What changed in this filing

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Item 1A. Risk Factors

2022-05-04 compared with 2021-11-03 · 144 added, 44 removed, 2 unchanged (99% of the section changed)

The following description of risk factors updates and supplements risk factors associated with our business previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, our Form 10-Q for the three months ended March 31, 2021, and our Form 10-Q for the three and six months ended June 30, 2021.

These risk factors are in addition to those mentioned in other parts of this report and are not all of the risks that we face.

We could also be affected by risks that we currently are not aware of or that we currently do not consider material to our business.

We are subject to risks related to public health crises or future outbreaks of health crises or other adverse public health developments such as the global pandemic associated with the 2019 novel coronavirus (COVID-19).

As a global healthcare solutions company, we are impacted by public health crises such as the global pandemic associated with COVID-19.

The outbreak has significantly increased uncertainty and unpredictability of global economic conditions and the demand for and supply of raw materials and finished goods required for our operations.

In addition, public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the adoption of remote working and vaccination mandates, have impacted or may in the future impact our operations.

In these challenging and dynamic circumstances, we continue to work to protect our teammates and the public, maintain business continuity and sustain our operations, including ensuring the safety and protection of the people who work in our production and distribution centers across the world, many of whom support the manufacturing and delivery of products that are critical in response to the global pandemic.

We may restrict the operations of our production and distribution centers if we deem it necessary or if recommended or mandated by governmental authorities which would have an adverse impact on us.

There is a risk that revenues will decrease ultimately resulting in less cash flow, we may see longer duration in receivables collection, and the need to expedite payments to important suppliers may grow.

COVID-19 has impacted and may further impact our supply chains relative to global demand for our facial protection, nitrile gloves, and protective apparel products.

COVID-19 has also affected and may further affect the ability of suppliers and vendors to provide products and services to us or to do so at acceptable quality levels or prices.

Some of these factors could increase the demand for our products, while others could decrease demand or make it more difficult for us to serve customers.

For example, the significant reduction in elective surgical procedures, which began mid-March of 2020, resulted in a material negative impact on our revenue for 2020.

Any worsening of the COVID-19 pandemic or future outbreaks could result in similar reductions in elective surgical procedures or otherwise

reduce demand for our products, any of which could have a material negative impact on our revenues and profit for future periods.

Although we have experienced significant growth in sales volumes for certain of our products (such as PPE) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic.

We may also see a decline in such growth rates and sales volumes when the impact of the pandemic subsides and the healthcare system returns to a more normalized state.

In particular, demand for such products may also decline as government-sponsored COVID-19 response stimulus, relief and production initiatives, such as those under the Defense Production Act (DPA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act, expire.

An accelerated shift of demand away from certain of our products and services could also adversely impact our revenues and profit margins.

Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates.

For example, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital.

Due to the speed with which the situation is developing and the uncertainty of its duration, any future outbreaks, similar pandemics, the timing of recovery, travel restrictions, business closures or business disruptions, a recession, depression or other sustained adverse market event resulting from the spread of the COVID-19 and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, we are not able at this time to predict the extent to which the COVID-19 pandemic, or any future outbreaks or similar pandemics, may have a material effect on our financial or operational results.

However, the following adverse risks exist:

• Actions by the United States government or other foreign government could affect our business.

These actions include purchasing products that we make or sell, imposing new product standards or allowing the use of alternative products, instituting regulatory requirements to purchase only locally manufactured products, exercising control over manufacturing or distribution operations, including use of the DPA, taking trade actions including the imposition or removal of tariffs or import / export controls, subsidizing the supply of products, imposition of vaccine mandates or other actions;

• Quarantine decisions by public or private entities may influence our ability to operate or our ability to ship or receive products.

For example, if shipping companies cease or reduce land or sea freight channels, raw material and finished good deliveries may be slowed or stopped;

• Our customers may change their payment patterns or lose their ability to pay invoices, which could have a material adverse impact on our cash flow;

• Our suppliers may increase pricing or impose new purchasing requirements, such as minimum purchase quantities or pay-in-advance payment terms, which could have a material adverse impact on our cash flow;

• Raw materials or finished goods that we require for our operations may not be available, or pricing for such items may increase beyond the willingness of our customers to pay;

• New competitors may enter our market, including both small and large scale manufacturers;

• COVID-19 illness among our workers in manufacturing or distribution operations could impact our operations or compel the closure of one or more facilities for an unknown period of time.

