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HMS Holdings Corp (NASDAQ:HMSY)
Q2 2020 Earnings Call
Aug 7, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the HMS Q2 2020 Financial Report. [Operator Instructions]

I would now like to hand the conference over to your speaker for today, Mr. Robert Borchert. Please go ahead, sir.

Robert Borchert -- Senior Vice President of Investor Relations

Thank you, Demetrias, and good morning, everyone. Joining me are Bill Lucia, our Chairman and Chief Executive Officer; and Jeff Sherman, our Chief Financial Officer. This call is being webcast and can be accessed via the Investor Relations section of our company website at hms.com. Today's press release highlighting our financial results is posted on our IR website. Bill and Jeff will first provide their perspective on our recent financial and operating results and business outlook, and then we will open the line for questions. [Operator Instructions]

I'd like to remind you that the financial results reported today and in this morning's press lease are preliminary and are not final until our Form 10-Q for the second quarter and 6-month periods ended June 30, 2020, is filed. Some of the statements we will make today are forward-looking in nature based on our current expectations and a view of our business as we see it today. Such statements, including those related to our updated full year 2020 guidance, the timing and effect of circumstances surrounding COVID-19, future financial and operating performance, and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially. As a result, they should be considered in conjunction with the cautionary statements in today's press release and the risk factors described in the company's most recent SEC filings, including our Form 10-K and subsequent Form 10-Q reports. Finally, we may refer to certain non-GAAP measures this morning. Reconciliations of these measures to comparable GAAP measures are included in our press release posted to our website.

With that, I will now hand the call over to Bill.

Bill Lucia -- Chairman, President and Chief Executive Officer

Thank you, Robert, and good morning, everyone. Given our organizational agility and financial strength, HMS remains well positioned to deliver value to our clients, while our nation and the world continue to address the circumstances surrounding COVID-19. Our initial response to the pandemic at the end of the first quarter was centered on operational execution as we continue to deliver valuable services to our broad client base, while also ensuring the safety and well being of our employees. As we discussed on our first quarter call, we were successful in smoothly transitioning essentially all of our employees to a work-from-home capacity without any disruption to our service levels. The second quarter was focused on continuing to execute on our strategic growth plan. This includes new product introductions in all three of our verticals, delivering a strong quarter of growth in our sales pipeline and closed sales, continuing to invest in technologies to drive further client benefit through enhanced product yields and efficiencies and continuing to assess and review potential strategic acquisitions. So even though there were many external challenges facing HMS and the entire healthcare ecosystem over the past few months, we continue to focus on our long-term growth plans. At the same time, our second quarter financial performance was challenged due to the impact of COVID-19. More specifically, lower medical utilization, certain client work pauses and shifts in industry focus had a negative impact on our Q2 results, with revenue, net income and adjusted EBITDA declining on both a sequential and year-over-year basis.

Importantly, we maintained robust cash flows and a very solid capital structure with low debt and an increasing cash balance. Nearly all of our lower revenue in Q2 was related to the effects of COVID-19, and we currently expect to recapture some of this in the back half of 2020 and into 2021. Despite the recent industry headwinds we have in calendar, our business outlook remains positive, and we are seeing signs of improvement that we currently expect will be beneficial over the coming quarters. For example, we are seeing an increase in the utilization of healthcare services. Medicaid enrollment is also rising, and our Payment Integrity product line is currently expected to improve during the third quarter, as CMS and other clients are lifting pauses on certain medical record requests and audits enacted during the COVID-19 emergency period. Second quarter coordination of benefits revenue increased from the year ago, but was down on an organic basis when you exclude Accent. This was due almost exclusively to lower claim volumes resulting from circumstances related to COVID-19 and, therefore, lower recovery dollars. However, as mentioned, we are seeing signs of improving trends that should be beneficial for the HMS business. For example, according to research from the Georgetown University Center on Children & Families, available data on 15 states through June on the total Medicaid enrollment was up 5.8% over the past three months. In Florida, the increase was almost 10%. In addition, data recently reported by a number of the largest publicly traded managed care plans showed an average increase in their Medicaid plan enrollment of approximately 6% from Q1 to Q2 of this year. This early trend can be attributed to higher unemployment, but also the easing of state Medicaid eligibility and redetermination criteria in order to maintain health coverage for many individuals during pandemic. n

New and expansion sales to state and federal clients have increased substantially from a year ago, as our ability to continue to deliver meaningful savings is gaining an importance, especially as states are experiencing significant budget pressures due to lower tax revenues and higher Medicaid and unemployment costs. For example, we recently sold COB solutions to a state that we had never before provided services to, and we expanded our COB services for a federal agency as they reprocure. Our health plan COB sales were also strong, as we added two new commercial COB logos and expanded services for more than a dozen Medicaid and Medicare health plans. HMS remains a market innovator in COB, as we are regularly adding new solutions to our comprehensive product line. As an example, our recently enhanced Medicare Advantage Premium Protection solution validates members' other coverage to ensure MA plans receive the premiums they are entitled to. This is just one of a number of COB innovations in development and rollout to our clients. We've also been scaling our Medicare to commercial and commercial-to-commercial COB products and have already generated several million dollars of incremental revenue opportunity through our concerted cross-selling efforts. Payment Integrity revenue was off from Q2 a year ago, as we had anticipated, due to COVID-19 circumstances that predominantly impacted our work involving medical record requests and audits. As we mentioned on last quarter's call, in order to temporarily ease hospital administrative burdens during the pandemic, CMS had paused all rec-related medical reviews and documentation requests. In addition, a few state and health plan clients also paused some of our Payment Integrity work during the second quarter. We do expect our PI line of business to improve during the third quarter as CMS and other clients have started lifting the pause. In fact, the restart of the Medicare RAC program is expected to begin later this month, which will enable us to complete our work from claims received before and during the pandemic and recognize revenue for that effort. We continue to work with CMS to fully understand the scope of work that we will be able to do. Most important, recent sales have created a robust pipeline of PI implementations, so we remain optimistic about the outlook for this product line.

