What changed in this filing

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Item 1. Business

2024-02-26 compared with 2023-03-01 · 75 added, 102 removed, 442 unchanged (29% 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, 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.

We are a leading healthcare services company with an integrated outpatient delivery model focused on providing high-quality, cost-effective solutions for surgical and related ancillary care in support of both patients and physicians.

We are one of the largest and fastest growing surgical services businesses in the United States ("U.S."), with more than 180 locations in 33 states, including ambulatory surgery centers ("ASCs"), short-stay surgical hospitals ("surgical hospitals"), and multi-specialty physician practices, among others.

Patient services provided in our ASCs and surgical hospitals (collectively, "surgical facilities" or "facilities") generated approximately $2.6 billion in revenue during 2023.

Our Growth Strategies

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• Seek partnership opportunities with payors to make health care more affordable for their members;

• Seek partnership opportunities with health systems looking to develop and/or enhance their ambulatory surgery footprint to better meet the needs of the patients and medical staff;

• Continue our disciplined acquisition strategy;

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• Enhance operational efficiencies and productivity by delivering on integration;

In addition, we believe favorable industry trends such as an aging population and advancements in medical technology will further drive growth.

• Seek strategic relationship opportunities with health care systems looking to develop and/or enhance their ambulatory surgery footprint to better meet the needs of the patients and medical staff.

In addition, we believe favorable industry trends such as an aging population, advancements in medical technology and payor and government encouragement to move high acuity procedures from acute care to our lower cost sites of care will further drive growth.

Total Addressable Market

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

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.

outpatient surgical facility market represents greater than $90 billion in annual revenue, including greater than $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

We are leveraging our growth strategies to capture market share by providing high quality service.

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 an industry survey.

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 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 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 2023 and 2022, we operated in two reporting segments:

Surgical Facility Services and Ancillary Services.

Prior to 2021, we also operated in the Optical Services reporting segment.

• Our Surgical Facility Services segment consisted of the operation of ASCs and surgical hospitals and includes our anesthesia services.

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 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 2020.

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

Surgical Facility Services Segment

Surgical Facility Operations

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 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.

As of December 31, 2023, we owned or operated 162 surgical facilities, including 144 ASCs and 18 licensed surgical hospitals.

Our Surgical Facility Services segment contributed approximately 98% of our total revenue in 2023, and 97% of our total revenue in each of 2022 and 2021.

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.

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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.

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

We operate both multi-specialty and single-specialty facilities.

In multi-specialty facilities, a variety of surgical procedures are performed, including, among others, orthopedics and pain management, ophthalmology, GI and general surgery.

In multi-specialty facilities, a variety of surgical procedures are performed, including, among others, orthopedics and pain management, gastroenterology, ophthalmology, and general surgery.

We have diversified the mix of procedures performed at our facilities by strategically introducing select specialties that will complement existing services.

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We own and operate our surgical facilities through partnerships or limited liability companies with physicians, physician groups and health care systems.

One of our wholly-owned subsidiaries typically serves as the general partner or managing member of our surgical facilities.

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 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.

We also provide day-to-day management services for a majority of our surgical facilities pursuant to a management agreement and receive a management fee that is typically equal to a percentage of the facility revenue.

Of the 162 surgical facilities that were operational as of December 31, 2023, we hold majority ownership in 90 of these surgical facilities and consolidated 123 for financial reporting purposes..

We provide day-to-day management services for a majority of our surgical facilities pursuant to a management agreement and receive a management fee that is typically equal to a percentage of the facility revenue.

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

Strategic Relationships

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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.

The terms of those management agreements are comparable to the terms of our management agreements with 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 an equity interest 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 have also 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.

The terms of those management agreements are comparable to the terms of our management agreements with other surgical facilities in which we own an equity interest.

Sources of Revenue

Revenue from our surgical facilities is earned from facility fees related to health care services performed in our surgical facilities and is included in our patient service revenues.

Revenue from our consolidated surgical facilities is earned from facility fees related to health care services performed in our surgical facilities and is included in our patient service revenues.