Labor relations in our facilities related to COVID-19 could also negatively impact our operations;

• We may invest in additional manufacturing capacity for which demand slows in the future, which could have a material adverse impact on our cash flow;

• Technology infrastructure failures could materially inhibit our operations that currently include a substantial portion of remote work.

For example, voice or data line failures resulting from natural, manmade or cyber-attack could impair our ability to operate.

We have incurred additional costs to ensure we meet the needs of our customers, including increasing our workforce in order to produce or distribute certain essential products for our customers, providing personal protective equipment to our workforce, incremental shipping and transportation costs, incremental technology costs, and additional cleaning costs throughout our facilities.

We expect to continue to incur additional costs, which may be significant as we continue to implement operational changes in response to this pandemic, any future outbreaks or similar pandemics.

Further, our management is focused on mitigating COVID-19, which has required and will continue to require, a large investment of time and resources across our enterprise and will delay other value added services and strategic initiatives.

Additionally, some of our teammates are currently working remotely.

An extended period of remote work arrangements, and any worsening of the COVID-19 pandemic, or future outbreaks, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

If we do not respond appropriately to the pandemic, any future outbreaks or similar pandemics, or if customers do not perceive our response to be adequate for the United States or our international markets, we could suffer damage to our reputation and our brands, which could adversely affect our business.

The impact of COVID-19 may also exacerbate other risks discussed in Item 1A.

Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us.

This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

We face increasing competition, accelerating pricing pressure and changes in technology.

The medical/surgical supply distribution industry in the United States is highly competitive and characterized by pricing and margin pressure for our business.

We compete with other national distributors and a number of regional and local distributors, as well as customer self-distribution models and, to a lesser extent, certain outsourced logistics companies.

Competitive factors within the medical/surgical supply distribution industry include market pricing, the relative bargaining power of provider networks and group purchasing organizations (GPO), total delivered product cost, product availability, the ability to fill and invoice orders accurately, delivery time, range of services provided, efficient product sourcing, inventory management, information technology, electronic commerce capabilities, and the ability to meet customer-specific requirements.

Our success is dependent on the ability to compete on the above factors, while managing internal costs and expenses.

The home healthcare industry is also intensely competitive and highly fragmented.

There are a large number of providers, including hospital systems, physician specialists and sleep labs, industrial gas manufacturers, home healthcare agencies and health maintenance organizations.

There are also relatively few barriers to entry in local home healthcare markets.

Hospitals and health systems are routinely looking to provide coverage and better control of post-acute healthcare services, including home healthcare services of the types we provide.

In addition, pharmacy benefit managers, such as CVS Health Corporation, are beginning to compete with us in the home healthcare market.

Large technology companies, such as Amazon.com, Inc.

and Alphabet Inc., have disrupted other supply businesses and, in the case of Amazon.com, Inc.

and their new pharmacy offerings, entered the healthcare market or publicly stated their interest in doing so.

In the event such companies enter the home healthcare market, we may experience a loss of referrals or revenue.

Some of our competitors may now or in the future have greater financial or marketing resources than we do, or have more effective sales and marketing activities, which may increase pricing pressure and limit our ability to maintain or increase our market share.

In addition, in certain markets, competitors may have more effective sales and marketing activities or other products and services that are or perceived to be superior to our own.

It is also possible that major changes in available technology, payor benefit or coverage policies related to those changes, or the preferences of customers, patients and referral sources, may cause our current product offerings to become less competitive or obsolete, and it will be necessary for us to adapt to those changes.

Such unanticipated changes could cause us to incur increased capital expenditures and strategies and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Changing conditions in the United States healthcare industry may impact our results of operations.

A large percentage of our revenue is derived in the United States.

We, along with our customers and suppliers, are subject to extensive federal and state regulations relating to healthcare as well as the policies and practices of the private healthcare insurance industry.

In recent years, there have been a number of government and private initiatives to reduce healthcare costs and government spending.

These changes have included an increased reliance on managed care;

consolidation of competitors, suppliers and customers;

a shift in healthcare provider venues from acute care settings to clinics, physician offices and home care;

and the development of larger, more sophisticated purchasing groups.

National and regional insurers and managed care organizations are regularly attempting to seek reductions in the prices we charge for our products and services to them and their members, including through direct contracts with healthcare providers, increased oversight and greater enrollment of patients in managed care programs and preferred provider organizations.

We have faced, and expect to continue to face, pricing pressures due to reductions in provider reimbursement for our products and services.

In addition, in recent years, the healthcare industry in the United States has experienced and continues to experience significant consolidation in response to cost containment legislation and general market pressures to reduce costs.