Revenue from our Population Health Management products also declined in the period, as clients appropriately shifted their focus during the pandemic and paused many traditional consumer engagement programs, including those that focus on primary care and wellness business. This offset the traction we gained with our COVID-19 rapid response solution in the quarter, communicating critical information about the virus to our clients' members. Investment we made in new sales leadership and business development executives is driving a stronger PHM sales pipeline in 2020. We are also leveraging our marketing expertise to push lead generation through a highly targeted campaign that speaks directly to our clients and prospects. This gives our sales team the tools and resources they need to pursue new business. In the case of our Elli risk analytics platform, one health plan is using it to identify patients most at risk for severe COVID complications, while another client is using the solution to triage patients who are returning for elective and preventative needs. In summary, Q2 was both unusual and challenging for the healthcare industry, and the lower claim volumes and client work pauses impacted our revenue and EBITDA performance as well. Importantly, we continue to believe the growth trajectory of our business remains strong, and we're confident that the macro industry trends continue to support our strategies for long-term profitable growth.

Jeff will now provide additional details on our second quarter performance and outlook for the remainder of the year. Jeff?

Jeff Sherman -- Chief Financial Officer

Thank you, Bill, and good morning. As Bill mentioned, our strong financial position and expanding product portfolio and value proposition position HMS well to continue to pursue our growth agenda. Our second quarter financial performance was impacted by COVID-19-related issues, including lower healthcare utilization rates, the temporary suspension or reduction of certain client work and shifts in industry focus in our PHM business. At the same time, we maintained healthy cash flows and a strong balance sheet, enabling us to continue to invest in new product development and future growth. In fact, our cash flow from operations in Q2 was one of the strongest in our company's history. COB revenue in Q2 was up 1.6% from the second quarter last year, but down 8.8% organically if you exclude Accent revenue, as lower claim volumes due to the fact of COVID-19, which had a slightly greater impact than we previously anticipated. We continue to believe the benefit from Medicaid enrollment increases could offset the negative impact of recent claim volume trends and our COB product line over the next two quarters. As in the past, timing is always a factor in our quarterly revenue trends, and the market data inputs into our forecasting models continue to have some variability. Payment Integrity revenue decreased 36.8% from Q2 to last year, when you exclude the onetime Medicare RAC reserve release benefit from a year ago. As Bill noted, this was expected, as the decline was primarily driven by our temporary suspension or reduction of certain client work related to COVID-19 circumstances. PHM revenue decreased 17.6% in Q2 due to the suspension of certain consumer engagement programs due to COVID-19. This more than offset an increase in COVID-19 specific program activities.

Adjusted EBITDA in the second quarter was down 41.6% when you exclude the Q2 reserve release benefit. This year-over-year decline was due to lower revenue as well as an expected increase in compensation and other operating costs as a result of the Accent and VitreosHealth acquisitions in the second half of 2019. We incurred Accent integration cost of approximately $3.5 million in the quarter, which are reflected as an add-back in the adjusted EBITDA reconciliation schedule. In the quarter, we recognized other income of $2.2 million related to the mark-to-market fair value of our MedAdvisor investment. We also absorbed approximately $2 million of severance expense, as we completed a small strategic repositioning of our workforce to align resources and invest in key areas of future growth. This includes the addition of sales, account management, operations and analytics personnel and payment accuracy to support newly signed business and address the heightened demand for our services. Second quarter adjusted EPS of $0.19 per diluted share was down from the $0.34 per diluted share reported in Q2 a year ago, excluding the $0.07 reserve release benefit. Our cash flow from operations was $40 $48.7 million in the quarter. We continue to have a very strong balance sheet and liquidity profile, with total net debt of 0.3 times trailing 12-month adjusted EBITDA. Turning now to our updated financial guidance. Historically, we have not updated our annual guidance each quarter, but we are in unique circumstances, and we believe it is important to try to provide our best estimate of future financial performance in the midst of this challenging environment. Given our updated analysis of the business and financial impact due to COVID-19, we now expect full year 2020 total revenue to be in a range of $680 million to $690 million, but we are maintaining our adjusted EBITDA guidance range. The low end of revenue guidance is $10 million below our previous guidance, as we factored in our Q2 performance to compensate for client delays and Payment Integrity work and a greater impact to our COB and PHM product line due to the COVID-19 circumstances. This now reflects revenue growth of 10.5% to 12.1% compared to last year when you exclude the Medicare RAC reserve release from 2019. As you might expect, there continues to be numerous inherent complexities as we work to accurately forecast revenue in the midst of very fluid COVID-19 circumstances. The obvious challenging data input issues include key drivers such as healthcare utilization and claim volume trends. With that said, our various analyses utilize both historical, internal results as well as external forecasts on macroeconomic variables driven by COVID-19. This includes Medicaid membership and expenditures in uninsured population and unemployment data from sources such as CMS, Health Management associates and the Kaiser Family Foundation.

