What changed in this filing

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Item 1A. Risk Factors

2020-08-04 compared with 2020-05-05 · 131 added, 115 removed, 964 unchanged (20% of the section changed)

9 unchanged sentences

The long-term oxygen therapy market and the non-invasive ventilator market are highly competitive industries.

We compete with a number of manufacturers and distributors of POCs, as well as providers of other long-term oxygen therapy solutions such as home delivery of oxygen tanks or cylinders, stationary concentrators, transfilling concentrators, and liquid oxygen.

In the non-invasive ventilator market, we compete with manufacturers and distributors of other portable non-invasive ventilators, as well as HME providers that supply these products.

We compete with a number of manufacturers and distributors of portable oxygen concentrators (POCs), as well as providers of other long-term oxygen therapy solutions such as home delivery of oxygen tanks or cylinders, stationary concentrators, transfilling concentrators, and liquid oxygen.

In the non-invasive ventilator market, we compete with manufacturers and distributors of other portable non-invasive ventilators, as well as home medical equipment (HME) providers that supply these products.

Our significant manufacturing competitors are Respironics (a subsidiary of Koninklijke Philips N.V.), Invacare Corporation, Caire Medical (subsidiary of NGK Spark Plug), DeVilbiss Healthcare (a subsidiary of Drive Medical), O2 Concepts, Precision Medical, Resmed, Gas Control Equipment (subsidiary of Colfax), Breathe Technologies, Inc.

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We receive a significant amount of our sales revenue from a limited number of customers, including distributors, HME providers, our private label partner, resellers, and charitable organizations.

For the three months ended March 31, 2020 and March 31, 2019, sales revenue to our top 10 customers accounted for approximately 32.4% and 34.8%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the three months ended March 31, 2020, and no single customer represented more than 10% of our total revenue for the three months ended March 31, 2019.

For the three months ended June 30, 2020 and June 30, 2019, sales revenue to our top 10 customers accounted for approximately 28.5% and 34.3%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the three months ended June 30, 2020, and no single customer represented more than 10% of our total revenue for the three months ended June 30, 2019.

For the six months ended June 30, 2020 and June 30, 2019, sales revenue to our top 10 customers accounted for approximately 30.1% and 34.5%, respectively, or our total revenue.

One single customer represented more than 10% of our total revenue for the six months ended June 30, 2020 and no single customer represented more than 10% of our total revenue for the six months ended June 30, 2019.

We expect that sales to relatively few customers will continue to account for a significant percentage of our total revenue in future periods.

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We have also experienced a decline in sales from other home medical equipment providers and these providers have communicated to us that they continue to be subject to capital constraints.

Moreover, in the second quarter of 2020, we experienced a decline in sales to HME providers due to the COVID-19 PHE.

If we were to lose one of our key customers or have a key customer significantly reduce its volume of business with us, such as we previously experienced with the large national homecare provider, our revenue may be materially reduced and there would be an adverse effect on our business, financial condition and results of operations.

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we or our suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our suppliers may have excess or inadequate inventory of materials and components;

we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components or changes in import tariffs, trade restrictions or barriers;

we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components or changes in import tariffs, trade restrictions or barriers or other government actions that impact our ability to obtain such components;

we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw materials or changes in demand from us or their other customers;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 PHE;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 public health emergency (PHE);

we or our suppliers may lose access to critical services, tools, moldings, and components, resulting in an interruption in the manufacture, assembly and shipment of our systems;

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Product development requires significant financial, technological and other resources.

While we expended $3.6 million and $1.7 million for the three months ended March 31, 2020 and March 31, 2019, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

In addition, we plan to sell the TAV, the newly acquired technology from New Aera, through our domestic direct-to-consumer sales channel and our business-to-business sales channels worldwide, pending reimbursement and regulatory clearances in each market.

While we expended $3.3 million and $1.5 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $6.9 million and $3.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

In addition, we plan to sell the TAV, the newly acquired technology from New Aera, Inc.

(New Aera), through our domestic direct-to-consumer sales channel and our business-to-business sales channels worldwide, pending reimbursement and regulatory clearances in each market.

We also plan to incorporate the TAV technology directly into our oxygen concentrators.

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As a result, our business, financial condition and results of operations could be materially harmed.

We are subject to risks associated with public health threats and epidemics, including the COVID-19 PHE.

Public health outbreaks, epidemics, pandemics of contagious or infectious diseases, such as COVID-19, may significantly disrupt our business.

Such outbreaks pose the risk that we or our employees, contractors, suppliers, or other partners may be prevented from conducting business activities for an indefinite period of time due to spread of the disease, or due to shutdowns that may be requested or mandated by federal, state and local governmental authorities.

Business disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of our facilities or the facilities of our contractors, suppliers, and other partners.

For example, business-to-business demand declined in the second quarter of 2020 due to physician offices limiting patient interactions for COPD patient referrals, HME providers minimizing patient interactions in response to the COVID-19 PHE which includes replacing existing oxygen patient setups with POCs and temporary closure of certain respiratory assessment centers and continued tender delays in certain European markets due to the COVID-19 PHE.

While it is not possible at this time to estimate the overall impact that the COVID-19 PHE could have on our business, the continued rapid spread of COVID-19, both across the United States and through much of the world, and the measures taken by the governments and local authorities of affected regions has adversely effected our operating results and could cause or contribute to, among other things:

significant volatility or reductions in demand for our products;

delays in our product development pipeline;

delays in obtaining regulatory clearances or approvals to market our products in certain jurisdictions;

failure of third parties on which we rely to meet their obligations to us, or significant disruptions in their ability to do so;

and our inability to meet our customers’ needs due to disruptions to our operations or the operations of our contractors, suppliers, other partners or customers including disruptions to production, development, manufacturing, administrative and supply operations and arrangements.

In addition, w e have strived to follow recommended actions of government and health authorities to protect the health and safety of our employees and community, while working to ensure the sustainability of our business operations as this unprecedented situation continues to evolve .

