What changed in this filing

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Item 1. Business

2023-03-01 compared with 2022-03-01 · 76 added, 68 removed, 468 unchanged (24% of the section changed)

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and its subsidiaries are referred to herein as "Surgery Partners," "we," "us," "our" or the "Company."

As of December 31, 2021, we owned or operated primarily in partnership with physicians, a portfolio of 126 surgical facilities in the United States ("U.S.") comprised of 108 ambulatory surgical centers ("ASCs") and 18 surgical hospitals ("surgical hospitals," and together with ASCs referred to as "surgical facilities" or "facilities") across 31 states, including a majority interest in 88 of the surgical facilities.

As of December 31, 2022, we owned or operated primarily in partnership with physicians, a portfolio of 146 surgical facilities in the United States ("U.S.") comprised of 127 ambulatory surgical centers ("ASCs") and 19 surgical hospitals ("surgical hospitals," and together with ASCs, referred to in this report as "surgical facilities" or "facilities") across 31 states, including a majority interest in 93 of the surgical facilities.

During 2022, patient services provided in our surgical facilities generated approximately $2.4 billion in revenue.

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• Become the partner of choice for physicians seeking to become or stay independent;

• Become the employer of choice by attracting, engaging, retaining, developing and promoting talent;

• Drive organic growth at existing facilities through targeted physician recruitment, service line expansion and implementing our efficient operating model;

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Based on management estimates, we believe that the total U.S.

surgical facility market represents approximately $90 billion in annual revenue, including approximately $55 billion of hospital outpatient department procedures and $35 billion of ambulatory surgical center procedures, and we believe that ambulatory surgical centers are capturing an increasing share of the total surgical procedure market.

We estimate that as a result of this trend, total annual procedure volume is expected to grow over the next few years by approximately 2% in hospital outpatient departments and by approximately 6% in ambulatory surgery centers, while inpatient procedures will decline by approximately 2% during the same period.

In addition, we believe that approximately $60 billion of inpatient surgical cases have the potential to move to outpatient surgery centers, which, together with procedures performed at hospital outpatient departments and ambulatory surgical centers, represents what we believe is a total addressable market of approximately $150 billion.

outpatient surgical facility market represents approximately $90 billion in annual revenue, including approximately $55 billion of hospital outpatient department procedures and $35 billion of ambulatory surgical center procedures, and we believe that ASCs are capturing an increasing share of the total surgical procedure market.

We estimate that as a result of this trend, total annual procedure volume is expected to grow over the next few years by approximately 2% in hospital outpatient departments and by approximately 6% in ASCs, while inpatient procedures will decline by approximately 2% during the same period.

In addition, we believe that approximately $60 billion of inpatient surgical cases have the potential to move to outpatient surgery centers, which, together with procedures performed at hospital outpatient departments and ASCs, represents what we believe is a total addressable market of approximately $150 billion.

Patient and Physician Satisfaction

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According to a survey of health and life safety tags, our ASCs averaged 25% fewer deficiencies compared with the total market, with 6.3 deficiencies at our ASCs compared to 8.4 in other ASCs.

Similarly, our surgical hospitals averaged 48% fewer deficiencies per survey compared to all other hospitals surveyed, with 17.6 deficiencies for our surgical hospitals compared with 33.7 deficiencies at other hospitals according to a 2019 industry survey.

In addition, 71% of our surgical hospitals in 2019 were rated five star in the CMS star rating, with the remaining 29% rated four star.

This has resulted in an average patient net promoter score of 94, based on patient satisfaction surveys conducted from December 2019 to May 2020.

In addition, 94% of our surgical hospitals were rated four to five stars in the CMS star rating.

This has resulted in an overall patient experience score of 95, based on patient satisfaction surveys conducted from May 2022 to July 2022.

Impact of COVID-19

The COVID-19 pandemic has significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as the U.S.

The public health and economic effects of the COVID-19 pandemic have significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as the U.S.

economy and financial markets.