We currently expect our performance to improve in the third and fourth quarters and continuing into 2021. As we've said consistently in the past, our COB product line always has the potential for quarter-to-quarter variability, so timing may play a key part in the quarterly progression of our revenue performance. As the volume of healthcare services come back online and more individuals likely enter government-sponsored healthcare programs, we believe the demand for our payment accuracy, cost containment and clinical outcome capabilities will ultimately increase. We have confidence in our outlook for the second half of 2020 and our momentum moving into 2021 given the current level of market demand for our solutions and the positive trajectory of our sales pipeline, closed sales and active implementations. We are maintaining our full year adjusted EBITDA guidance range of $177 million to $187 million for 2020 for a year-over-year growth of 7.9% to 14% as a result of better operating expense trends now forecasted for the second half of the year. As with revenue, we are normalizing the 2019 adjusted EBITDA for comparison purposes to exclude $8.2 million from the Medicare RAC reserve release as well as a $7.7 million investment gain. While we did see an increase in cost related to our acquisitions and IT investments, as discussed last quarter, we continue to believe this spending will drive results in the second half of 2020 and beyond. We remain diligent in managing expenses in order to maintain an appropriate cost structure relative to revenue growingly.

Bill will now offer some concluding remarks, and then we'll be ready for questions. Bill?

Bill Lucia -- Chairman, President and Chief Executive Officer

Thank you, Jeff. And as we discussed, the HMS organization moved swiftly to remain fully operational in support of our clients, while also protecting our employees' health and safety. We remain confident in our business outlook and will continue to invest in our sales and account management resources to meet market demands for our services, bolstering future growth as well as delivering strong client value to meet the industry's evolving needs. As the longer-term effects of COVID-19 work its way through the healthcare system, we believe this will create greater opportunities for HMS to show how we can have a positive impact. Strong cost containment and clinical outcome capabilities are going to grow in importance during and after this health crisis, particularly as state budgets are pressured to do are pressured due to lower revenue and higher Medicaid costs, and the managed care managed Medicaid plans feel the weight of lower premiums from some states. The trajectory of our sales pipeline, closed sales and active implementations are all positive leading indicators, so we continue to be well positioned to deliver high value to our clients and the entire healthcare industry. I want to thank our employees and Board of Directors for their vital support and commitment to our business, and our clients for their continued collaboration and trust in our valuated partnership. Finally, I'd like to send our sincerest appreciation to all healthcare workers and all of our nation's first responders and essential workers who are on the frontline serving all of us during this challenging time.

Thank you. Operator, we are ready now for the first question.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Matthew Gillmor with Baird. You may proceed.

Matthew Gillmor -- Baird -- Analyst

Hi, good morning. Thanks for the question. I guess I wanted to start with the COVID impact on the second quarter. I think you had talked about a $19 million sequential impact during the first quarter, call it. It obviously came in a bit higher than that. And I appreciate we were all sort of in uncharted territory here. But can you just talk about sort of how COVID impacted the business in the quarter versus what your expectations were 90 days ago?

Bill Lucia -- Chairman, President and Chief Executive Officer

Jeff, you want to take?

Jeff Sherman -- Chief Financial Officer

Sure, Matt. Yes, Bill, I'll start with this one. So Matt, our initial expectations for the impact of COVID-19 was actually approximately $12 million to $13 million for Q2. We thought Q2 would be down $20 million sequentially, but we had the $7 million in COB that we booked in Q1 that was really related to 2019. And so we are estimating the impact was going to be primarily driven by PI revenue due to the suspension of the Medicare RAC program. As we now look back in the quarter, the estimated impact was over $25 million for COVID. As we've noted, there are inherent complexities in forecasting the impact in this very fluid environment with variables changing. As the second quarter progressed, more state and managed care clients paused PI work. That obviously impacted and made our PI impact greater than $12 million to $13 million. On the COB side of the business, as Bill noted, lower utilization impacted our claim volume available for recoveries. But in addition, there were also pauses in our subrogation work at the state level and our federal work for HealthCare.gov that occurred during the quarter. And then finally, the Accent business, which rolls up under COB, also experienced a slowdown in provider collections due to the pandemic. So as I said in our prepared remarks, we do expect to rebound in the third and fourth quarters, as these clients restart their work. And again, nothing inherent in the overall business model, but really suspensions of work driving the vast majority of the decline.

Matthew Gillmor -- Baird -- Analyst

Got it. And then as a follow-up, if you think about the $25 million, and I appreciate there's probably not a precise answer to give, but how much of that do you think will be available for recapture by going back and actually auditing those claims versus how much is just kind of lost because of lower healthcare utilization?

Jeff Sherman -- Chief Financial Officer

Yes, it is go ahead, Bill.

Bill Lucia -- Chairman, President and Chief Executive Officer

Well, so there's a certain amount that will be what I would say is a smaller amount will be lost due to lower healthcare utilization. There will be, at some point, a rebound of utilization not only for elective procedures, but for those people that have multiple comorbidities and need to get in. So the higher cost claims will start coming through again. And I think we'll start seeing we've actually started seeing them in our data, though our data is a little lag from the actual date of service. So and then, of course, with COB, we have a 3-year retrospective opportunity to recover, so most of the claims that would be projects that we weren't allowed to do, we can do recoveries from providers. We can do them once the once we're turned back on. And in PI, most of the clients have a certain look-back window. Could be a year to two years, depending on the client or up to 3. And the PI, the clients are turning them back on for a number of reasons. Not only is there a financial need to do so, but also it's compliance. I mean, they still have to comply with the audit requirements from the states or the federal government.

Matthew Gillmor -- Baird -- Analyst

Great, thank you.

Operator

And our next question comes from Ryan Daniels with William Blair. You may proceed.

