What changed in this filing

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Item 1. Business

2023-09-12 compared with 2022-09-13 · 195 added, 194 removed, 331 unchanged (54% of the section changed)

InnovAge is the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, dual-eligible seniors.

InnovAge is the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, seniors, many of whom are dual-eligible.

Our programs are designed to address two of the most pressing challenges facing the U.S.

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Our participant-centered care delivery approach is designed to improve the quality of care our participants receive, while keeping them in their homes for as long as safely possible and reducing over-utilization of high-cost care settings such as hospitals and nursing homes.

Our participant-centered approach is led by our Interdisciplinary Care Teams (“IDTs”), who design, manage and coordinate each participant’s personalized care plan.

We directly manage and are responsible for all healthcare needs and associated costs, including housing costs where applicable, for our participants.

Through our Program of All-Inclusive Care for the Elderly (“PACE”) program, we fulfill a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care), in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities;

transportation to and from the PACE center and third-party medical appointments;

and care management.

We directly contract with government payors, such as Medicare and Medicaid, and do not rely on third-party administrative organizations or health plans.

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In connection with this purchase, Total Community Options, Inc.

and certain of its subsidiaries converted from not-for-profit organizations to for-profit corporations, and Total Community Options Foundation, Inc.

and Johnson Adult Day Program, Inc., both not-for-profit organizations, separated from Total Community Options, Inc.

and certain of its subsidiaries converted from not-for-profit organizations to for-profit corporations.

In connection with our initial public offering (“IPO”), which occurred in March 2021, we changed the name of our company from TCO Group Holdings, Inc.

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(“InnovAge”).

In the following text, the terms “we”, “our”, “our company” and “us” may refer, as the context requires, to InnovAge or collectively to InnovAge and its subsidiaries.

In this Annual Report on Form 10-K, the terms “we”, “our”, “our company” and “us” may refer, as the context requires, to InnovAge or collectively to InnovAge and its subsidiaries.

InnovAge is headquartered in Denver, Colorado.

Our mission is to allow seniors in need of care and support to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible.

Through PACE, we manage, and in many cases directly provide, a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care);

in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities;

transportation to the PACE center and third-party medical appointments;

and care management.

The Company manages its business as one reportable segment, PACE.

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Additionally, under the Medicare Prescription Drug Plan, the Centers for Medicare and Medicaid Services (“CMS”) share part of the risk for providing prescription medication to the Company’s participants.

We deliver our participant-centered care through the InnovAge Platform, which is designed to bring high-touch, comprehensive, value-based care.

We deliver our participant-centered care through the InnovAge Platform (as defined herein), which is designed to bring high-touch, comprehensive, value-based care.

We believe the traditional fee-for-service reimbursement model in healthcare does not adequately incentivize providers to efficiently manage this complex population.

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Our vertically integrated care model and full-risk contracts incentivize us to coordinate and manage all aspects of a participant’s health.

Costs under the PACE program are estimated to be 13% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in November 2020.

Costs under the PACE program are estimated to be 15% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of most recently available data by the National PACE Association in July 2023.

Importantly, we believe we can deliver better health outcomes.

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Based on an analysis performed using the data most recently available to us from 2018, we estimate that across our mature markets, our participants on average have 16% fewer hospital admissions and 73% fewer low- to medium-severity emergency room visits relative to a comparable Medicare fee-for-service population with similar risk scores for which data is available.

In addition, as of June 30, 2022, our participants had a 23% lower 30-day hospital readmission rate compared to a frail, dual-eligible or disabled waiver population.

In addition, as of June 30, 2023, our participants had a 12% lower 30-day hospital readmission rate compared

to a frail, dual-eligible or disabled waiver population.

In addition to reducing spend, we also focus on ensuring our participants are satisfied and receive the necessary care.

Our participant satisfaction, based on our most recent survey of participants administered by an independent third party as of January 1, 2022, is 81%.

Our participant satisfaction, based on our most recent survey of participants administered by an independent third party as of March 1, 2023, is 78%.

We believe our value proposition to each constituency translates into a predictable economic model.

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The overall growth rate of healthcare spending is expected to accelerate due to the aging population.

Government healthcare spend is disproportionally concentrated in the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports.

Government healthcare spend is disproportionally concentrated on the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports.

Medicare and Medicaid spend on average three times more per capita on a dual-eligible senior than a Medicare-only senior.

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Dual-eligible beneficiaries are among the most medically complex, high-frequency users of healthcare services.

Based on InnovAge data as of June 30, 2022, the typical InnovAge participant had, on average, eight chronic conditions and, based on the data most recently available to us from a 2018 health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).

Based on InnovAge data as of June 30, 2023, the typical InnovAge participant had, on average, eleven chronic conditions and, based on the data most recently available to us from a 2021 modified health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).

A lack of coordination across providers can have severe consequences given the high occurrence of chronic illnesses and other underlying health issues in this population.

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Proper management of chronic conditions and targeted interventions to mitigate challenges presented by social determinants of health can significantly reduce the incidence of acute episodes, which are the main driver of emergency room visits and hospitalization among the dual-eligible senior population.

Healthcare spending on nursing care facilities

and continuing care retirement communities was expected to reach approximately $188.1 billion in 2022, based on the latest projections made by the Office of the Actuary of CMS, which is a 6.4% decrease compared to the 2022 projection from the prior year.

Healthcare spending on nursing care facilities and continuing care retirement communities was expected to reach approximately $201.4 billion in 2023, based on the latest projections made by the Office of the Actuary of CMS, which is a 1.9% increase compared to the 2023 projection from the prior year.

Similar to spend on hospitals and other high-acuity care settings, we believe many of these dollars can ultimately be saved by providing proactive treatment and investing in proper medical and social supports to enable frail seniors to live in their homes and communities.

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By linking payments to the volume of encounters and pricing for higher complexity interventions, the fee-for-service model does not incentivize providers to practice preventative medicine or manage patients in lower cost settings.

Rather, many policymakers and healthcare experts believe it unintentionally creates the opposite result—acute, episodic care delivered in high-cost settings that unnecessarily drive up the total cost of healthcare.

Rather, many policymakers and healthcare experts

believe it unintentionally creates the opposite result—acute, episodic care delivered in high-cost settings that unnecessarily drive up the total cost of healthcare.

High-cost, dual-eligible seniors often require proactive, coordinated care plans to address their medical acuity, need for long term support and risks related to social determinants of health.

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A recent example of this has been the growth of the PACE program.

PACE is a government-sponsored, provider-led managed care program focused on enabling frail, dual-eligible seniors who qualify to live in a nursing home to age independently in their homes.

PACE is a government-sponsored, provider-led managed care program focused on enabling frail, dual-eligible seniors who have skilled nursing needs to age independently in their homes.

PACE providers receive a monthly risk-adjusted payment for each participant (PMPM) directly from Medicare and Medicaid to oversee the totality of medical care an enrolled participant needs.

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In order for the shift to value-based payment models to drive meaningful results, we believe there must be a corresponding shift in care delivery models.

While there has been significant investment by providers, payors and technology companies

in developing solutions to enable higher-quality and lower-cost care, the healthcare industry is still heavily reliant on fee-for-service reimbursement models.

While there has been significant investment by providers, payors and technology companies in developing solutions to enable higher-quality and lower-cost care, the healthcare industry is still heavily reliant on fee-for-service reimbursement models.

The COVID-19 pandemic amplified several flaws in the current legacy healthcare delivery system.

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This not only reduced revenues for traditional providers, but also strained their ability to provide necessary care for their patients.

Patients in long-term care facilities, such as nursing homes, also saw and continue to see a disproportionately high infection rate as a result of the pandemic.

Patients in long-term care facilities, such as nursing homes, also saw a disproportionately high infection rate as a result of the pandemic.

The highly contagious nature of the virus that causes COVID-19 combined with the higher mortality rate in frail seniors created devastating conditions that led to many avoidable deaths.

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PACE participants had one-third the COVID-19 cases and deaths compared to the rates of nursing home residents as of June 30, 2021, according to an analysis performed by The New York Times.

