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Item 1A. Risk Factors

2023-02-28 compared with 2022-03-01 · 329 added, 269 removed, 69 unchanged (90% of the section changed)

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Our business, operations and financial condition are subject to various risks.

Some of these risks are described below, and readers of this Annual Report on Form

10-K should take such risks into account in evaluating our Company or making any decision to invest in us.

This section does not describe all risks applicable to our Company, our industry or our business, and it is intended only as a summary of

material factors affecting our business.

Some of these risks are described below, and readers of this Annual Report on Form 10-K should take such risks into

account in evaluating our Company or making any decision to invest in us.

This section does not describe all risks applicable to our Company, our industry or our business, and it is intended only as a summary of material factors affecting our

Risks related to our business and operations

We are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (“COVID-19”).

Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19 that has spread globally.

Since early 2020, the

continued spread has led to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty.

COVID-19 is having, and will continue to have, an adverse impact on our operations and supply chains, including a temporary loss of physical therapists and other

employees who are infected or quarantined for a period of time, an increase in cancellations of physical therapy patient appointments and a decline in the scheduling of new or additional patient appointments.

Due to these impacts and measures, we

have experienced, and will continue to experience, significant and unpredictable impact on employees and reductions and cancellations of our patient visits.

Starting in mid-2021, certain local jurisdictions have imposed vaccination and/or mask mandates, and many of the Company’s clinics and their employees are now

subject to a vaccination mandate promulgated by CMS as a condition of continued participation in the Medicare and Medicaid programs as a certified rehabilitation agency.

At this time, it is not possible to predict the impact of these and other

similar mandates on the Company or its workforce.

These and other mandates may result in employee attrition and could have a material adverse effect on our business, including future revenue, costs, and results of operations.

Decreases in Medicare reimbursement rate may adversely affect our financial results.

The Medicare program reimburses outpatient rehabilitation

providers based on the Medicare Physician Fee Schedule (“MPFS”).

On an annual basis, our reimbursement under the MPFS is subject to changes, which could include reductions in such reimbursement amounts.

The Company estimates that the Medicare rate reduction for the full year of 2022 will be approximately 0.75%.

“Business—Sources of Revenue – Physical Therapy Services” in Item 1 for more information.

The Consolidated Appropriations Act of 2021, includes

reductions in Medicare payment rates of approximately 3% in each of calendar years 2023 and 2024, which would be instituted unless regulatory or Congressional action results in modifications to such rates as occurred in 2021 and 2022.

In addition, the Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires

automatic reductions in federal spending by approximately $1.2 trillion.

Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap.

Congress has taken action to waive the 2% payment reduction during

2021 and continuing through March 31, 2022, followed by three months of 1% sequester relief through June 30, 2022.

Sequester relief is scheduled to then end on June 30, 2022.

Furthermore, Medicare claims for outpatient therapy services furnished by therapist assistants on or after January 1, 2020, must include a modifier indicating the

service was furnished by a therapist assistant.

Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapist assistant are paid at an amount equal to 85% of the payment amount otherwise applicable for the

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex

and subject to interpretation.

We believe that we are in compliance, in all material respects, with all applicable laws and regulations governing the services we provide to

Medicare patients and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that could have a material effect on

our financial statements as of December 31, 2021.

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from

the Medicare program.

For the years ended December 31, 2021, and 2020, respectively, net patient revenue from Medicare were approximately $134.4 million and $101.6 million, respectively.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive

reimbursement rates from Medicare that sufficiently compensate us for our services or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect

on our revenue, financial condition, and results of operations.

Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our

business, financial condition and results of operations.

We expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which could adversely affect

our revenue and profitability.

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).

For services provided in 2017 through 2019, a 0.5% increase was applied

to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

For services provided in 2020 through 2025 no adjustment is expected to be applied each year to the fee schedule payment rates, before applying the

mandatory budget neutrality adjustment.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation.

The Company believes that the Company is

in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s

financial statements as of December 31, 2022.

Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the

Medicare program.

For the year ended December 31, 2022 and 2021, respectively, net patient revenue from Medicare were approximately $154.9 million and $134.4 million, respectively.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for our services

or, in some instances, cover our operating costs.

Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition, and results of operations.

Additionally, any delay

or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.

We expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which could adversely affect our revenue and profitability.

Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets.

This, combined with slower state revenue growth, has

led both the federal government and many states to institute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending.

We expect these state and federal efforts to continue for the

foreseeable future.

Furthermore, not all of the states in which we operate, most notably Texas, have elected to expand Medicaid as part of federal healthcare reform legislation.

There can be no assurance that the program, on the current terms or

otherwise, will continue for any particular period of time beyond the foreseeable future.

If Medicaid reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in the rules governing the Medicaid program

that are disadvantageous to our businesses, our business and results of operations could be materially and adversely affected.

This, combined with slower state revenue growth, has led both the federal government and

many states to institute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending.

We expect these state and federal efforts to continue for the foreseeable future.

Furthermore, not

all of the states in which we operate, most notably Texas, have elected to expand Medicaid as part of federal healthcare reform legislation.

