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What changed in InnovAge Holding Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of InnovAge Holding Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+614 added−613 removedSource: 10-K (2023-09-12) vs 10-K (2022-09-13)

Top changes in InnovAge Holding Corp.'s 2023 10-K

614 paragraphs added · 613 removed · 442 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

146 edited+53 added−39 removed57 unchanged
Biggest changeIn addition to the Stark Law, various states in which we operate have adopted their own self-referral prohibition statutes. ​ The False Claims Act ​ Among other things, the FCA authorizes the imposition of up to three times the government’s damages and significant per claim civil penalties on any “person” (including an individual, organization or company) who, among other acts: ​ ● knowingly presents or causes to be presented to the federal government a false or fraudulent claim for payment or approval; ● knowingly makes, uses or causes to be made or used a false record or statement material to a false or fraudulent claim; 12 Table of Contents ● knowingly makes, uses or causes to be made or used a false record, report or statement material to an obligation to pay the government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the federal government; or ● conspires to commit the above acts. ​ The federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state healthcare programs, including but not limited to coding errors, billing for services not rendered, the submission of false cost or other reports, billing for services at a higher payment rate than appropriate, billing under a comprehensive code as well as under one or more component codes included in the comprehensive code, billing for care that is not considered medically necessary and false reporting of risk-adjusted diagnostic codes, encounter data or other information used to determine capitated payments.
Biggest changeThe federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state healthcare programs, including but not limited to coding errors, billing for services not rendered, the submission of false cost or other reports, billing for services at a higher payment rate than appropriate, billing under a comprehensive code as well as under one or more component codes included in the comprehensive code, billing for care that is not considered medically necessary and false reporting of risk-adjusted diagnostic codes, encounter data or other information used to determine capitated payments.
These laws and guidance relate to our organizational structure, governance, fiscal soundness, marketing activities, participant enrollment and disenrollment, charges to participants, provision of healthcare and other services to participants, care planning activities, service delivery settings and maintenance of centers, participant rights, employment and contractual arrangements with health care providers and other staff, quality assessment and performance improvement activities, participant grievances and appeals, medical records documentation, compliance program activities, and other aspects of our operations and financing.
These laws and guidance relate to our organizational structure, governance, fiscal soundness, marketing activities, participant enrollment and disenrollment, charges to participants, provision of healthcare and other services to participants, care planning activities, service delivery settings and maintenance of centers, participant rights, employment and contractual arrangements with healthcare providers and other staff, quality assessment and performance improvement activities, participant grievances and appeals, medical records documentation, compliance program activities, and other aspects of our operations and financing.
PACE participants had one-third the COVID-19 cases and deaths compared to the rates of nursing home residents as of June 30, 2021, according to an analysis performed by The New York Times. We believe the COVID-19 pandemic has further highlighted the need for integrated, multimodal value-based care delivery models.
PACE participants had one-third the COVID-19 cases and deaths compared to the rates of nursing home residents as of June 30, 2021, according to an analysis performed by The New York Times. We believe the COVID-19 pandemic further highlighted the need for integrated, multimodal value-based care delivery models.
Covered entities may be subject to penalties for, among other activities, failing to enter into a business associate agreement where required by law or as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity and acting within the scope of the agency.
Covered entities may be subject to fines, penalties for, among other activities, failing to enter into a business associate agreement where required by law or as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity and acting within the scope of the agency.
We deliver individualized care for each participant that addresses both his or her specific medical conditions and social determinants of health. We deliver or manage primary and specialist care, in-home care, hospital visits, nutrition, transportation to our care centers and to other medical appointments, pharmacy and behavioral health.
We deliver individualized care for each participant that addresses both his or her specific medical conditions and social determinants of health. We deliver or manage primary and specialist care, in-home care, hospital visits, nutrition, transportation to and from our care centers and to other medical appointments, pharmacy and behavioral health.
Government healthcare spend is disproportionally concentrated in the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports. Medicare and Medicaid spend on average three times more per capita on a dual-eligible senior than a Medicare-only senior.
Government healthcare spend is disproportionally concentrated on the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports. Medicare and Medicaid spend on average three times more per capita on a dual-eligible senior than a Medicare-only senior.