We believe the COVID-19 pandemic has further highlighted the need for integrated, multimodal value-based care delivery models.

We believe the COVID-19 pandemic further highlighted the need for integrated, multimodal value-based care delivery models.

Our Market Opportunity

We are one of the largest healthcare platforms focused on frail, dual-eligible seniors, and we serve participants primarily through PACE.

We have built the largest PACE-focused operation in the country based on number of participants;

we are almost twice the size of our closest PACE-focused competitor, more than 30 times larger than the typical PACE operator and the only for-profit PACE operator with a footprint in three or more states.

Given our scale across geographies, we believe we are positioned to capitalize on a significant market opportunity to provide care to frail, high-cost, dual-eligible seniors once restrictions on our ability to enroll participants as a result of the audits of our centers in Sacramento, California and Colorado and on our ability to open de novo centers as a result of actions taken by other states or us, are lifted or resolved.

We are one of the largest healthcare platforms focused on frail, dual-eligible seniors, serving participants primarily through our PACE program.

We have built the largest PACE-focused operation in the country based on number of

participants;

we are 16% larger than the size of our closest PACE-focused competitor, more than 30 times larger than the typical PACE operator and the only for-profit PACE operator with a footprint in three or more states.

Given our scale across geographies, we believe we are positioned to capitalize on a significant market opportunity to provide care to frail, high-cost, dual-eligible seniors.

Our care model targets the most complex, frail subset of the dual-eligible senior population.

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Census Bureau from 2018, representing seniors who we believe are dually eligible for Medicare and Medicaid and meet the nursing home eligibility criteria for PACE.

We have historically and, once restrictions on our ability to enroll participants as a result of the audits on our centers in Sacramento, California and Colorado and on our ability to open de novo centers as a result of actions taken by other states or us, are lifted or resolved, expect to prioritize growth in high-density urban and suburban areas, where there are sizable numbers of frail dual-eligible seniors who would benefit most from our program.

We leverage the InnovAge Platform which is designed to provide comprehensive, coordinated healthcare to enable our frail, nursing home-eligible seniors to live independently in their homes and communities.

We expect to prioritize growth in high-density urban and suburban areas, where there are sizable numbers of frail dual-eligible seniors who would benefit most from our program.

We leverage the InnovAge Platform (as defined herein) which is designed to provide comprehensive, coordinated healthcare to enable our frail, eligible for skilled nursing seniors to live independently in their homes and communities.

We believe people want to stay in their home for as long as possible, and the InnovAge Platform is designed to empower seniors to age independently in their own homes, on their own terms, for as long as possible.

Based on historical results for the year ended June 30, 2023 and our experience and industry knowledge, we estimate an average annual revenue opportunity of $107,000 per participant (or $8,900 PMPM) and a total addressable market opportunity of $235 billion, based on our estimated market of approximately 2.2 million PACE eligible in the United States in 2022, as described above.

Of these estimated PACE eligible participants, only approximately 61,000 are enrolled in a PACE program, based on a July 2022 report from the National PACE Association, and over the next six years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 20%.

As a result, we believe that, subject to our ability to effectively remediate deficiencies identified during audits of our centers, we have a substantial opportunity for growth by bringing our comprehensive value-based model of care to more frail, dual-eligible seniors across the country.

Of these estimated PACE eligible participants, only approximately 70,000 are enrolled in a PACE program, based on a July 2023 report from the National PACE Association, and over the next five years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 21%.

As a result, we believe that, subject to our ability to effectively execute our growth strategy, we have a substantial opportunity to bring our comprehensive value-based model of care to more frail, dual-eligible seniors across the country.

The InnovAge Platform

Our participant-centered approach is tailored to address the complex medical and social needs of our frail dual-eligible senior population.

We leverage the InnovAge Platform to deliver comprehensive, coordinated healthcare to our

participants.

The InnovAge Platform consists of (1) our interdisciplinary care teams and (2) our community-based care delivery model.

We leverage the InnovAge Platform to deliver comprehensive, coordinated healthcare to our participants.

The InnovAge Platform consists of (1) our Interdisciplinary Care Teams (“IDTs”) and (2) our community-based care delivery model.

The key attributes of the InnovAge Platform include:

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healthcare system.

As a result, the average InnovAge participant has a Medicare RAF of 2.46 based on InnovAge data as of June 30, 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019.

A higher RAF score indicates poorer health and higher predicted health care costs.

A higher RAF score indicates poorer health and higher predicted healthcare costs.

Our platform is designed to enable participants to exercise their preference to age independently in their homes and stay active in their communities for as long as safely possible.

All of our participants are certified as nursing home-eligible.

As of June 30 2022, over 90% of our participants are able to live safely in their homes and communities.

As of June 30, 2023, 90% of our participants are able to live safely in their homes and communities.

Our interdisciplinary care teams.

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We deliver individualized care for each participant that addresses both his or her specific medical conditions and social determinants of health.

We deliver or manage primary and specialist care, in-home care, hospital visits, nutrition, transportation to our care centers and to other medical appointments, pharmacy and behavioral health.

We deliver or manage primary and specialist care, in-home care, hospital visits, nutrition, transportation to and from our care centers and to other medical appointments, pharmacy and behavioral health.

We leverage a technology suite, which we believe is powered by industry-leading clinical and operational information technology solutions to collect and analyze data, streamline IDT workflows and empower our teams with timely participant insights that improve outcomes.

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IDTs are typically comprised of a primary care provider, registered nurse, master’s level social worker, physical therapist, occupational therapist, recreational therapist or activity coordinator, dietician, center manager, home care coordinator, personal care attendant and driver.

The IDTs meet multiple times per week to discuss each participant’s care plan and closely monitor key clinical metrics to ensure each participant receives optimal treatment based on his or her current conditions.

The IDTs meet multiple times per week to discuss each

participant’s care plan and closely monitor key clinical metrics to ensure each participant receives optimal treatment based on his or her current conditions.

Our community-based care delivery model.

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We directly deliver or manage all skilled and unskilled care a participant may require to live independently at home.

Additionally, we have dedicated strategic partnerships with

“hospital-at-home” providers to deliver acute care in-home when appropriate.

In addition, we manage transportation not only to our centers but also to all third-party medical appointments.

Additionally, we have dedicated strategic partnerships with “hospital-at-home” providers to deliver acute care in-home when appropriate.

In addition, we manage transportation not only to and from our centers, but also to all third-party medical appointments.

Our capitated payment model gives us the flexibility to invest in home modifications, such as ramps, grab bars and shower chairs, to reduce falls and make the home safer for our seniors.

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Our physicians are equipped with several telehealth platforms to provide virtual care and utilize the option best suited for each individual participant’s preferences and needs.

We offer telehealth visits when clinically indicated, allowed per regulations and more convenient for the participant.

Our aim is to make virtual care access simple and convenient for our participants.

In situations where a participant is unable to use telehealth technology on their own, we dispatch a team member to their home to assist.

We developed our telehealth capabilities during the COVID-19 pandemic.

The pandemic highlighted the adaptability of the InnovAge Platform and our community-based care delivery model.

Although participant attendance in the centers increased over the past fiscal year, our telehealth capabilities remain an important offering in our multimodal approach to deliver comprehensive care with 6% of our provider visits and 5% of IDT visits provided to our participants remotely during the year ended June 30, 2022.

Addressing social determinants of health .

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We leverage what we believe to be industry-leading reporting and predictive analytics solutions to collect and analyze data, stratify our population and uncover actionable participant insights.

Fiscal Year 2022 Audit Processes and Remediation Efforts

In May 2021, CMS, together with other state regulatory authorities, commenced audits in our Sacramento center in California and in all our centers in Colorado.

Based on deficiencies detected in the audits related to participant provision of services, which can be categorized as care delivery and management, care coordination and documentation of care, CMS and regulatory authorities in the states of California and Colorado suspended new enrollments at our Sacramento center in California and all our centers in Colorado.

The suspensions will remain in effect until CMS and the other regulatory authorities determine that we have remediated the deficiencies to their satisfaction.

In November 2021 and March 2022, CMS began audits of our Albuquerque, New Mexico center and San Bernardino, California center, respectively.