Ryan Daniels -- William Blair -- Analyst

Yes. You talked about the EBITDA being intact given some cost savings and restructurings. Is that something that is sustainable going forward? Or is that more transitory given the COVID?

Jeff Sherman -- Chief Financial Officer

No. I think, Ryan, our overall cost structure, we always forecast cost based upon the investments we're making in the back half of the year. We did do some restructuring, a small amount in the second quarter, so that will actually help to fund some of the incremental investments we're looking. So I wouldn't I would expect, as you look at our cost structure going forward, it's going to remain fairly consistent. And again, I think as you look at what's happened in the past, we get good leverage from incremental revenue on the EBITDA line, and we'll expect that to continue as we progress into the back half of the year.

Ryan Daniels -- William Blair -- Analyst

Okay. That's helpful. And then if we think of Program Integrity and Population Health, can you speak a little bit to how that is varying on a regional or state basis? I'm curious if the states that are seeing spikes are still kind of under pause for both of those activities, whereas regions where the cases have kind of flatlined or declined, are you seeing an uptick there? Just trying to get a feel for how we should monitor that and the potential impact on your business.

Bill Lucia -- Chairman, President and Chief Executive Officer

So let's we thanks, Ryan. We'd I would separate Medicare RAC from everything else because Medicare RAC did a pause across the nation, though that will be, we're hoping by the end of this month, lifted. Initially, the hardest hit area in the beginning or a few months ago was New York. And so both the state have also asked all the health plans just to pause auditing in hospitals. I believe that has reopened as of the month of August, and we are now reauditing on behalf of both the state and the health plans where we have Payment Integrity audit teams. We have not been asked specifically to slow down in different markets. So Florida and Texas are somewhat hot spots. We haven't been asked recently to slow down, so my guess is there will be continued there will be some continued delays. But for the most part, the Medicaid plans and the Medicare Advantage plans, again, still have a compliance reason to actually perform the audit. So we expect that through Q3 and Q4, audits will pick back up. But the only thing the only time where we had really a state come down pretty hard on the entire industry was New York, and that has started to lift as the market there has changed.

Jeff Sherman -- Chief Financial Officer

And that is in that is reflected as we expect our revenue to ramp in Q3 and Q4 is a more returning to normal flow. And we're also seeing that in the claims volume trends in our COB business as well, with April being the low point, and moving forward seeing incremental increases in volumes. And as you look at, at least, some of the publicly reported hospital service companies, June and July, volumes were approaching 85% to 90-plus percent of the prior year volume. So we do, overall, have seen a tendency to move more toward a normalization as of this month.

Operator

And our next question comes from Dave Windley with Jefferies. You may proceed.

Dave Windley -- Jefferies -- Analyst

Hi, good morning. Thanks for taking my question. One of the earlier questions got at my cost question. It sounds like, Jeff, that some of that restructuring you mentioned, I think you used the words that it would help to fund some of your investments. So I guess, I'm trying to understand if there are some operating efficiencies that you have found that we should think about carrying over beyond 2020, just as just to think more about the long-term cost structure.

Jeff Sherman -- Chief Financial Officer

Yes. I think, from a modeling perspective, with expected volume ramp as well as the continued investments we're making in IT, etc, I think that some of the restructuring we did will really help pay for that. So I wouldn't expect to see necessarily a big reduction in cost from our run rate, but it will help fund some of those incremental investments we're that we're making to drive growth in the back half of 2020 and into 2021.

Dave Windley -- Jefferies -- Analyst

Okay. And then I think, Bill, you mentioned some two commercial logos. Were those should I interpret that as being in the Accent business? And either way, could you give us a sense of the size of those opportunities?

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. So it's always hard to measure the size. And when we sell into account, we always measure somewhat conservatively, but we measure based on expenditures of that plan or state, what the annual contract value is. But we have done cross-sells, both into the HMS accounts and then HMS services into the legacy Accent account, with a very strong funnel that's built a sales funnel that's building of the millions of dollars. I mean, I really can't get into various specifics, but they are commercial-to-commercial COB or Medicare to commercial COB for commercial risk plans that were HMS clients. And then it's other HMS clinical-related activities being sold into what were legacy Accent clients. And we've kind of other than as a product line, we've really removed any Accent. All the employees are just HMS employees. But we are starting to see real good traction there. And of course, ultimately, the opportunity for us across the entire COB spectrum is to continue to consolidate the technology as well as continue to rapidly deploy RPA, so that we're able to increase the margins as we had been saying we would be doing with technology.

Jeff Sherman -- Chief Financial Officer

I would just add, I mean, the we're continuing to see demand for our traditional COB services, even in the Medicaid space. And the two noted were for our traditional COB on the HMS side. But as Bill noted, the cross-selling opportunities continue to be significant for the Accent customer base as well. And again, as we look at the back half of the year, we're we certainly see new COB sales and implementations as well as growth in Accent helping to drive the second half revenue increase that we're expecting.

Dave Windley -- Jefferies -- Analyst

Okay. Thank you for that. I appreciate it.

Operator

And our next question comes from Stephanie Davis with SVB Leerink. You may proceed.

Stephanie Davis -- SVB Leerink -- Analyst

We've seen some volume recovery on the provider side as we've been running through the rest of our earnings, so this is more of a like a multipart timing question. So first, what sort of lag do you see from volume recovery to Payment Integrity revenues as a convert? Two, what are your assumptions for payer demand for PI just given some of the provider friction concerns for the remainder of the year? And three, how should we think about your view on the path to volume recovery?

Bill Lucia -- Chairman, President and Chief Executive Officer

Well, when you get these multi-part...

Jeff Sherman -- Chief Financial Officer

Bill, I'll start if you want and I'll go ahead.

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. When you get these multipart questions, you start to...

Stephanie Davis -- SVB Leerink -- Analyst

You're going to hate this, so I can't just bear to read any part of it. I hate lying.

Bill Lucia -- Chairman, President and Chief Executive Officer

So we have started to hear from particularly the publicly traded hospital systems that volume recovery has happened. We've heard recently that in another company's earnings call that were about 90% of pre-COVID volumes. That's on a closer to realtime date of service. So if you consider HMS' typically, we get eligibility in claims. It's either daily, weekly or monthly from our clients. But it's when they pay them up or it's when they update their eligibility files. So we're often anywhere between 45 to 90 days after date of service, or date the claim was paid until we start to see that. So you'll see us being a little more behind what is current market activity. So if we were at 100% or 110% of pre-COVID healthcare utilization, we would be a couple of months behind that, anywhere between one to three months behind that. But that's why it's a key leading indicator for us, and it's very positive. And of course, on the eligibility side, we're just we're seeing, and you heard the comments about Medicaid growing from the Medicaid Managed Care plan, 6% from Q1 to Q2. If that Medicaid enrollment increase continues or even rises due to eligibility, we see that faster. And as long as there's still employer-sponsored insurance, which we have not seen those numbers go down dramatically, then that will impact rather quickly our prospective cost prospective COB, which we call cost avoidance. Jeff, anything else to add to that?

Jeff Sherman -- Chief Financial Officer

Yes. I would just add. Keep in mind, I mean, we continue to receive medical record claims for many of our customers for audit purposes during the second quarter. And so really, with the exception of CMS, a few states in a couple of our managed Medicaid our health plans, as Bill noted, pausing, we were continuing to do work in building that inventory of claims that we can do work on. So that certainly as we look at our Q3 and Q4 PI expectations, that is certainly factored in there as well as the return of claims driving the COB side. But I think most importantly, customers just allowing us to restart work again is probably the biggest driver. And as we've said, CMS and most of the clients that paused have allowed us to start doing that. So that does give us more confidence as we look at the back half of the year, that we're going to see that more return to a normalized level.

Stephanie Davis -- SVB Leerink -- Analyst

Okay. That's super helpful, guys. And then just one quick one. We talked about a restart of the Medicare RAC program, again. I know it's a very common knowledge, but how are you planning on ramping this up without creating excess provider friction just given the current environment?

Bill Lucia -- Chairman, President and Chief Executive Officer

Well, typically, what happens is Medicare starts off starts us off relatively slowly if it's a new audit, so we always do a sample with x number of facilities before we roll it all out further. And there's already a self-contained number of records that were allowed to send it to any given provider in any given cycle, depending on if it's a complex clinical claim review, a little less restrictions on our automated edits. So I don't I think CMS will be semi-cautious as we ramp up, but they are approving new edit and audit algorithms from us. And we remain the highest per capita in recoveries for the trust fund of the RAC auditors today.

Jeff Sherman -- Chief Financial Officer

And I'll just add just to add to that a little bit. So CMS paused our ability to request new medical records and do work during the period, meaning we couldn't do offsets for claims where we had findings during the second quarter. But we were we continue to receive claims during the second quarter for pre-pandemic medical records that we had requested, and we were able to complete our work during the quarter. So just the ability to start sending those claims out really gives us a pretty good view on those claim dollars that we'll be able to record revenue for that book of claims relatively quickly with the pause lifted. And then we'll get into a more normal routine as we move into the fourth quarter of just our typical requests and audit work that we're doing.

Operator

And our next question comes from Jailendra Singh with Credit Suisse. You may begin.

Jailendra Singh -- Credit Suisse -- Analyst

Maybe one, So just to follow up on your last point, Jeff. So looks like for CMS RAC review program as well, are you saying that you can retrospectively go back and audit those claims and generate some revenue and recapture some lost revenue or this is before COVID claims? I'm just trying to understand like what can be recaptured for CMS RAC review program.

Jeff Sherman -- Chief Financial Officer

Yes. So these would be Jailendra, these would be for claims before the pandemic started, what we had already requested or had received the claim and are able to do work during we're able to do the work during the pandemic period. We're still working with CMS to further clarify our ability to audit any claims from the pandemic period. So right now, our forecast for the back half of the year does not include and include any claims that would have been incurred in the second quarter. This is really work for claims that were pre the pandemic periods.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And then, my follow-up on last quarter, you talked about that you don't have much benefit building your guidance from Medicaid enrollment increase. Is that still the case? And given the lag nature of your business, how should we think about the timing on the benefit from this increased Medicaid enrollment?

Jeff Sherman -- Chief Financial Officer

Yes. I think it's fair to say, as we looked at our guidance last quarter and thought about the impact, we knew there could be a lower claim volume and an impact to that. Very hard to model and forecast until we started seeing some of the actual claims going in. But we also recognize that increasing Medicaid roles would be a positive tailwind for us in the back half of the year. So I think it's safe to assume now, as we look at it, that some of the lower claim volume that we lost in the second quarter, we do believe could be offset by increasing Medicaid roles in the last two quarters. And keep in mind, we have two main drivers of our COB business. The first is where we find other coverage, we call that cost avoidance. That happens relatively quickly. Once the member comes on, the eligibility rolls from either a state or a managed Medicaid plan, we can compare that to our national eligibility database and determine if there's other coverage and get paid for that. So we do think that we have the potential to see some positive Medicaid revenue offsetting some of the lower claims volume in the back half of the year, and we have factored that into our guidance in the back half of the year.