Our care delivery model is designed to provide services that mitigate challenges presented by participants’ social determinants of health, such as: ● Economic stability ● Transportation ● Physical environment ● Community and social context ● Food and nutrition ● Health literacy ● Fitness ​ Our technology suite.
Addressing social determinants of health . Our care delivery model is designed to provide services that mitigate challenges presented by participants’ social determinants of health, such as: • Economic stability • Transportation • Physical environment • Community and social context • Food and nutrition • Health literacy • Fitness Our technology suite.
We will remain an emerging growth company until the earlier of (1) June 30, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which we are deemed to be a large accelerated filer or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We will remain an emerging growth company until the earlier of (1) June 30, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the date on which we are deemed to be a large accelerated filer or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Penalties for violation of the Stark Law include denial of payment, recoupment, refunds of amounts paid in violation of the law, exclusion from the Medicare or Medicaid programs, and substantial civil monetary penalties ($27,750 per prohibited item or service and $185,009 if there is a circumvention scheme; penalty amounts reflect current 2021 levels and are adjusted for inflation from time to time).
Penalties for violation of the Stark Law include denial of payment, recoupment, refunds of amounts paid in violation of the law, exclusion from the Medicare or Medicaid programs, and substantial civil monetary penalties ($27,750 per prohibited item or service and $185,009 if there is a circumvention scheme; penalty amounts reflect current 2022 levels and are adjusted for inflation from time to time).
Additionally, we qualify as a “smaller reporting company,” and even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company” based on the aggregate worldwide market value of common equity securities held by non-affiliates assessed on an annual basis and measured as of the last business day of the issuer’s most recently completed second fiscal quarter.
Additionally, we qualify as a “smaller reporting company,” and even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company” based on the aggregate worldwide market value of common equity securities held by non-affiliates assessed on an annual basis and measured as of the last business day of our most recently completed second fiscal quarter.
Item 1. BUSINESS Who We Are InnovAge is the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, dual-eligible seniors. Our programs are designed to address two of the most pressing challenges facing the U.S. healthcare industry: rising costs and poor outcomes.
Item 1. BUSINESS Who We Are InnovAge is the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, seniors, many of whom are dual-eligible. Our programs are designed to address two of the most pressing challenges facing the U.S. healthcare industry: rising costs and poor outcomes.
Specifically, in some of the states in which we operate, we are required to maintain licensure or certification as an adult day health center, home health or home care provider, diagnostic and treatment center, pharmacy provider, clinical laboratory and/or other type of facility, and our employed physicians and other clinicians also must be licensed or certified, as applicable, in the states in which they are providing services.
Specifically, in some of the states in which we operate, we are required to maintain licensure or certification as an adult day health center, home health or home care provider, diagnostic and treatment center, pharmacy provider, clinical laboratory and/or other type of facility, and our affiliated physicians and other clinicians also must be licensed or certified, as applicable, in the states in which they are providing services.
These and other provisions of the ACA remain subject to ongoing uncertainty due to developing regulations as well as continuing political and legal challenges at both the federal and state levels. ● There have in recent years been congressional efforts to move Medicaid from an open-ended program with coverage and benefits set by the federal government to one in which states receive a fixed amount of federal funds, either throu gh block grants or per capita caps, and have more flexibility to determine benefits, eligibility or provider payments.
These and other provisions of the ACA remain subject to ongoing uncertainty due to developing regulations as well as continuing political and legal challenges at both the federal and state levels. • There have in recent years been congressional efforts to move Medicaid from an open-ended program with coverage and benefits set by the federal government to one in which states receive a fixed amount of federal funds, either through block grants or per capita caps, and have more flexibility to determine benefits, eligibility or provider payments.
A higher RAF score indicates poorer health and higher predicted health care costs. Our platform is designed to enable participants to exercise their preference to age independently in their homes and stay active in their communities for as long as safely possible. All of our participants are certified as nursing home-eligible.
A higher RAF score indicates poorer health and higher predicted healthcare costs. Our platform is designed to enable participants to exercise their preference to age independently in their homes and stay active in their communities for as long as safely possible. All of our participants are certified as nursing home-eligible.