The COVID-19 pandemic materially impacted our financial performance for the year ended December 31, 2020, and has continued to impact our financial performance during the year ended December 31, 2021.The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures typically performed.

Although we cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, which is difficult to predict and is dependent on factors beyond our control, we saw improvement in

surgical case volumes as states re-opened and allowed for non-emergent procedures.

We cannot predict if or when utilization may return to pre-pandemic levels.

The Company continues to monitor legislative actions at federal and state levels, including the impact of the CARES Act and other governmental assistance that might be available.

During 2021, we operated in two reporting segments:

The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures typically performed.

We cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, which is difficult to predict and is dependent on factors beyond our control.

Taking into account the pandemic and other factors, the United States economy has recently experienced general inflationary pressures, significant disruptions to global supply networks, and an extremely competitive labor market.

We have incurred, and may continue to incur, certain increased expenses arising from the pandemic and these economic conditions, including additional labor, supply chain, capital and other expenditures.

While we have implemented cost containment and other measures to try to counteract these developments, we may be unable to fully offset these increases in our costs and otherwise effectively respond to supply disruptions.

The Company is monitoring legislative actions at federal and state levels, including the impact of the CARES Act and other governmental programs related to the COVID-19 public health emergency.

On January 30, 2023, the Biden Administration announced its intent to end the COVID-19 public health emergency declaration effective as of the end of the day on May 11, 2023.

As a result of the expiration of the public health emergency, many Medicare and Medicaid waivers and broad flexibilities deemed necessary to expand healthcare system capacity and to allow the health care system to weather the heightened strain created by COVID-19 will come to an end.

During 2022 and 2021, we operated in two reporting segments:

Surgical Facility Services and Ancillary Services.

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Our surgical facilities primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics and pain management, ophthalmology, gastroenterology ("GI") and general surgery.

• Our Ancillary Services segment consisted of a diagnostic laboratory and multi-specialty physician practices, including physician practices owned and operated pursuant to long-term management service agreements.

During the third quarter of 2020, we closed our diagnostic laboratory.

• Our Ancillary Services segment consisted of multi-specialty physician practices, including physician practices owned and operated pursuant to long-term management service agreements, and prior to 2021, a diagnostic laboratory, which was closed during the third quarter of 2020.

• Our Optical Services segment consisted of an optical products group purchasing organization, which was divested on December 31, 2020.

Our Optical Services segment was not a material component of our total revenue, contributing less than 1% in each of 2020 and 2019.

Our Optical Services segment was not a material component of our total revenue, contributing less than 1% in 2020.

Surgical Facility Services Segment

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As of December 31, 2022, we owned or operated primarily in partnership with physicians, 146 surgical facilities, including 127 ASCs and 19 licensed surgical hospitals.

Our Surgical Facility Services segment contributed approximately 97%, 96% and 95% of our total revenue in 2021, 2020 and 2019, respectively.

Our surgical facilities generally are located in close proximity to physicians’ offices.

Our Surgical Facility Services segment contributed approximately 97% of our total revenue in each of 2022 and 2021, and 96% of our total revenue in 2020.

Our typical ASC is a free-standing facility that performs planned surgical procedures on an outpatient basis for patients not requiring hospitalization and for whom an overnight stay is not expected after surgery.

Each center typically has one to four operating or procedure rooms with areas for reception, pre-operative care, recovery and administration.

Each ASC usually has one to seven operating or procedure rooms with areas for reception, pre-operative care, recovery and administration.

The staff of our ASCs generally includes a center administrator, registered nurses, operating room technicians, as well as other administrative staff.

Our surgical hospitals are generally larger than our ASCs and include inpatient hospital rooms and, in certain cases, emergency departments.

Our surgical hospitals generally are larger than our ASCs and include inpatient hospital rooms and, in certain cases, emergency departments.

Our surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care.

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In many cases, we keep certain facilities as single-specialty where it suits an individual facility or market demand.

