What changed in this filing

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Item 1. Legal Proceedings

2021-11-09 compared with 2021-05-11 · 75 added, 51 removed, 3 unchanged (98% of the section changed)

Legal Proceedings

From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.

In July 2021, we received a CID from the Attorney General for the State of Colorado.

The CID requests information and documents regarding Medicaid billing, patient services and referrals at InnovAge’s Colorado program.

We continue to fully cooperate with the Attorney General and to produce the requested information and documentation.

We are currently unable to predict the outcome of this investigation.

On October 14, 2021, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period.

Through the complaint, plaintiffs are asserting claims against the Company, certain of the Company’s officers and the underwriters in the Company’s IPO, alleging violations of Sections 11 and 15 of the Securities Act of 1933 for making allegedly inaccurate and misleading statements and omissions in connection with the Company’s IPO and seeking compensatory damages, among other things.

Although the results of legal proceedings and claims are inherently unpredictable and uncertain, we do not believe that any of the legal proceedings with which we are currently involved would , if determined adversely to us, either individually or in the aggregate, have a material adverse effect on our business, operating results, cash flows or financial condition.

Regardless of the outcome, litigation has the potential to have an adverse impact on us due to any related defense and settlement costs, diversion of management resources, and other factors.

Item 1.A Risk Factors

Other than the updates to the risk factor set forth below, there have been no material changes to the risk factors disclosed in the “Risk factors” section of the IPO Prospectus.

Other than the updates to the risk factor set forth below, there have been no material changes to the risk factors disclosed in the “Risk factors” section of our 2021 10-K

Risks Related to our Business

A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the ongoing outbreak of COVID-19, could adversely affect our business.

The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing.

Because of our business model, the full impact of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods.

Additionally, any future pandemic, epidemic or outbreak of an infectious disease may adversely affect our business if one of the geographies we serve is affected by the outbreak, particularly at the onset of any such outbreak before response protocols have been developed.

Specifically, if our participants fall ill due to an outbreak, we may experience a high level of unexpected deaths, increased costs, and other effects, including a loss of revenue, negative publicity, litigation and inquiries from government regulators.

Adverse market conditions resulting from the spread of the virus that causes COVID-19 could materially and adversely affect our business and the value of our common stock.

Numerous state and local jurisdictions, including some markets where we operate, continue to impose, and others in the future may impose, travel bans and restrictions, “shelter-in-place” orders or shutdowns, quarantines, curfews, executive orders and similar government orders and restrictions for their residents to control the spread of the virus that causes COVID-19.

Such orders or restrictions have resulted in largely remote operations at our headquarters and centers, work stoppages among some vendors and suppliers, slowdowns and delays, travel restrictions and cancellation of events and have restricted the ability of our front-line outreach teams to host and attend community events, among other effects, thereby significantly impacting our operations.

In addition, the COVID-19 virus disproportionately impacts older adults, especially those with chronic illnesses, which describes many of our participants.

The COVID-19 pandemic has significantly and temporarily increased demand for our telehealth and in-home offerings.

The telehealth market is relatively new, and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption.

Although our pivot to telehealth services has been a useful tool for providing remote care during the COVID-19 pandemic, the COVID-19 pandemic has limited our ability to provide in-person care.

If our participants do not perceive the benefits of telehealth services, or if our services are not competitive, it could have a material adverse effect on our business, financial condition or results of operations.

Similarly, individual and healthcare industry concerns or negative publicity regarding participant confidentiality and privacy in the context of telehealth could limit market acceptance of such healthcare services.

In addition, some

of our participants may lack access to telehealth devices, such as cell phones and/or computers, or may be unable to use the telehealth technology on their own.

Because some of our participants may not be comfortable with a team member coming to their home to deliver face-to-face care or entering with a device to assist with using our telehealth services, participants may be reluctant to seek necessary care given their inability to use telehealth services, coupled with preference to stay at home due to the risks of the COVID-19 pandemic.

This could have the effect of deferring healthcare costs that we will need to incur at later periods and may also affect the health of participants who defer treatment, which may cause our costs to increase in the future.

Further, as a result of the COVID-19 pandemic, we may experience slowed growth or a decline in new participants.

Due to the COVID-19 pandemic, we may not be able to document the health conditions of our participants as completely as we have in the past.

Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual participant.

Participants with higher RAF scores necessitate larger capitated payments, and those with lower RAF scores necessitate smaller capitated payments.

Medicare requires that a participant’s health issues be documented annually regardless of the permanence of the underlying causes.

Historically, this documentation was required to be completed during an in-person visit with a participant, but CMS is now allowing documentation of conditions identified during qualifying telehealth visits with participants.

However, given the disruption caused by the COVID-19 pandemic and the limitations relating to assessing the health needs of our participants through telehealth services described above, it is unclear whether we will be able to document the health conditions of our participants as comprehensively as we have historically, which may adversely impact our revenue in future periods.