The fee charged for surgical services varies depending on the type of service provided, but usually includes all charges for usage of an operating room, a recovery room, special equipment, supplies, nursing staff and/or medications.

Our fees do not typically include professional fees charged by the patient's surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians.

Management fees received from our non-consolidated surgical facilities for management services provided are included in other service revenues.

We are dependent upon government and private insurance sources of payment for the services we provide.

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Medicare Reimbursement - Hospital Inpatient Services

Nineteen of our surgical facilities are licensed as hospitals.

Eighteen 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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Ancillary Services Segment

Ancillary Services

Ancillary Services Operations

Our portfolio of outpatient surgical facilities is complemented by a suite of ancillary services that we provide to support physicians in providing high quality and cost-efficient patient care.

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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 each of 2022, 2021 and 2020.

Our Ancillary Services segment contributed approximately 2% of our total revenue in 2023 and 3% of our total revenue in each of 2022 and 2021.

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

In one model, we wholly own and operate physician practices.

For example, in the state of Florida, where the law does not preclude a business corporation from employing physicians, we wholly-own and operate physician practices in several locations throughout Florida.

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

Sources of Revenue

The fees charged for services in our Ancillary Services segment depend on a variety of factors, including the type of service provided, the location in which the service is provided and the provider of the service.

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Acquisition Program.

In addition to our corporate strategy, we continuously evaluate opportunities to expand our presence in the surgical facility market by making strategic acquisitions of existing surgical facilities and by developing new surgical facilities in cooperation with local physician partners and, when appropriate, health care systems and other strategic partners.

In addition to our operational strategy, we continuously evaluate opportunities to expand our presence in the surgical facility market by making strategic acquisitions of existing surgical facilities and by developing new surgical facilities in cooperation with local physician partners and, when appropriate, health care systems and other strategic partners.

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.

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

These buy-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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These activities generally emphasize the benefits offered by our surgical facilities compared to other facilities in the market, such as the proximity of our surgical facilities to physicians’ offices, the ability to schedule consecutive cases without preemption by inpatient or emergency procedures, the efficient turnaround time between cases, our advanced surgical equipment and our simplified administrative procedures.

Although the facility administrator is the primary point of contact, physicians who utilize our surgical facilities are important sources of recommendations to other physicians regarding the benefits of using our surgical facilities.

Although the facility administrator is the primary point of contact, physicians who utilize our

surgical facilities are important sources of recommendations to other physicians regarding the benefits of using our surgical facilities.

Recruiting teams develop a target list of physicians, and we continually review our progress in successfully recruiting additional local physicians.

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In developing or acquiring existing surgical facilities, we compete with other public and private surgical facility and hospital companies.

Several large national companies own and/or manage surgical facilities, in some cases in connection with other lines of business with which we do not compete, including HCA Healthcare, Inc., Envision Healthcare Corporation, Tenet Healthcare Corporation, Surgical Care Affiliates, Inc.

and Optum, Inc.

Several large national companies own and/or manage surgical facilities, in some cases in connection with other lines of business with which we do not compete, including HCA Healthcare, Inc., AMSURG Corp., Tenet Healthcare Corporation and Optum, Inc.

We also face competition from local hospitals, physicians and other providers who may compete with us in the ownership and operation of surgical facilities, as well as the trend of physicians choosing to perform procedures in an office-based setting rather than in a surgical facility.

Our revenue fluctuates based on the number of business days in each calendar quarter, because the majority of services provided by physicians in our surgical facilities consist of scheduled procedures and office visits that occur during business hours.

In addition, revenue in the fourth quarter could also be impacted by an increased utilization of services due to annual deductibles which are not usually met until later in the year and also as patients utilize their health care benefits before they expire at year-end.

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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.

We also are committed to the health and safety of our patients, employees, and medical staff.

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 surgical facilities are staffed by licensed physicians, and our operations are dependent on the efforts, abilities and experience of our physicians and clinical personnel.

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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Physicians who use our surgical facilities also use other facilities or hospitals and may choose to perform procedures in an office-based setting that might otherwise be performed at our surgical facilities.

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.

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One of our core values is to promote a culture of diversity and inclusion.

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.