Though no assurances can be made in the future, we have historically used our best estimate for accruing for this payment, and we received net positive true-up payments during the fiscal years ended June 30, 2022 and 2021.
Though no assurances can be made in the future, we have historically used our best estimate for accruing for this payment, and we received net positive true-up payments during the fiscal years ended June 30, 2023 and 2022.
We launched employee engagement surveys in fiscal year 2022, and we are implementing action plans with all staff groups based on survey findings and opportunities uncovered. We intend to monitor progress by releasing multiple engagement surveys annually.
We launched employee engagement surveys in fiscal year 2022, and we are implementing action plans with all staff groups based on survey findings and opportunities uncovered. We intend to monitor progress by releasing multiple engagement surveys at least annually.
Risk Factors, “Risks Related to Our Business — Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to payment obligations or penalties.” ​ 15 Table of Contents Other Regulations Our operations are subject to various state hazardous waste and non-hazardous medical waste disposal laws.
Risk Factors, “Risks Related to Our Business — Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to payment obligations or penalties.” Other Regulations Our operations are subject to various state hazardous waste and non-hazardous medical waste disposal laws.
Risk Factors, “​Risks Related to Regulation.” Federal and State Regulation of PACE Providers We are subject to a complex array of federal and state laws, regulations, and guidance, including legal requirements directly applicable to PACE providers as well as Medicare and Medicaid laws and regulations.
Risk Factors, “Risks Related to Regulation.” Federal and State Regulation of PACE Providers We are subject to a complex array of federal and state laws, regulations, and guidance, including legal requirements directly applicable to PACE providers as well as Medicare and Medicaid laws and regulations.
This is driven by two factors: (i) we provide care for a higher acuity population, with an average Medicare Risk Adjustment Factor (“RAF”) score of 2.40 based on InnovAge data as of June 30, 2022, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019, and (ii) we have Medicaid spend in addition to Medicare.
This is driven by two factors: (i) we provide care for a higher acuity population, with an average Medicare Risk Adjustment Factor (“RAF”) score of 2.46 based on InnovAge data as of June 30, 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019, and (ii) we have Medicaid spend in addition to Medicare.
Patients in long-term care facilities, such as nursing homes, also saw and continue to see a disproportionately high infection rate as a result of the pandemic. The highly contagious nature of the virus that causes COVID-19 combined with the higher mortality rate in frail seniors created devastating conditions that led to many avoidable deaths.
Patients in long-term care facilities, such as nursing homes, also saw a disproportionately high infection rate as a result of the pandemic. The highly contagious nature of the virus that causes COVID-19 combined with the higher mortality rate in frail seniors created devastating conditions that led to many avoidable deaths.
The IDTs meet multiple times per week to discuss each participant’s care plan and closely monitor key clinical metrics to ensure each participant receives optimal treatment based on his or her current conditions. Our community-based care delivery model. Our high-touch model delivers care across a continuum of community-based settings.
The IDTs meet multiple times per week to discuss each 4 Table of Contents participant’s care plan and closely monitor key clinical metrics to ensure each participant receives optimal treatment based on his or her current conditions. Our community-based care delivery model. Our high-touch model delivers care across a continuum of community-based settings.
We compete directly with national, regional and local providers of healthcare for participants and clinical providers. We also compete with payors and other alternate managed care 16 Table of Contents programs for participants. Of these providers, there are many other companies and individuals currently providing healthcare services, many of which have been in business longer and/or have substantially more resources.
We compete directly with national, regional and local providers of healthcare for participants and clinical providers. We also compete with payors and other alternate managed care programs for participants. Of these providers, there are many other companies and individuals currently providing healthcare services, many of which have been in business longer and/or have substantially more resources.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. ​ 18 Table of Contents As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests. ​ Available Information Our internet website is www.innovage.com.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests. Available Information Our internet website is www.innovage.com.
As of June 30 2022, over 90% of our participants are able to live safely in their homes and communities. Our interdisciplinary care teams. The IDT structure is core to our clinical model. Our IDTs oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants.