Our surgical facilities are generally located in close proximity to physicians’ offices.

We provide each of our surgical facilities with a full range of financial, marketing and operating services.

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We generally seek to own a majority interest in our surgical facilities or otherwise have sufficient control over the facilities in order to consolidate the financial results.

In some instances, we will acquire ownership in a surgical facility with the prior owners retaining ownership, and, in some cases, we offer new ownership to other physicians or health care systems.

We hold majority ownership in 88 of the 126 surgical facilities in which we own an interest.

In some instances, we acquire ownership in a surgical facility with the prior owners retaining ownership, and, in some cases, we offer new ownership to other physicians or health care systems.

We hold majority ownership in 93 surgical facilities in which we own an interest.

We provide intercompany loans to some of the surgical facilities which often are secured by a pledge of assets of the facility.

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We believe that forming such strategic relationships can enhance our ability to attract physicians and access favorable private insurance contracts for our surgical facilities in that market.

The strategic relationships through which we own and operate surgical facilities are governed by partnership and operating agreements that are generally comparable to the partnership and operating agreements of the other surgical facilities in which we own an interest.

The primary difference between the structure of these strategic relationships and the other surgical facilities in which we hold ownership is that,

in these strategic relationships, a health care system holds ownership in the surgical facility in addition to physician investors.

The strategic relationships through which we own and operate surgical facilities are governed by partnership and operating agreements that generally are comparable to the partnership and operating agreements of the other surgical facilities in which we own an interest.

The primary difference between the structure of these strategic relationships and the other surgical facilities in which we hold ownership is that, in these strategic relationships, a health care system holds ownership in the surgical facility in addition to physician investors.

In each of these strategic relationships, we also have entered into a management agreement under which we provide day-to-day management services for a management fee equal to a percentage of the revenues of the surgical facility.

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Medicare Reimbursement - Hospital Inpatient Services

Eighteen of our surgical facilities are licensed as hospitals.

Nineteen of our surgical facilities are licensed as hospitals.

Most inpatient services provided by hospitals are reimbursed by Medicare under the inpatient prospective payment system ("IPPS").

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Under the FFY 2022 final rule, rates for inpatient stays in hospitals paid under the IPPS that successfully report certain quality data under the Hospital Inpatient Quality Reporting ("IQR") Program and demonstrate meaningful use of certified electronic health record ("EHR") technology will be increased by 4.3%.

Those hospitals that do not successfully report quality data under the IQR Program (but are meaningful EHR users) may receive a payment rate increase of only 1.87%.

Those hospitals that do not successfully report quality data under the IQR Program (but are meaningful EHR users) would be subject to a one-fourth reduction in their annual payment update.

In addition to the IQR Program, hospitals will be subject to payment adjustments under the Value Based Purchasing Program, Readmissions Reduction Program and Hospital Acquired Conditions Reduction Programs that have been implemented by the Department of Health and Human Services ("HHS").

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The OPPS, established by the Secretary of HHS, determines payment amounts prospectively (generally the following calendar year) for various categories of medical services performed in HOPDs.

On December 2, 2021, CMS published its OPPS final rule for 2022.

On November 1, 2022, CMS published its OPPS final rule for 2023.

The final rule provides for a payment rate increase of 3.8%.

Hospitals that do not meet the reporting requirements of the Medicare Hospital Outpatient Quality Reporting Program will be subject to a 2.0% payment rate decrease.

Additionally, as a result of legislative changes related to off-campus HOPDs, certain off-campus HOPDs that began billing under the OPPS (or underwent certain changes) on or after November 2, 2015 are no longer paid for most services under the OPPS.

On November 1, 2022, CMS additionally released final updates to its Medicare Part B drug payment policy for hospitals participating in the 340B drug pricing program.

The policy change was included in the OPPS final rule, which outlines the 2023 OPPS payment rates.

Under the new policy, Medicare will pay lower rates to all OPPS participating HOPDs for non-drug services.