We have a Corporate Citizenship and 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 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.

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These contracts generally require that we offer discounts from our established charges.

Some of our payments come from private insurance payors with which we do not have written contracts.

In rare cases our payments come from private insurance payors with which we do not have written contracts.

In those situations, commonly known as "out-of-network" services, we generally charge the patients the same co-payment or other patient responsibility amounts that we would have charged had we had a contract with the private insurance payor.

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The imposition of these regulatory requirements may have the effect of increasing operating costs and reducing the profitability of our operations.

Regulatory Development in Response to COVID-19

Continuing Obligations with Respect to COVID-19 Regulatory Responses

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.

CARES Act and Other Stimulus Legislation

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law on March 27, 2020.

Among other things, the CARES Act contains a number of provisions that are intended to assist health care providers as they combat the effects of the COVID-19 public health emergency.

The healthcare-specific provisions include:

• 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;

• the expansion of CMS’ Accelerated and Advance Payment Program;

• waivers or temporary suspension of certain regulatory requirements.

On December 27, 2020, the COVID-19 Economic Relief Bill (the "Bill") was enacted, which among other significant matters, revised previous guidance on how grant funds distributed under the CARES Act may be utilized.

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.

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.

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.

Such changes may be material.

Specifically, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, introduced a number of temporary regulatory waivers for healthcare operations and appropriated more than $100 billion in federal funding toward healthcare provider operations through the creation of Provider Relief Fund.

Subsequent legislation, such as the December 2020 COVID-19 Economic Relief Bill, further clarified how funds issued under the CARES Act could or could not be used by healthcare providers.

The underlying terms and conditions of grant funds received through the CARES Act and other COVID-19-related governmental assistance programs included auditing and reporting requirements.

Recipients of program funds were expected to report the ultimate disposition of all funds received in accordance with the CARES Act – or return the funds if unused.

Reporting periods for various tranches of funding issued to providers throughout the public health emergency continue in calendar year 2024.

Some but not all of our facilities received COVID-19 related funding.

Where applicable, our facilities have worked to materially comply with all auditing and reporting requirements to which they become subject as a result of funding received.

For more information, please refer to Note 1.

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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, 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.

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

With the expiration of the public health emergency, further discussed in the following section, these temporary regulatory changes have terminated and all regulatory requirements have been reinstated in all material respects.

Expiration of Public Health Emergency

On May 11, 2023, the Biden Administration formally ended the COVID-19 public health emergency.

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

To the extent any short-term changes in operations were implemented at our facilities in reliance on the COVID-19 waivers, such operations ceased and facilities largely returned to their pre-pandemic operating models.

Though the public health emergency has ended, we cannot provide any certainty regarding the long-term impacts of the COVID-19 pandemic on public health and the economy, or whether there will be a resurgence of COVID-19 or a similar virus in the future.

Likewise, we are unable to predict the actions of public health agencies that regulate our facilities in response to any future pandemic and how such actions may impact our future operations.

Certificates of Need, Licensure and Accreditation

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Among other things, the executive order encourages the Federal Trade Commission ("FTC") to ban or limit non-compete agreements, encourages the U.S.

Department of Justice ("DOJ") and the FTC to review and revise their merger guidelines to ensure that patients are not harmed by healthcare mergers, and instructs HHS to support existing price transparency rules and implement the legislation that was recently adopted to address surprise billing.

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.

We note, however, a number of recent policy statements as of December 2023 issued by these federal agencies addressing perceived issues of anti-competitiveness, as well as an uptick in enforcement actions targeting alleged anti-competitiveness.

Affordable Care Act Repeal Efforts

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In 2021, the U.S.

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

Supreme Court dismissed a case that sought to invalidate the

Affordable Care Act;

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

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We believe that the ownership and operations of our surgical facilities will not fully satisfy the ASC Safe Harbor requirements for investment interests in ASCs because, among other things, we or one of our subsidiaries will generally be an investor in and provide management services to each ASC.

While we believe our ASCs would nonetheless be found to be compliant with the Anti-Kickback Statute, we cannot assure you that the OIG would view our activities favorably even though we strive to achieve compliance with the remaining elements of this safe harbor.