The COVID-19 pandemic temporarily forced our centers to close or to perform operations remotely reducing our frequent in-person contact with participants and exacerbated difficulties to hire additional healthcare professionals, causing certain of our centers to be understaffed or staffed with personnel that requires training.

The general lack of in-person interaction and the reduction in healthcare personnel, and specifically, trained personnel, has impacted and may continue to impact our ability to adhere to the complex government laws and regulations that apply to our business.

PACE regulators require that new participants be assessed within a period of 30 days from enrollment to our programs and for us to provide them a personalized care plan.

Recently, we became aware that certain of our centers failed to timely complete a portion of these new participant assessments and care plans.

We are working diligently to remedy this issue.

Failure to conduct assessments or produce care plans within the required period of time may subject us to suspension of new enrollment or restrict enrollment at the affected centers and other centers in the affected state.

These or future violations of these requirements or other government laws or regulations could result in significant consequences that may have a material adverse effect on our business, results of operations, financial condition and cash flows.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act provides for $100.0 billion in funding for healthcare providers, including hospitals on the front lines of the COVID-19 pandemic, and subsequent COVID-19 economic relief legislation authorized additional funding to be distributed to healthcare providers.

The state of Pennsylvania enacted Act 24 of 2020 (“Act 24”), which allocates $10.0 million in federal CARES Act funding to Managed Long Term Care Organizations to cover COVID-19 related costs.

Our Pennsylvania centers were granted $1.0 million of funding from Act 24.

As of June 30, 2020, we recognized $0.7 million of such funds and for the six months ended December 31, 2020, we recognized the remaining funds of $0.3 million.

As a result of receiving this funding, we may be subject to audits and oversight by the federal government and Pennsylvania regulators, and there is no guarantee that the funds we received could not be subject to recoupment.

Recipients are not required to repay these funds, provided that they attest to and comply with certain terms and conditions, including not using funds received to reimburse expenses or losses that other sources are obligated to reimburse, as well as certain audit and reporting requirements.

As of June 30, 2020, we incurred $3.5 million of COVID-19 related costs, and for the six months ended December 31, 2020, we incurred an additional $2.4 million of COVID-19 related costs.

We expect our COVID-19 related expenses to continue to increase, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

The extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments, including:

the duration and spread of the outbreak;

government responses to the pandemic, including responses to state budget shortfalls;

the impact on our participants and enrollment;

the availability, effectiveness and receipt of vaccines by our participants and our employees;

the impact on participant, industry or employee events;

and the effect on our supply chains, all of which are uncertain and cannot be predicted.

Because of our business model, the full impact of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of amplifying many of the other risks described in the “Risk Factors” section of our IPO Prospectus, including but not limited to those relating to our ability to raise additional capital or generate sufficient cash flows necessary to fulfill our obligations under our existing indebtedness or to expand our operations.

We may be subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.

We may be party to lawsuits and legal proceedings in the normal course of business.

These matters are often expensive and disruptive to normal business operations.

We may face allegations, lawsuits and regulatory inquiries, requests for information, audits and investigations regarding care and services provided to participants, the False Claims Act (“FCA”), data privacy, security, labor and employment, consumer protection or intellectual property.

We may also face allegations or litigation related to our acquisitions, securities issuances or business practices, including public disclosures about our business.

We are currently unable to predict the outcome of this proceeding.

See Item 1, Legal Proceedings.

Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict.

Certain of these matters include claims for substantial or indeterminate amounts of damages and may include claims for injunctive relief.

Additionally, our litigation costs could be significant.

Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties, fines and sanctions.

In the event of compliance issues, sanctions could include civil monetary penalties, corrective action plans (as is the case currently with respect to our Sacramento, California center), monitoring, contract termination, and/or CMS and/or Medicaid agencies suspending or restricting enrollment with us, which could negatively impact our

geographical expansion and revenue growth.

We may also become subject to periodic audits, which would likely increase our regulatory compliance costs and may require us to change our business practices, which could negatively impact our revenue growth.

Managing legal proceedings, regulatory inquiries, litigation and audits, even if we achieve favorable outcomes, is time-consuming and diverts management’s attention from our business.

The results of regulatory proceedings, investigations, inquiries, litigation, claims, and audits cannot be predicted with certainty, and determining reserves for pending litigation and other legal, regulatory and audit matters requires significant judgment.

There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, cause harm to our reputation, business, financial condition, results of operations and the market price of our common stock.

We are also subject to lawsuits under the FCA and comparable state laws for submitting allegedly fraudulent, inadequately supported or otherwise inappropriate bills for services to the Medicare and Medicaid programs.

These lawsuits, which may be initiated by government authorities as well as private party relators, can involve significant monetary damages, fines, attorney fees and the award of bounties to private plaintiffs who successfully bring these suits, as well as to the government programs.