As of June 30, 2023, 90% of our participants are able to live safely in their homes and communities. Our interdisciplinary care teams. The IDT structure is core to our clinical model. Our IDTs oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants.
We continue to evaluate talent needs at the senior management level, aiming to hire ahead of the curve as the business evolves and to assess and respond to any gaps in our capabilities. 17 Table of Contents Diversity At InnovAge, we strive to be a reflection of the diverse communities that we serve.
We continue to evaluate talent needs at the senior management level, aiming to hire ahead of the curve as the business evolves and to assess and respond to any gaps in our capabilities. Diversity At InnovAge, we strive to be a reflection of the diverse communities that we serve.
Any allegations or findings that we have violated the FCA could have a material adverse impact on our reputation, business, results of operations and financial condition. ​ In addition to the FCA, the various states in which we operate have adopted their own analogs of the FCA.
Any allegations or findings that we have violated the FCA could have a material adverse impact on our reputation, business, results of operations and financial condition. 11 Table of Contents In addition to the FCA, the various states in which we operate have adopted their own analogs of the FCA.
These laws and regulations require us to meet various standards relating to, among other things, arrangement and provision of covered health care services to our participants, operation and management of PACE centers, dispensing of pharmaceuticals, personnel qualifications, maintenance of proper records, and quality assurance programs.
These laws and regulations require us to meet various standards relating to, among other things, arrangement and provision of covered healthcare services to our participants, operation and management of PACE centers, dispensing of pharmaceuticals, personnel qualifications, maintenance of proper records, and quality assurance programs.
For example, we believe that these investments are offered and made by us on a fair market value basis and provide returns to the investors in proportion to their actual investment in the venture. 11 Table of Contents ● Discounts. Our centers sometimes acquire certain items and services at a discount that may be reimbursed by a federal healthcare program.
For example, we believe that these investments are offered and made by us on a fair market value basis and provide returns to the investors in proportion to their actual investment in the venture. • Discounts. Our centers sometimes acquire certain items and services at a discount that may be reimbursed by a federal healthcare program.
The ACA provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.
As noted above, the ACA provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.
In addition, state and federal budgetary shortfalls and constraints pose potential risks for our revenue streams. We cannot predict how government payors or healthcare consumers might react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict what form such legislation or regulations will take.
In addition, state and federal budgetary shortfalls and constraints pose potential risks for our revenue streams. We cannot predict how government payors or healthcare consumers might 13 Table of Contents react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict what form such legislation or regulations will take.
Civil penalties for violation of the Anti-Kickback Statute include up to $112,131 in monetary penalties per violation, repayments of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.
Civil penalties for violation of the Anti-Kickback Statute include up to $112,131 in monetary penalties per violation, fines, or penalties of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.
As a result, the average InnovAge participant has a Medicare RAF of 2.40 based on InnovAge data as of June 30, 2022, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019.
As a result, the average InnovAge participant has a Medicare RAF of 2.46 based on InnovAge data as of June 30, 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019.
In addition, amendments to the FCA and Social Security Act impose severe penalties for the knowing and improper retention of overpayments from government payors. This could be relevant to the extent we received payments on account of RAF determinations that are based on improper or erroneous records or reports.