There can be no assurance that the program, on the current terms or otherwise, will continue for any

particular period of time beyond the foreseeable future.

If Medicaid reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in the rules governing the Medicaid program that are disadvantageous to our

businesses, our business and results of operations could be materially and adversely affected.

Revenue we receive from Medicare and Medicaid is subject to potential retroactive reduction.

Payments we receive from Medicare and Medicaid can be retroactively adjusted after examination during the claims settlement process or as a result of post-payment

Payors may disallow our requests for reimbursement, or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursable because either adequate or

additional documentation was not provided or because certain services were not covered or deemed to not be medically necessary.

Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with

complying with investigative audits by regulatory and governmental authorities, could adversely affect our financial condition and results of operations.

Additionally, from time to time we become aware, either based on information provided by third parties and/or the results of internal audits, of payments from

payor sources that were either wholly or partially in excess of the amount that we should have been paid for the service provided.

Overpayments may result from a variety of factors, including insufficient documentation supporting the services

rendered or medical necessity of the services or other failures to document the satisfaction of the necessary conditions of payment.

We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it,

and failure to do so within requisite time limits imposed by the law could lead to significant fines and penalties being imposed on us.

Furthermore, our initial billing of and payments for services that are unsupported by the requisite

documentation and satisfaction of any other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties.

We, and/or certain of our operating

companies, could also be subject to exclusion from participation in the Medicare or Medicaid programs in some circumstances as well, in addition to any monetary or other fines, penalties or sanctions that we may incur under applicable federal

and/or state law.

Our repayment of any such amounts, as well as any fines, penalties or other sanctions that we may incur, could be significant and could have a material and adverse effect on our results of operations and financial condition.

Payments we receive from Medicare and Medicaid can be retroactively adjusted after examination during the claims settlement process or as a result of post-payment audits.

Payors may disallow our

requests for reimbursement, or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursable because either adequate or additional documentation was not

provided or because certain services were not covered or deemed to not be medically necessary.

Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with complying with investigative

audits by regulatory and governmental authorities, could adversely affect our financial condition and results of operations.

Additionally, from time to time we become aware, either based on information provided by third parties and/or the results of internal audits, of payments from payor sources that were either wholly or

partially in excess of the amount that we should have been paid for the service provided.

Overpayments may result from a variety of factors, including insufficient documentation supporting the services rendered or medical necessity of the

services or other failures to document the satisfaction of the necessary conditions of payment.

We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it, and failure to do so within

requisite time limits imposed by the law could lead to significant fines and penalties being imposed on us.

Furthermore, our initial billing of and payments for services that are unsupported by the requisite documentation and satisfaction of any

other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties.

We, and/or certain of our operating companies, could also be subject to exclusion

from participation in the Medicare or Medicaid programs in some circumstances as well, in addition to any monetary or other fines, penalties or sanctions that we may incur under applicable federal and/or state law.

Our repayment of any such

amounts, as well as any fines, penalties or other sanctions that we may incur, could be significant and could have a material and adverse effect on our results of operations and financial condition.

From time to time we are also involved in various external governmental investigations, audits and reviews.

Reviews, audits and investigations of this sort can

lead to government actions, which can result in the assessment of damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from

participation in government programs.

Failure to comply with applicable laws, regulations and rules could have a material and adverse effect on our results of operations and financial condition.

Furthermore, becoming subject to these governmental

investigations, audits and reviews can also require us to incur significant legal and document production expenses as we cooperate with the government authorities, regardless of whether the particular investigation, audit or review leads to the

identification of underlying issues.

As a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costs and may be

required to repay amounts already paid to us.

Reviews, audits and investigations of this sort can lead to government actions, which can

result in the assessment of damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government programs.

comply with applicable laws, regulations and rules could have a material and adverse effect on our results of operations and financial condition.

Furthermore, becoming subject to these governmental investigations, audits and reviews can also

require us to incur significant legal and document production expenses as we cooperate with the government authorities, regardless of whether the particular investigation, audit or review leads to the identification of underlying issues.

As a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costs and may be required to repay amounts already paid to

We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment for our services.

These post-payment

reviews have increased as a result of government cost-containment initiatives.

These additional post-payment reviews may require us to incur additional costs to respond to requests for records and to pursue the reversal of payment denials, and

ultimately may require us to refund amounts paid to us by Medicare that are determined to have been overpaid.

For a further description of this and other laws and regulations involving governmental reimbursements, see “Business—Sources of Revenue” and “—Regulation and

Healthcare Reform” in Item 1.

An economic downturn, state budget pressures, sustained unemployment and continued deficit spending by the federal government may result in a

reduction in reimbursement and covered services.

These post-payment reviews have increased as a result of

government cost-containment initiatives.

These additional post-payment reviews may require us to incur additional costs to respond to requests for records and to pursue the reversal of payment denials, and ultimately may require us to refund

amounts paid to us by Medicare that are determined to have been overpaid.

For a further description of this and other laws and regulations involving governmental reimbursements, see “Business—Sources of Revenue” and “—Regulation and Healthcare Reform” in Item 1.