CMS issued preliminary results in both audits identifying certain deficiencies, but in both cases have verbally notified us that no enforcement actions will be taken.

To address the deficiencies identified in the audit processes, we are required to implement immediate corrective actions.

Our plans to do so (“iCARs”) have been accepted by CMS and we are currently working on the audit close out process for these two audits.

There can be no assurance as to the timelines of such close outs.

In addition, the States of Kentucky and Indiana have taken actions to suspend our ability to open de novo centers in those states, and we have committed to regulatory agencies in the State of Florida, that we will proactively pause remaining steps with respect to planned de novo centers in that state.

For more information, see Item 1A.

Risk Factors, “Risks Related to Our Business—We face inspections, reviews, audits and investigations under federal and state government programs

and contracts.

These audits require corrective actions and have resulted in adverse findings that have negatively affected and continue to affect our business, including our results of operations, liquidity, financial condition and reputation.”

The Company’s priority is to remediate the deficiencies raised in the audit processes and to return to growth as a company, both for the short- and long-term.

We continue to work with the appropriate authorities to make the necessary changes within the Company to increase care coordination and care documentation among our centers.

As part of this focus, we are working to fill critical personnel gaps at our centers.

We recently hired a Chief People Officer to help provide assistance and oversight of current employee engagement and personnel hiring.

Other key remediation initiatives include standardizing the process of our IDTs, strengthening our home care network and reliability, improving timeliness of scheduling and coordinating care with providers outside the centers, improving our telephonic channel response times, improving the efficiency and reliability of transportation for our participants, standardizing our wound care program across the enterprise and reducing documentation outside the electronic medical record.

True to our mission, which seeks to provide quality care to our participants so that they can live in their homes and communities for as long as possible, we continue to work to enhance our practices and implement measures adopted in our centers under audit throughout all our centers, not only to satisfy federal and state government agencies’ concerns, but most importantly to enhance the quality of care we provide to our participants.

Recent Audit Processes and Remediation Efforts

We are regularly subject to, and will continue to be subject to, various routine and non-routine governmental inspections, reviews and audits.

Starting in 2021, we underwent federal and state audits in our centers in Sacramento, California, Colorado and New Mexico.

California and our centers in Colorado.

We were fully released from those sanctions in Colorado in January 2023 and in California in May 2023.

The Company’s priority continues to be to remediate the deficiencies raised in audit processes and to implement post-sanction corrective actions as required, as well as maintain high quality of regulatory compliance in all its centers.

Through the audit processes, we worked on mission-critical people, process, and technology gaps identified as causes of the audit deficiencies and strengthened our center operations throughout our portfolio.

Although the Company continues post-sanction monitoring, the Company is currently able to enroll new participants at its 17 centers and also expects to responsibly pursue growth opportunities through opening de novo centers and/or pursuing tuck-in acquisitions and partnerships.

Our Value Proposition

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We leverage our differentiated care delivery model to improve the health of our participants and help them avoid unnecessary hospitalizations and nursing home care.

We enable our participants to remain in their homes and age independently.

As a result, as of June 30 2022, over 90% of our participants lived in their preferred setting:

We enable our participants to remain in their homes as long as possible and age independently.

As a result, as of June 30, 2023, approximately 90% of our participants lived in their preferred setting:

their home or community.

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We believe we provide fiscal certainty through our capitated payment arrangements and reduce the cost of both medical and long-term support and services for high-cost, dual-eligible seniors.

Costs under the PACE program were estimated to be 13% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in November 2020.

Costs under the PACE program were estimated to be 15% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in July 2023.

Our Growth Strategy

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• For the fiscal year ended June 30, 2023, our participant census was approximately 6,400 across our 17 centers in five states.

Once restrictions on our ability to enroll participants as a result of the audits of our centers in

Sacramento, California and Colorado and on our ability to open de novo centers as a result of actions taken by other states or us, are lifted or resolved, we expect to strengthen our efforts to grow our census.

We are now able to enroll participants at all of our centers and are gradually increasing enrollments in our Sacramento, California center and in our centers in Colorado.

We also intend to increase the utilization of capacity at our existing centers.

Build de novo centers

• We believe de novo centers generate compelling long-term unit economics and the potential for robust internal rates of return.

● We have operated our platform across different geographies and, once restrictions on our ability to enroll participants as a result of the audits of our centers in Sacramento, California and Colorado and on our ability to open de novo centers as a result of actions taken by other states or us, are lifted or resolved, we expect to prioritize a list of target markets that we believe are optimal environments to launch the InnovAge Platform.

● Our approach to de novo developments is expected to include building centers to our experience-based specifications, with flexibility for future center expansion factored into the blueprints where possible .

Execute tuck-in acquisitions

• We have operated our platform across different geographies and we expect to prioritize a list of target markets that we believe are optimal environments to launch the InnovAge Platform.

We are currently pursuing the licensure required to open two de novo centers in Tampa and Orlando in Florida and another one in Downey, California.

• Our approach to de novo developments includes building centers to our experience-based specifications, with flexibility for future center expansion factored into the blueprints where possible.

Execute tuck-in acquisitions and partnerships

• From fiscal year 2019 through fiscal year 2021, we have acquired and integrated three PACE organizations, expanding into one new state and four new markets through those acquisitions.

By bringing acquired organizations under the InnovAge Platform, we hope to further realize revenue growth and improve operational efficiency and care delivery post-integration.

● Once restrictions on our ability to enroll participants as a result of the audits of our centers in Sacramento, California and Colorado and on our ability to open de novo centers as a result of actions taken by other states or us, are lifted or resolved, we believe there is a robust landscape of potential tuck-in acquisitions to supplement our organic growth and that our history of integrating business will help increase efficiencies during the integration process.

• We believe there is a robust landscape of potential tuck-in acquisitions to supplement our organic growth.

Since the Company was released from sanctions, we have recommenced our efforts to pursue tuck-in acquisitions.

We remain disciplined in our approach to acquisitions, including with respect to the types of organizations we seek.

We are focused on seeking organizations with experienced personnel, demonstrated quality service and compliance scores, compelling financial results and growth expectations.

• We also intend to pursue relationships with key stakeholders, existing organizations and other care providers in order to form partnerships in target geographies.

Reinvest in the InnovAge Platform to optimize performance

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• We plan to continually invest in technology improvements and seek to unlock new insights through enhanced data analytics capabilities that will advance our care model.

• We have begun to invest in building capabilities to increase our sophistication as a payor to drive clinical value, improve outcomes, and manage cost trends.

• We believe our investments will ultimately result in better health outcomes and lower medical costs for participants.

As we continue to reduce medical costs, we expect to generate incremental savings that can be reinvested to support continuous improvement of the InnovAge Platform.

In the long-term, we intend to reduce medical costs in order to generate savings for reinvestment to support continuous improvement of the InnovAge Platform.

Our operations are subject to extensive federal, state and local governmental laws and regulations.

These laws and regulations require us to meet various standards relating to, among other things, arrangement and provision of covered health care services to our participants, operation and management of PACE centers, dispensing of pharmaceuticals, personnel qualifications, maintenance of proper records, and quality assurance programs.

These laws and regulations require us to meet various standards relating to, among other things, arrangement and provision of covered healthcare services to our participants, operation and management of PACE centers, dispensing of pharmaceuticals, personnel qualifications, maintenance of proper records, and quality assurance programs.

If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including:

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• criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, the False Claims Act (“FCA”) and/or state analogs to these federal enforcement authorities, or other regulatory requirements;

● enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees who believe their protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) has been impermissibly used or disclosed or not properly safeguarded, or their rights with respect to PHI/PII have been protected, in violation of federal or state health privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HIPAA, the California Consumer Privacy Act (“CCPA”) , other state comprehensive privacy laws, and the Privacy Act of 1974;

• enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees relating to breach of, impermissible use or disclosure of, or other incident relating to protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) that we collect, use, and disclose, in violation of federal or state health privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HIPAA, the CCPA as amended by the California Privacy Rights Act of 2020 (“CPRA”), other state data privacy and security laws, and the Privacy Act of 1974;

• mandated changes to our practices or procedures that significantly increase operating expenses or decrease our revenue;

• imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices which could lead to potential fines, among other things;

● termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors and real estate leases or contracts with specialty medical providers;

● changes in and reinterpretation of rules and laws by a regulatory agency or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business;

● negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid;

● harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants and physicians, our ability to obtain financing and our access to new business opportunities, among other things.

• termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors, and real estate leases or contracts with clinical providers;

• changes in and reinterpretation of rules and laws by a regulatory agency board, or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business;

• changes in payor reimbursement, including negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid;

• harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants, physicians, and other clinicians, our ability to obtain financing and our access to new business opportunities, among other things.

We expect that our industry will continue to be subject to substantial regulation, the scope and effect of which are difficult to predict.

Our activities could be subject to investigations, audits and inquiries by various government and regulatory agencies with whom we contract at any time in the future.

Our activities have been and could continue to be subject to investigations, audits and inquiries by various government and regulatory agencies with whom we contract at any time in the future.

Risk Factors, “Risks Related to Regulation.”

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We are subject to a complex array of federal and state laws, regulations, and guidance, including legal requirements directly applicable to PACE providers as well as Medicare and Medicaid laws and regulations.

These laws and guidance relate to our organizational structure, governance, fiscal soundness, marketing activities, participant enrollment and disenrollment, charges to participants, provision of healthcare and other services to participants, care planning activities, service delivery settings and maintenance of centers, participant rights, employment and contractual arrangements with health care providers and other staff, quality assessment and performance improvement activities, participant grievances and appeals, medical records documentation, compliance program activities, and other aspects of our operations and financing.

As a PACE provider that provides qualified prescription drug coverage, we are also subject to requirements applicable to Medicare Part D plan sponsors.

As a PACE provider, we and our centers are subject to audits by CMS and state agencies, which have in the past and may in the future result in the identification of deficiencies in connection with our compliance with regulatory requirements, participant quality of care, care plan development and implementation, grievance and appeal processes, clinicians acting outside of their scope of practice, and other issues.

Risk Factors, “Risks Related to Regulation” for a description of current audits in the States of California, Colorado, and New Mexico and their results.

We expect these audits to continue in the future.

In addition to risks associated with audits of our current centers, we also face risks associated with new centers that we may acquire in the future, which may not have developed the same compliance and quality infrastructure that we currently have in place or are in the process of implementing.

Issues identified through these audits have and may in the future result in corrective action plans, civil monetary penalties, enrollment suspensions, and other financial penalties and enforcement actions, in addition to loss of our contracts with CMS and state agencies.

These laws and guidance relate to our organizational structure, governance, fiscal soundness, marketing activities, participant enrollment and disenrollment, charges to participants, provision of healthcare and other services to participants, care planning activities, service delivery settings and maintenance of centers, participant rights, employment and contractual arrangements with healthcare providers and other staff, quality assessment and performance improvement activities, participant grievances and appeals, medical records documentation, compliance program activities, and other aspects of our operations and financing.

As a PACE provider that provides qualified prescription drug coverage, we are also subject to Medicare laws, regulations, and requirements applicable to Medicare Part D plan sponsors.

The regulations and contractual requirements applicable to PACE providers are complex and subject to change, making it necessary for us to invest significant resources in complying with these requirements.

Scrutiny through federal and state government audits, oversight and enforcement and the highly technical regulatory scheme mean that our compliance efforts in this area will continue to require significant resources.

CMS and state regulatory authorities regularly

audit our performance to determine our compliance with CMS’s regulations and our contracts with CMS and to assess the quality of the services we provide to our participants.

Whether identified through these audits or other avenues, our failure to comply with the federal and state laws applicable to our business have and may continue to result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services.

Scrutiny through federal and state government audits, oversight and enforcement and the highly technical regulatory scheme in which we operate require us to allocate significant resources to our compliance efforts.

In addition, new centers that we may acquire in the future may have less developed compliance and quality infrastructures, which may require us to allocate additional resources to making any required enhancements.

CMS and state regulatory authorities regularly audit our performance to determine our compliance with CMS’s regulations and our contracts with CMS and state authorities, and to assess the quality of the services we provide to our participants.

Such audits have in the past, and may in the future, result in the identification of deficiencies in connection with our compliance with regulatory requirements, participant quality of care, care plan development and implementation, grievance and appeal processes, clinicians acting outside of their scope of practice, and other issues.

Risk Factors, “Risks Related to Regulation” for a description of recent audits in the States of California, Colorado, and New Mexico.

We expect these audits to continue in the future.

Whether identified through such audits or other avenues, our failure to comply with the federal and state laws applicable to our business has and may continue to result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, corrective action plans, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services.

Licensing Laws

We, our healthcare professionals, and our centers are subject to various state and local licensure and certification requirements in connection with our provision of health care and other services.

Specifically, in some of the states in which we operate, we are required to maintain licensure or certification as an adult day health center, home health or home care provider, diagnostic and treatment center, pharmacy provider, clinical laboratory and/or other type of facility, and our employed physicians and other clinicians also must be licensed or certified, as applicable, in the states in which they are providing services.

We, our healthcare professionals and our centers are also subject to a variety of other state laws and regulations, relating to, among other things, the quality of medical care, equipment, privacy of health information, physician relationships, personnel and operating policies and procedures.

In addition to state requirements, we and/or our healthcare professionals are in some cases subject to federal licensing and certification requirements, such as certification or waiver under the Clinical Laboratory Improvement Amendments of 1988 for performing limited laboratory testing and Drug Enforcement Administration registration for writing prescriptions for controlled substances.

In addition, certain of the states where we currently operate or may choose to operate in the future regulate the operations and financial condition of risk bearing providers.

These regulations can include capital requirements, licensing or certification, governance controls and other similar matters.

While the states in which we operate do not currently impose these regulations on entities solely bearing risk under the PACE program, these states or states that we expand into may in the future seek to license or otherwise regulate our operations and financial solvency.

We, our healthcare professionals, and our centers are subject to various state and local licensure and certification requirements in connection with our provision of healthcare and other services.

Specifically, in some of the states in which we operate, we are required to maintain licensure or certification as an adult day health center, home health or home care provider, diagnostic and treatment center, pharmacy provider, clinical laboratory and/or other type of facility, and our affiliated physicians and other clinicians also must be licensed or certified, as applicable, in the states in which they are providing services.

In addition to state requirements, we, our centers, and our healthcare professionals are in some cases subject to federal licensing and certification requirements, such as certification or waiver under the Clinical Laboratory Improvement Amendments of 1988 for performing laboratory services and Drug Enforcement Administration registrations for prescribing, storing, and dispensing controlled substances.

In addition, certain of the states where we currently operate regulate the operations and financial condition of risk bearing providers and impose capital requirements, licensing or certification, governance controls, and other obligations.

While the states in which we operate do not currently impose these regulations on entities solely bearing risk under the PACE

program, these states may seek to license or otherwise regulate our operations and financial solvency in the future;

further, states in which we expand in the future may impose similar requirements on our operations.

Failure to comply with federal, state and local licensing and certification laws, regulations and standards could result in a variety of consequences, including cessation of our services, loss of our contracts, prior payments by payors being subject to recoupment, requirements to make significant changes to our operations, or civil or criminal penalties.

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While we endeavor to comply with federal, state and local licensing and certification laws and regulations and standards as we interpret them, the laws and regulations in these areas are complex, changing and often subject to varying interpretations.

For example, in Pennsylvania, the statutes that pertain to the employment of health care practitioners by health care facilities do not explicitly include a PACE organization in the list of health care facilities by which a health care practitioner may be employed.

Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows and reputation.

Corporate Practice of Medicine

The laws and regulations relating to our operations vary from state to state, and some states in which we operate prohibit general business corporations, such as us, from practicing medicine, controlling physicians’ medical decisions or engaging in some practices such as splitting professional fees with physicians.

In certain states, we currently contract with physicians to provide healthcare services that are required to be provided by licensed physicians.