In recent years, government oversight and law enforcement have become increasingly active and aggressive in investigating and taking legal action against potential fraud and abuse.

In July 2021, we received a CID from the Attorney General for the State of Colorado.

The CID requests information and documents regarding Medicaid billing, patient services and referrals at InnovAge’s Colorado program.

We are currently unable to predict the outcome of this investigation.

See Item 1, Legal Proceedings.

Furthermore, our business exposes us to potential medical malpractice, professional negligence or other related actions or claims that are inherent in the provision of healthcare services.

While the industry has not seen an increase in the number of claims of this nature due to the impact of the COVID-19 pandemic, this remains a possibility due to the relatively lengthy claim development inherent in professional liability claims.

These claims, with or without merit, could cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business, harm our reputation and adversely affect our ability to attract and retain participants, any of which could have a material adverse effect on our business, financial condition and results of operations.

Although we maintain third-party professional liability insurance coverage, it is possible that claims against us may exceed the coverage limits of our insurance policies.

Even if any professional liability loss is covered by an insurance policy, these policies typically have substantial deductibles for which we are responsible.

Professional liability claims in excess of applicable insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

In addition, any professional liability claim brought against us, with or without merit, could result in an increase of our professional liability insurance premiums.

Insurance coverage varies in cost and can be difficult to obtain, and we cannot guarantee that we will be able to obtain insurance coverage in the future on terms acceptable to us or at all.

If our costs of insurance and claims increase, then our earnings could decline.

Risks Related to Regulation

We face inspections, reviews, audits and investigations under federal and state government programs and contracts.

These audits could require corrective actions or have adverse findings that may negatively affect our business, including our results of operations, liquidity, financial condition and reputation.

As a result of our PACE contracts with CMS and state government agencies, state licenses, and participation in Medicaid, we are routinely subject to, or will continue to be subject to in the future, various governmental inspections, reviews, audits, requests for information and investigations to verify our compliance with requirements of these programs and applicable laws and regulations, assess the quality of the services we are providing to our participants, and evaluate the accuracy of the risk adjustment data we have submitted to the government.

On May 26, 2021, the Colorado Department of Health Care Policy & Financing (“HCPF”) and the Colorado Department of Public Health and Environment (“CDPHE”) initiated a joint audit of our Colorado PACE centers, and on June 21, 2021, CMS also initiated a separate focused desk audit of our Colorado PACE program.

We received preliminary

findings from CMS and HCPF/CDPHE in July 2021, received validation results presenting issues in two of the six areas under validation in October 2021, and expect to receive final reports from the agencies in early 2022.

In conjunction with providing validation results, the agencies referred our case to the Compliance and Enforcement Division of CMS for review and possible further action.

With respect to these three audits, to date, we have no indication of whether the agencies intend to request a corrective action plan, suspend or otherwise curtail our programs or impose other sanctions, and given the recent referral to the Compliance and Enforcement Division, we do not have an indication of what further action, if any, the Division may take.

We cannot guarantee the outcome of these audits, including whether or not sanctions will be imposed, until the Compliance and Enforcement Division completes its review and we receive the respective final reports from each agency.

On May 10, 2021, CMS began a routine, scheduled audit of our Sacramento, California center.

On September 17, 2021, we were notified that CMS had determined to suspend new enrollments at our Sacramento center based on deficiencies detected in the audit related to participant quality of care, and on September 30, 2021, we were further notified that the State of California had followed in the determination of such sanctions.

The suspension will remain in effect until CMS and the State of California determine that we have remediated the deficiencies to their satisfaction.

We submitted a corrective action plan on October 15, 2021 and began implementing corrective action even prior to such submission.

As of November 2, 2021, CMS and the State of California jointly requested additional feedback regarding the corrective action plan, which is due by November 16, 2021.

At such time, the corrective action plan will again be under review by CMS and California.

At this time, we cannot guarantee the outcome of these processes.

If CMS or California is not satisfied with proposed or implemented corrective actions, we could be subject to additional sanctions.

Inspections, reviews, audits, requests for information or investigations with adverse findings, can result in:

● temporary or permanent enrollment sanctions in the affected center(s), as is the case with our Sacramento, California center;

● refunding amounts we have been paid by the government;

● state or federal agencies imposing corrective action plans, fines, penalties, training, policies and procedures, and other requirements or sanctions on us;

● temporary suspension of payments;

● debarment or exclusion from participation in federal health care programs;

● self-disclosure of violations to applicable regulatory authorities;

● damage to our reputation;

● the revocation of a facility’s license;

● loss of certain rights under, or termination of, our contracts with government payors.

We may be required to refund amounts we have been paid and/or pay fines and penalties as a result of these inspections, reviews, audits, requests for information and investigations.

Any of the results noted above could have a material adverse effect on our business and operating results.

Furthermore, the legal, document production and other costs associated with complying with these inspections, reviews, audits, requests for information or investigations could be significant.

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