An economic downturn, state budget pressures, sustained unemployment and continued deficit spending by the federal government may result in a reduction in reimbursement and covered

An economic downturn, including the consequences of a pandemic, such as COVID-19, could have a detrimental effect on our revenues.

Historically, state budget

pressures have translated into reductions in state spending.

Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services in the states in which

In addition, an economic downturn, coupled with sustained unemployment, may also impact the number of enrollees in managed care programs as well as the profitability of managed care companies, which could result in reduced

reimbursement rates.

The existing federal deficit, as well as deficit spending by federal and state governments as the result of adverse developments in the economy or other reasons,

can lead to continuing pressure to reduce governmental expenditures for other purposes, including government-funded programs in which we participate, such as Medicare and Medicaid.

Such actions in turn may adversely affect our results of

Historically, state budget pressures have translated into reductions

in state spending.

Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services in the states in which we operate.

In addition, an economic

downturn, coupled with sustained unemployment, may also impact the number of enrollees in managed care programs as well as the profitability of managed care companies, which could result in reduced reimbursement rates.

The existing federal deficit, as well as deficit spending by federal and state governments as the result of adverse developments in the economy or other reasons, can lead to continuing pressure to

reduce governmental expenditures for other purposes, including government-funded programs in which we participate, such as Medicare and Medicaid.

Such actions in turn may adversely affect our results of operations.

Our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing, and our ability to operate our business.

We have outstanding debt obligations that could adversely affect our financial condition and limit our ability to successfully implement our business strategy.

Furthermore, from time to time, we may

need additional financing to support our business and pursue our business strategy, including strategic acquisitions.

Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the

condition of the capital markets, and other factors.

We cannot provide assurances that additional financing will be available to us on favorable terms when required, or at all.

Our loan agreements contain certain restrictions and requirements that among other things:

require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio;

limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes;

limit our future ability to refinance our indebtedness on terms acceptable to us or at all;

limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan;

impose on us financial and operational restrictions.

Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described herein.

If we do not generate enough cash flow to pay

our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity.

There is no guarantee that we will be able to take any of these actions on a timely basis, on

terms satisfactory to us, or at all.

If we fail to satisfy our debt service obligations or the other restrictions and requirements in our loan agreements, we could be in default.

Unless cured or waived, a default would permit lenders to

accelerate the maturity of the debt under the credit agreement and to foreclose upon the collateral securing the debt.

Our outstanding loans bear interest at variable rates.

In response to the variable rates, we entered into an interest rate swap agreement.

We are exposed to certain market risks during the ordinary

course of business due to adverse changes in interest rates.

The exposure to interest rate risk primarily results from our variable-rate borrowing.

Fluctuations in interest rates can be volatile and the Company’s risk management activities do not

eliminate these risks.

In May 2022, we entered into an interest rate swap agreement to manage these risks.

While intended to reduce the effects of fluctuations in these prices and rates, these transactions may limit our potential gains or

expose us to losses.

If our counterparties to such transactions or the sponsors fail to honor their obligations due to financial distress, we would be exposed to potential losses or the inability to recover anticipated gains from these

transactions.

We depend upon reimbursement by third-party payors.

Substantially all of our revenues are derived from private and governmental third-party payors.

In 2021, approximately 62.8% of our revenues were derived

collectively from managed care plans, commercial health insurers, workers’ compensation payors, and other private pay revenue sources while approximately 37.2% of our revenues were derived from Medicare and Medicaid.

Initiatives undertaken by

industry and government to contain healthcare costs affect the profitability of our clinics.

In 2022, approximately 62.7% of our revenues were derived collectively from managed care plans,

commercial health insurers, workers’ compensation payors, and other private pay revenue sources while approximately 37.3% of our revenues were derived from Medicare and Medicaid.

Initiatives undertaken by industry and government to contain

healthcare costs affect the profitability of our clinics.

These payors attempt to control healthcare costs by contracting with healthcare providers to obtain services on a discounted basis.

We believe that this

trend will continue and may limit reimbursement for healthcare services.

If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may

lose patients if we choose not to renew our contracts with these insurers at lower rates.

We believe that this trend will continue and may limit

reimbursement for healthcare services.

If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if we choose not to

renew our contracts with these insurers at lower rates.

In addition, in certain geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferred provider plans.

Failure to obtain or maintain these approvals would adversely affect our financial results.

In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various

payment systems under the Medicare program.

See “Business—Sources of Revenue – Physical Therapy Services ” in Item 1 for more information including changes to Medicare

reimbursement.

Failure to obtain or maintain

these approvals would adversely affect our financial results.

In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program.

See “Business—Sources of Revenue

– Physical Therapy Services” in Item 1 for more information including changes to Medicare reimbursement.

Additional reforms or other changes to these payment systems may be proposed or adopted, either by the U.S.

Congress or by CMS, including bundled payments, outcomes-based payment methodologies and a shift away from traditional

fee-for-service reimbursement.

If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished at our facilities could change.

Some of these changes and proposed changes

could adversely affect our business strategy, operations and financial results.

Impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their

non-controlling interests (minority interests).

As described in Note 5, the redeemable non-controlling interests in our partnerships are held by our partners.