Employees whose tasks can be done offsite have been instructed to work from home and most of our total personnel continue to work from home.

While we have worked closely with local and national officials and have thus far been able to keep our manufacturing facilities open due to the essential nature of our products , there can be no assurance that we will be able to keep such facilities open indefinitely during the COVID-19 PHE.

We have thus far been able to keep our contract manufacturer capability and capacity available but there can be no assurance that we will be able to keep such facilities open indefinitely during COVID-19 pandemic.

We continue to evaluate the impact COVID-19 may have on our ability to effectively conduct our business operations as planned to mitigate risk to our employees and customers while taking into account regulatory, institutional, and government guidance and policies, but there can be no assurance that we will be able to avoid part or all of any impact from the spread of COVID-19 or its consequences.

The COVID-19 PHE continues to rapidly evolve.

The COVID-19 PHE has already adversely effected our financial results and the extent to which COVID-19 ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise, and how quickly and to what extent normal economic and operating conditions can resume if and when the COVID-19 PHE subsides.

While the extent of the impact of the COVID-19 PHE on our business and financial results is uncertain, we have already been negatively impacted and a continued and prolonged public health crisis could have a further material negative impact on our business, financial condition and results of operations.

Even after the COVID-19 PHE has subsided, we may continue to experience materially adverse impacts on our financial condition and our results of operations and many of our known risks described in this Quarterly Report on Form 10-Q may be heightened.

While we have received funding from programs enacted under the CARES Act, due to the recent enactment of the CARES Act and related legislation, there is still a high degree of uncertainty surrounding their implementation, and the COVID-19 PHE continues to evolve.

HHS is still issuing additional guidance to providers and suppliers regarding the terms and conditions associated with the implementation of the CARES Act Provider Relief Fund.

The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact.

There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act or future legislation, if any, and it is difficult to predict the impact of such legislation on our operations.

Further, there can be no assurance that the terms of provider relief funding or other programs will not change in ways that affect our funding or eligibility to participate.

We will continue to assess the potential impact of the COVID-19 PHE and government responses to the pandemic on our business, results of operations, financial condition and cash flows.

A significant majority of our rental patients who use our product have health coverage under the Medicare program, and recently enacted and future changes in the reimbursement rates or payment methodologies under Medicare, Medicaid and other government programs have affected and could continue to materially and adversely affect our business and operating results.

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Legislation, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Deficit Reduction Act of 2005, the Medicare Improvements for Patients and Providers Act of 2008, and the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, contain provisions that directly impact reimbursement for the durable medical equipment products provided by us:

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for certain durable medical equipment, including oxygen, beginning in 2005, froze payment amounts for other covered home medical equipment items through 2008, established a competitive bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for certain durable medical equipment, including oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2008, established a competitive bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

The Deficit Reduction Act of 2005 limited the total number of continuous rental months for which Medicare will pay for oxygen equipment to 36 months, after which time there is generally no additional reimbursement to the supplier (other than for periodic, in-home maintenance and servicing).

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We anticipate that the Deficit Reduction Act of 2005 oxygen payment rules will continue to negatively affect our net revenue on an ongoing basis, as each month additional customers reach the capped rental period in month thirty-seven, resulting in potentially two or more years without rental income from these customers while we continue to incur customer service and maintenance costs.

Our capped patients as a percentage of total patients on service was approximately 19.5% as of March 31, 20 20 and March 31, 2019.

Our capped patients as a percentage of total patients on service was approximately 17.2 % as of June 3 0 , 20 20 and 20.2% as of June 3 0 , 2019.

The percentage of capped patients may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental period.

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The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, includes, among other things, new face-to-face physician encounter requirements for certain durable medical equipment and home health services, and a requirement that by 2016, the competitive bidding process must be nationalized or prices in non-competitive bidding areas must be adjusted to match competitive bidding prices.

As of January 1, 2017, CMS has decreased prices for durable medical equipment in non-competitive bidding areas to match competitive bidding prices.

As of January 1, 2017, Centers for Medicare and Medicaid Services (CMS) has decreased prices for durable medical equipment in non-competitive bidding areas to match competitive bidding prices.

There have been significant U.S.

reimbursement and policy changes associated with the COVID-19 PHE that impacts oxygen therapy and other durable medical equipment.

The Coronavirus Preparedness and Response Supplement Appropriations Act (H.R.

6074) passed on March 6, 2020 allows the HHS to waive certain Medicare telehealth payment requirements during the COVID-19 PHE declared by HHS on January 31, 2020 to allow beneficiaries in all areas to receive telehealth services, including at their home, starting March 6, 2020.

reimbursement and policy changes associated with the COVID-19 PHE that impact oxygen therapy and other durable medical equipment.

The CARES Act allows HHS to waive certain Medicare telehealth payment requirements during the COVID-19 PHE declared by HHS on January 31, 2020 to allow beneficiaries in all areas to receive telehealth services, including at their home, starting March 6, 2020.

6074 also granted authority to waive certain requirements.

Under this authority, CMS clarified that HHS would not conduct audits to determine whether there was a prior physician-patient relationship for telehealth claims submitted during the COVID-19 PHE.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, 2020 included the extension of the 50/50 blended rate for HME in rural and non-contiguous, non-competitively bid areas and established a new 75/25 blended rate for all other non-competitively bid areas through the duration of the COVID-19 PHE.

The CARES Act, passed on March 27, 2020 included the extension of the 50/50 blended rate for HME in rural and non-contiguous, non-competitively bid areas and established a new 75/25 blended rate for all other non-competitively bid areas through the duration of the COVID-19 PHE.

The 75/25 blended rate is retroactive to March 6, 2020.

While the duration of the current emergency is impossible to predict, the Zika virus PHE lasted approximately 360 days, and the H1N1 flu PHE lasted approximately 450 days.

The CARES Act also included a temporary elimination of the 2% Medicare sequester reduction that went into effect in 2013.