This consolidation of our customers, health insurers and suppliers generally gives them greater bargaining power to reduce the pricing available to them.

All of these changes place additional financial pressure on healthcare provider customers, who in turn seek to reduce the costs and pricing of products and services provided by us.

We expect the healthcare industry to continue to change significantly and these potential changes, which may include a reduction in government support of healthcare services, adverse changes in legislation or regulations, and further reductions in healthcare reimbursement practices, could have a material adverse effect on our business, results of operations and financial condition.

We have concentration in and dependence on certain healthcare provider customers and Group Purchasing Organizations.

New Group Purchasing Organizations or provider networks and an expansion of the multi-tiered costing structure may place us at a competitive disadvantage.

In 2021, although no single customer accounted for 5% of our consolidated net revenue on a pro forma basis for our acquisition of Apria, our top ten customers in the United States represented approximately 18% of our consolidated net revenue on a pro forma basis for our acquisition of Apria.

In addition, in 2021, approximately 63% of our consolidated net revenue on a pro forma basis for our acquisition of Apria was from sales to member hospitals under contract with our largest GPOs:

Vizient, Premier and HPG.

We could lose a significant healthcare provider customer or GPO relationship if an existing contract expires without being replaced or is terminated by the customer or GPO prior to its expiration.

Although the termination of our relationship with a given GPO would not necessarily result in the loss of the member hospitals as customers, any such termination of a GPO relationship, or a significant individual healthcare provider customer relationship, could have a material adverse effect on our results of operations and financial condition.

The medical products industry is subject to a multi-tiered costing structure, which can vary by manufacturer and/or product.

Under this structure, certain institutions can obtain more favorable prices for medical products than we are able to obtain.

The multi-tiered costing structure continues to expand as many large integrated healthcare providers and others with significant purchasing power, such as GPOs, demand more favorable pricing terms.

Additionally, the formation of provider networks and GPOs may shift purchasing decisions to entities or persons with whom we do not have a historical relationship.

This may threaten our ability to compete effectively, which could in turn negatively impact our financial results.

Although we are seeking to obtain similar terms from manufacturers to obtain access to lower prices demanded by GPO contracts or other contracts, and to develop relationships with provider networks and new GPOs, we cannot assure you that such terms will be obtained or contracts will be executed.

The reliance of our home healthcare business on relatively few vendors for the majority of its patient equipment and supplies and which are to be imposed on certain manufacturers of such items could adversely affect our ability to operate this business.

We currently rely on a relatively small number of vendors to provide us with the majority of our patient equipment and supplies for our home healthcare business.

From time to time, we also enter into certain exclusive arrangements with a given vendor for the provision of patient equipment and supplies.

Further, some of our supply agreements contain pricing scales that depend on meeting certain order volumes.

Our inability to procure certain equipment and supplies, including as a result of failure to maintain and renew certain agreements and access arrangements, could have a materially adverse effect on our results of operations.

We often use vendors selectively for quality and cost reasons.

Significant price increases, or disruptions in the ability to obtain such equipment and supplies from existing vendors, may force us to increase our prices (which we may be unable to do) or reduce our margins and could force us to use alternative vendors.

Any change in the existing vendors we use could cause delays in the delivery of products and possible losses in revenue, which could adversely affect our results of operations.

In addition, alternative vendors may not be available, or may not provide their products and services at similar or favorable prices.

If we cannot obtain the patient equipment and supplies we currently use, or alternatives at similar or favorable prices, our ability to provide such products may be severely impacted, which could have an adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

We are subject to stringent regulatory and licensing requirements, and we have been, are and could become the subject of federal and state investigations and compliance reviews.

We are required to comply with extensive and complex laws and regulations at the federal, state and local government levels in the United States and other countries where we operate.

We, and certain of our employees, also are required to hold permits and licenses and to comply with the operational and security standards of various governmental bodies and agencies.

Any failure to comply with these laws and regulations or any failure to maintain the necessary permits, licenses or approvals, or to comply with the required standards, could disrupt our operations and/or adversely affect our results of operations and financial condition.

Among the U.S.

healthcare related laws that we are subject to include the Anti-kickback Statute, the Stark Law, the False Claims Act and similar state laws relating to fraud, waste and abuse.

The requirements of these laws are complex and subject to varying interpretations, and it is possible that regulatory authorities could challenge our policies and practices.

If we fail to comply with these laws, we could be subject to federal or state government investigations or qui tam actions (false claims cases initiated by private parties purporting to act on behalf of federal or state governments), which could result in civil or criminal sanctions, including the loss of licenses or the ability to participate in Medicare, Medicaid and other federal and state healthcare programs.