Upon the occurrence of certain events, such as

retirement or other termination of employment, partners from acquired partnerships may have the right to exercise a “put” to cause us to purchase their redeemable non-controlling interests.

Depending on the amount and timing of the exercise of

any “put” rights, the funds required could have an adverse impact on our capital structure.

Congress or by CMS, including

bundled payments, outcomes-based payment methodologies and a shift away from traditional fee-for-service reimbursement.

If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type

furnished at our facilities could change.

Some of these changes and proposed changes could adversely affect our business strategy, operations and financial results.

Some of our acquisition agreements contain contingent consideration, the value of which may impact future financial results.

Some of our acquisition agreements include contingent earn-out consideration, the fair value of which is estimated as of the acquisition date based on the present value of the expected contingent

payments as determined using weighted probabilities of possible future payments.

These fair value estimates contain unobservable inputs and estimates that could materially differ from the actual future results and we cannot predict the ultimate

The fair value of the contingent earn-out consideration could increase or decrease, as applicable.

Changes in the fair value of contingent earn-outs will be reflected in our results of operations in the period in which they are

recognized, the amount of which may be material and could cause volatility in our operating results.

One of our acquisition agreements contains a Put Right related to a potential future purchase of a majority interest in a separate company.

One of our acquisition agreements includes a Put Right for the potential future purchase of a majority interest in a separate company at a purchase price which is derived based on a specified multiple

of the separate company’s historical earnings.

The exercise of the Put Right is outside of our control.

In the event the Put Right is triggered, we are required to purchase the aforementioned equity interest at a calculated purchase price.

resulting purchase price may be greater than the fair value of such equity interests at the time, and we may or may not have the capital necessary to satisfy such contractual purchase obligation, in which case we could be in breach.

Impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interests (minority interests).

As described in Note 6 to our financial statements included in Item 8, the redeemable non-controlling interests in our partnerships are held by our partners.

Upon the occurrence of certain events,

such as retirement or other termination of employment, partners from acquired partnerships may have the right to exercise a “put” to cause us to purchase their redeemable non-controlling interests.

Depending on the amount and timing of the

exercise of any “put” rights, the funds required could have an adverse impact on our capital structure.

Healthcare reform legislation may affect our business.

In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the

healthcare system, either nationally or at the state level.

In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system, either nationally or

at the state level.

At the federal level, Congress has continued to propose or consider healthcare budgets that substantially reduce payments under the Medicare programs.

See “Business—Sources of Revenue”

in Item 1 for more information.

The ultimate content, timing or effect of any healthcare reform legislation and the impact of potential legislation on us is uncertain and difficult, if not impossible, to predict.

That impact may be material to

our business, financial condition or results of operations.

See “Business—Sources of Revenue” in Item 1 for more information.

ultimate content, timing or effect of any healthcare reform legislation and the impact of potential legislation on us is uncertain and difficult, if not impossible, to predict.

That impact may be material to our business, financial condition or

results of operations.

Our operations are subject to extensive regulation.

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coding, billing and payment for services.

In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the

healthcare industry.

We believe we are in substantial compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could

require us to make changes in our methods of operations, facilities, equipment, personnel, services and capital expenditure programs and increase our operating expenses.

If we fail to comply with these extensive laws and government regulations,

we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations.

In addition, we could be forced to expend considerable resources responding

to an investigation or other enforcement action under these laws or regulations.

In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry.

We believe we are in

substantial compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our methods of

operations, facilities, equipment, personnel, services and capital expenditure programs and increase our operating expenses.

If we fail to comply with these extensive laws and government regulations, we could become ineligible to receive

government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations.

In addition, we could be forced to expend considerable resources responding to an investigation or other

enforcement action under these laws or regulations.

For a more complete description of certain of these laws and regulations, see “Business—Regulation and Healthcare Reform” and “Business—Compliance Program” in Item 1.

Both federal and state regulatory agencies inspect, survey and audit our facilities to review our compliance with these laws and

While our facilities intend to comply with the existing licensing, Medicare certification requirements and accreditation standards, there can be no assurance that these regulatory authorities will determine that all applicable

requirements are fully met at any given time.

A determination by any of these regulatory authorities that a facility is not in compliance with these requirements could lead to the imposition of requirements that the facility takes corrective

action, assessment of fines and penalties, or loss of licensure or Medicare certification of accreditation.

Both federal and state regulatory agencies inspect, survey and audit our facilities to review our compliance with these laws and regulations.

While our facilities intend to comply with the existing

licensing, Medicare certification requirements and accreditation standards, there can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time.

A determination by any of

these regulatory authorities that a facility is not in compliance with these requirements could lead to the imposition of requirements that the facility takes corrective action, assessment of fines and penalties, or loss of licensure or Medicare

certification of accreditation.

These consequences could have an adverse effect on us.

Our operations are subject to investigations, legal actions and proceedings that could result in an adverse

impact on our business and financial position.

Healthcare providers are subject to investigations, legal actions and proceedings, as well as lawsuits under the qui tam

provisions of the federal False Claims Act, based on claims that the provider failed to comply with applicable laws and regulations that govern coding and the submission of claims for services provided to Medicare patients, among other things.