The CARES Act also included a temporary elimination of the 2% Medicare sequestration reduction that went into effect in 2013.

This relief will be effective May 1, 2020 through December 31, 2020.

In addition, the CARES Act established a provider relief fund of $100 billion, of which $30 billion was distributed on April 10, 2020, for Medicare providers and suppliers to prevent, prepare for, and respond to the coronavirus, and as a Medicare supplier we also received funds of $1.1 million in the second quarter of 2020.

On April 22, 2020, HHS announced four new funding allocations that the agency will use to distribute the remaining $70 billion in provider relief funds:

(1) $20 billion has been allocated based on 2018 net patient revenues across all payers starting on April 24, 2020, (2) $10 billion was allocated to healthcare providers disproportionately impacted by the COVID-19 PHE, (3) $10 billion was allocated to rural hospitals and health clinics, and (4) $400 million was allocated to the Indian Health Service.

The unspecified remaining amount of funds was allocated to payments for treating uninsured COVID-19 patients.

In addition, the CARES Act established a provider relief fund of $100 billion, of which $30 billion was distributed on April 10, 2020, for Medicare providers and suppliers to prevent, prepare for, and respond to the COVID-19 PHE, and as a Medicare supplier we also received funds of $6.2 million in the second quarter of 2020.

The Paycheck Protection Program and Heath Care Enhancement Act was also signed into law on April 24, 2020 and provides additional funding of $484 billion to programs enacted under the CARES Act.

Of the $484 billion, $75 billion is additional funding for healthcare providers to reimburse healthcare related expenses and lost revenues attributable to COVID-19 PHE, which is in additional to the $100 billion approved in the CARES Act.

On April 6, 2020, an Interim Final Rule (IFR) was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE.

There is a comment period until June 1, 2020 before this can be finalized.

There was a comment period until June 1, 2020.

This IFR included that for the duration of the COVID-19 PHE, the face-to-face requirements and clinical indications of coverage for home oxygen, among other respiratory products, will be waived.

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In addition, CMS increased Medicare contractors’ ability to waive replacement product requirements, paus ed the national prior authorization program for certain DMEPOS, automatically extended expiring accreditation s , granted contractors the flexibility to grant appeals extensions, and medical review suspension.

Both the IFR and temporary regulatory changes show significant flexibility from CMS to improve access for oxygen and other DMEPOS items during this COVID-19 PHE.

These changes are expected to be retroactive to early March 2020.

Both the IFR and temporary regulatory changes show significant flexibility from CMS to improve access for oxygen and other durable medical equipment, prosthetics, orthotics and supplies ( DMEPOS ) items during this COVID-19 PHE.

These changes were retroactive to early March 2020.

However, in July 2020, CMS released a COVID-19 Product Burden Relief FAQs that included updates to this IFR, including that the pausing of the national prior authorization program for certain DMEPOS and medical review suspension w ill likely end , effective August 3, 2020.

These legislative provisions as currently in effect have had and may continue to have a material and/or adverse effect on our business, financial condition and results of operations.

Department of Health and Human Services (HHS) Office of Inspector General (OIG) has recommended states to review Medicaid reimbursement for durable medical equipment (DME) and supplies.

The HHS Office of Inspector General (OIG) has recommended states to review Medicaid reimbursement for durable medical equipment (DME) and supplies.

The OIG cites an earlier report estimating that four states (California, Minnesota, New York, and Ohio) could have saved more than $18.1 million on selected DME items if their Medicaid prices were comparable to those under round one of the Medicare competitive bidding program.

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In addition, the average Medicare reimbursement rates in non-rural, non-former competitive bidding areas increased by 3.5% to $74.84 a month for E1390 and $36.87 a month for E1392.

In Round 2021 of DMEPOS competitive bidding program, there have been some revisions to the bidding methodology including surety bond requirements, lead item pricing, and setting reimbursement rates at the maximum winning bid rate instead of the median winning bid rate.

In prior rounds of competitive bidding, our products were categorized in the product category of respiratory equipment and related supplies and

accessories, which included oxygen equipment, continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories.

In Round 2021 of DMEPOS

competitive bidding program, there have been some revisions to the bidding methodology including surety bond requirements, lead item pricing, and setting reimbursement rates at the maximum winning bid rate instead of the median winning bid rate.

In prior rounds of competitive bidding, our products were categorized in the product category of respiratory equipment and related supplies and accessories, which included oxygen equipment, continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories.

In Round 2021 of bidding, oxygen and oxygen equipment is its own product category and the lead item has been established as E1390.

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We estimate that approximately 15% of our patients are eligible to receive the higher reimbursement rates based on the geographic locations of our current patient population.

Cumulatively in previous rounds of competitive bidding, we were offered contracts for a substantial majority of the CBAs and product categories for which we submitted bids.

Cumulatively in previous rounds of competitive bidding, we were offered contracts for a substantial majority of the Competitive Bidding Areas (CBAs) and product categories for which we submitted bids.

Effective January 1, 2017, we believe we had access to over 90% of the Medicare oxygen therapy market based on our analysis of the 103 CBAs that we won out of the 130 total CBAs.

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In all five rounds of competitive bidding in which we have participated, we have gained access to certain CBAs and been excluded from other CBAs.

Medicare revenue, including patient co-insurance and deductible obligations, represented 4.7% of our total revenue in the three months ended March 31, 2020 and 4.9% in the three months ended March 31, 2019.

Medicare revenue, including patient co-insurance and deductible obligations, represented 6.8% and 4.1% of our total revenue in the three months ended June 30, 2020 and June 30, 2019, respectively, and 5.6% and 4.5% in the six months ended June 30, 2020 and June 30, 2019, respectively.

Medicare reimbursement for oxygen rental equipment is limited to a maximum of 36 months within a 60-month service period, and the equipment remains the property of the home oxygen supplier.

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The supplier may not arbitrarily issue new equipment.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of March 31, 2020 and March 31, 2019.