Such sanctions and damages could adversely affect our results of operations and financial condition.

Our global operations are also subject to risks of violation of laws, including those that prohibit improper payments to and bribery of government officials and other individuals and organizations.

These laws include the U.S.

Foreign Corrupt Practices Act, the U.K.

Bribery Act and other similar laws and regulations in foreign jurisdictions, any violation of which could result in substantial liability and a loss of reputation in the marketplace.

Failure to comply with these laws also could subject us to civil and criminal penalties that could adversely affect our business and results of operations.

Our Patient Direct business is a Medicare-certified supplier and participates in state Medicaid programs.

Failure to comply with applicable standards and regulations could result in civil or criminal sanctions, including the loss of our ability to participate in Medicare, Medicaid and other federal and state healthcare programs.

We collect, handle and maintain patient-identifiable health information and other sensitive personal and financial information, which are subject to federal, state and foreign laws that regulate the use and disclosure of such information.

Regulations currently in place continue to evolve, and new laws in this area could further restrict our ability to collect, handle and maintain personal or patient information, or could require us to incur additional compliance costs, either of which could have an adverse impact on our results of operations.

Violations of federal (such as the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA), state or foreign laws (such as the European Union’s General Data Protection Regulation, as amended, or GDPR) concerning privacy and data protection could subject us to civil or criminal penalties, breach of contract claims, costs for remediation and harm to our reputation.

Our operations, including our billing practices and our arrangements with healthcare providers, are also subject to extensive federal and state laws and audits, inquiries and investigations from government agencies.

For example, in connection with the settlement agreements resolving the investigation conducted by the U.S.

Attorney's Office for the Southern District of New York regarding civil investigative demands, Apria was required to enter into a five-year Corporate Integrity Agreement (CIA) with the Office of Inspector General for the U.S.

Department of Health and Human Services.

The CIA provides that Apria will, among other things, impose certain oversight obligations on its board of directors, provide certain management certifications, and continue or implement, as applicable certain compliance training and education.

The CIA also requires Apria to engage independent third parties to review compliance with the CIA, as well as certain reporting, certification, record retention and notification requirements.

Failure to comply with the obligations under the CIA could have material consequences for Apria including monetary penalties or exclusion from participation in federal healthcare programs.

Applicable laws may be directed at payments for the products and services we provide, conduct of our operations, preventing fraud and abuse, and billing and reimbursement from government programs such as Medicare and Medicaid and from commercial payors.

These laws may have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to our operations, including our arrangements with hospitals, physicians, and other healthcare providers.

Federal and state governments have contracted with private entities to audit and recover revenue resulting from payments made in excess of those permitted by federal and state benefit program rules.

These entities include, but are not limited to, Recovery Audit Contractors that are responsible for auditing Medicare claims, Unified Program Integrity Contractors that are responsible for the identification of suspected fraud through medical record review and Medicaid Integrity Contractors, that are responsible for auditing Medicaid claims.

We believe audits, inquiries, and investigations from these contractors and others will occur from time to time in the ordinary course of our business.

We also may be subject to increased audits from commercial payors and pursuant to federal, civil, and criminal statutes that relate to our billings to commercial payors.

Our efforts to be responsive to these audits, inquiries, and investigations may result in substantial costs and divert management’s time and attention away from the operation of our business.

Moreover, an adverse outcome with respect to any audit, inquiry or investigation may result in damage to our reputation, or in fines, penalties or other sanctions imposed on us.

Such pending or future audits, inquiries, or investigations, or the public disclosure of such matters, could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Federal and state laws are broadly worded and may be interpreted or applied by prosecutorial, regulatory, or judicial authorities in ways that we cannot predict.

Additionally, in many instances, there are only limited publicly available guidelines and methodologies for determining errors with certain audits.

As a result, there can be a significant lack of clarity regarding required documentation and audit methodology.

The clarity and completeness of each patient medical file, some of which is the work product of physicians not employed by us, is essential to successfully challenging any payment denials.

Accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws.

If federal or state government officials challenge our operations or arrangements with third parties that we have structured based upon our interpretation of these laws, rules, and regulations, such a challenge could potentially disrupt our business operations and we may incur substantial defense costs, even if we successfully defend our interpretation of these laws, rules, and regulations.

If the government or third parties successfully challenge our interpretation, such a challenge may have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Our failure to comply with regulatory requirements or receive regulatory clearances or approvals for our medical gas facilities, products or operations could adversely affect our business.

