What changed in this filing

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Item 1. Legal Proceedings

2026-07-27 compared with 2026-04-30 · 17 added, 23 removed, 52 unchanged (43% of the section changed)

7 unchanged sentences

Compliance with such laws and regulations is evaluated regularly, the results of which can be subject to future governmental review and interpretation and can include significant regulatory action with the possibility of fines, penalties, and exclusion from certain governmental programs.

Included in these laws and regulations is the Health Insurance Portability and Accountability Act of 1996 (monitored and enforced by the Office of Civil Rights), the terms of which require healthcare providers (among other things) to safeguard the privacy and security of certain patient protected health information.

Included in these laws and regulations is the Health Insurance Portability and Accountability Act of 1996 (monitored and enforced by the Office for Civil Rights), the terms of which require healthcare providers (among other things) to safeguard the privacy and security of certain patient protected health information.

We and our independent subsidiaries are party to various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that services provided to patients by our independent subsidiaries have resulted in injury or death, and claims related to employment and commercial matters.

For example, in a four-week medical negligence trial in the State of Arizona, the jury returned a verdict against one of our independent subsidiaries in late November 2023.

We are in the process of appealing the jury verdict.

We have in the past appealed similar decisions and have, in some circumstances, received decisions in our favor.

Although we intend to vigorously defend against these claims and in general these types of claims and cases, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition.

Additionally, in certain states in which we have or have had independent subsidiaries, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions.

We appealed the result, and the Arizona Court of Appeals issued its decision in the Company's favor on July 6, 2026.

We vigorously defend against these claims and in general these types of claims, and cases, however, there can be no assurance that the outcomes of these matters will not have a material adverse effect on operational results and financial condition.

Additionally, in certain states in which we have or have had independent operating subsidiaries, insurance coverage for the risk of punitive damages arising from general and professional liability litigation may not be available due to state law and/or public policy prohibitions.

There can be no assurance that we and or our independent subsidiaries will not be liable for punitive damages awarded in litigation arising in states for which punitive damage insurance coverage is not available.

4 unchanged sentences

authorities could also seek the suspension or exclusion of a provider or individual from participation in State and Federal healthcare programs.

We believe that there has been, and will continue to be, an increase in governmental investigations of post-acute providers, particularly in alleged Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations.

We believe that there has been, and will continue to be, an increase in governmental investigations of post-acute providers, particularly in the area of alleged Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations.

Adverse determinations in civil legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on our financial position, results of operations, and cash flows.

Additionally, such proceedings and/or investigations can be a distraction to the business of our independent subsidiaries.

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We, on behalf of our independent subsidiaries, received a Civil Investigative Demand (CID) from the U.S.

9 unchanged sentences

Due to these whistleblower incentives, qui tam lawsuits have become more frequent.

For example, on May 31, 2018, we, on behalf of our independent subsidiaries, received a CID from the DOJ stating that it was investigating to determine whether there had been a violation of the FCA and/or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of our independent subsidiaries and persons who serve or have served as medical directors.

We fully cooperated with the DOJ and promptly responded to its requests for information.

In April 2020, we were advised that the DOJ declined to intervene in any subsequent action filed in connection with the subject matter of this investigation.

Despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its previously issued CID, the involved qui tam relator moved forward with the complaint in December 2020.

From that time until December 2023, and notwithstanding our success in early pre-trial motions, we continued to incur legal defense costs and fees.

In 2024, we entered into mediation with the involved parties and agreed to settle the civil case for $48.0 million.

Following the finalization of the settlement documents and payment of the settlement funds, the qui tam complaint was dismissed and the matter was fully resolved.

The settlement does not include admissions on the part of the Company or our independent subsidiaries, and we maintain that we have consistently complied with and continue to comply with all applicable State and Federal statutes (including but not limited to the FCA and the AKS).

In addition to the FCA, some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations.

9 unchanged sentences

We and our independent subsidiaries have been subjected to, and/or are currently involved in, class action litigation alleging violations (alone or in combination) of state and federal wage and hour law related to the alleged failure to pay wages, to timely provide and compensate meal and rest breaks, and other such similar causes of action.

For example, in 2025, we agreed to settle substantially all alleged wage, hour or labor code-related violations asserted on a class or representative basis against our independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12.0 million, pending court approval.

For example, in 2025, we agreed to settle substantially all alleged wage and hour or labor code-related violations asserted on a class or representative basis against our independent subsidiaries in California for purported violations occurring during the six year period ending December 2025, for $12.0 million, pending court approval.

While we have been able to settle or otherwise resolve many of these types of claims without an ongoing material adverse effect on our business, a significant increase in the number of these claims, or an increase in the amounts owed should plaintiffs be successful in their prosecution of remaining or future claims, could materially adversely affect our business, financial condition, results of operations and cash flows.

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On July 16, 2026, a purported stockholder filed a derivative complaint in the Superior Court of the State of California, County of Orange, captioned Thompson v.

2026-01584212-CU-NP-CXC (the “Derivative Action”) against certain current and former directors and officers of the Company and against us as a nominal defendant.

The complaint asserts claims for, among other things, breach of fiduciary duty and unjust enrichment arising from allegations relating to the our healthcare regulatory compliance, staffing, executive compensation, stock sales by certain of the individual defendants, and related-party transactions.

The complaint seeks, on behalf of us, unspecified damages, disgorgement, corporate governance reforms, attorneys' fees and costs, and other relief.

No responsive pleading has been filed.

As we are unable to determine at this time whether any loss ultimately will occur or to reasonably estimate the possible loss or range of loss, no amount has been accrued in the financial statements at this time.

We and our independent subsidiaries have been, and continue to be, subject to claims, findings and legal actions that arise in the ordinary course of the various businesses, including in connection with the delivery of healthcare and non-healthcare services.

3 unchanged sentences

As an example, OHCA is currently conducting a CMIR with respect to specific components of a proposed transaction involving three of our independent subsidiaries in California.

We provided OHCA with requested information regarding specific components of the proposed transaction as part of the CMIR.

We have been unable to effect resolution including attempts to narrow the scope, and limit the requests to our independent subsidiaries operating in California.

We have filed a Petition in the Superior Court of the State of California, County of Orange, seeking a declaration that the CMIR regulations violate the United States Constitution and/or the California Constitution, and is void and unenforceable as applied to us.

We provided OHCA with the requested information regarding specific components of the proposed transaction as part of the CMIR.

We have been unable to effect resolution including attempts to narrow the scope of the inquiry to that contemplated by the applicable regulation, and limit the requests to our independent subsidiaries operating in California.

We also have requested that OHCA be ordered to withdraw the subpoena and close the inquiry, so the underlying transaction can be completed.

3 unchanged sentences

and from single rounds of review to reviews of multiple rounds with pass/fail criteria.

If an operation has a significant error or fails a Review and/or subsequent Reviews, the operation could then be subject to extended review or an extrapolation of the identified error rate to billings in the same time period.

We anticipate that these Reviews could increase in frequency in the future.

As of March 31, 2026, and through the filing date of this report, 22 of our independent subsidiaries had multi-claim Reviews scheduled or in process.

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As of June 30, 2026, and through the filing date of this report, 18 of our independent subsidiaries had multi-claim Reviews scheduled or in process.

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 1. Legal Proceedings