Our capped patients as a percentage of total patients on service was approximately 19.5% as of March 31, 2020 and March 31, 2019.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of June 30, 2020 and June 30, 2019.

Our capped patients as a percentage of total patients on service was approximately 17.2% and 20.2% as of June 30, 2020 and June 30, 2019, respectively.

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The patient can choose to receive oxygen supplies and services from another supplier at any time, but the supplier may only transition the patient to another supplier in certain circumstances.

Average Medicare reimbursement rates for NIV HCPCS code E0466 were a monthly, non-capped rental with rates of $1,042.26 a month in 2019, and increased 0.9% effective January 1, 2020 to $1,051.64 a month, excluding Puerto Rico where the monthly Medicare reimbursement rate for E0466 was $1,827.24 per month in 2019 and increased to $1,843.69 a month effective January 1, 2020.

Average Medicare reimbursement rates for NIV Healthcare Common Procedure Coding System ( HCPCS ) code E0466 were a monthly, non-capped rental with rates of $1,042.26 a month in 2019, and increased 0.9% effective January 1, 2020 to $1,051.64 a month, excluding Puerto Rico where the monthly Medicare reimbursement rate for E0466 was $1,827.24 per month in 2019 and increased to $1,843.69 a month effective January 1, 2020.

While NIV has been removed from competitive bidding round 2021, NIV may be included in future rounds, which could reduce the reimbursement rates for these products.

In addition, the Medicare Coverage Advisory Committee (MEDCAC) recently had a meeting on July 22, 2020 to discuss home use of non-invasive positive pressure ventilation in patients with chronic respiratory failure consequent to COPD.

CMS is seeking MEDCAC’s recommendations regarding the characteristics that define patient selection and usage criteria for these items .

This request could signal forthcoming changes in Medicare coverage of these items, and possibly changes in HCPCS codes, which could impact our NIV business and growth initiatives.

On May 15, 2019, a bi-partisan bill was introduced in the House of Representatives that would provide relief from competitive bidding in non-bid areas.

As of April 3, 2020, there were 75 co-sponsors on this bill.

As of July 1, 2020, there were 75 co-sponsors on this bill.

If passed, the bill would provide retroactive relief to rural areas by making the 50/50 blended reimbursement rate in rural and noncontiguous areas to all items and services furnished with dates of service from June 1, 2018, with no end date, and by introducing a 75/25 blended reimbursement rate for areas other than rural or noncontiguous areas.

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As part of the CARES Act, portions of this bill including the 50/50 blended reimbursement rate in rural and noncontiguous areas and the 72/25 blended reimbursement rate for non-rural, non-competitive bidding areas were approved effective for claims after March 6, 2020 for the length of the COVID-19 PHE.

On March 11, 2019, the current presidential administration sent Congress a 2020 budget proposal that included language on competitive bidding.

Specifically, the proposal would eliminate the requirement under the competitive bidding program that CMS pay a single payment amount based on the median bid price, proposing instead that CMS pay winning suppliers at their own bid amounts.

In February 2020, the current presidential administration sent Congress a 2021 budget proposal that included language on competitive bidding.

Additionally, this proposal would expand competitive bidding to all areas of the country, including rural areas, which will be based on competition in those areas rather than on competition in urban areas.

This specific proposal is estimated to save the government $7.1 billion in Medicare savings and $0.4 billion in Medicaid savings over 10 years.

In addition to changes to competitive bidding, the 2020 budget proposal would enable CMS not to impose the face-to-face requirement on all providers for durable medical equipment.

In addition to changes to competitive bidding, the 2021 budget proposal would allow on an annual basis through rulemaking for CMS to use retail price information to create DMEPOS fee schedule rates, which would not take into account associated services that Medicare DME suppliers offer.

The proposal would also enable CMS not to impose the face-to-face requirement on all providers for durable medical equipment.

Furthermore, the proposal seeks to address excessive billing of durable medical equipment that requires refills or serial claims.

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The benefits manager would be responsible for ensuring beneficiaries were receiving the correct quantity of supplies or service for the appropriate time period.

In addition, the proposal allows an administrative penalty of $50 for Part B items/services and $100 for Part A services on providers for ordering high-risk, high-cost items or services without proper documentation, such as diagnosis or encounter data.

Lastly, the proposal would expand prior authorization to additional items and services that are both high-cost and at high-risk for improper payments.

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This sequestration reduction was scheduled to continue until further notice.

However, a provision in the CARES Act temporarily eliminated the 2% Medicare sequester reduction for claims dated from May 1, 2020 through December 31, 2020.

However, a provision in the CARES Act temporarily eliminated the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through December 31, 2020 and extends the end date of the sequester by one year, through 2030, in order to offset the 2020 suspension.

Once the sequestration reduction is reinstated after December 31, 2020, this could adversely affect our financial condition and results of operations.

The implementation of prior authorization rules for DMEPOS under Medicare could negatively affect our business and financial condition.

CMS has issued a final rule to require Medicare prior authorization (PA) for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) that the agency characterizes as “frequent subject to unnecessary utilization.” The final rule was published on December 30, 2015 and specified an initial master list of 135 items that could potentially be subject to PA.

CMS has issued a final rule to require Medicare prior authorization (PA) for certain DMEPOS that the agency characterizes as “frequently subject to unnecessary utilization.” The final rule was published on December 30, 2015 and specified an initial master list of 135 items that could potentially be subject to PA.

Initially stationary oxygen rentals (code E1390) was included on the master list, but it was later removed.

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CMS will issue additional sub-regulatory guidance on these timelines in the future.

On April 6, 2020, an Interim Final Rule (IFR) was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE, and there is a comment period until June 30, 2020 before this is finalized.

On April 6, 2020, an IFR was published in the Federal Register for policy and regulatory revisions in response to the COVID-19 PHE, and there was a comment period until June 30, 2020.

