ST. PAUL, Minn. (Reuters)—Medical billing services provider Accretive Health Inc. said it would wind down its Minnesota operations to settle a six-month-old lawsuit by the state that has led to the loss of a contract for the company.

The lawsuit, brought by Minnesota Attorney General Lori Swanson in January, followed an investigation into the Chicago-based company's debt collection practices. It alleged that Accretive had violated state and federal health privacy laws through aggressive collection tactics, including having its management "imbedded" into the staff of Minnesota hospitals and managing hospital employees engaged in collections and patient registration.

Accretive must pay $2.5 million and stop all business operations in Minnesota within the next 90 days under the settlement. The money will partly be used to compensate patients, with the rest going to the state treasury.

Accretive said in a statement that it has not yet determined when it will complete the wind-down process.

Following the 90-day period, "Accretive will be subject to an outright ban on operating in Minnesota for two years," the Office of the Attorney General said in a statement.

The company would not be allowed to re-enter the state for six years after that, unless it enters an agreement with Ms. Swanson.

"A hospital emergency room is a place of medical trauma and emotional suffering for patients and their families. It should be a solemn place, not a place for a financial shakedown of patients," Ms. Swanson said.

The company did not admit to any wrongdoing alleged in the complaint and said it does not expect the settlement to have a material adverse effect on its financial condition.

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Oppenheimer & Co. analyst Bret Jones said the settlement payment means nothing to Accretive, which ended the January-March quarter with a cash balance of $214.5 million.

Resolution of the dispute removes a significant overhang for the company and puts the risk of the lawsuit spreading to other districts to bed, Mr. Jones said in an interview.

Soon after news of the lawsuit became public in early April, Accretive customer Fairview Health Services terminated its contract with the company, fuelling investor concerns that more customers would follow Fairview's footsteps.

Accretive estimates its adjusted earnings before income tax, depreciation and amortization (EBITDA) for the April-June period to be "significantly lower" than that in the year-ago period, citing higher operating costs related to ending the Minnesota operations and the lawsuit.

The company, which is expected to report second-quarter results on Aug. 8, posted adjusted EBITDA of $20.7 million in the year-ago quarter.

As of Monday, the combined projected contracted annual revenue run-rate for the Minnesota operations was between $23 million and $25 million, the Chicago-based company said in a regulatory filing.

Accretive's stock, which has fallen 7% since the lawsuit was announced in early April, rose 20% on news of the settlement after the bell on Monday. It closed at $10.01 on the New York Stock Exchange.