As a result of legislative changes related to off-campus HOPDs, certain off-campus HOPDs that began billing under the OPPS (or underwent certain changes) on or after November 2, 2015 are no longer paid for most services under the OPPS.

Instead, these facilities are paid under the Medicare Physician Fee Schedule ("MPFS"), which typically results in lower reimbursements.

provided in a dedicated emergency department are still paid under the OPPS.

Services provided in a dedicated emergency department are still paid under the OPPS.

This change has not significantly affected reimbursement to any of our HOPDs, but we cannot assure you that our HOPDs will not be impacted in the future.

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The Company, physicians and patients benefit from these services through improved clinical efficiency and scheduling, and from incremental revenue associated with retaining fees for these services.

Our Ancillary Services segment contributed approximately 3% of our total revenue in both 2021 and 2020 and 4% of our total revenue in 2019 and inlcuded the following:

• Until it was closed in the third quarter of 2020, we offered physicians toxicology testing services through our wholly-owned diagnostic laboratory based in Tampa, Florida.

Our Ancillary Services segment contributed approximately 3% of our total revenue in each of 2022, 2021 and 2020.

We employ two models in our network of multi-specialty physician practices.

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In the other model, we operate physician practices pursuant to long-term management service agreements with separate professional corporations that are wholly-owned by physicians.

Until it was closed in the third quarter of 2020, we offered physicians toxicology testing services through our wholly-owned diagnostic laboratory based in Tampa, Florida.

Sources of Revenue - Ancillary Services Segment

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We generally structure our partnerships where either we are a majority owner partnered with physicians or we are a minority owner with buy-up rights.

These buy-up rights give us the option to own a controlling interest at some point in the future.

up rights give us the option to own a controlling interest at some point in the future.

Alternatively, we may choose to pursue a strategic relationship with physicians and a health care system.

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We believe that the competitive factors that affect our surgical facilities’ ability to compete for physicians are convenience of location of the surgical facilities, quality of care offered, convenience of scheduling, professionalism and cleanliness of facilities, access to capital and participation in private insurance programs.

In addition, we believe the national prominence, scale and reputation of our company are instrumental in attracting physicians.

In addition, we believe our national prominence, scale and reputation are instrumental in attracting physicians.

We believe that our surgical facilities attract patients based upon our quality of care, the specialties and reputations of the physicians who operate in our surgical facilities, participation in managed care programs, ease of access and convenient scheduling and registration procedures.

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None of our employees are represented by a collective bargaining agreement.

Our mission is to enhance patient quality of life through partnership.

We appreciate that our colleagues are key to creating value and believe that we have a good relationship with them.

We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and conditions relating to employment.

In several markets, nurse and medical support personnel availability has become a significant operating issue to healthcare providers.

To address this challenge, we have implemented several initiatives to improve engagement, retention, recruiting, compensation programs and productivity.

We have established, and continue to enhance and refine, a comprehensive set of practices for engaging, recruiting, developing, managing and optimizing the human resources of our organization.

In general, we seek to attract, develop and retain an engaged workforce and improve talent management processes accordingly.

We offer a competitive range of compensation and benefit programs.

We also are committed to the health and safety of our patients, employees, and medical staff, including the implementation of additional safety measures in light of the COVID-19 pandemic and CMS COVID Vaccination Regulations.

Our code of conduct promotes integrity, accountability and transparency, among other high ethical standards and a focus on employee welfare.

Our surgical facilities are staffed by licensed physicians.

Our mission is to enhance patient quality of life through partnership.

We generally do not enter into contracts with physicians who use our surgical facilities, other than partnership and operating agreements with physicians who own interests in our surgical facilities, agreements for anesthesiology services and medical director agreements.

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Our operations are dependent on the efforts, abilities and experience of our physicians and clinical personnel.

We compete with other health care providers, primarily hospitals and other surgical facilities, in attracting physicians to utilize

our surgical facilities, nurses and medical staff to support our surgical facilities, recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our facilities.