Pursuant to a temporary regulatory waiver implemented by the administration, CMS has paused the national prior authorization program for certain DMEPOS.

If our products are subject to prior authorization, it could reduce the number of patients qualified to come on service using their Medicare benefits, it could delay the start of those patients while we wait for the prior authorization to be received, and/or it could decrease sales productivity.

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This includes aggregate reductions of Medicare reimbursements to providers up to 2% per fiscal year, which went into effect on April 1, 2013, and will remain in effect through 2030 unless additional Congressional action is taken.

For example, a provision in the CARES Act temporarily eliminated the 2% Medicare sequester reduction for claims dated from May 1, 2020 through December 31, 2020.

For example, a provision in the CARES Act temporarily eliminated the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through December 31, 2020 and extends the end date of the sequester by one year, through 2030, in order to offset the 2020 suspension.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

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We accept assignment of insurance benefits from customers and, in a majority of cases, invoice and collect payments directly from Medicare, private payors and Medicaid, as well as direct from patients under co-insurance provisions.

For the three months ended March 31, 2020 and March 31, 2019, approximately 6.0% of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

For the three months ended June 30, 2020 and June 30, 2019, approximately 8.5% and 5.1%, respectively, and for the six months ended June 30, 2020 and June 30, 2019, approximately 7.1% and 5.5%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

Our financial condition and results of operations may be affected by the healthcare industry’s reimbursement process, which is complex and can involve lengthy delays between the time that a product is delivered to the consumer and the time that the reimbursement amounts are settled.

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In addition, if we fail to effectively manage our relationships with these suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or subassemblies needed for our products due to the COVID-19 PHE, we may be required to change suppliers which would be time consuming and disruptive and could adversely affect our business, financial condition and results of operations.

We are subject to risks associated with public health threats and epidemics, including the COVID-19 PHE.

Public health outbreaks, epidemics, pandemics of contagious or infectious diseases, such as COVID-19, may significantly disrupt our business.

significant volatility or reductions in demand for our products;

delays in our product development pipeline;

delays in obtaining regulatory clearances or approvals to market our products in certain jurisdictions;

failure of third parties on which we rely to meet their obligations to us, or significant disruptions in their ability to do so;

Employees whose tasks can be done offsite have been instructed to work from home and most of our total personnel continue to work from home.

While we have worked closely with local and national officials and have thus far been able to keep our manufacturing facilities open due to the essential nature of our products, there can be no assurance that we will be able to

keep such facilities open indefinitely during the COVID-19 PHE.

The COVID-19 PHE continues to rapidly evolve.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise, and how quickly and to what extent normal economic and operating conditions can resume if and when the COVID-19 PHE subsides.

While the extent of the impact of the COVID-19 PHE on our business and financial results is uncertain, a continued and prolonged public health crisis could have a material negative impact on our business, financial condition and results of operations.

If our manufacturing facilities become unavailable or inoperable, we could be unable to continue manufacturing our products and, as a result, our business, financial condition and results of operations could be adversely affected until we are able to secure a new facility.

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We utilize a third-party contract manufacturer located in the Czech Republic for production of a portion of our Inogen One G3 and Inogen One G5 concentrators.

In 2018 and 2019, our contract manufacturer produced the vast majority of the concentrators required to support our European demand and we expect this to continue in 2020.

In 2018, 2019 and the first half of 2020, our contract manufacturer produced the vast majority of the concentrators required to support our European demand and we expect this to continue for the remainder of 2020.

There are a number of risks associated with our dependence on a contract manufacturer, including:

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Our growth expectations in direct-to-consumer sales are lower given the slowdown of hiring new sales representatives and lower productivity due to the impact of the COVID-19 PHE, including lower consumer travel and consumer confidence.

While we believe we are making the necessary changes to improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate whether these changes are effective in the long term, particularly given the expected impact of the COVID-19 PHE, and to the extent they are not effective it may negatively affect our financial condition and results of operations.

While we believe we are making the necessary changes to improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate whether these changes are effective in the long term, particularly given the impact of the COVID-19 PHE, and to the extent they are not effective it may negatively affect our financial condition and results of operations.

In addition, our initially planned sales expansion and productivity improvements for 2020 have been and may continue to be negatively impacted due to the COVID-19 PHE.

In connection with the COVID-19 PHE, we expect to reduce sales representative headcount additions for the remainder of 2020, and we expect the COVID-19 PHE may also reduce the number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices.

The reduction in nonessential travel may also harm our business, particularly for our physician-based sales representatives who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe them oxygen therapy after in-office testing.

We also experienc ed increased demand for our products towards the end of the first quarter of 2020 since physicians may prescribe supplemental oxygen as a treatment for COVID-19.

In connection with the COVID-19 PHE, we expect to reduce sales representative headcount additions for the remainder of 2020, and we expect the COVID-19 PHE may continue to reduce the number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices.

The reduction in nonessential travel may also continue to harm our business, particularly for our physician-based sales representatives and business-to-business partners who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe them oxygen therapy after in-office testing.

We also experienced increased demand for our products towards the end of the first quarter of 2020 since physicians may prescribe supplemental oxygen as a treatment for COVID-19.

As a result, we initially saw increased demand for our products for applicable patients who may be treated in the home instead of an acute hospital setting.

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In addition, even if we are able to meet any such increased demand, such an increase in business-to-business sales mix may negatively impact our gross margin as HME provider purchases have a significantly lower average selling price than direct-to-consumer purchases.

During 2019, we signed leases to expand our facilities located in Richardson, Texas and Goleta, California, which are expected to commence in 2020 and 2021.

During 2019, we signed leases to expand our facilities located in Richardson, Texas and Goleta, California, which are expected to commence in 2021.

Domestic expansion, combined with our use of a contract manufacturer in Europe to produce a portion of our Inogen One G3 and Inogen One G5 concentrators, is expected to be sufficient to meet our manufacturing needs provided that these facilities remain operational.

