a little bit more detail of what's been going on the last six months? I know you said your qualifying leads and stuff. But was there anything that was already sort of queued up a little bit that we could have started seeing, but it has kind of slowed down again?

Well, as I mentioned in the last call that we've had, we have a pipeline that has a number of opportunities in it. As we said, that this is a long sales cycle. If you remember the last time we spoke about that, it's somewhere between 6 months, to 18 months.

We have to go through assessments and an opportunity assessment, and really to show the value. Those opportunities continue. They have -- some of them, once we have our restatement, we're were getting more traction. As I mentioned, we have a couple of customers that we're doing an opportunity assessment with them. And we feel confident that we might have some closure in this year, in 2015.

Okay. That's helpful. And then for Peter real quick, the cash balance, down $13 million. Can you talk about what the restatement costs in 2014 were and the severance kind of cost on restructuring?

Sure.

Can you give us (technical difficulties) If you have it.

I'm sorry, Charles. I didn't hear the last part there.

If you have those numbers, I assume there in the K.

Yes, they are. So let me address your question. So in terms of the restatement costs for 2014, they were roughly in the $56.5 million range.

In terms of the various restructuring, including any stock comp-related expense that was in the restructuring, that was around $14 million. In total, and you saw those in our slides, our various restatement and other non-recurring items netted to about $86 million, a little bit over $86 million in totality.

Okay, great. Thanks a lot, guys.

Thanks, Charles.

Jeff Garro, William Blair & Company.

Good afternoon, guys. And thanks for taking the questions. I wanted to ask, can you discuss the progress that you've made moving those legacy customers to -- both to any fixed-fee arrangements and also to the alternate methodology for performance-based measurement? You said it's almost all of them. Can you tell us exactly how many are left on the old best possible method?

That's a very good question. So we've moved the majority of our customers over from best possible to the more predictable measurement outcome. I have Joe Flanagan here, our COO, who has led this charge with Peter and I. So I'd like to turn it over to Joe to talk a little bit about the movement from best possible to the more predictable outcome measurements.

Sure. We have a couple of hospitals that we are still working through proactively right now on that transition. The balance other than that is off of best possible, and it's really gone onto, to your point, a couple on fixed-fee arrangements. And we talked about that in our prior call, and that's generally in the second renewal period when there is a good comfort level with the services we provide and there's more comfort, so to speak, on a fixed-fee arrangement.

The bulk is on a set of gain share metrics that we commented come right out of their ledger and accounting system, split between income statement and balance sheet type measures. Most of the as we can reconcile quarterly. Some of those, just because of the nature of the measurement, are a perpetual measurement that we reconcile annually.

And I would say that's the bulk of the movement of our book-of-business off of the best possible. So the spirit and intent of gain share and at-risk contracting in our model is still intact. It's just done in a way that is much more closely aligned with our customers' performance coming out of their systems. And we're very pleased that it's taken friction out of the relationship, but we've seen that play through on our various discussions with customers as well as NPS surveys with customers.

That's great to hear. And just to clarify, the couple that are -- that you are still working through practically, is that more about making sure that you can pull those gain share measures from their patient accounting systems or is there any kind of dispute where you guys view these customers as at risk?

It's mainly proactively working through the mechanics of how we execute that transition.

Great, great. And then one more question, if I could. You guys have mentioned the development of modular solutions and services, and some that will be derived from the shared services center. I want to ask if there are any plans for any software-focused modular solutions, or will all modular solutions have an outsourced service component as well?

That's a great question. All modular solutions will have the combination of services, software, analytics, and shared services. As over the past six months to a year as we've gotten more sophisticated where we documented the end-to-end processes of revenue cycle, this is where we've had the evolution of some of these modular services.

I'll turn it over to Joe to kind describe some of them, but the good thing about modular services is the fact that there are -- a lot of the hospital systems has specific areas where they need a great deal of help. We can go in there, use our modular approach, get them a quick speed to value, demonstrate success, demonstrate performance, and then build on that success to continue to expand our modules eventually to get to end-to-end.

But it's a very good way for us to actually add value to customers without a significant outlay of any investment on their part, without changing any of their systems. We could just leverage our software, our services, especially our shared service capability. Let me turn it over to Joe, because we do have those modules listed, a number of them. So maybe, Joe, you could just talk about two or three that we are using right now with some of the customers?