Our operations are subject to investigations, legal actions and proceedings that could result in an adverse impact on our business and financial position.

Healthcare providers are subject to investigations, legal actions and proceedings, as well as lawsuits under the qui tam provisions of the federal False Claims Act, based on claims that the provider

failed to comply with applicable laws and regulations that govern coding and the submission of claims for services provided to Medicare patients, among other things.

These matters can involve significant costs, monetary damages and penalties.

We have been subject to these proceedings in the past, and future proceedings could result in an adverse impact on our business and financial results.

have been subject to these proceedings in the past, and future proceedings could result in an adverse impact on our business and financial results.

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

These audits could have

adverse findings that may negatively affect our business.

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to

verify our compliance with these programs and applicable laws and regulations.

These audits could have adverse findings that may negatively

affect our business.

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these

programs and applicable laws and regulations.

Managed care payors may also reserve the right to conduct audits.

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loss of certain rights under, or termination of, our contracts with managed care payors.

If adverse inspections, reviews, audits or investigations occur and any of the results noted above occur, it could have a material adverse effect on our business

and operating results.

Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable

If adverse inspections, reviews, audits or investigations occur and any of the results noted above occur, it could have a material adverse effect on our business and operating results.

Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable information.

HIPAA required the HHS to adopt standards to protect the privacy and security of individually identifiable health-related information.

The department released

final regulations containing privacy standards in 2000 and published revisions to the final regulations in 2002.

The department released final regulations containing privacy

standards in 2000 and published revisions to the final regulations in 2002.

The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information.

regulations also provide patients with significant rights related to understanding and controlling how their health information is used or disclosed.

The security regulations require healthcare providers to implement administrative, physical and

technical practices to protect the security of individually identifiable health information that is maintained or transmitted electronically.

HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions of

HIPAA by, among other things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general, and increasing penalties for HIPAA violations.

Violations of HIPAA or HITECH could result in civil or

criminal penalties.

In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or

theft of personal information.

State statutes and regulations vary from state to state.

Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy or security breach also can

The regulations also provide patients with

significant rights related to understanding and controlling how their health information is used or disclosed.

The security regulations require healthcare providers to implement administrative, physical and technical practices to protect the

security of individually identifiable health information that is maintained or transmitted electronically.

HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions of HIPAA by, among other things

establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general, and increasing penalties for HIPAA violations.

Violations of HIPAA or HITECH could result in civil or criminal penalties.

In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information.

statutes and regulations vary from state to state.

Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy or security breach also can occur.

We have established policies and procedures in an effort to ensure compliance with these privacy related requirements.

However, if there is a breach, we may be

subject to various penalties and damages and may be required to incur costs to mitigate the impact of the breach on affected individuals.

However, if there is a breach, we may be subject to various penalties and damages

and may be required to incur costs to mitigate the impact of the breach on affected individuals.

In conducting our business, we are required to comply with applicable laws regarding fee-splitting and the corporate practice of medicine.

Some states prohibit the “corporate practice of therapy” that restricts business corporations from providing physical therapy services through the direct

employment of therapist physicians or from exercising control over medical decisions by therapists.

Some states prohibit the “corporate practice of therapy” that restricts business corporations from providing physical therapy services through the direct employment of therapist physicians or from

exercising control over medical decisions by therapists.

The laws relating to corporate practice vary from state to state and are not fully developed in each state in which we have facilities.

however, professional corporations owned and controlled by licensed professionals are exempt from corporate practice restrictions and may employ therapists to furnish professional services.

Those professional corporations may be managed by

business corporations, such as the Company.

Typically, however, professional corporations owned

and controlled by licensed professionals are exempt from corporate practice restrictions and may employ therapists to furnish professional services.

Those professional corporations may be managed by business corporations, such as the Company.

Some states also prohibit entities from engaging in certain financial arrangements, such as fee-splitting, with physicians or therapists.

The laws relating to

fee-splitting also vary from state to state and are not fully developed.

Generally, these laws restrict business arrangements that involve a physician or therapist sharing medical fees with a referral source, but in some states, these laws have

been interpreted to extend to management agreements between physicians or therapists and business entities under some circumstances.

We believe that our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these state

However, there can be no assurance that future interpretations of such laws will not require structural and organizational modification of our existing relationships with the practices.

If a court or regulatory body determines that we have

violated these laws or if new laws are introduced that would render our arrangements illegal, we could be subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be

required to restructure our contractual arrangements with our affiliated physicians and other licensed providers.

We may be adversely affected by a security breach, such as a cyber-attack, which may cause a violation of HIPAA or HITECH and subject us to

potential legal and reputational harm.

In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data and other protected

health information, which is subject to HIPAA and HITECH.

The laws relating to fee-splitting also vary from state to

state and are not fully developed.

Generally, these laws restrict business arrangements that involve a physician or therapist sharing medical fees with a referral source, but in some states, these laws have been interpreted to extend to

management agreements between physicians or therapists and business entities under some circumstances.

We believe that our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these state laws.

However, there can be no

assurance that future interpretations of such laws will not require structural and organizational modification of our existing relationships with the practices.