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our planned sales, marketing, and research and development activities;

interruptions or delays in the supply of components or materials for, or manufacturing of, our products, which in certain cases are purchased through sole and single source suppliers;

interruptions or

delays in the supply of components or materials for, or manufacturing of, our products, which in certain cases are purchased through sole and single source suppliers;

seasonal variations in customer operations;

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We sell our products to certain HME providers, distributors, private label partner and resellers on unsecured credit, with terms that vary depending upon the customer’s credit history, solvency, cash flow, credit limits and sales history, as well as prevailing terms with similarly situated customers and whether sufficient credit insurance can be obtained.

In particular, two customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $10.3 million and $9.0 million, respectively, as of March 31, 2020, and two customers each with an accounts receivable balance of $10.7 million and $5.2 million, respectively, as of December 31, 2019.

In particular, two customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $8.9 million and $5.9 million, respectively, as of June 30, 2020, and two customers each with an accounts receivable balance of $10.7 million and $5.2 million, respectively, as of December 31, 2019.

Challenging economic conditions, including those associated with the COVID-19 PHE, may impair the ability of our customers to pay for products they have purchased, and as a result, our reserve for doubtful accounts could increase and, even if increased, may turn out to be insufficient.

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In addition, any disruption or delay in the shipping of our products, whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.

During the three months ended March 31, 2020 and March 31, 2019, approximately 22.7% and 21.9%, respectively, of our total revenue was generated from customers located outside of the United States.

During the six months ended June 30, 2020 and June 30, 2019, approximately 21.2% and 22.2%, respectively, of our total revenue was generated from customers located outside of the United States.

We believe that a significant percentage of our future revenue will continue to come from international sources as we expand our international operations and develop opportunities in other countries.

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potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers;

any other government actions, by the United States, China or other countries, that impose barriers or restrictions that would impact our ability to sell or ship products to customers;

difficulties protecting or procuring intellectual property rights.

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We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.

For example, for the three months ended March 31, 20 20 and March 31, 201 9 , we experienced net foreign currency losses of approximately $ 0.1 million and $0.

1 million, respectively.

For example, for the six months ended June 30, 2020 and June 30, 2019, we experienced net foreign currency gains of less than $0.1 million and less than $0.1 million, respectively.

Fluctuations in currency exchange rates could have an adverse impact on our financial results in the future.

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Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2019.

Additional information on our hedging arrangements is also contained in Note 4 – Fair value measurements in the condensed notes to our audited consolidated financial statements in this Quarterly Report on Form 10- Q .

Additional information on our hedging arrangements is also contained in Note 4 – Fair value measurements and Item 3 – Quantitative and Qualitative Disclosures About Market Risk in the condensed notes to our consolidated financial statements in this Quarterly Report on Form 10-Q.

We rely on shipping providers to deliver products to our customers globally.

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and fluctuations in foreign currency exchange rates.

In particular, due to the COVID-19 PHE, we expect to see a disruption in our normal seasonal trends, as, due to the mandates and behaviors emanating from the COVID-19 PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, we may not see the typical seasonal increases in direct-to-consumer sales in 2020 that we have seen in prior years.

In particular, due to the COVID-19 PHE, we have seen and expect to continue to see a disruption in our normal seasonal trends, as, due to the mandates and behaviors emanating from the COVID-19 PHE, including shelter-in-place orders, reduced travel, and lower consumer confidence, we have not seen and may not see the typical seasonal increases in direct-to-consumer sales in 2020 that we have seen in prior years.

As more HME providers adopt POCs in their businesses, we expect that this could change our historical seasonality in the domestic business-to-business channel as well, which was previously influenced mainly by consumer buying patterns.

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In periods in which our stock price is higher than the grant price of the stock-based compensation vesting in that period, we will recognize excess tax benefits that will decrease our effective tax rate.

For example, in the three months ended March 31, 2019 excess tax benefits recognized from stock-based compensation decreased our provision for income taxes by $0.6 million and our effective tax rate by 10.4% as compared to the tax rate without such benefits.

However, in periods in which our stock price may be lower than the grant price of the stock-based compensation vesting in that period, our effective tax rate may increase.

However, in periods in which our stock price may be lower than the grant price of the stock-based compensation vesting in that period, we will recognize excess tax deficiencies that will increase our effective tax rate.

For example, in the six months ended June 30, 2020, excess tax deficiencies recognized from stock-based compensation increased our provision for income taxes by $0.5 million and our effective tax rate by 26.9% as compared to the tax rate without such deficiencies.

The amount and value of stock-based compensation issued relative to our earnings in a particular period will also affect the magnitude of the impact of stock-based compensation on our effective tax rate.

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The federal government and all states in which we currently operate regulate various aspects of our business.

In particular, our operations are subject to state laws governing, among other things, distribution of medical equipment and certain types of home health activities, and we are required to obtain and maintain licenses in many states to act as a durable medical equipment supplier.

In particular, our operations are subject to state laws governing, among other things, distribution of medical equipment and certain types of home health

activities, and we are required to obtain and maintain licenses in many states to act as a durable medical equipment supplier.

Certain of our employees are subject to state laws and regulations governing the professional practices of respiratory therapy.

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To ensure compliance with Medicare, Medicaid and other regulations, government agencies or their contractors often conduct routine audits and request customer records and other documents to support our claims submitted for payment of services rendered.

Government agencies or their contractors also periodically open investigations and obtain information from healthcare providers.

Government agencies or their contractors also periodically open investigations and audits and obtain information from healthcare providers.

Violations of federal and state regulations can result in severe criminal, civil and administrative fines, penalties and sanctions, including debarment, suspension or exclusion from Medicare, Medicaid and other government reimbursement programs, any of which would have a material adverse effect on our business.

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Although we do not currently market any devices subject to pre-market approval, the FDA may demand that we obtain a pre-market approval prior to marketing certain future products.

