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HRAA > SEC Filings for HRAA > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for HEALTH REVENUE ASSURANCE HOLDINGS, INC.

Form 10-Q for HEALTH REVENUE ASSURANCE HOLDINGS, INC.


9-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition of Health Revenue Assurance Holdings, Inc. for the three and six months ended June 30, 2013 and 2012, should be read in conjunction with the Selected Consolidated Financial Data, Health Revenue Assurance Holdings' financial statements, and the notes to those financial statements that are included elsewhere in this Quarterly Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Cautionary Notice Regarding Forward-Looking Statements in this Quarterly Report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.

Overview

On February 10, 2012, Health Revenue Assurance Holdings, Inc. (the "Company" or "HRAH") entered into an Agreement and Plan of Merger and Reorganization with Health Revenue Acquisition Corp., a Maryland corporation and our wholly-owned subsidiary ("Acquisition Sub"), and Health Revenue Assurance Associates, Inc., a Maryland corporation ("HRAA"), pursuant to which Acquisition Sub was merged with and into HRAA, and HRAA, as the surviving corporation, became our wholly-owned subsidiary (the "Merger").

HRAA improves the healthcare delivery experience for doctors, nurses and patients while assuring the existence of healthcare organizations. Since 2001, we have been providing Revenue Integrity programs for healthcare organizations across the country and are committed to providing the most intuitive and effective solutions in the industry. HRAA's products and services include business intelligence technology solutions, contract coding, billing, coding and compliance audits, education, revenue cycle consulting, physician services and ICD-10 transition services. Our collaborative approach provides the right solutions for our clients' needs with the highest regard for ethical standards and responsibility.

On April 13, 2012, the Board unanimously approved a change in the Company's name from Anvex International, Inc. to Health Revenue Assurance Holdings, Inc. to be consistent with our current business following the Merger.

We are subject to risks common to service providers and consulting companies, including competition and the ability to recruit, train, and put in place a sufficient quantity of proficient consultants and medical coders familiar with the requirements of IDC-10-CM/PCS, the uncertainty of future regulatory approvals and laws, the need for future capital and the retention of key employees. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.

Recent Developments

Certain significant items or events must be considered to better understand differences in our results of operations from period to period. We believe that the following items have had a material impact on our results of operations for the periods discussed below or may have a material impact on our results of operations in future periods.

ICD-10 Transition

In the short term, the main focus of our business will be with respect to the ICD-10 coding transition. In that regard, our potential clients are all hospitals and medical providers which currently maintain coding personnel in some form that are primarily responsible for seeking reimbursement for patients' procedures. The current system in place that drives the appropriate medical codes from hospitals/medical facilities to insurance companies is called ICD-9, which was implemented over 30 years ago.

In January 2009, the United States Department of Health and Human Services ("HHS") published a final rule which mandated a change in medical coding in United States health care settings from the current system, International Classification of Diseases, 9th Edition, Clinical Modification (ICD-9-CM), to the International Classification of Diseases, 10th Edition, Clinical Modification/Procedure Coding System (ICD-10-CM/PCS). Compliance with this ruling was to be achieved by October 1, 2013. The new, mandated version expands the number of codes from 24,000 to 155,000, making it more precise and descriptive and more accurately describing the diagnoses and inpatient procedures of care delivered. The transition to ICD-10-CM/PS will require significant business and systems changes throughout the health care industry and will impact all processes and people from finance to compliance to doctors.

On April 9, 2012, as published in the Federal Register, citing concerns about the ability of provider groups to meet the looming compliance deadline to adopt ICD-10-CM/PCS, HHS announced a proposed rule which would delay the implementation date to October 1, 2014. Interested parties had the ability to comment during a period ending 30 days after the date of the announcement. On August 27, 2012, HHS Secretary Kathleen Sebelius announced the release of a rule that makes final a one-year proposed delay-from October 1, 2013, to October 1, 2014 - in the compliance date for the industry's transition to ICD-10 codes.


The Company anticipates implementation of ICD-10-CM/PCS to be completed by the newly proposed effective date of October 1, 2014.

We believe that we are capable of providing consulting and related services with respect to the ICD-10 coding transition and the potential issues that we believe medical providers will experience due to the transition. In that regard, we believe the following are some of the issues that will be experienced due to the changeover:

? The new system will require time, money and commitment by over 6,000 hospitals, 600,000 physicians and every health insurance provider in the United States.

? Re-education and training of every Health Information Management ("HIM") department is required of every hospital and medical facility in the United States.

? All claims submitted by hospitals and physicians for reimbursement without utilizing ICD-10 will result in immediate rejection and non-payment.

HRAA's vision regarding ICD-10 Transition:

? Hospitals and medical facilities will incur massive backlogs in their billing and coding departments. Backlog in coding will lead to greater time between payments and crippling financial deficits.

? There will likely be an increase in coding errors, resulting in incorrect payments that can lead to hefty fines.

? Initial estimates based on other countries that have already converted to ICD-10 predict a 50% loss of productivity due to the complexity of the new system - a result of more time being allocated to the preparation of each individual patient case.

? The sheer number of codes and time for each entry will dramatically impact the workload. Currently there are not enough coders to meet this demand, resulting in an ongoing shortfall, with an accelerating shortfall anticipated after ICD-10 is implemented.

? Every discipline in the hospital will be affected as they all revolve around the same coding system.

? For each code in the ICD-9 format, there will be additional, more descriptive codes in the ICD-10 format. This will greatly increase the quality of patient care, but simultaneously put a burden on hospitals and their medical coders.

? Currently under ICD-9, hundreds of millions of dollars of revenue are lost each year due to medical coding and billing errors.

? The average age of a medical coder is 54. It is estimated that 20% of coders plan to retire or change activities because of this transition.

HRAH Chairman, CEO and Founder Andrea Clark, RHIA, CCS, CPC-H, continues to build the Company to meet the changing needs of the healthcare community and her accomplishments continue to be acknowledged. A few recent awards include:

? "Female Executive of the Year" Gold Award Winner - Stevie Awards for Women in Business - December, 2012

? "Maverick of the Year" Bronze Award Winner - Stevie Awards for Women in Business - December, 2012

? "Mentor of the Year" - 2012 AHIMA Triumph Awards - June, 2012

? "10 HIM Heroes, Professionals Who Have Made a Difference" - For The Record Magazine - October, 2011

HRAA has also been recognized for tremendous growth and industry leadership. Recent acknowledgments include:

? "Fastest Growing Company of the Year" Bronze Award Winner- Stevie Awards for Women in Business - December, 2012

? "Top Ten Best Places To Work" - South Florida Business Journal - 2011

We believe we are able to provide hospitals and medical providers with the ability to effectively transition to ICD-10 and prevent massive backlogs that lead to crippling financial deficits. Our team of certified coders provides hospitals with the expertise needed to successfully input the proper data set into the Health Information Management (HIM) system which drives reimbursement from insurance providers such as Medicare and Medicaid, as well as private insurance companies. We offer above industry standards ICD-9 and ICD-10 training to coders, equipping them with the knowledge to effectively assign the appropriate codes. We also conduct medical billing audits, identifying risks of lost revenue and ensuring the correct amounts have been paid. In doing so, we shorten the revenue cycle and prevent financial stress on healthcare providers.


The transition from ICD-9 to ICD-10 is and will drastically affect the entire healthcare industry, especially patients, hospitals, medical facilities, physicians, insurance providers and the coding workforce. Our goal is to optimize revenue integrity by providing expert contract coding and consulting services to hospitals and medical facilities throughout the United States. We will implement marketing tools in order to create our own brand identity and leverage this rapidly growing awareness of the upcoming switch to ICD-10 and the potential financial pressure a hospital will face if not properly prepared and trained.

We believe that the following tasks are essential to achieve ongoing success:

? development of long lasting relationships with new clients and strengthen relationships with existing clients; ? recruitment and proper training of qualified personnel; ? appropriate fiscal planning and execution; ? development of an extensive sales network; ? effective and broad-reaching promotional programs; ? connecting effectively with executive-level decision makers of hospitals and medical facilities;
? accurately and efficiently audit the medical billing records to maximize revenue integrity;
? ensure that we are supplying hospitals and medical facilities with top quality, certified medical coders; ? developing and deploying dynamic and effective marketing strategies; and ? informing healthcare professionals of the products, services and benefits of being an HRAA client.

In addition to the above, our ICD-10 coding transition services will also include the training of our client's staff with respect to the ICD-10 coding system; providing coding resources while the client's staff is undergoing training; coding resources to handle backlog as productivity levels drop off; and auditing resources to ensure retention and accuracy of the ICD-10 coding.

Products and Services

We provide our customers with customized, hands-on, strategy-focused and in-depth analysis of a hospital's Revenue Cycle and their compliance, as well as APC and DRG coding and documentation audits. We also offer customized education and certification programs, charge master data integrity, reviews, and solutions yielding measurable results, increased productivity, reduced DNFB, improved APC accuracy and optimized Revenue Integrity. We are committed to providing the most intuitive Revenue Integrity solutions in the industry through various means including APC AuditPro™, our proprietary internal auditing technology for outpatient claims.

HRAA provides an in-depth analysis of a hospital's revenue cycle and their compliance, and offers the only full suite of business intelligence products and consulting services required to keep up with the ever-changing healthcare industry. All of our products and services yield measurable results, increased productivity, reduced unbilled accounts, improved payment accuracy and provide optimized revenue integrity for hospitals and physicians.

Products

Healthcare is traversing a period of significant change with the dawning of Accountable Care Organizations ("ACOs"), the declaration of Meaningful Use, and probably the most important of these agents of change is the transition from ICD-9 to ICD-10. To understand the importance of these changes, healthcare's decision makers need to recognize the impact these changes are having on their organizations. To do this they must visualize and analyze their available data to produce actionable results that improve the organization's overall performance.

ICD-10 Education Curriculum

We provide our customers with an online internally developed education curriculum focused on ICD-10 CM Diagnosis and ICD-10-PCS Procedure course material.

Visualizer™

Visualizer™ is an analytic platform that provides healthcare decision makers with an integrated view of financial, operational, and clinical data across multiple sources of data. Each Visualizer ™ building block is designed to meet a specific analytic need.

OMC Initiator

The Outsourced Medical Coding Initiator was created for processing healthcare claims within hospitals. This product captures data from the physician or the hospital's financial systems and correlates the data in a manner that expedites the processing of a claim. To validate our new product, our team of Emergency Department Coders (ED Coders) is continuously evaluating the process of coding claims in order to enhance our product.

Verifier™ (Inpatient and Outpatient)

Healthcare organizations need executable tactics that can be implemented up and down the revenue cycle, with both inpatients and outpatients. These steps taken must be clear and simple to really improve the patient experience. Creating a successful revenue integrity program will have the most immediate impact in that initiative. However, there is a significant challenge in today's environment of complex regulations, changing payer requirements, and RAC, CERT, HIPAA along with ICD-10 pressures and increasing financial and workforce resource constraints.

Under the Center for Medicare and Medicaid Services' ("CMS'") value-based purchasing rules, hospitals will be assessed on quality performance, with clinical measures weighted at 70% and patient experience measures weighted at 30%. Verifier™ Suite is the most comprehensive solution for healthcare organizations performing internal auditing that provides insight into both clinical quality and service quality. This proven technology has been stress tested by HRAA providing internal auditing services to our clients for over 10 years. Although, conducting regular audits and taking a high level view of the reimbursement landscape is required, it's not until you roll up your sleeves and start digging into the claim details, that you will uncover hidden revenue integrity issues.


Services

Coding Services

The HRAA coding solution provides hospitals and physicians across the United States with an experienced team of backlog coders to assist facility coding departments or provide outsourcing services. Certified HRAA associates supply hospitals and physicians with medical coding and billing expertise, while reducing the risk of error and maximizing accuracy, efficiency and profitability. Medical coding is the process of taking information from a wide variety of patient medical records, charts and notes, and converting it into an alphanumeric data set. The data set then drives the payment for the services rendered when submitted to Medicare, Medicaid, commercial payers and other healthcare providers. Medical coders analyze the documentation maintained within medical records and assign codes that drive reimbursement. Additionally, the data set is utilized as a collection methodology for tracking diseases, quality of care and treatment.

Billing & Coding Audits

HRAA's team motivates excellence and reimbursement proficiency through customized, hands-on, strategy-focused and in-depth approach to the issues facing hospitals today and preparing them for tomorrow. While increasing profits for healthcare professionals remains a moving target, it is paramount to focus attention on compliant reimbursement dollars.

Education

We offer various training and educational opportunities to our clients, including Education Sessions, Coding Boot Camps, Workshops, and Webinars.

Consulting

We have specialized in building reimbursement proficiency by focusing on the entire revenue cycle, not just coding, and by providing RAC oriented audits, education and consulting services. Because our approach is to focus on the client's needs and develop the solution on an individual basis, our team possesses extensive experience in revenue cycle issues. We focus not merely on the revenue and codes, but on their operational uses. HRAA's consulting services provide secure and effective solutions for complex regulatory challenges, internal inefficiencies and revenue cycle analysis.

ICD-10 Transition Services

The transition to ICD-10 codes is not just a coding conversion; it is a change that impacts virtually all areas of the revenue cycle. HRAA's unique approach to this business transition is multidimensional, providing organizations with a smooth and sustainable transition. HRAA offers "turn-key ICD-10 services" to assist clients with all aspects of the transition, with great emphasis on streamlined comprehensive training while maintaining productivity.

HRAA's ICD-10 Transition Services Include ICDVisualizer™, Needs Assessment, ICD-9/ICD-10 Dual Audit, Education, Reserved Medical Coder Personnel, Auditing, Continuous Support.

Business Intelligence

HRAA offers Business Intelligence Services to help clients interpret data and make healthcare organizations more efficient and effective.

HRAA Business Intelligence team offers a number of solutions including:
Implementation of Visualizer™ Suite products, Deployment of solution templates, Development of custom applications. HRAA solution template offers the flexibility to customize the solution to meet client's needs without having to start application development from scratch.

HRAA's implementation experience of templates include: Surgery Center Analytics, Revenue Cycle Management, Customer satisfaction surveys, Hospital Statistics, Quality measures.

Physician Services

Certified coders and auditors are fully trained and are required to maintain continuing education each year to uphold their certification. HRAA is proactive providing each coder and auditor with many opportunities for additional training to make certain we are always providing the highest quality standard you expect from HRAA. HRAA takes each encounter through a rigorous review in-line with the documentation guidelines used by CMS.

The education that follows an audit includes the basic fundamentals of appropriate documentation for the levels of service billed. Physician will be introduced to the specific issues noted within the documented service. Recommendations on how to improve upon the documentation will be discussed, including template usage, appropriate EHR revisions, form creation, and so forth.


Three months ended June 30, 2013 compared to June 30, 2012

Results of Operations

The following table presents a summary of operating information for the three months ended June 30, 2013 and 2012:

                                             For the three months ended         Increase/       Increase/
                                              June 30,          June 30,       (Decrease)      (Decrease)
                                                2013               2012             $               %
Revenue                                    $     2,067,464     $ 1,028,266     $ 1,039,198          101.06 %
Costs of Revenues                                  975,632         453,233         522,399          115.26 %
Gross profit                                     1,091,832         575,033         516,799           89.87 %

Selling and administrative expenses              1,941,675       1,047,334         894,341           85.39 %
Research and development expenses                        0          20,920        (20,920)         (100.00 )%
Depreciation and amortization                       19,169          12,879           6,290           48.84 %
Total operating expenses                         1,960,844       1,081,133         879,712           81.37 %
Operating income (loss)                           (869,012 )      (506,100 )      (362,912 )         71.71 %
Other expense, net                                (228,049 )        (4,922 )      (223,127 )      4,533.25 %
Net loss                                   $    (1,097,061 )   $  (511,022 )   $   586,039          114.68 %

Revenue:

Revenue increased by $1,039,198 or approximately 101%, from $1,028,266 for the three months ended June 30, 2012 to $2,067,464 for the three months ended June 30, 2013. The increase was due primarily to increased revenue generated as a result of an increase in business development and marketing efforts put forth by HRAA.

Cost of Revenues:

Cost of revenues increased by $522,399 or approximately 115%, from $453,233 for the three months ended June 30, 2012 to $975,632 for the three months ended June 30, 2013. The increase was due primarily to greater personnel and related training costs associated with the buildup of the Company's audit and coding service provider personnel required to service the anticipated increase in service contracts in future periods. Specifically, as of June 30, 2013, the Company employed 114 service providers, who have to go through a period of training, as compared to 71 service providers as of June 30, 2012.

Gross profit:

Gross profit increased by $516,799, or approximately 90%, from $575,033 for the three months ended June 30, 2012 to $1,091,832 for the three months ended June 30, 2013. The increase in gross profit was due to the increase in business experienced in the year.

Selling and Administrative Expenses:

Selling and administrative expenses were $1,941,675 for the three months ended June 30, 2013, an increase of $894,341 or 85%, from $1,047,334 for the three months ended June 30, 2012. The change in the 2013 period compared to the 2012 period was primarily due to:

? Personnel costs have increased by approximately $641,000 or approximately 104%, from approximately $614,000 for the three months ended June 30, 2012 to approximately $1,255,000 for the three months ended June 30, 2013. The increase is due primarily to increased compensation and related expenses associated with the buildup of the Company's management, sales and administrative staff in anticipation of growth in business volume.

? Professional fees have increased from approximately $68,000 for the three months ended June 30, 2012 to approximately $186,000 for the three months ended June 30, 2013, an increase of approximately $118,000, or 173%. This increase is attributable to legal, audit, consulting, and accounting services provided in connection with expenses associated with financial reporting matters.

? The remainder of the increase in Selling and administrative expenses is related to costs associated to the company's business development such as marketing, trade shows and seminars.


Research and Development Expenses:

We had no research and development expenses for the three months ended June 30, 2013, a decrease of approximately $21,000, or 100%, for the three months ended June 30, 2012. The decrease is due to the capitalization of expenses related to the development of the Visualizer™ suite.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses were approximately $19,000 for the three months ended June 30, 2013, an increase of approximately $6,000, or 49%, from approximately $13,000 for the three months ended June 30, 2012. The increase was primarily due to depreciation costs associated with the Company's purchases for computer equipment necessary to support the increase in personnel.

Interest Expense (included in other expenses, net):

Interest Expense was approximately $228,000 for the three months ended June 30, 2013, an increase of approximately $223,000, from approximately $5,000 for the three months ended June 30, 2012. The increase is due to the factoring fees experienced in the quarter along with interest on outstanding debt obligations and amortization of debt discounts.

Net Income (loss):

As a result of the above factors, a net loss of approximately $1,097,000 was recognized for the three months ended June 30, 2013 as compared to net loss of approximately $511,000 for the three months ended June 30, 2012, an increase of approximately $586,000 or approximately 115%. The increase in net loss is outlined above.

Six months ended June 30, 2013 compared to June 30, 2012

Results of Operations

The following table presents a summary of operating information for the six months ended June 30, 2013 and 2012:

                                             For the six months ended         Increase/       Increase/
                                             June 30,         June 30,       (Decrease)      (Decrease)
                                               2013             2012              $               %
Revenue                                    $   4,224,061     $ 1,634,096     $ 2,589,965           158.5 %
Costs of Revenues                              1,960,952         884,352       1,076,600           121.7 %
Gross profit                                   2,263,109         749,744       1,513,365           201.9 %

Selling and administrative expenses            3,385,758       1,656,605       1,729,153           104.4 %
Research and development expenses                    289          53,133         (52,844 )         (99.5 )%
Depreciation and amortization                     44,598          22,750          21,848            96.0 %
Total operating expenses                       3,430,646       1,731,488       1,698,157            98.0 %
Operating income (loss)                       (1,167,537 )      (982,744 )      (184,793 )          18.8 %
Other expense, net                              (364,351 )       (10,842 )      (353,509 )       3,260.6 %
Net loss                                   $  (1,531,888 )   $  (993,586 )   $   538,302           54.52 %

Revenue:

Revenue increased by $2,589,965 or approximately 159%, from $1,634,096 for the six months ended June 30, 2012 to $4,224,061 for the six months ended June 30, . . .

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