While we believe that we are in substantial compliance with state laws prohibiting the corporate practice of medicine, other parties may assert that we could be engaged in the corporate practice of medicine.

Further, many such state laws are often vague or have otherwise only been infrequently interpreted by courts or regulatory agencies.

Were allegations to be asserted successfully before the appropriate judicial or administrative forums, we could be subject to adverse judicial or administrative penalties, certain contracts could be determined to be unenforceable and we may be required to restructure our contractual arrangements.

The consequences associated with violating corporate practice of medicine laws vary by state and may result in physicians being subject to disciplinary action, as well as forfeiture of revenues from government payors for services rendered.

For lay entities, violations may also bring both civil and, in more extreme cases, criminal liability for engaging in medical practice without a license.

Some of the relevant laws, regulations and agency interpretations in states with corporate practice of medicine restrictions have been subject to limited judicial and regulatory interpretation.

cases, courts have required companies to divest or reorganize structures deemed to violate corporate practice restrictions.

Moreover, state laws are subject to change.

The laws and regulations relating to our operations vary from state to state, and some states in which we operate prohibit general business corporations, such as us, from practicing medicine, directly employing physicians, controlling physicians’ or other clinicians’ medical decisions, or engaging in some practices such as splitting professional fees with physicians or other clinicians.

In certain states, we contract with physicians to provide healthcare services that are required to be provided by licensed physicians to comply with such requirements.

While we believe that we are in substantial compliance with state laws prohibiting the corporate practice of medicine, regulatory agencies and other parties may assert that we could be engaged in the corporate practice of medicine.

Further, many such state laws are often vague or have otherwise only been infrequently interpreted by courts or regulatory agencies and are subject to change.

The consequences associated with violating corporate practice of medicine laws vary by state and may result in physicians or other clinicians being subject to disciplinary action, as well as forfeiture of revenues from government payors for services rendered.

However, if allegations are successfully asserted before the appropriate judicial or administrative forums, we could be subject to adverse judicial or administrative penalties, certain of our contracts could be determined to be unenforceable, and we may be required to restructure our organization or our contractual arrangements.

Any allegations or findings that we have violated these laws could have a material adverse impact on our reputation, business, results of operations and financial condition.

In addition, agreements between the corporation and the physician could be considered void and unenforceable if in violation of such state laws.

Risk Factors, “Risks Related to Our Business—Laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws could subject us to penalties or require a restructuring of our business.”

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The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid.

Court decisions have held that the statute may be violated even if only one purpose of remuneration is to induce referrals.

In addition, the Affordable Care Act (the “ACA”) amended the federal Anti-Kickback Statute to clarify that a defendant need not have actual knowledge of, or the specific intent to violate, the federal Anti-Kickback Statute in order to have the requisite intent to support an Anti-Kickback Statute violation.

Federal criminal penalties for the violation of the federal Anti-Kickback Statute include imprisonment, fines and exclusion of the provider from future participation in federal healthcare programs, including Medicare and Medicaid.

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Sentencing Guidelines and the Alternate Fines Statute.

Individuals and entities convicted of violating the federal Anti-Kickback Statute are subject to mandatory exclusion from participation in Medicare, Medicaid and other federal healthcare programs for a minimum of five years in the case of criminal conviction.

Civil penalties for violation of the Anti-Kickback Statute include up to $112,131 in monetary penalties per violation, repayments of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.

Court decisions have held that the statute may be violated even if only one purpose of remuneration is to induce referrals.

The Affordable Care Act (the “ACA”) amended the federal Anti-Kickback Statute to clarify the intent that is required to prove a violation.

Under the statute as amended, the defendant does not need to have actual knowledge of the federal Anti-Kickback Statute or have the specific intent to violate it.

In addition, the ACA amended the federal Anti-Kickback Statute to provide that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the FCA.

Individuals and entities convicted of a criminal violation of the federal Anti-Kickback Statute are subject to mandatory exclusion from participation in Medicare, Medicaid, and other federal healthcare programs for a minimum of five years.

Civil penalties for violation of the Anti-Kickback Statute include up to $112,131 in monetary penalties per violation, fines, or penalties of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.

The federal Anti-Kickback Statute includes statutory exceptions and regulatory safe harbors that protect certain arrangements.

These exceptions and safe harbors are voluntary.

Business transactions and arrangements that are structured to comply fully with an applicable safe harbor do not violate the federal Anti-Kickback Statute.

However, transactions and arrangements that do not satisfy all elements of a relevant safe harbor do not necessarily violate the law.

When an arrangement does not satisfy a safe harbor, the arrangement must be evaluated on a case-by-case basis in light of the parties’ intent and the arrangement’s potential for abuse.

To receive safe harbor protection, business transactions and arrangements must meet all the requirements of a safe harbor.

However, transactions and arrangements that do not satisfy

all elements of a relevant safe harbor do not necessarily render the arrangement per se illegal.

When an arrangement does not satisfy a safe harbor, the arrangement must be evaluated upon all facts and circumstances, on a case-by-case basis in light of among other things, the parties’ intent, and the arrangement’s potential for abuse.

Arrangements that do not satisfy a safe harbor may be subject to greater scrutiny by enforcement agencies.

We enter into several arrangements that could potentially implicate the Anti-Kickback Statute if the requisite intent were present, such as:

Additionally, some states have enacted statutes and regulations similar to the federal Anti-Kickback Statute, which may be applicable regardless of the payor source for the patient.

These state laws may contain exceptions and safe harbors that are different from and/or more limited than those of federal law and that may vary from state to state.

We have entered, and may continue to enter, into several arrangements that may not fit squarely within enumerated safe harbors and could potentially implicate the Anti-Kickback Statute if the requisite intent were present, such as:

• Joint Ventures.

To prove the concept of our ability to work with not-for-profits, we operate one of our centers under a joint venture with a not-for-profit healthcare provider.

Although we do not expressly seek to enter into new joint ventures, it is possible that the government payor landscape in certain markets we may attempt to enter in the future may make entering into additional joint ventures attractive.

Investment interests in the joint venture may not fully satisfy a safe harbor.

The Office of Inspector General (the “OIG”) of HHS has warned health care entities in the past that certain joint venture relationships have a potential for abuse.

We operate one of our centers, our Sacramento, California center, under a joint venture with a not-for-profit healthcare provider and may enter other joint ventures with providers and payors in the future.

The Office of Inspector General (the “OIG”) of the Department of Health and Human Services (“HHS”) has warned healthcare entities in the past that certain joint venture relationships have a potential for abuse.

We have endeavored to structure our joint venture to satisfy as many elements of the applicable safe harbor for investments in small entities as we believe are commercially reasonable.

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We endeavor to structure our vendor contracts that include discount or rebate provisions to comply with the federal Anti-Kickback Statute safe harbor for discounts.

● Sales Forces and Participant Recruitment.

• Sales Force and Participant Recruitment.

We employ our own sales force and attempt to meet the Anti-Kickback safe harbor for bona fide employment.

As noted in the examples above, we have endeavored to structure our business arrangements to fit within applicable federal Anti-Kickback Statute safe harbors and to otherwise operate in material compliance with the federal Anti-Kickback Statute and state analogs.

Many of our arrangements are structured to provide for compensation that is fair market value for services actually rendered and in a manner that does not reflect the volume or value of referrals generated between the parties.

In structuring our relationships with providers, including our physician partners, and other healthcare entities, we endeavor to comply with the regulatory requirements of such safe harbors and exceptions.

If any of our business transactions or arrangements, including those described above, were found to violate the federal Anti-Kickback Statute, we could face, among other things, criminal, civil or administrative sanctions, including possible exclusion from participation in Medicare, Medicaid and other state and federal healthcare programs and FCA liability.

Any findings that we have violated these laws could have a material adverse impact on our business, results of operations, financial condition, cash flows, reputation and stock price.

In addition to the federal Anti-Kickback Statute, various states in which we operate have adopted their own anti-kickback statutes.