In addition, if the FDA disagrees with our determination that a product we currently market is subject to an exemption from pre-market review, the FDA may require us to submit a 510(k), de novo application or pre-market approval application in order to continue marketing the product.

continue marketing the product.

Further, even with respect to those future products where a pre-market approval is not required, we cannot assure you that we will be able to obtain the 510(k) clearances with respect to those products or do so in a timely fashion.

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If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or pre-market approval for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

FDA issued a new Final Guidance titled Enforcement Policy for Ventilators and Accessories and Other Respiratory Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency (PHE) in March 2020.

The FDA issued a new Final Guidance titled Enforcement Policy for Ventilators and Accessories and Other Respiratory Devices During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency (PHE) in March 2020.

The intent of the guidance is to help address the urgent COVID-19 PHE.

It may expand the availability of devices that support patients with respiratory insufficiency due to COVID-19.

The guidance allows modifications to respiratory devices without requiring compliance with the pre-market requirements such as submitting a new 510(k).

The guidance allows certain modifications to applicable FDA-cleared respiratory devices without requiring compliance with the pre-market requirements such as submitting a new 510(k).

Manufacturers must ensure the device is safe and effective prior to placing the modified device on the market.

This may introduce new competitive products that could compete with our products with an easier regulatory pathway which could harm our business, financial condition and results of operations.

If Inogen uses this guidance to introduce devices that do not have FDA clearance, these products will have to go through FDA 510(k) clearance in the future, and may not be granted such clearance, which would mean we would have to withdraw these products from the market, which could harm our business, financial condition and results of operations.

This guidance and any future guidance or enforcement policy be the FDA may introduce new competitive products that could compete with our products with an easier regulatory pathway which could harm our business, financial condition and results of operations.

If Inogen uses this guidance to introduce devices that do not have the FDA clearance, these products will have to go through FDA 510(k) clearance in the future, and may not be granted such clearance, which would mean we would have to withdraw these products from the market when the FDA terminates or revokes such guidance or enforcement policy, which could harm our business, financial condition and results of operations.

If we fail to comply with FDA or state regulatory requirements, we can be subject to enforcement action.

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If we fail to obtain and maintain regulatory approval in foreign jurisdictions, our market opportunities will be limited.

Approximately 22.7% and 21.9% of our total revenue was from sales outside of the United States for the three months ended March 31, 2020 and March 31, 2019, respectively.

Approximately 19.3% and 22.3% of our total revenue was from sales outside of the United States for the three months ended June 30, 2020 and June 30, 2019, respectively, and 21.2% and 22.2% for the six months ended June 30, 2020 and June 30, 2019, respectively.

We sell our products in 46 countries outside of the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts.

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If we do not obtain or maintain necessary approvals to commercialize our products in markets outside the United States, we may be required to discontinue sales in those countries which would negatively affect our overall market penetration, revenues, results of operations and financial condition.

We are subject to burdensome and complex billing and record-keeping requirements in order to substantiate our claims for payment under federal, state and commercial healthcare reimbursement programs, and our failure to comply with existing requirements, or changes in those requirements or interpretations thereof, could adversely affect our business, financial condition and results of operations.

requirements, or changes in those requirements or interpretations thereof, could adversely affect our business, financial condition and results of operations.

We are subject to burdensome and complex billing and record-keeping requirements in order to substantiate our claims for payment under federal, state and commercial healthcare reimbursement programs.

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The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce the referral of an individual to a person for the furnishing of, or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs.

Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and any remuneration to or from a prescriber or purchaser of healthcare products or services may be subject to scrutiny if it does not qualify for an exception or safe harbor.

Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common financial arrangements from prosecution, the exceptions and safe harbors are drawn narrowly, and any remuneration to or from a prescriber or purchaser of healthcare products or services may be subject to scrutiny if it does not qualify for an exception or safe harbor.

Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

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The Federal False Claims Act prohibits any person from knowingly presenting or causing to be presented a false claim for payment to the federal government, or knowingly making or causing to be made a false statement to get a false claim paid.

These false claims statutes allow any person to bring suit in the name of the government alleging false and fraudulent claims presented to or paid by the government (or other violations of the statutes) and to share in any amounts paid by the entity to the government in fines or settlement.

The Federal False Claims Act allows any person to bring suit in the name of the government alleging false and fraudulent claims presented to or paid by the government (or other violations of the statute) and to share in any amounts paid by the entity to the government in fines or settlement.

Such suits, known as qui tam actions, have increased significantly in the healthcare industry in recent years.

Sanctions under these federal and state laws may include civil monetary penalties, exclusion from federal and state healthcare programs, criminal fines and imprisonment.

Sanctions under this federal law may include civil monetary penalties, exclusion from federal and state healthcare programs, criminal fines and imprisonment.

In addition, the recently enacted Patient Protection and Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.

A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.

A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it.

In addition, the Patient Protection and Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

Because of the breadth of these laws and the narrowness of the safe harbors and exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

Because of the breadth of these laws and the narrowness of the safe harbors and exceptions, it is possible that some of our business activities could be subject to challenge under

one or more of such laws.

Such a challenge, regardless of the outcome, could have a material adverse effect on our business, business relationships, reputation, financial condition and results of operations.

The majority of states also have statutes or regulations similar to the federal anti-kickback and self-referral laws and false claims laws, which apply to items or services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of payor.

The Patient Protection and Affordable Care Act also created the federal Physician Payment Sunshine Act, which requires applicable manufacturers of drugs, devices, biologicals, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services Open Payments Program, information related to payments or other transfers of value made to physicians, as defined by law, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

Additionally, the current President signed into law in 2018 the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act” which, under the provision entitled “Fighting the Opioid Epidemic with Sunshine,” in part, extends the reporting and transparency requirements for physicians under the Physician Payments Sunshine Act to physician assistants, nurse practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for payments made in 2021.

Failure to submit required ownership and investment interest information may result in civil monetary penalties of up to an aggregate of $0.18 million per year (and up to an aggregate of $1.176 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians.