We compete with other health care providers, primarily hospitals and other surgical facilities, in attracting physicians to utilize our surgical facilities, nurses and medical staff to support our surgical facilities, recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our facilities.

Our surgical facilities, like most healthcare providers, have experienced rising labor costs.

In several markets, nurse and medical support personnel availability has become a significant operating issue to healthcare providers.

To address this challenge, we have implemented several initiatives to improve engagement, retention, recruiting, compensation programs and productivity.

We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel or to hire more expensive temporary or contract personnel.

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We have a Diversity, Equity, Inclusion & Community Impact Council comprised of employees with diverse backgrounds, experiences or characteristics who share a common interest in improving corporate culture and delivering sustained business results.

Our workforce is comprised of approximately 81% female and 30% people of color.

Our policies prohibit discrimination on the basis of race, sex, religion, color, national or ethnic origin, age, disability, sexual orientation, gender identity, gender expression, military service, pregnancy, physical or mental disabilities, genetic information, or any other class protected by applicable law in its administration of policies, programs or employment.

We have established, and continue to enhance and refine, a comprehensive set of practices for engagement, recruiting, developing, managing and optimizing the human resources of our organization.

In general, we seek to attract, develop and retain an engaged workforce and improve talent management processes accordingly.

We offer a competitive range of compensation and benefit programs.

In light of the ongoing COVID-19 pandemic and CMS COVID Vaccination Regulations, we have implemented changes to address the safety and interests of our patients, employees, and medical staff, including the implementation of additional safety measures.

Our code of conduct promotes integrity, accountability and transparency, among other high ethical standards and a focus on employee welfare.

Environmental

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Governmental Regulation

Our businesses are subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights, discrimination, building codes and medical waste and other environmental issues.

We are subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights, discrimination, building codes and medical waste and other environmental issues.

Federal, state and local governments are expanding the regulatory requirements on businesses like ours.

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Regulatory Development in Response to COVID-19

Numerous recent legislative and regulatory actions have been taken in an attempt to provide businesses, including health care providers, with relief from the negative impacts of the COVID-19 pandemic.

Numerous legislative and regulatory actions were taken in an attempt to provide businesses, including health care providers, with relief from the negative impacts of the COVID-19 pandemic.

The legislative and regulatory responses to the COVID-19 pandemic generally impact many of the statutes, regulations and policies summarized or discussed throughout this Annual Report.

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The healthcare-specific provisions include:

• the temporary suspension of Medicare sequestration from May 1, 2020, to December 31, 2021;

• the temporary suspension of Medicare sequestration, which began May 1, 2020 and ultimately was extended to April 1, 2022.

The sequestration adjustment was phased back in with a 1% reduction beginning April 1, 2022, and returned to 2% on July 1, 2022.

• an appropriation of $100 billion to the Public Health and Social Services Emergency Fund for a new program to reimburse, through grants or other mechanisms, eligible health care providers and other approved entities for COVID-19-related expenses or lost revenues;

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These changes included greater clarity on the measurement of lost revenues eligible to be claimed against grant funds received through the CARES Act as well as how funds can be allocated among consolidated facilities.

HHS’ interpretation of the underlying terms and conditions of grant funds received through the CARES Act, the Bill and other governmental assistance programs, including auditing and reporting requirements, continues to evolve.

Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such payments may result in our inability to recognize certain payments, changes in the estimate of amounts recognized, or the derecognition of amounts previously recognized, including the amount estimated and included in our consolidated statement of operations for the year ended December 31, 2021 provided herein.

The underlying terms and conditions of grant funds received through the CARES Act, the Bill and other governmental assistance programs, including auditing and reporting requirements, was initially subject to changing and evolving interpretation by HHS.

Such changes may be material.

We continue to closely monitor legislative actions and regulatory guidance at the federal, state and local levels with respect to the CARES Act as other governmental assistance might become available to us.