Sure. So just to provide some color on the module offerings and the capabilities we have inside of that set of products. If you look at the front-end activities of the rev cycle, we've got a full suite of products around the entire continuum on financial clearance, sort of say, a grouping of offerings that covers that suite of services.

In addition to that, all of the activities on finding funding sources for the uninsured, whether that's Medicaid funding sources or non-Medicaid funding sources. And then if you look at the payer component of cash, a full set of services on the payer cash as well as on the patient engagement as it relates to the financial responsibility, customer service related services, as well as the mechanics on pre-collect activities in terms of resolving those financial responsibilities that patients have on a residual basis. So it's a pretty comprehensive set of capabilities we have.

We have the capability to deliver those on a standalone basis. And in all of those areas that I mentioned, we've got demonstrated engagements where we've delivered that and received payment for those services on a standalone basis. So generally as we look to scale that, we feel good about our operational readiness there.

Great. Thanks for the color and for taking the question, guys.

(Operator Instructions)

Matthew Gilmor, Robert Baird.

Hey, good afternoon and thanks for taking the question. Regarding the 21 operating metrics you discussed, and I know you intend to provide some more details around this in the future, but can you maybe give us a sense for what the more important metrics that you are tracking to at this point?

Sure. I think Charles had mentioned that I had talked before about the best possible model. We learned a lot from that best possible model. This is where we've gotten actually our analytical capability became very sophisticated.

The reason it was complex is because of the calculations, and that's why sometimes it's a -- us and some customers could come on different sides of the evaluation of those calculations. But these 21 metrics that we now have, and I want to talk a little bit about the metrics and then this other piece which we mentioned in the script of in process metrics.

The 21 metrics are like days in AR, Medicaid conversion that we're seeing in the market a great deal. So we will begin to share that with you moving forward. But these 21 metrics are tied directly to the performance of the hospitals. And we take those out of their financial system, or their general ledger systems, and so then there's no dispute around it.

It comes outside of their own systems, and we -- in the very beginning we agree with our customers in terms of what those metrics are and what are the numbers that we are going to list. So they do become very predictable. In the next -- in our next call, we'll probably share the top 5 or 10 or so.

And going forward, will you present, as an example, a table in terms of where Accretive stacks up by those metrics sort of quarter to quarter? Is that what we should expect, or do you just intend to discuss what they are the future?

I think we are -- I'll talk -- I'll ask my team if they want to add anything. I'm not sure we would do that. What we're doing is we went from this best possible, very complex calculation to this very predictable set of metrics, that are 21 that are tied directly to the performance of the hospitals. And the way that we begin to show that to you, we still have to make sure that they are valuable and the way that we show them year over year or quarter over quarter, we'll figure that out and then we'll be able to share that with you. Peter, Joe, do have anything to add to the?

I think the one thing I would add, just complementing Emad's comments. Some of the metrics that we look at inside this suite of 21 are financial outcomes metrics. And as Emad commented, we take those right out of the accounting system. And they generally map to balance sheet performance or income statement performance of our customers.

Another category of those 21 are really the in process metrics that to some extent are unique to our capability. And one thing that I would comment on, we are able to produce those metrics because they are directly coming out of the workflow technology that we have, and that's a very important point to make, and very important for us as we drive outcome measure improvement.

And so there is a proprietary set of metrics that, to Emad's point, we have a lot of data and a lot of history of how those correlate to the financial outcomes. And I think that speaks a little bit to the power of our technology and how our technology roadmaps are fueled by the services capability we have in that complementary fit.

Matthew, one thing I want to add, as we move from fee-for-service to value-based payments, we expect that denials are probably going to rise. That's one of the things that the hospital systems are concerned about. A metric could be a denial level or a denial rate.

When we talk about in process metrics that Joe was talking about, we could begin to go back into the workflow for that entire denial process and figure out exactly where the failure took place for each one of those denials. So we could find out whether it is eligibility based, whether it is authorization based, whether it is coverage, whether the hospital's been tiered or not.

That's what we think is very powerful in terms of in process metrics. So most of our -- in the industry right now will given a denial level, and that's it. But right now for us to have an ability to change that denial, we can figure out exactly where the defect took place throughout the process.