Jailendra Singh -- Credit Suisse -- Analyst

Okay, thanks.

Operator

And our next question comes from Donald Hooker with KeyBanc. You may proceed.

Donald Hooker -- KeyBanc -- Analyst

Hi, good morning, everyone. Thanks for the question here. Just I'm sort of repeating a little bit of earlier questions, and I'm sorry about that, but just want to make sure we get this straight because there's this recapture effect where you can look back and recapture things. You seem to say there was a $25 million impact in Q2 from COVID-19 across the businesses. Maybe when you present your guidance here, how much of that $25 million reappears in Q3 and Q4?

Jeff Sherman -- Chief Financial Officer

Yes. We didn't give a discrete number. So again, keep in mind, a good chunk of the $25 million was for Medicare RAC that we already talked about. And at this point, it's not clear that we'll be able to audit any claims during the pandemic that occurred during the pandemic period, but we have claims in the pipeline for pre-pandemic. And then we'll be able to start sending new claims out for post-pandemic. So I think for the Medicare RAC piece, we're still working with CMS to get clarity on that. Some of the work was related to, as Bill said, for some of our PI work, where there's a prior year a 3-year look back, we will be able to capture some of those over time. And again, if you look at the midpoint of our guidance range, we're expecting a little bit over a $55 million increase in revenue in the first in the second half of the year compared to the first half of the year. So certainly, that does include recapturing some of those dollars as we move into the third and fourth quarters.

Donald Hooker -- KeyBanc -- Analyst

Okay. Super. And then last question for the Accent acquisition. It looks like revenues were roughly it looks like they held OK up in the June quarter, relatively speaking, given the environment. How should we think about that reramping in Q3 and Q4, maybe synergies on top of that? Or should we temper those expectations?

Jeff Sherman -- Chief Financial Officer

Yes. And so I would say, as we look at that $55 million increase in the second half of the year versus the first half of the year, almost half of it really is CMS RAC and the Accent revenue that will be higher in the second half of the year versus the first half of the year. So Accent, traditionally, it ramps more in the back half of the year as well, and Accent is recovering dollars from providers as well. So we did see some impact in the second quarter from providers just not either not repaying dollars back or just sending staff home and not processing some of our recovery claims. So we do expect a stronger second half for Accent and expect to be close to where we expected to be from a budget perspective for the year. But again, we expect some of that to roll into 2021. But again, those are not lost dollars. We just expect there's going to be a longer time period to recover some of those dollars due to the pause and claims being worked during the pandemic period by some of the providers.

Donald Hooker -- KeyBanc -- Analyst

Thank you very much.

Operator

And our next question comes from Sean Dodge with RBC Capital Markets. You may proceed.

Sean Dodge -- RBC Capital Markets -- Analyst

Good morning. Maybe going back to the sales activity comments you had made a little bit earlier, Bill. I know you've made some investments in your sales organization recently, particularly around the Population Health Management solutions. How much of a disruption has the pandemic had on activity there? Can you give us a sense of the progress you've been able to make in building or kind of reestablishing a pipeline there?

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. So the pipeline, we've done a good job of rebuilding the pipeline. And in fact, we've brought in in 2020 alone, I'm sorry, we brought in four new Eliza logos, so those would be brand new, and then three new Essette and Elli logos. So those are brand new accounts we've never sold into before. And then we are starting to get traction with both additional PBMs and then specialty benefit management companies. And then we have a significant queue of upsells to existing clients. Now with that said, the demand, it seems to outpace sales capacity at times, so we're continuing to look for additional sales leaders, not only in that space, but in, what you would consider, our entire payment accuracy product line. But the sales queue has been ramping up. And then this past week or so, we've relaunched the PHM brand of HMS to make it a little less confusing. And then, of course, that is being launched throughout state, federal and health plan as well as providers. So we expect that this will continue to grow. But COVID did have an impact and the biggest impact was you just really don't want when someone's at home worried about their health and safety and the health and safety of their family, you don't want to send a Mom a message saying, "Your child is due for their well baby visit," because that's may be not be the first thing that they're worried about. So those more traditional calls or emails or texts are what we expect to see coming in the second half of the year as the healthcare as the capacity increases and people feel more comfortable getting back to facilities and/or their doctors or specialists.

Jeff Sherman -- Chief Financial Officer

Yes. And I would just add on that. I mean, our payment accuracy, including COB and Payment Integrity sales were up significantly. And I think, as the quarter progressed, initially, there was a lot of things just put on hold. It was hard, even deals that were in process of being signed were taking longer. That was true in all of our product verticals. But as the quarter progressed, we got more into a more normalized sales routine where we were having reach out. And I would say, we actually were finding it easier to get high-level executives on calls without traveling and really have more meaningful conversations as the quarter progressed. And we really ended with a very strong sales quarter in terms of closed sales. And again, those as we think about that, as well as previously closed sales that are in our information pipeline, those are the things that are factored into our forecast for the second half of the year.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay. And then staying on Population Health, you mentioned a little bit of a stepping back in some of the in kind of the more traditional engagement activities. But I think you also talked about that being partially offset by ramping of some COVID-related interactions. Can you give us a couple of examples of what kind of applications this has for the pandemic?