We have a number of medical gas facilities in several states.

These facilities are subject to federal and state regulatory requirements.

Our medical gas facilities and operations are subject to extensive regulation by the FDA and other federal and state authorities.

The FDA regulates medical gases, including medical oxygen, pursuant to its authority under the FFDCA.

Among other requirements, the FDA’s cGMP regulations impose certain quality control, documentation, and recordkeeping requirements on the receipt, processing, and distribution of medical gas.

Further, in each state where we operate medical gas facilities, we are subject to regulation under state health and safety laws, which vary from state to state.

The FDA and state authorities conduct periodic, unannounced inspections at medical gas facilities to assess compliance with the cGMP and other regulations.

We expend significant time, money, and resources in an effort to achieve substantial compliance with the cGMP

regulations and other federal and state law requirements at each of our medical gas facilities.

There can be no assurance, however, that these efforts will be successful and that our medical gas facilities will achieve and maintain compliance with federal and state laws and regulations.

Our failure to achieve and maintain regulatory compliance at our medical gas facilities could result in enforcement action, including warning letters, fines, product recalls or seizures, temporary or permanent injunctions, or suspensions in operations at one or more locations, as well as civil or criminal penalties, all of which could materially harm our business, financial condition, results of operations, cash flow, capital resources, and liquidity.

The medical gas products we manufacture and distribute and certain other products we distribute are subject to extensive regulation by the FDA and other federal and state governing authorities.

Compliance with FDA, state, and other requirements regarding production, safety, quality, manufacturing, distribution and marketing is costly and time-consuming, and while we seek to be in full compliance, instances of non-compliance could arise from time to time.

We cannot be assured that any of our medical gases will be certified by the FDA.

We have applied for, and received, designated gas certifications for our medical gas products.

We may not be successful in receiving certification in the future.

Other potential product manufacturing-related risks include difficulties or delays in product manufacturing, sales, or marketing, which could affect future results through regulatory actions, shutdowns, approval delays, withdrawals, recalls, penalties, supply disruptions or shortages, reputational harm, product liability, and/or unanticipated costs.

Failure to comply with applicable regulatory requirements could result in administrative enforcement action by the FDA or state agencies, which may include any of the following:

adverse publicity;

warning or untitled letters;

consent decrees;

civil money penalties;

termination of distribution or seizure of our products;

operating restrictions or partial suspension or total shutdown of production;

delays in the introduction of products into the market;

withdrawals or suspensions of current medical gas certifications or drug approvals, resulting in prohibitions on sales of our products;

and criminal prosecution.

There is also a risk that we may not adequately implement sustainable processes and procedures to maintain regulatory compliance and to address future regulatory agency findings, should they occur.

The FDA may change its policies, adopt additional regulations or revise existing regulations, each of which could prevent or delay certification of our medical gases, or could impact our ability to market a device that was previously certified or cleared by the FDA.

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Our operations involve the storage, transportation and provision of compressed and liquid oxygen, which carries an inherent risk of rupture or other accidents with the potential to cause substantial loss.

Our operations are subject to the many hazards inherent in the storage, transportation and provision of medical gas products and compressed and liquid oxygen, including ruptures, leaks and fires.

These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage and may result in curtailment or suspension of our related operations.

If a significant accident or event occurs, it could adversely affect our business, financial position and results of operations.

Additionally, corrective action plans, fines or other sanctions may be levied by government regulators who oversee the storage, transportation and provision of hazardous materials such as compressed or liquid oxygen.

Our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions.

From time to time, we enter into capitation arrangements with commercial payors pursuant to which they agree to pay us a set amount (on a per member per month basis for a defined patient population) without regard to the actual services provided.

We negotiate the contractual rates in these arrangements with payors based on assumptions regarding average expected utilization of services.

If actual utilization rates exceed our assumptions, the profitability of such arrangements may be diminished.

Moreover, we may be obligated to perform under such capitation arrangements even if the contractual reimbursement rates are insufficient to cover our costs based on actual levels of utilization.

Our acquisition of Apria has increased our exposure to risks relating to the home healthcare industry.

In 2021, our Patient Direct segment contributed approximately 10% of our consolidated net revenue.

On a pro forma basis for the Apria Acquisition, our Patient Direct business would have represented approximately 19% of our consolidated net revenue in 2021.

Accordingly, our exposure to risks relating to the home healthcare industry, including those risks previously disclosed in “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, has materially increased following our acquisition of Apria.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors