Fair Isaac Announces Acquisition of Diversified HealthCare Services Inc.

Fair Isaac Corporation announced that it has acquired Diversified HealthCare Services, Inc. Diversified, a rapidly growing provider of medical bill review products and services for the workers’ compensation insurance industry, will be integrated into Fair Isaac’s Healthcare and Insurance market unit. Terms of the acquisition were not disclosed.

The addition of San Ramon, Calif.-based Diversified extends Fair Isaac’s leadership in the property and casualty insurance industry. Fair Isaac software products and services currently process more than $4.4 billion annually in property and casualty claims, and are used by nine of the top ten property/casualty carriers and 65 percent of the nation’s state workers’ compensation funds.

Adding Diversified’s complementary products and services allows Fair Isaac to continue to expand its robust roster of medical bill review solutions and customer service benefits for workers’ compensation payers. In addition, the combination provides Diversified customers with opportunities to enhance their efficiency and reduce claims costs through access to industry-proven Fair Isaac software and analytic solutions tailored to the demands of the insurance industry.

“Diversified’s market presence, tremendous reputation for customer service and loyal customer base strengthen our position in a priority growth industry for Fair Isaac,” said Tom Grudnowski, CEO of Fair Isaac. “As our scale increases, our customers will benefit from faster, better and more economical service.”

“Becoming part of Fair Isaac will provide our clients with Fair Isaac’s deep resources, advanced technologies and national scope,” said Jorge A. Garratt, CEO and president of Diversified HealthCare Services. “Both companies have been leaders in serving the workers’ compensation arena, and we look forward to setting new standards of excellence in bill review solutions and services as we come together to meet our customers’ needs.”

Complementary Insurance Solutions

The acquisition brings together two leaders in workers’ compensation medical bill review. Diversified provides a complete range of outsourced medical bill review and disability management services. Fair Isaac provides two market-leading medical bill review software products: CompAdvisor®, for workers’ compensation; and AutoAdvisor®, for automobile liability injury insurance. Both products feature electronic bill entry by intelligent scanning/OCR (Optical Character Recognition) and powerful Capstone® decision management technology, and are available as licensed client/server and through a secure Web-based ASP. Through its Insurance Service Bureau centers, the company provides complete outsourced medical bill review and managed care services.

Medical Bill Review Benefits

Medical bill review is a process that helps adjust the payment of a medical bill to the lowest allowable price. The process evaluates surgical, medical, hospital and pharmacy bills to help eliminate unwarranted charges.

Reflecting the rising costs associated with health care, the average cost of workers’ compensation insurance has risen 50 percent in the last three years. By using new technologies to automate manual insurance claims processing and medical bill review, insurance payers can save millions of dollars each year and help slow the growth of workers’ compensation claims costs. Through better management and automation of medical bill review, Fair Isaac has saved 40-50 percent of billed medical charges for its workers’ compensation clients.

Financial Impact

The acquisition will not have a material impact to Fair Isaac’s Q4 numbers and will represent approximately $20 million of revenue for the company’s fiscal year 2004. As previously announced, the company will provide Q1 and fiscal year 2004 guidance on its quarterly conference call on October 29, 2003 at 5:00 p.m. EDT, which will contain further details of this acquisition.