For more information, please refer to Note 1.

"Organization and Summary of Accounting Policies - COVID-19 Pandemic" to our audited consolidated financial statements for the year ended December 31, 2021 included elsewhere herein.

"Organization and Summary of Accounting Policies - Medicare Accelerated Payments and Deferred Government Grants" to our audited consolidated financial statements for the year ended December 31, 2022 included elsewhere herein.

Waivers or Temporary Suspension of Certain Regulatory Requirements

In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation that has been passed by Congress, CMS and many state governments have also issued a number of waivers and temporary suspensions of health care facility licensure, certification, and reimbursement requirements in order to provide hospitals, ambulatory surgery centers, physicians, and other health care providers with increased flexibility to meet the challenges presented by the COVID-19 public health emergency.

For example, CMS has temporarily waived the enforcement of certain requirements of the Medicare conditions of participation and implemented a "hospitals without walls" program that would enable hospitals to treat patients in temporary locations and enable ASCs to temporarily enroll in Medicare as hospitals.

CMS has also temporarily waived many provisions of the federal physician self-referral law, or Stark Law, including those provisions of the Stark Law that prohibit our hospitals with physician ownership from expanding capacity.

In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation that has been passed by Congress, CMS and many state governments have also issued a number of waivers and temporary suspensions of health care facility licensure, certification, and reimbursement requirements in order to provide hospitals, ASCs, physicians, and other health care providers with increased flexibility to meet the challenges presented by the COVID-19 public health emergency.

Many states have also suspended the enforcement of certain regulatory requirements to ensure that health care providers have sufficient capacity to treat COVID-19 patients.

These regulatory changes are temporary, and we anticipate substantially all requirements will be reinstated in all material respects at the conclusion of the public health emergency.

Anticipated Expiration of Public Health Emergency

On January 30, 2023, the Biden Administration announced its intent to end the COVID-19 public health emergency declaration effective as of the end of the day on May 11, 2023.

We continue to closely monitor legislative actions and regulatory guidance at the federal, state and local levels with respect to the CARES Act and other governmental programs related to the COVID-19 public health emergency.

Certificates of Need, Licensure and Accreditation

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In addition, even though our surgical facilities that are licensed as hospitals primarily provide surgical services, they must meet all applicable requirements for general hospital licensure.

To assure continued compliance with these regulations, governmental and other authorities periodically inspect our surgical

To assure continued compliance with these regulations, governmental and other authorities periodically inspect our surgical facilities.

The failure to comply with these regulations could result in the suspension or revocation of a facility’s license.

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We cannot predict how, if at all, the various initiatives set forth in the executive order will be implemented by the regulatory agencies involved or the impact that the executive order will have on operations.

For example, the FTC recently published a proposed rule that would prohibit employers from entering into non-compete agreements and nullify existing non-competes.

Affordable Care Act Repeal Efforts

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Supreme Court dismissed a case that sought to invalidate the Affordable Care Act;

However, the Affordable Care Act remains subject to various lawsuits challenging its enforcement and constitutionality.

however, the Affordable Care Act remains subject to various challenges.

Accordingly, there can be no assurance that the adoption of any future federal or state health care reform legislation, or any ruling by a court with respect to the Affordable Care Act, will not have a negative financial impact on the Company.

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Our surgical facilities must also satisfy the conditions of participation to be eligible to participate in the various state Medicaid programs.

The requirements for certification under Medicare and Medicaid are subject

to change and, in order to remain qualified for these programs, we may have to make changes from time to time in our facilities, equipment, personnel or services.

The requirements for certification under Medicare and Medicaid are subject to change and, in order to remain qualified for these programs, we may have to make changes from time to time in our facilities, equipment, personnel or services.

Although we intend to continue to participate in these reimbursement programs, we cannot ensure that our surgical facilities will continue to qualify for participation.

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In OIG Advisory Opinion No.