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. So we had a number of clients in Q1 ask us to do we developed a rapid response communication protocol. That was driven down to the actual state level to be able to educate people about anything from where to get tested, when to go to the doctor, when not to, all those things. Some of the clients asked us to continue to do that on a regular basis. So in Q2, there was more volume that we did for the clients who said, "We want you to be continued on this notification." We think more should be doing it, and that was out of a J.D. Power study that less than half of the people in the U.S. had heard from their health plans regarding COVID. But what I think more important about it is the analytics that we're building to be able to present to our clients. These are the people who have the most risk of having a very bad outcome from COVID, and they are not yet diagnosed with COVID, so get them the kind of services they need. We think if you really start to put resources on people like that, make sure they understand what to do and what not to do and help prevent them from getting COVID, then you're much ahead of the game from a clinical outcomes and cost perspective. So we're using that analytics as well as some other predictive analytics using social determinants of health built into our Elli platform. So we think there's opportunities for it now as it continues to wreak some havoc in our healthcare system, but for any future pandemic as well.

Sean Dodge -- RBC Capital Markets -- Analyst

All right, very helpful. Thank you.

Operator

And our next question comes from Richard Close with Canaccord Genuity. You may proceed.

Richard Close -- Canaccord Genuity -- Analyst

Most of my questions have been addressed, but obviously, you sound upbeat on the sales in the quarter and the pipeline. So just curious with respect to your internal targets for the second quarter, whether the bookings or new sales exceeded your expectations. That would be the first one. And then with respect to the pipeline, is it strength is the strength broad-based across all the areas? Or is any particular area outpacing the others?

Jeff Sherman -- Chief Financial Officer

I'll start with the first, Bill, if you want to add. So I think, Richard, the sales were in line with where we expected to be through the first two quarters of the year, but also up significantly over prior year when we compare the periods. So I think on track with more activity expected in the third and fourth quarters. And traditionally, the back half of the year tends to be the stronger selling part of the year anyway.

Richard Close -- Canaccord Genuity -- Analyst

Okay. And then across all areas.

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. And we're particularly seeing a fair amount of interest across the state Medicaid agencies who are actually have to balance budgets at states and are looking toward some really big budget short not all of them, but some looking toward very large budget shortfalls. So we're working closely with them on what can we do to help them close those gaps. So we're seeing a fair amount on the state side. And as we said, we are selling new concepts and audits into CMS. Each time we it is really a sale. Each time we present a new audit, we have to get their approval and then we have to run some tests upon on that. And then we've brought some other unique services out to the market in each of the product lines that are just starting to be launched with some of our alpha or beta clients.

Richard Close -- Canaccord Genuity -- Analyst

Okay. If I could slip one more in. Bill, you mentioned a new state that you never did business with. Can you provide any more details with that? Was it an RFP? Or did they come to you during the pandemic and said, "We need to get something going here?" Just any thoughts there.

Bill Lucia -- Chairman, President and Chief Executive Officer

No, this was an MES, the MIDAS-enabled Medicaid information system procurement. That was we won the Medicaid coordination of benefits modularities. And so it was a state that, up until now, had done the work on their own or through their MMIS vendor and then we won. I believe it was through another vendor, meaning, oftentimes, these are bids packaged by one system integrator. But yes, we did win them that as well as one of the federal agencies we do COB work for competitively reprocured and added scope.

And what we're seeing in a number of either reprocurements or, I'd say, proposals that we're sending in to state government is they're just trying to find ways for us to be able to do the work with amendments to our contracts when we find some novel ways for them to save money, again, because of the very significant shortfalls they're expecting to see as the Medicaid rolls increase.

Richard Close -- Canaccord Genuity -- Analyst

Okay, thank you.

Operator

And our next question comes from David Larsen [Phonetic]. You may proceed.

David Larsen -- Wells Fargo Securities -- Analyst

With respect to the EBITDA guidance, how much of that is dependent on revenue versus cost reductions? Are you expecting to have any more cost reductions in the back half of the year? And if so, like, can you quantify that, please?

Jeff Sherman -- Chief Financial Officer

Yes. We're always continuing to invest in technology to help us drive efficiencies. But I would say, expect more of the EBITDA margin is going to be driven by the revenue growth in the second half of the year. But again, we'll continue to deploy technologies to increase efficiencies as we have talked about in robotic process automation, machine learning, AI. So that those synergies will continue to accrue in the back half of the year as well. But definitely, the more majority of it is going to be revenue driven and, again, getting good leverage on that revenue growth as we have historically.

David Larsen -- Wells Fargo Securities -- Analyst

Great. And then with the CMS audits and the RAC audits, I guess, my question is like, why have they been paused? Do you actually have to be on-site in the hospital in the medical records department digging through the manila folders and looking at the paper medical records in order to be able to do that work? Is that why they have been paused? Like it seems to me like you should be able to do that work remotely. Like everybody has an EMR, so why can't you look up the data remotely? And then how I guess, if CMS doesn't turn the switch back on at the end of August, I guess, that could potentially impact the revenue guide for the year. Is that right?

Bill Lucia -- Chairman, President and Chief Executive Officer

So first, let me answer the first part of the question. So we don't do any on-site reviews for CMS. We do that for some health plans at some states, but we don't do any of that for CMS. But what CMS wanted to do, particularly as hospitals were being impacted significantly with lower utilization, not only send them advanced payment, but not bother them with audits. Now in reality, you could understand that if there's less people in hospitals, I don't think it really impacts the financial accounting or business office or patient accounting office. And of course, we implemented, with a number of our clients, ways to make these audits as provider-friendly, but it was CMS' decision to do that. They are very interested in turning the program back on, particularly because it is a program that Congress watches, and they report to Congress on the results, as well as the fact that they do believe that, ultimately, we're going to find up-coding, even on COVID claims. So I would think that we've already had discussions with CMS about it turning back on, and they've already published, I believe, on their website that the RAC audits will restart. So I don't I'm not as concerned about that. Obviously, if they said, "We're shutting it down," which again is enacted by law that they have to have the program, it would have an impact on revenue. But I doubt that, that's going to happen.