Specifically, OIG sought to identify ways in which it might modify or add new safe harbors to the Anti-Kickback Statute (as well as exceptions to the definition of “remuneration” in the beneficiary inducements provision of the Civil Monetary Penalty Statute) in order to foster arrangements that promote care coordination and advance the delivery of value-based care, while also protecting against harms caused by fraud and abuse.

OIG issued final rules effective January 19, 2021, that modify existing safe harbors and create new safe harbors and exceptions that may impact our business, results of operations and financial condition.

As part of HHS’s Regulatory Sprint to Coordinated Care, OIG issued a request for information in August 2018 seeking input on regulatory provisions that may act as barriers to coordinated care or value-based care, and issued final rules effective January 19, 2021, that amend the Anti-Kickback Statute by adding new safe harbors and modifying existing safe harbors that protect certain payment practices and business arrangements from sanctions under the Anti-Kickback Statute in order to remove potential barriers to more effective coordination and management of patient care and delivery of value-based care.

Among other changes, the new regulations contain safe harbors for value-based arrangements centering around value-based enterprises, which are enterprises, such as ours, composed of participants collaborating to achieve one or more value-based purposes, including coordinating, and managing the care of a target patient population and coordinating and managing the care of a target population.

These modifications may impact our business, results of operations and financial condition.

Federal Self-Referral Prohibition

The federal Ethics in Patient Referral Act (“Stark Law”) generally prohibits a physician who has (or whose immediate family member has) a financial relationship with a provider from making referrals to that “entity” for “designated health services” if payment for the services may be made under Medicare or Medicaid.

The federal Ethics in Patient Referral Act (“Stark Law”) generally prohibits a physician who has (or whose immediate family member has) a financial relationship with certain types of entities from making referrals to that such entities for “designated health services” if payment for the services may be made under Medicare or Medicaid.

“Designated health services” include clinical laboratory services, inpatient and outpatient hospital services, physical and occupational therapy services, outpatient speech-language pathology services, certain radiology services, radiation therapy services and supplies, durable medical equipment and supplies, parenteral and enteral nutrients equipment and supplies, prosthetics, orthotics and prosthetic devices and supplies, home health services, and outpatient prescription drugs.

If our operations ever result in us being included within the definition of an “entity” under the Stark Law, then any financial relationships that we have with a referring provider would be prohibited unless a statutory or regulatory exception is available.

Providers are prohibited from filing Medicare claims for services related to a prohibited referral and a provider that has billed for prohibited services is obligated to notify and refund the amounts collected from the Medicare program or to make a self-disclosure to CMS under its Self-Referral Disclosure Protocol.

To the extent we fall within the

types of entities to which the Stark Law applies, then we need to ensure that any financial relationships that we have with a referring provider would satisfy a statutory or regulatory exception to the Stark Law prohibition.

Providers are prohibited from billing Medicare and Medicaid for services related to a prohibited referral and a provider that has billed for prohibited services is obligated to notify and refund the amounts collected from the Medicare program or to make a self-disclosure to CMS under its Self-Referral Disclosure Protocol.

Penalties for violation of the Stark Law include denial of payment, recoupment, refunds of amounts paid in violation of the law, exclusion from the Medicare or Medicaid programs, and substantial civil monetary penalties ($27,750 per prohibited item or service and $185,009 if there is a circumvention scheme;

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In addition to the Stark Law, various states in which we operate have adopted their own self-referral prohibition statutes.

As part of the Regulatory Sprint, CMS also issued a sweeping set of regulations that introduce significant new value-based terminology and exceptions to the Stark Law.

CMS has implemented new exceptions for certain remuneration exchanged between or among eligible participants in value-based arrangements.

These exceptions and their various requirements apply based on the level of risk assumed by the arrangement’s participants.

These new regulations purport to ease the compliance burden for healthcare providers across the industry while maintaining strong safeguards to protect patients and programs from fraud and abuse.

It is not yet clear what impact these new rules will have on our business.

The False Claims Act

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The federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state healthcare programs, including but not limited to coding errors, billing for services not rendered, the submission of false cost or other reports, billing for services at a higher payment rate than appropriate, billing under a comprehensive code as well as under one or more component codes included in the comprehensive code, billing for care that is not considered medically necessary and false reporting of risk-adjusted diagnostic codes, encounter data or other information used to determine capitated payments.

The ACA provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.

As noted above, the ACA provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.

In addition, amendments to the FCA and Social Security Act impose severe penalties for the knowing and improper retention of overpayments from government payors.

This could be relevant to the extent we received payments on account of RAF determinations that are based on improper or erroneous records or reports.

This could be relevant to our business the extent we receive payments on account of RAF determinations that are based on improper or erroneous records or reports.

Failure to return overpayments could subject us to liability under the FCA, exclusion from government healthcare programs and penalties under the federal Civil Monetary Penalty Statute.

The penalties for a violation of the FCA may include per claim penalties, plus up to three times the amount of damages caused by each false claim, which can be as much as the amounts received directly or indirectly from the government for each such false claim.

The Department of Justice has adjusted the per claim penalty range from $12,537 to $25,076 for penalties assessed after May 9, 2022, if the underlying conduct occurred after November 2, 2015.

As of January 30, 2023, the minimum False Claims Act penalty increased from $12,537 to $13,508 per claim.

The maximum penalty has increased from $25,076 to $27,018 per claim.

In addition to civil enforcement under the FCA, the federal government can use several criminal statutes to prosecute persons who are alleged to have submitted false or fraudulent claims for payment to the federal government.

Private parties initiate qui tam whistleblower lawsuits against any person or entity under the FCA in the name of the federal government, as well as under the false claims’ laws of several states, and may share in the proceeds of a successful suit.

Generally, federal and state governments have made investigating and prosecuting healthcare fraud and abuse a priority.

Any allegations or findings that we have violated the FCA could have a material adverse impact on our reputation, business, results of operations and financial condition.

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States are becoming increasingly active in using their false claims laws to police the same activities listed above, particularly with regard to capitated government-sponsored healthcare programs, such as Medicaid managed care and PACE.

Under Section 6031 of the Deficit Reduction Act of 2005, as amended, if a state enacts a false claims act that is at least as stringent as the federal statute and that also meets certain other requirements, the state will be eligible to receive a greater share of any monetary recovery obtained pursuant to certain actions brought under the state’s false claims act.

As a result, more states are expected to enact laws that are similar to the federal FCA in the future along with a corresponding increase in state false claims enforcement efforts.

For additional information regarding allegations against us under Federal and State FCA statutes, see Item 1A.

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• presenting, or causing to be presented, claims, reports or records relating to payment by Medicare, Medicaid or other government payors that the individual or entity knows or should know are for an item or service that was not provided as reported, is false or fraudulent or was presented for a physician’s service by a person who knows or should know that the individual providing the service is not a licensed physician, obtained licensure through misrepresentation or represented certification in a medical specialty without in fact possessing such certification;

● offering remuneration to a federal health care program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive health care items or services from a particular provider;

● arranging contracts with or making payments to an entity or individual excluded from participation in the federal health care programs or included on CMS’s preclusion list;

• offering remuneration to a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services from a particular provider, unless an exception applies;

• arranging contracts with or making payments to an entity or individual excluded from participation in the federal healthcare programs or included on CMS’s preclusion list;

• violating the federal Anti-Kickback Statute;

● making, using or causing to be made or used a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal health care program;

● making, using or causing to be made any false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider of services or a supplier under a federal health care program;

• making, using or causing to be made or used a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal healthcare program;

• making, using or causing to be made any false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider of services or a supplier under a federal healthcare program;

• failing to report and return an overpayment owed to the federal government.

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Privacy and Security

The federal regulations promulgated under the authority of HIPAA require us to provide certain protections to our participants and their health information.

The HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require covered entities, which include healthcare providers and their business associates, to implement and maintain administrative, physical and technical safeguards to protect the security of such information.

Additional security requirements apply to electronic PHI.

HIPAA requires covered entities, and the business associates with whom such covered entities contract for services involving the use or disclosure of protected health information to provide certain protections to our participants and their health information.

Through our various service offerings, the Company acts primarily as a covered entity under HIPAA, but may also act as a business associate of other covered entities.

The HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require covered entities and their business associates, to develop and maintain policies and maintain policies and procedures with respect to PHI that is used to disclosed and implement and maintain administrative, physical, and technical safeguards to protect the security of such information.

Additional security

requirements apply to electronic PHI.

These regulations also provide our participants with substantive rights with respect to their health information.

The HIPAA privacy and security regulations also require us to enter into written agreements with certain contractors, known as business associates, to whom we disclose PHI.

A business associate is any person or entity (other than members of a covered entity’s workforce) that performs a service for or on behalf of a covered entity involving the use or disclosure of protected health information.

Covered entities may be subject to penalties for, among other activities, failing to enter into a business associate agreement where required by law or as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity and acting within the scope of the agency.

The HIPAA privacy and security regulations also require covered entities to enter into written agreements with their business associates.

Covered entities may be subject to fines, penalties for, among other activities, failing to enter into a business associate agreement where required by law or as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity and acting within the scope of the agency.

Business associates are also directly subject to liability under certain HIPAA privacy and security regulations.

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Covered entities must notify affected individuals of breaches of unsecured PHI without unreasonable delay but no later than 60 days after discovery of the breach by a covered entity or its agents.

Reporting must also be made to the HHS Office for Civil Rights and, for breaches of unsecured PHI involving more than 500 residents of a state or jurisdiction, to the media.

Reporting must also be made to the HHS Office for Civil Rights (“OCR”) and, for breaches of unsecured PHI involving more than 500 residents of a state or jurisdiction, to the media in accordance with HIPAA requirements.

All impermissible uses or disclosures of unsecured PHI are presumed to be breaches unless an exception to the definition of breach applies or the covered entity or business associate establishes that there is a low probability the PHI has been compromised.

Various state laws and regulations may also require us to notify affected individuals in the event of a data breach involving personal information without regard to the probability of the information being compromised.

Violations of HIPAA by providers like us, including, but not limited to, failing to implement appropriate administrative, physical and technical safeguards, have resulted in enforcement actions and in some cases triggered settlement payments or civil monetary penalties.

Additionally, on December 1, 2022, OCR issued guidance on the use of tracking technologies on websites and mobile applications by covered entities and business associates, indicating that certain information collected by tracking technology vendors from websites and applications may cause a breach under HIPAA.

Violations of HIPAA by covered entities and business associates, including, but not limited to, failing to implement appropriate administrative, physical and technical safeguards, have resulted in enforcement actions and in some cases triggered settlement payments or civil monetary penalties.

Penalties for impermissible use or disclosure of PHI were increased by the HITECH Act by imposing tiered penalties of more than $50,000 (not adjusted for inflation) per violation and up to approximately $1.9 million (not adjusted for inflation) per year for identical violations.

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There can be no assurance that we will not be the subject of an investigation (arising out of a reportable breach incident, audit or otherwise) alleging non-compliance with HIPAA regulations in our maintenance of PHI.

In addition to HIPAA, we may be subject to other laws governing the privacy and security of data, such as the CCPA and data breach notification laws.

We may also be subject to other laws governing the privacy and security of data, such as the CCPA and data breach notification laws.

Additionally, many states also enacted laws that protect the privacy and security of confidential, personal and health information, which may be even more stringent than HIPAA and may add additional compliance costs and legal risks to our operations.

Some state privacy and security laws overlap with federal law, some of which are preempted, in part by federal laws, whereas others are not.

States have also passed privacy and security laws and regulations that apply across sectors and go beyond federal law, such as data security laws, secure destruction, Social Security number privacy, online privacy biometric information privacy, and data breach notification laws.

Some of these state laws impose fines and penalties on violators and afford private rights of action to individuals who believe their personal information has been misused.

Various state laws and regulations also require us to notify affected individuals in the event of a data breach involving personal information without regard to the probability of the information being compromised.

Looking ahead, it is possible that the American Data Privacy and Protection Act (“ADPPA”), a landmark federal privacy bill with significant bipartisan support, may gain traction.

Although ADPPA would not apply to health data covered by HIPAA, it would apply to other health data, such as health data controlled by certain entities in the digital health space.

Various other federal and state laws restrict the use and protect the privacy and security of individually identifiable information, as well as employee personal information, including certain state laws modeled to some extent on the European Union’s General Data Protection Regulation.

Federal and state consumer protection laws, including laws that do not on their face specifically address data privacy or security, have been applied to data privacy and security matters by a range of government agencies and courts.

Healthcare Reform Efforts

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In addition, state and federal budgetary shortfalls and constraints pose potential risks for our revenue streams.

We cannot predict how government payors or healthcare consumers might react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict what form such legislation or regulations will take.

We cannot predict how government payors or healthcare consumers might

react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict what form such legislation or regulations will take.

Some examples of legislative and regulatory changes impacting our business include:

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There have since been numerous political and legal efforts to repeal, replace or modify the ACA, some of which have been successful, in part, in modifying the law.

Although some provisions of the ACA have been and may be modified, the reforms could continue to have an impact on our business in a number of ways.

Provisions of the ACA that impact the Medicare and Medicaid programs, in particular, may have an impact on our business.

Although some provisions of the ACA have been and may be modified, the reforms, particularly those relating to Medicare and Medicaid programs, could continue to have an impact on our business.

These and other provisions of the ACA remain subject to ongoing uncertainty due to developing regulations as well as continuing political and legal challenges at both the federal and state levels.

● There have in recent years been congressional efforts to move Medicaid from an open-ended program with coverage and benefits set by the federal government to one in which states receive a fixed amount of federal funds, either throu gh block grants or per capita caps, and have more flexibility to determine benefits, eligibility or provider payments.

• There have in recent years been congressional efforts to move Medicaid from an open-ended program with coverage and benefits set by the federal government to one in which states receive a fixed amount of federal funds, either through block grants or per capita caps, and have more flexibility to determine benefits, eligibility or provider payments.

If these types of changes are implemented in the future, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA.

• Legislation enacted in 2011 requires CMS to sequester or reduce all Medicare payments, including payments to PACE organizations, by two percent per year for a period of years.

Subsequent legislation extended these cuts through 2031, but legislation enacted in 2020 suspended the cuts during the pandemic.

On December 10, 2021 the “Protecting Medicare and American Farmers from Sequester Cuts Act” extended the 2% Medicare sequester moratorium through March 31, 2022, and adjusted the sequester to 1% between April 1, 2022 and June 30, 2022.

These cuts were reinstated on July 1, 2022 and will negatively impact our revenue.

● The Inflation Reduction Act of 2022 includes a number of provisions intended to lower the costs of some drugs covered under Medicare Part D and to limit Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit.

• The Inflation Reduction Act of 2022 includes a few provisions intended to lower the costs of some drugs covered under Medicare Part D and to limit Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit.

It is not yet clear what effect, if any, these legislative changes and any subsequent implementing regulations and guidance will have on our business.

• The “Medicare Program;

Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly” final rule (“PACE Final Rule”) set out a number of changes for PACE organizations, including (i) clarifying that CMS has enforcement discretion to impose civil monetary penalties or an intermediate sanction in the event CMS has made a determination that could lead to the termination of a PACE program;

and (ii) reinstating the requirement that PACE organizations to enter into written contracts with each outside organization, agency, or individual that furnishes administrative or care-related services not furnished directly by the PACE organization, including 25 medical specialties enumerated by the PACE Final Rule.

While there may be significant changes to the healthcare environment in the future, the specific changes and their timing are not yet apparent.

Specifically, changes in Medicare and Medicaid could lower PACE rates or increase our expenses.

Proposed December 27, 2022, the PACE Final Rule proposed rule included many changes to the current PACE regulations, including consideration of past performance when evaluating PACE organizations’ applications to offer a new PACE program or expand an existing PACE program.

While such changes were not implemented for 2024, we anticipate many such provisions affecting PACE organizations may be addressed for fiscal year 2025 by CMS.

Any failure to successfully implement strategic initiatives that respond to future legislative, regulatory, and executive changes could have a material adverse effect on government-sponsored PACE programs, our business, results of operations and financial condition.