09-09 (July 29, 2009), the OIG concluded that an arrangement involving an ASC joint venture between a hospital and physicians involving the combination of their two ASCs into a single, larger ASC presented minimal risk of fraud or abuse, despite the fact that it did not fit within any applicable Anti-Kickback safe harbors.

despite the fact that it did not fit within any applicable Anti-Kickback safe harbors.

Additionally, the OIG stated that fair market value should be determined based only on the tangible assets of each ASC since the physician investors are referral sources for the ASC.

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recently enacted a new law known as the Eliminating Kickbacks in Recovery Act (the "EKRA").

The EKRA is contained within the broader Substance Use Disorder Prevention that Promotes Opioid Recovery and

Treatment for Patients and Communities Act (the "SUPPORT Act").

The EKRA is contained within the broader Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the "SUPPORT Act").

The EKRA creates a new federal crime for knowingly and willfully:

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HHS has allocated increased funding towards HIPAA enforcement activity and such enforcement activity has seen a marked increase over recent years.

We cannot predict whether our surgical facilities will be able to comply with the final rules and the financial impact to our surgical facilities in implementing

the requirements under the final rules when they take effect, or whether our surgical hospitals will be selected for an audit, or the results of such an audit.

We cannot predict whether our surgical facilities will be able to comply with the final rules and the financial impact to our surgical facilities in implementing the requirements under the final rules when they take effect, or whether our surgical hospitals will be selected for an audit, or the results of such an audit.

Our facilities also remain subject to any state laws that relate to privacy or the reporting of data breaches that are more restrictive than the regulations issued under HIPAA and the requirements of the HITECH Act.

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Many state insurance laws and regulations are broadly worded and could be implicated, for example, if our surgical facilities were to adjust an out-of-network co-payment or other patient responsibility amounts without fully disclosing the adjustment on the claim submitted to the payor.

While some of our surgical facilities adjust the out-of-network costs of patient co-payment and deductible amounts to reflect in-network co-payment costs when providing services to patients whose health insurance is covered by a payor with which the surgical facilities are not contracted, our policy is to fully disclose adjustments in the claims submitted to the payors.

which the surgical facilities are not contracted, our policy is to fully disclose adjustments in the claims submitted to the payors.

We believe that our surgical facilities are in compliance with all applicable state insurance laws and regulations regarding the submission of claims.

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In light of these restrictions, in certain states we facilitate the provision of physician services by maintaining long-term management services agreements through our subsidiaries with affiliated professional contractors, which employ or contract with physicians and other health care professionals to provide physician professional services.

Under these arrangements, our subsidiaries perform only non-medical administrative services, do not represent that they offer medical services and do not exercise

influence or control over the practice of medicine by the physicians employed by the affiliated professional contractors.

Under these arrangements, our subsidiaries perform only non-medical administrative services, do not represent that they offer medical services and do not exercise influence or control over the practice of medicine by the physicians employed by the affiliated professional contractors.

Although we believe that the fees we receive from affiliated professional contractors have been structured in a manner that is compliant with applicable fee-splitting laws, it is possible that a government regulator could interpret such fee arrangements to be in violation of certain fee-splitting laws.

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However, we cannot provide any assurances that our compliance program will detect all violations of law or protect against qui tam suits or government enforcement actions.

“Controlled Company” Status

Prior to the completion of a public offering of our common stock and a concurrent private placement in the fourth quarter of 2022, we were a “controlled company” within the meaning of Nasdaq rules and qualified for exceptions from certain corporate governance and other requirements.

Although we are no longer a “controlled company” within the meaning of the rules of Nasdaq, we may qualify for certain exceptions during a one-year transition period and our largest stockholder continues to have significant influence over the Company.

“Risk Factors-Governance Risks-Our largest stockholder has significant influence over us, including influence over decisions that require the approval of stockholders, which could limit our stockholders’ ability to influence the outcome of key transactions, including a change of control.”

Where You Can Find More Information

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

What changed 10-K

Item 1. Business