David Larsen -- Wells Fargo Securities -- Analyst

Great, thanks.

Robert Borchert -- Senior Vice President of Investor Relations

So we have a couple more questions. I know we're running a little long. We're going to make sure we take these two final questions.

Operator

And our next question comes from Charles Strauzer with CJS.

Charles Strauzer -- CJS -- Analyst

Thank you. Just picking up on that last question about the pauses. Given the spike in COVID cases in some of the larger states, are you at all concerned that they could extend the pausing, reinstate some pauses kind of going forward? And have you factored some of that into your guidance at all?

Bill Lucia -- Chairman, President and Chief Executive Officer

Yes. I don't really see that. I mean, I'll give you an example of the states where we've got where there's been spikes where we have, particularly, audit contracts. So Florida has a very all-extensive contract with us for COB that we also do overpayment recoveries. They have a waiver not to have a Medicaid RAC, so we do a lot of that work under that contract. They have not slowed down on audits. In fact, they're adopting new services from us. California, we really only do COB recoveries, though they're open to new ideas, and they also are a state that can amend the contract to do other things. They have not asked us to slow down our COB recoveries from providers. And then the other one, of course of note, would be Texas, and the plans that we work for in Texas have not stopped audits. So I mean, could that happen in any given state? Yes, but the only state that basically communicated to its health plans that audit should be on pause was New York state, and then that has been lifted. So I think we're going to have to get back to a new normal because of the fact that it's a compliance issue as well as the fact that they can't let particularly providers who are abusing the system and there are some that do, you can't let that run rampant. So there has to be a certain level of auditing across the programs.

Charles Strauzer -- CJS -- Analyst

That's fair and thank you very much.

Operator

And our final question comes from Daniel Grosslight with Citi. You may proceed.

Daniel Grosslight -- Citi -- Analyst

You're in a pretty strong capital position and you had some nice cash free cash flow this quarter. So I'm just curious how the volatility has impacted your capital deployment plans and if you're still looking at acquiring additional PI and PHM assets in the near term.

Jeff Sherman -- Chief Financial Officer

Yes, we are continuing to be actively reviewing acquisition opportunities. We continued that work during the quarter. So we do think we can be opportunistic with our strong balance sheet and are continuing to look for assets that will complement our solution set that we're selling into the marketplace. We certainly think on the Payment Integrity and the Population Health Management side, there continues to be opportunities out there. I will say the pipeline did slow down during the pandemic period and maybe starting to see a little bit of signs of picking up again in terms of potential opportunities in the marketplace. And then finally, I would just say, hopefully, there'll be some more modest valuation expectations. That continues to be a challenge as a result of the pandemic period. But as we're now almost halfway through the integration or halfway through the year and really finalizing the full integration of Accent in terms of the IT switch overs that we're expecting to occur this month, we're certainly in a position to be able to look for new acquisitions that are good strategic fit for us.

Daniel Grosslight -- Citi -- Analyst

Got it. And maybe just as a follow-up. It's difficult to kind of read the political tea leaves right now. But I guess, I would love to get your thoughts on how a Biden administration and a Democratic Senate might impact your business. And if you have any update on the ACA case that won't seem to go away.

Bill Lucia -- Chairman, President and Chief Executive Officer

Well, so I think we and I think most people would assume that a Biden administration would really be an increase in what was started with the Affordable Care Act, which would mean more Medicaid expansion, more opportunities for people to be covered, which means that we have, of course, greater opportunities. So we think it's a net positive. There continue to be challenges to the ACA in court from the Republican AGs that filed the original suit, but the challenge is and I think this has been some of the posture from the Supreme Court, there's nothing to replace it with. So I mean, I think they'll look at the legal side of it. But you're talking about, I don't know, depending on what actually happens from a repeal, if one were to happen, a significant number of people losing their coverage. So I think that there will be continued challenges to that, if something like that were to happen. But we see the a Biden win as a net positive for us, and we see a Trump rewin as almost business as usual because there has been no replacement healthcare plan that's been really put forth by the administration. So we think it will be very similar to a business as usual if it's a Trump back in office.

Daniel Grosslight -- Citi -- Analyst

Got it. Thanks, guys.

Operator

Ladies and gentlemen, this concludes the Q&A portion of today's conference call. I'd now like to turn the call back over to Mr. Bill Lucia for any closing remarks.

Bill Lucia -- Chairman, President and Chief Executive Officer

Well, I'd like to thank you all for attending the call today. We look forward to speaking to you on our Q3 call, so please stay safe, and thanks for your continued interest in HMS. Have a wonderful day.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Robert Borchert -- Senior Vice President of Investor Relations

Bill Lucia -- Chairman, President and Chief Executive Officer

Jeff Sherman -- Chief Financial Officer

Matthew Gillmor -- Baird -- Analyst

Ryan Daniels -- William Blair -- Analyst

Dave Windley -- Jefferies -- Analyst

Stephanie Davis -- SVB Leerink -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

Donald Hooker -- KeyBanc -- Analyst

Sean Dodge -- RBC Capital Markets -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

David Larsen -- Wells Fargo Securities -- Analyst

Charles Strauzer -- CJS -- Analyst

Daniel Grosslight -- Citi -- Analyst

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