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These regulatory requirements apply to all healthcare facilities, including our community centers, and require employers to make a determination as to which employees may be exposed to blood or other potentially infectious materials and to have in effect a written exposure control plan.

In addition, employers are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls.

In addition, employers are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety

devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls.

Employers are also required to comply with various record-keeping requirements.

Federal and state law also governs the dispensing of controlled substances by physicians.

For example, the Prescription Drug Marketing Act governs the distribution of drug samples.

Physicians are required to report relationships they have with the manufacturers of drugs, medical devices and biologics through the Open Payments Program database.

Federal and state law also governs the purchase, handling, and dispensing of controlled substances by physicians and other clinicians.

If we are unable to maintain our registrations this could limit or affect our ability to purchase, handle, or dispense controlled substances and other violations of these laws could subject us to criminal or other sanctions.

In addition, certain laws may apply to activities of our affiliated physicians and clinicians.

For example, the Prescription Drug Marketing Act governs the provision of drug samples to physicians and other clinicians, and physicians and other clinicians are required to report relationships they have with the manufacturers of drugs, medical devices and biologics through the Open Payments Program database.

Clinical laboratories may be subject to oversight by CMS and state regulators, including the Eliminating Kickbacks in Recovery Act of 2018.

If our laboratories or laboratories that we partner with are not in compliance with the applicable CMS or state laws or regulations, they could be subject to enforcement action, which could negatively affect our business.

We have in the past and continue to intend to grow our business through acquisitions in the states in which we currently operate or in new states that we seek to enter.

Several states, including California, have adopted laws focused on competition, quality, access, and cost that authorize state agencies to review and approve healthcare transactions, and many other states, including Pennsylvania, are considering similar legislation.

Such laws may negatively affect our ability to grow our business.

Any allegations or findings that we or our providers have violated any of these laws or regulations could have a material adverse impact on our reputation, business, results of operations and financial condition.

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Any failure to comply with such regulatory requirements could adversely impact our business, results of operations and financial condition.

Impact of COVID-19 and Macroeconomic Conditions

The COVID-19 pandemic altered the behavior of businesses and people, the effects of which continue on federal, state and local economies.

The virus has and continues to disproportionately impact older adults, especially those with chronic illnesses, which describes our participants.

The United States continues to experience supply chain issues with respect to personal protective equipment (“PPE”) and other medical supplies used to prevent transmission of COVID-19.

During the years ended June 30, 2022 and 2021, we acquired significantly greater quantities of medical supplies at significantly higher prices than pre-pandemic rates to ensure the safety of our employees and our participants.

Costs related to PPE medical supplies represented approximately 0.6% and 0.6% of our total cost of care for the years ended June 30, 2022 and 2021, respectively.

These costs did not have a material effect on our business or expenses.

Labor market .

The COVID-19 pandemic has and continues to exacerbate difficulties to hire additional healthcare professionals, causing certain of our centers to be understaffed or staffed with personnel that requires training.

The labor shortage has also contributed to the increased wage pressure to retain and attract such healthcare professionals.

The combination of increased wage pressure and labor shortage amongst healthcare personnel, and specifically, trained personnel, has impacted and may continue to impact our expenses and ability to adhere to the complex government laws and regulations that apply to our business.

Additionally, geopolitical events have contributed to adverse macroeconomic conditions, including but not limited to inflation, new or increased tariffs, changes to fiscal monetary policy, higher interest rates, potential global security issues and market volatility.

None of these factors have had a material effect on our operations to date.

Trademarks and Intellectual Property

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We compete directly with national, regional and local providers of healthcare for participants and clinical providers.

We also compete with payors and other alternate managed care

programs for participants.

We also compete with payors and other alternate managed care programs for participants.

Of these providers, there are many other companies and individuals currently providing healthcare services, many of which have been in business longer and/or have substantially more resources.

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Our principal competitors for dual-eligible seniors vary considerably in type and identity by market.

Sanctions imposed on our Sacramento, California center and our Colorado centers have adversely affected and may continue to affect our ability to grow our business and recruit qualified physicians and could cause participant attrition to our competitors.

Our growth strategy and our business could be adversely affected if we are not able to compete efficiently, including penetrating existing markets or new markets, recruit qualified physicians or if we experience significant participant attrition to our competitors.

Risk Factors—Risks Related to Our Business—The healthcare industry is highly competitive and, if we are not able to compete effectively, our business could be harmed.”

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Medical costs will vary seasonally depending on a number of factors, but most significantly the weather.

Certain illnesses, such as the influenza virus and possibly COVID-19, are far more prevalent during colder months of the year, which will result in an increase in medical expenses during these time periods.

We would therefore expect to see higher levels of per-participant medical costs in our second and third quarters.

Medical costs also depend upon the number of business days in a period, and shorter periods will have lower medical costs.

Certain illnesses, such as the influenza virus and COVID-19, are far more prevalent during colder months of the year, which results in an increase in medical expenses during these time periods.

We therefore see higher levels of per-participant medical costs in our second and third fiscal quarters.

Medical costs also depend upon the number of business days in a period, and shorter periods will have lower

medical costs.

Business days can also create year-over-year comparability issues if a period in one year has a different number of business days compared to the same period in another.

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We launched employee engagement surveys in fiscal year 2022, and we are implementing action plans with all staff groups based on survey findings and opportunities uncovered.

We intend to monitor progress by releasing multiple engagement surveys annually.

We have recently added proven, experienced leaders at the executive level, including our new Chief Executive Officer and President, Patrick Blair, and our new Chief Medical Officer, Chief People Officer, and Chief Business Development Officer.

We intend to monitor progress by releasing multiple engagement surveys at least annually.

We continue to evaluate talent needs at the senior management level, aiming to hire ahead of the curve as the business evolves and to assess and respond to any gaps in our capabilities.

At InnovAge, we strive to be a reflection of the diverse communities that we serve.

We are committed to promoting diversity, equity, and inclusion across all teams at InnovAge and we believe in creating an environment where individual differences are respected and embraced.

In our most recent engagement survey conducted in April 2022, 79.2% of employees indicated that they feel that they can be their authentic selves at work.

We are steadfastly dedicated to fostering an atmosphere that champions diversity, equity, and inclusion throughout all sectors of InnovAge.

Our commitment remains in building a culture where individual distinctions are not just acknowledged but deeply valued.

In our previous engagement survey from April 2022, 79.2% of employees indicated that they feel that they can be their authentic selves at work.

As part of our continuous journey to engage and understand our teams better, we plan to conduct our annual engagement survey during September 2023.

We look forward to our employees’ invaluable feedback, as it plays a pivotal role in shaping our collective future.

As of June 30, 2023, our employed workforce was comprised of individuals who identified as women – 77%, and minorities – 49%.

Six of nine members of our executive leadership team identify as women.

Five of nine members of our executive leadership team identify as women as of June 30, 2023.

Training and Development

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Our clinical leaders also conduct separate physician leadership trainings quarterly, with a new topic for each installment (e.g., email / phone etiquette).

We also launched a training needs assessment survey in August 2020 to hear directly from employees and managers where they think they could use more support and learning content in the coming year.

As a result of these assessment surveys, the Company has developed trainings tailored to the most prevalent needs identified by our employees.

We also conduct a periodic training needs assessment surveys to hear directly from employees and managers where they think they could use more support and learning content in the coming year.

These assessment surveys, allow the Company to develop trainings tailored to the most prevalent needs identified by our employees.

Implications of being an emerging growth company and a smaller reporting company

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We will remain an emerging growth company until the earlier of (1) June 30, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the date on which we are deemed to be a large accelerated filer or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Additionally, we qualify as a “smaller reporting company,” and even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company” based on the aggregate worldwide market value of common equity securities held by non-affiliates assessed on an annual basis and measured as of the last business day of the issuer’s most recently completed second fiscal quarter.

As an emerging growth company and a smaller reporting company, we may take advantage of reduced reporting requirements that are otherwise applicable to public companies.

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We include our website address on this Annual Report on Form 10-K for reference only.

The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with the SEC.

The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with, or furnish to, the SEC.

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-K

Item 1. Business