Okay, great. That's really helpful. And I just had one more question, which is I wanted to ask about the new capabilities Accretive is developing. I think you mentioned analytics and some tools for value-based payments. I just wanted to get a sense for where those are in the development process. And are those solutions being marketed currently or are they still being developed right now?

Components of those solutions are being marketed currently, and we are speaking to a robust number of customers about them. Areas mostly around the risk adjustments, RAV scoring, ATC, identifying gaps in cares and outcomes are areas that are relatively mature.

The areas that we are currently moving towards maturity is the modeling around what is in a bundle, what is in an episode, and what are the DRGs that are part of that and how to identify it upfront. We believe that we are a couple of months away from getting that one very mature, but the other two are relatively mature. We are in the marketplace and we are speaking to customers now.

Okay, great. Thanks so much for taking the questions.

Thank you.

Charles Rhyee, Cowen and Company.

Hey, thanks. Emad, you might have mentioned earlier and I might have missed it, I apologize for that. But can you talk about sort of where you're at in your relationships with the some of your key clients like Ascension, Intermountain, and also Catholic Healthcare East? I think that was one that could be a bigger relationship for you. And what are some of these larger clients doing? Are they able to help you in terms of being reference sites as you are building out the current sales pipeline? Thanks.

Thanks, Charles. There are three areas that I want to refer to you in terms of what is a good relationship with our customers. You mentioned Ascension and CHE and Intermountain.

The number one component of a good relationship is performance and performance metrics. And over the last three, four, five quarters we have seen, as I mentioned in my script, a continuous improvement in the metrics that we are -- that we sign up for with our customers. So from a metrics and from an execution perspective, we feel that we are in a strong position and we have a good relationship with the customers.

The second component is their level of satisfaction. We are starting -- we're getting very regimented around asking the satisfaction of our CFOs, not just at a system level but also at a specific ministry and hospital level, and we've also seen those over the past four quarters improve. So from a satisfaction perspective and from a performance perspective, obviously those two are proceeding very well.

The other is in terms of the attention that our customers are getting. We are very focused on customers. We are very customer-focused.

We have some process -- one process called a joint review board with our customers, which is a quarterly review with their senior executives. So they are seeing us. I attended those, Joe attends those, Dave and even Peter. So we are there, we are present, we talk to their leadership.

If they have any problems in terms of that are even outside of the scope of our contract, we do the best that we can to help them with their -- with any issues, and even with staff that we sometimes will infuse in case they are having some problems. So I would categorize our relationship along those three parameters from a performance, from a satisfaction, and from a continuous engagement with of them as being very positive.

And are they -- are you able to use them as -- are some of their facilities able to be used as reference sites?

We have -- I'm sorry. Go ahead. Yes, we have used them for reference sites, and as a matter fact some of them have actually hosted future customers onsite, and they spoke to them about our performance. So we've had even that occur in the past year.

Okay. And then lastly, just Catholic Heathcare East, if I recall, on one of the previous calls you had mentioned that only a few of the facilities were actually up and running. And it kind of got (technical difficulties) I think it was like the December call, right, and I think you had talked about, it was something that you were working on, and I just want to see if any update you can give us there.

We continue -- I just actually met with their leadership. And we're working with them very well. One ministry in Catholic Health East especially we have a very strong relationship and we're looking to expand potentially our footprint with VBR, value-based reimbursement and preparing them for risk in the hospital on the East Coast.

Also we're moving them off of best possible, and we're in the process of doing that. And how are we doing with that, Joe, in terms of moving them off of best possible?

Yes. We continue -- as I mentioned, we continue to work through the mechanics on the remaining contracts we have under management. CHE, as well as a couple of others.

The interesting thing about Catholic Health East or others is certain markets are getting sort of a more aggressive traction in risk-based contracts. And we're seeing a lot of these hospitals come to us for help because of, as the fee-for-service moves quickly into the value-based reimbursement, they are really seeking that financial administrative infrastructure support to be able to move from a fee-for-service to a value-based payment perspective.

Okay, great. Thank you, guys.

We have no additional questions. I will now turn the call back over to management for any closing remarks. Please proceed.

Thank you, operator. Once again, I just would like to thank all of you, and everyone for joining us today. We look forward to continuing to update you in the future.

And our second call, just to remind everyone, will be the second quarter of 2015 where we'll have our next call. Thank you, and have a good afternoon.

This concludes today's conference. You may now disconnect. Have a great day, everyone.