While we believe our ASCs would nonetheless be found to be compliant with the Anti-Kickback

Statute, we cannot assure you that the OIG would view our activities favorably even though we strive to achieve compliance with the remaining elements of this safe harbor.

In addition, although we expect each physician-investor to utilize the ASCs as an extension of his or her practice and ask each physician-investor to certify this practice, we cannot assure you that all physician-investors will derive at least one-third of their medical practice income from performing Medicare-covered ASC procedures, perform one-third of their procedures at the centers or inform their referred patients of their investment interests.

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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.

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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Also, the OIG appears to be focused on historical cash flow rather than a projected, discounted cash flow, which is a commonly used valuation methodology.

Our hospital investments do not fit wholly within the safe harbor for investments in small entities because more than 40.0% of the investment interests are held by investors who are either in a position to refer to the hospital or who provide services to the hospital and more than 40.0% of the hospital’s gross revenue last year were derived from referrals generated by investors.

Our hospital investments do not fit wholly within the safe harbor for investments in small entities because certain of the investment interests are held by investors who are either in a position to refer to the hospital or who provide services to the hospital and a portion of the hospital’s gross revenues are derived from referrals generated by those investors.

However, we believe we comply with the remaining elements of the safe harbor.

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The OIG might take the position that the failure of the physician investors to enter into similar guarantees represents a special benefit to the physician investors given to induce patient referrals and that such failure constitutes a violation of the Anti-Kickback Statute.

We believe that the management fees (and in some cases guarantee fees) are adequate compensation to us for the credit risk associated with the guarantees and that the failure of the physician investors to enter into similar guarantees does not create a material risk of violating the Anti-Kickback Statute.

We believe that the management fees (and

in some cases guarantee fees) are adequate compensation to us for the credit risk associated with the guarantees and that the failure of the physician investors to enter into similar guarantees does not create a material risk of violating the Anti-Kickback Statute.

However, the OIG has not issued any guidance in this regard.

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In addition, the final rules provide additional guidance on several key compliance requirements, including fair market value and commercial reasonableness, that must be met in order for physicians and health care providers to comply with the Stark Law.

We cannot yet predict the impact that the final rules will have on our surgery centers and hospitals.

Eliminating Kickbacks in Recovery Act

In addition to the Anti-Kickback Statute, the U.S.

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

In addition to the Anti-Kickback Statute, in 2018, the U.S.

enacted 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").

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The Stark Law currently includes the Whole Hospital Exception, which applies to physician ownership of a hospital, provided such ownership is in the whole hospital and the physician is authorized to perform services at the hospital.

We believe that physician investments in our facilities licensed as hospitals meet this requirement.

We believe that physician

investments in our facilities licensed as hospitals meet this requirement.

However, certain changes to the Whole Hospital Exception were made by the Affordable Care Act including:

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In 2013, HHS issued the HIPAA Omnibus Rule, which became effective on March 26, 2013.

The HIPAA Omnibus Rule requires us to notify patients of any unauthorized access, acquisition, or disclosure of their unsecured protected health information in all situations except those in which we can demonstrate that there is a low probability that the protected health information has been compromised.

that there is a low probability that the protected health information has been compromised.

We have the burden of demonstrating through a risk assessment that a breach of protected health information has not occurred.

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Emergency Medical Treatment and Active Labor Act

Our hospitals are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA").

Our surgical hospitals are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA").

This federal law requires any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital’s emergency department for treatment and, if the patient is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can handle the condition.

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Some are specifically limited to health care services that are paid for in whole or in part by the Medicaid program;

others apply to all health care services regardless of payor;

others apply to all health care

services regardless of payor;

and others apply only to state-defined designated services, which may differ from the designated health services under the Stark Law.

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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.

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

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.

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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The program also includes a mechanism for employees to report, without fear of retaliation, any suspected legal or ethical violations to their supervisors, designated compliance officers in our facilities, our compliance hotline or directly to our corporate compliance office.

We believe our compliance program is consistent with standard industry practices.

We believe our compliance

program is consistent with standard industry practices.

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