Certain states, mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation and other remuneration to physicians.

The majority of states also have statutes or regulations similar to the federal anti-kickback , physician self-referral , and false claims laws, which apply to items or services, reimbursed under Medicaid and other state programs, or in several states, apply regardless of payor.

Penalties under these state laws are similar to those under their federal equivalents.

The Patient Protection and Affordable Care Act also created the federal Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologicals, and medical supplies covered under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians, as defined, and teaching hospitals, as well as ownership and investment interests in such manufacturer held by physicians and their immediate family members.

Additionally, the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act” enacted in 2018, extends the reporting and transparency requirements for physicians under the Physician Payments Sunshine Act to physician assistants, nurse practitioners and other mid-level practitioners, with reporting requirements going into effect in 2022 for payments made in 2021.

Failure to submit the required information under the federal Physician Payment Sunshine Act may result in civil monetary penalties of up to an aggregate of $0.18 million per year (and up to an aggregate of $1.177 million per year for “knowing failures”), subject to an annual adjustment for inflation.

In addition, there has been a recent trend of increased federal and state regulation of payments and other transfers of value made to applicable recipients, including physicians.

Certain states mandate implementation of compliance programs and/or the tracking and annual reporting of gifts, compensation and other remuneration to physicians and other applicable recipients.

The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company many violate one or more of the requirements.

The Federal Civil Monetary Penalties Law grants authority to the U.S.

Department of Health & Human Services Office of Inspector General (OIG) to seek civil monetary penalties (CMPs) against an individual or entity based on a wide variety of conduct including violations of the Anti-Kickback Statute, Stark Law, and False Claims Act.

The Federal Civil Monetary Penalties Law grants authority to the HHS Office of Inspector General (OIG) to seek civil monetary penalties (CMPs) against an individual or entity based on a wide variety of conduct including violations of the Anti-Kickback Statute, Stark Law, and False Claims Act.

An entity that offers to or transfers remuneration to any individual eligible for benefits under Medicare or Medicaid that such entity knows or should know is likely to influence such individual to order or receive from a particular provider, practitioner, or supplier any Medicare or Medicaid payable item or service may be liable for CMPs .

This is commonly known as a beneficiary inducement.

We sometimes offer customers various discounts and other financial incentives in connection with the sales of our products.

While it is our intent to comply with all applicable laws, the federal government may find that our marketing activities violate the law.

If we are found to be in non-compliance, we could be subject to CMPs of up to $0.

18 million for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal or state healthcare programs.

The HHS makes annual inflation-related increases to the civil monetary penalties in its regulations pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 .

The HHS Annual Civil Monetary Penalties Inflation Adjustment Final Rule issued on January 17, 2020, sets forth adjusted civil monetary penalty amounts that apply to penalties assessed on or after January 17, 2020, if the violation occurred on or after November 2, 2015 .

While it is our intent to comply with all applicable laws, including the safe harbor regulation for discounts, the federal government may find that our marketing activities violate the law.

If we are found to be in non-compliance, we could be subject to CMPs of up to $0.18 million (subject to annual adjustment for inflation) for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal or state healthcare programs.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations.

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We are also exposed to the risks of fraud, misconduct, or other illegal activity by our employees and third parties, such as our independent contractors, consultants, commercial partners, and vendors.

We are also exposed to the risks of fraud, misconduct, or other illegal activity by our employees and third parties who act for us or on our behalf, such as our independent contractors, consultants, commercial partners, and vendors.

It is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with federal and state healthcare fraud and abuse laws.

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If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired, which could make our products less competitive.

As of March 31, 2020, we have thirty pending U.S.

and international patent applications, thirty-seven issued U.S.

As of June 30, 2020, we have thirty-four pending U.S.

and international patent applications, thirty-eight issued U.S.

patents, and nine issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent delivery technology and our non-invasive ventilator, including its proprietary nasal interface.

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Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business.

Moreover, if we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

We cannot provide assurance that our products or methods do not infringe or appear to not infringe the patents or other intellectual property rights of third parties and if our business is successful, the possibility may increase that others will assert infringement claims against us whether valid or frivolous.

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In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure.

Enforcing a claim that a third-party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable.

Enforcing a claim that a third-party

illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable.

Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

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We own pending applications for “Inogen,” “MOMENTUM TRANSFER” and “SONIC BLADE” with the United States Patent and Trademark Office.

We own trademark registrations for the mark “Inogen” in Australia, Canada, China, Ecuador, South Korea, Mexico, Europe (European Union registration), Iceland, India, Israel, Japan, Kuwait, New Zealand, Norway, Peru, Turkey, Singapore, and Switzerland.

We own pending applications for the mark “Inogen” in Argentina, Australia, Brazil, Chile, China, Colombia, Europe (European Union application), India, Malaysia, Paraguay, South Africa, and Uruguay.

We own trademark registrations for the mark “Inogen” in Argentina, Australia, Canada, China, Columbia, Ecuador, South Korea, Mexico, Europe (European Union registration), Iceland, India, Israel, Japan, Kuwait, New Zealand, Norway, Peru, Turkey, Singapore, and Switzerland.

We own pending applications for the mark “Inogen” in Australia, Brazil, Chile, China, Europe (European Union application), India, Malaysia, Paraguay, South Africa, and Uruguay.

We own a trademark registration for the mark “イノジェン” in Japan.

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If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other

regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

Risks related to our common stock

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These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of March 31, 2020, one holder of approximately 3.5 million shares, or approximately 16.1%, of our outstanding shares, has rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

As of June 30, 2020, one holder of approximately 3.5 million shares, or approximately 16.1%, of our outstanding shares, has rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

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Our directors, executive officers and principal stockholders will continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including changes of control.

As of March 31, 2020, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 67.2% of the outstanding shares of our common stock.

As of June 30, 2020, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 67.2% of the outstanding shares of our common stock.

Accordingly, these executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates, acting as a group, have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions.

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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