If a court or regulatory body determines that we have violated these laws or if new

laws are introduced that would render our arrangements illegal, we could be subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required to restructure our

contractual arrangements with our affiliated physicians and other licensed providers.

We are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (“COVID-19”).

Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19 that has spread globally.

Since early 2020, the continued spread has led to disruption

and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty.

COVID-19 is having, and will continue to have, an adverse impact on our operations and supply chains, including a temporary loss of physical therapists and other employees who are infected or

quarantined for a period of time, an increase in cancellations of physical therapy patient appointments and a decline in the scheduling of new or additional patient appointments.

Due to these impacts and measures, we have experienced, and will

continue to experience, significant and unpredictable impact on employees and reductions and cancellations of our patient visits.

We may be adversely affected by a security breach, such as a cyber-attack, which may cause a violation of HIPAA or HITECH and subject us to potential legal and reputational harm.

In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data and other protected health information, which is subject to

HIPAA and HITECH.

We also contract with third-party vendors to maintain and store our patients’ individually identifiable health information.

Numerous state and federal laws and regulations address privacy

and information security concerns resulting from our access to our patient’s and employee’s personal information.

Our information technology systems and those of our vendors that process, maintain, and transmit such data are subject to computer viruses, cyber-attacks, or

We adhere to policies and procedures designed to ensure compliance with HIPAA and other privacy and information security laws and require our third-party vendors to do so as well.

If, however, we or our third-party vendors experience a

breach, loss, or other compromise of unsecured protected health information or other personal information, such an event could result in significant civil and criminal penalties, lawsuits, reputational harm, and increased costs to us, any of

which could have a material adverse effect on our financial condition and results of operations.

Numerous state and federal laws and regulations address privacy and information security concerns

resulting from our access to our patient’s and employee’s personal information.

Our information technology systems and those of our vendors that process, maintain, and transmit such data are subject to computer viruses, cyber-attacks, or breaches.

We adhere to policies and

procedures designed to ensure compliance with HIPAA and other privacy and information security laws and require our third-party vendors to do so as well.

If, however, we or our third-party vendors experience a breach, loss, or other compromise of

unsecured protected health information or other personal information, such an event could result in significant civil and criminal penalties, lawsuits, reputational harm, and increased costs to us, any of which could have a material adverse

effect on our financial condition and results of operations.

Furthermore, while our information technology systems, and those of our third-party vendors, are maintained with safeguards protecting against cyber-attacks.

cyber-attack that bypasses our information technology security systems, or those of our third-party vendors, could result in a material adverse effect on our business, financial condition, results of operations, or cash flows.

In addition, our

future results could be adversely affected due to the theft, destruction, loss, misappropriation, or release of protected health information, other confidential data or proprietary business information, operational or business delays resulting

from the disruption of information technology systems and subsequent mitigation activities, or regulatory action taken as a result of such incident.

We provide our employees training and regular reminders on important measures they can take to

prevent breaches.

We routinely identify attempts to gain unauthorized access to our systems.

However, given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance our training and network security measures or

other controls will detect, prevent, or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations.

Accordingly, we may be vulnerable to losses

associated with the improper functioning, security breach, or unavailability of our information systems as well as any systems used in acquired operations.

A cyber-attack that bypasses our

information technology security systems, or those of our third-party vendors, could result in a material adverse effect on our business, financial condition, results of operations, or cash flows.

In addition, our future results could be adversely

affected due to the theft, destruction, loss, misappropriation, or release of protected health information, other confidential data or proprietary business information, operational or business delays resulting from the disruption of information

technology systems and subsequent mitigation activities, or regulatory action taken as a result of such incident.

We provide our employees training and regular reminders on important measures they can take to prevent breaches.

identify attempts to gain unauthorized access to our systems.

However, given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance our training and network security measures or other controls will detect,

prevent, or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations.

Accordingly, we may be vulnerable to losses associated with the improper

functioning, security breach, or unavailability of our information systems as well as any systems used in acquired operations.

We depend upon the cultivation and maintenance of relationships with the physicians in our markets.

Our success is dependent upon referrals from physicians in the communities our clinics serve and our ability to maintain good relations with these physicians and

other referral sources.

Physicians referring patients to our clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice.

If we are unable to successfully cultivate and maintain strong

relationships with physicians and other referral sources, our business may decrease and our net operating revenues may decline.

Our success is dependent upon referrals from physicians in the communities our clinics serve and our ability to maintain good relations with these physicians and other referral sources.

referring patients to our clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice.

If we are unable to successfully cultivate and maintain strong relationships with physicians and other

referral sources, our business may decrease and our net operating revenues may decline.

Our business depends upon hiring, training and retaining qualified employees.

Our workforce costs represent our largest operating expense, and our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures

with respect to prevailing wage rates and unemployment levels.

We compete with rehabilitation companies and other businesses for many of our clinical and non-clinical employees, and turnover in these positions can lead to increased training and

retention costs, particularly in a competitive labor market.

We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market, and there are currently

significant inflationary and other pressures on wages.

If we are unable to hire, properly train and retain qualified employees, we could experience higher employment costs and reduced revenues, which could adversely affect our earnings.

We depend upon our ability to recruit and retain experienced physical therapists.

Our revenue generation is dependent upon referrals from physicians in the communities our clinics serve, and our ability to maintain good relations with these

Our therapists are the front line for generating these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians.

If we cannot recruit and retain our

base of experienced and clinically skilled therapists, our business may decrease and our net operating revenues may decline.

Periodically, we have clinics in isolated communities that are temporarily unable to operate due to the unavailability of

a therapist who satisfies our standards.

We may also experience increases in our labor costs, primarily due to higher wages and greater benefits required to attract and retain qualified healthcare

personnel, and such increases may adversely affect our profitability.

Furthermore, while we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead to increased

turnover and other challenges.

Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to report our financial

results on a timely and accurate basis.

We are required to produce our consolidated financial statements in accordance with the requirements of accounting principles generally accepted in the United

States of America.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports, to help mitigate the risk of fraud and to operate successfully.

We are required by federal securities laws to

document and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting.

Testing and maintaining our internal control over financial reporting can be expensive and divert our management’s attention from other matters that are important

to our business.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with applicable law, or our independent registered public accounting firm may not be able to issue

an unqualified attestation report if we conclude that our internal control over financial reporting is not effective.

If we fail to maintain effective internal control over financial reporting, or our independent registered public accounting firm

is unable to provide us with an unqualified attestation report on our internal control, we could be required to take costly and time-consuming corrective measures, be required to restate the affected historical financial statements, be subjected

to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders.

Any of the foregoing could also cause investors to lose confidence in our reported financial information and in

us and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.

Our revenue generation is dependent upon referrals from physicians in the communities our clinics serve, and our ability to maintain good relations with these physicians.

Our therapists are the front

line for generating these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with these physicians.

If we cannot recruit and retain our base of experienced and clinically skilled

therapists, our business may decrease and our net operating revenues may decline.

Periodically, we have clinics in isolated communities that are temporarily unable to operate due to the unavailability of a therapist who satisfies our standards.

We may also experience increases in our labor costs, primarily due to higher wages and greater benefits required to attract and retain qualified healthcare personnel, and such increases may adversely

affect our profitability.

Furthermore, while we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead to increased turnover and other challenges.

Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to report our financial results on a timely and accurate

We are required to produce our consolidated financial statements in accordance with the requirements of accounting principles generally accepted in the United States of America.

Effective internal

control over financial reporting is necessary for us to provide reliable financial reports, to help mitigate the risk of fraud and to operate successfully.

We are required by federal securities laws to document and test our internal control

procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with applicable law, or our independent registered public accounting

firm may not be able to issue an unqualified attestation report if we conclude that our internal control over financial reporting is not effective.

If we fail to maintain effective internal control over financial reporting, or our independent

registered public accounting firm is unable to provide us with an unqualified attestation report on our internal control, we could be required to take costly and time-consuming corrective measures, be required to restate the affected historical

financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders.

Any of the foregoing could also cause investors to lose confidence in our

reported financial information and in us and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.

Our revenues may fluctuate due to weather.

We have a significant number of clinics in states that normally experience snow and ice during the winter months.

Also, a significant number of our clinics are

located in states along the Gulf Coast and Atlantic Coast which are subject to periodic winter storms, hurricanes and other severe storm systems.

Periods of severe weather may cause physical damage to our facilities or prevent our staff or

patients from traveling to our clinics, which may cause a decrease in our net operating revenues.

Also, a significant number of our clinics are located in states along the Gulf Coast

and Atlantic Coast which are subject to periodic winter storms, hurricanes and other severe storm systems.

Periods of severe weather may cause physical damage to our facilities or prevent our staff or patients from traveling to our clinics, which

may cause a decrease in our net operating revenues.

We operate in a highly competitive industry.

We encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages.

Intense competition may

adversely affect our business, financial condition or results of operations.

Intense competition may adversely affect our business,

financial condition or results of operations.

For a more complete description of this competitive environment, see “Business—Competition” in Item 1.

An adverse effect on our business, financial condition or results

of operations may require us to write down goodwill.

An adverse effect on our business, financial condition or results of operations may require us to

write down goodwill.

We may incur closure costs and losses.

The competitive, economic or reimbursement conditions in our markets in which we operate may require us to reorganize or to close certain clinics.

In the event a

clinic is reorganized or closed, we may incur losses and closure costs.

In the event a clinic is reorganized or closed, we

may incur losses and closure costs.

The closure costs and losses may include, but are not limited to, lease obligations, severance, and write-down or write-off of goodwill and other intangible assets.

Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

As part of our growth strategy, we intend to continue pursuing acquisitions of outpatient physical therapy clinics and industrial injury prevention services

Acquisitions may involve significant cash expenditures, potential debt incurrence and operational losses, dilutive issuances of equity securities and expenses that could have an adverse effect on our financial condition and results of

Acquisitions involve numerous risks, including:

As part of our growth strategy, we intend to continue pursuing acquisitions of outpatient physical therapy clinics and industrial injury prevention services businesses.

Acquisitions may involve

significant cash expenditures, potential debt incurrence and operational losses, dilutive issuances of equity securities and expenses that could have an adverse effect on our financial condition and results of operations.

Acquisitions involve

numerous risks, including:

the difficulty and expense of integrating acquired personnel into our business;

5 unchanged sentences

In our industrial injury prevention services business, we perform services for large employers and their employees pursuant to contracts and other services agreement.

These contracts

and other services agreements are able to be terminated by the employer-clients on little or short notice, and either a breach or termination of those contractual arrangements by such clients could cause operating results to be less than

Similarly, in our rehabilitation business, we have management and other services agreements with hospitals, physician groups and other ancillary providers;

either a breach or termination of those contractual arrangements by such clients

could cause operating results to be less than expected.

These contracts and other services agreements

are able to be terminated by the employer-clients on little or short notice, and either a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected.

Similarly, in our

rehabilitation business, we have management and other services agreements with hospitals, physician groups and other ancillary providers;

either a breach or termination of those contractual arrangements by such clients could cause operating

results to be less than expected.

Risks related to our common stock

Issuance of shares in connection with financing transactions or under stock incentive plans will dilute current stockholders.

Pursuant to our stock incentive plans, our Compensation Committee of the Board, consisting solely of independent directors, is authorized to grant stock awards to

our employees, directors and consultants.

Pursuant to our stock incentive plans, our Compensation Committee of the Board, consisting solely of independent directors, is authorized to grant stock awards to our employees, directors and

Shareholders will incur dilution upon the exercise of any outstanding stock awards or the grant of any restricted stock.

In addition, if we raise additional funds by issuing additional common stock, or

securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new investors could have rights superior to existing stockholders.

In addition, if we raise additional funds by issuing additional common stock, or securities convertible into or

exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new investors could have rights superior to existing stockholders.

The number of shares of our common stock eligible for future sale could adversely affect the market price of our stock.

At December 31, 2022, we had reserved approximately 185,117 shares for future equity grants.

We may issue additional restricted securities or register additional

shares of common stock under the Securities Act of 1933, as amended (the “Securities Act”), in the future.

The issuance of a significant number of shares of common stock upon the exercise of stock options or the availability for sale, or sale, of

a substantial number of the shares of common stock eligible for future sale under effective registration statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.

Provisions in our articles of incorporation and bylaws could delay or prevent a change in control of our company, even if that change would be

beneficial to our stockholders.

Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of our company,

whether through a tender offer, business combination, proxy contest or otherwise.

We may issue additional restricted securities or register additional shares of common stock under the

Securities Act of 1933, as amended (the “Securities Act”), in the future.

The issuance of a significant number of shares of common stock upon the exercise of stock options or the availability for sale, or sale, of a substantial number of the

shares of common stock eligible for future sale under effective registration statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.

Provisions in our articles of incorporation and bylaws could delay or prevent a change in control of our company, even if that change would be beneficial to our stockholders.

Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of our company, whether through a tender offer,

business combination, proxy contest or otherwise.

These provisions include the charter authorization of “blank check” preferred stock and a restriction on the ability of stockholders to call a special meeting.

UNRESOLVED STAFF COMMENTS.

We lease the properties used for our clinics under non-cancelable operating leases with terms ranging from one to five years, with the exception of the property for one clinic which we own.

to lease the premises for any new clinic locations except in rare instances where leasing is not a cost-effective alternative.

Our typical clinic occupies 1,000 to 7,000 square feet.

There are 19 clinics occupying space in the range of over 7,000

square feet to 13,500 square feet.

We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease expiring in February 2028.

We currently lease approximately 44,000 square feet of space (including

allocations for common areas) at our executive offices.

LEGAL PROCEEDINGS.

We are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our

We cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations.

These matters could potentially subject us to sanctions, damages, recoupments, fines, and other

The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, either individually or in the aggregate, have a

material adverse effect on our business, financial position, results of operations, and liquidity.

Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act.

Qui tam lawsuits typically remain under seal for some time while the government decides

whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation.

These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who

successfully bring the suits.

We have been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

Prior Florida Legal Matter

In 2019, a qui tam lawsuit (“the Complaint”) was filed by a relator on behalf of the United States against the Company and one of our Florida majority-owned subsidiaries (the “Hale Partnership”).

This whistleblower lawsuit was filed in the U.S.

District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act.

The U.S Government declined to intervene in the case and unsealed the

Complaint in July 2019.

The Complaint alleged that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients.

The plaintiff-relator also claimed that similar false claims occurred on

other days and at other Company-owned partnerships.

In January 2022, the Company entered into a settlement agreement with the plaintiff-relator.

In the settlement agreement, the plaintiff-relator released all defendants from liability for all conduct

alleged in the Complaint, and the Company admitted no liability or wrongdoing.

In connection with the settlement, the Office of the United States Attorney for the Southern District of Texas agreed to a dismissal of the claims against the Hale

Partnership and the Company.

Under the terms of the settlement, the Company agreed to make aggregate payments to the government, the plaintiff-relator and her counsel of $2.8 million.

MINE SAFETY DISCLOSURES.

Not Applicable.

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 1A. Risk Factors