In addition, amendments to the FCA and Social Security Act impose severe penalties for the knowing and improper retention of overpayments from government payors. This could be relevant to our business the extent we receive payments on account of RAF determinations that are based on improper or erroneous records or reports.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” ​ Civil Monetary Penalties Statute ​ The Civil Monetary Penalties Statute, 42 U.S.C. § 1320a-7a, authorizes the imposition of civil monetary penalties, assessments and exclusion against an individual or entity based on a variety of prohibited conduct, including, but not limited to: ​ ● presenting, or causing to be presented, claims, reports or records relating to payment by Medicare, Medicaid or other government payors that the individual or entity knows or should know are for an item or service that was not provided as reported, is false or fraudulent or was presented for a physician’s service by a person who knows or should know that the individual providing the service is not a licensed physician, obtained licensure through misrepresentation or represented certification in a medical specialty without in fact possessing such certification; ● offering remuneration to a federal health care program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive health care items or services from a particular provider; ● arranging contracts with or making payments to an entity or individual excluded from participation in the federal health care programs or included on CMS’s preclusion list; ● violating the federal Anti-Kickback Statute; ● ​ making, using or causing to be made or used a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal health care program; 13 Table of Contents ● ​ making, using or causing to be made any false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider of services or a supplier under a federal health care program; and ● ​ failing to report and return an overpayment owed to the federal government. ​ We could be exposed to a wide range of allegations to which the federal Civil Monetary Penalty Statute would apply.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” Civil Monetary Penalties Statute The Civil Monetary Penalties Statute, 42 U.S.C. § 1320a-7a, authorizes the imposition of civil monetary penalties, assessments and exclusion against an individual or entity based on a variety of prohibited conduct, including, but not limited to: • presenting, or causing to be presented, claims, reports or records relating to payment by Medicare, Medicaid or other government payors that the individual or entity knows or should know are for an item or service that was not provided as reported, is false or fraudulent or was presented for a physician’s service by a person who knows or should know that the individual providing the service is not a licensed physician, obtained licensure through misrepresentation or represented certification in a medical specialty without in fact possessing such certification; • offering remuneration to a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services from a particular provider, unless an exception applies; • arranging contracts with or making payments to an entity or individual excluded from participation in the federal healthcare programs or included on CMS’s preclusion list; • violating the federal Anti-Kickback Statute; • making, using or causing to be made or used a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal healthcare program; • making, using or causing to be made any false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider of services or a supplier under a federal healthcare program; and • failing to report and return an overpayment owed to the federal government.
Based on deficiencies detected in the audits related to participant provision of services, which can be categorized as care delivery and management, care coordination and documentation of care, CMS and regulatory authorities in the states of California and Colorado suspended new enrollments at our Sacramento center in California and all our centers in Colorado.
Based on deficiencies detected in the audits related to participant provision of services, which can be categorized as care delivery and management, care coordination and documentation of care, CMS and regulatory authorities in the states of California and Colorado suspended new enrollments at our Sacramento center in 5 Table of Contents California and our centers in Colorado.
We believe that our employees are drawn to this mission and our values, which is why our voluntary retention rate was 63.6% over fiscal year 2022. Additionally, in our most recent employee engagement survey conducted in April 2022, 73% of our employees indicated that they feel engaged by their work at InnovAge .
We believe that our employees are drawn to this mission and our values, which is why our voluntary retention rate was 64.7% over fiscal year 2023. Additionally, in our most recent employee engagement survey conducted in April 2022, 73% of our employees indicated that they feel engaged by their work at InnovAge .
We include our website address on this Annual Report on Form 10-K for reference only. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with the SEC. ​ 19 Table of Contents
We include our website address on this Annual Report on Form 10-K for reference only. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with, or furnish to, the SEC. 17 Table of Contents
CMS and state regulatory authorities regularly 9 Table of Contents audit our performance to determine our compliance with CMS’s regulations and our contracts with CMS and to assess the quality of the services we provide to our participants.
CMS and state regulatory authorities regularly audit our performance to determine our compliance with CMS’s regulations and our contracts with CMS and state authorities, and to assess the quality of the services we provide to our participants.
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility nor control over the timing of such payments. Human Capital Resources As of June 30, 2022, we had approximately 2,000 employees, including 1,300 clinical professionals (excluding contract labor).
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility nor control over the timing of such payments. Human Capital Resources As of June 30, 2023, we had approximately 2,100 employees, including 1,200 clinical professionals (excluding contract labor).
Risk Factors, “Risks Related to Our Business—Laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws could subject us to penalties or require a restructuring of our business.” ​ Federal Anti-Kickback Statute The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. ​ Federal criminal penalties for the violation of the federal Anti-Kickback Statute include imprisonment, fines and exclusion of the provider from future participation in federal healthcare programs, including Medicare and Medicaid.
Risk Factors, “Risks Related to Our Business—Laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws could subject us to penalties or require a restructuring of our business.” Federal Anti-Kickback Statute The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid.
Costs under the PACE program are estimated to be 13% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in November 2020. Importantly, we believe we can deliver better health outcomes. Our care model reduces unnecessary or avoidable medical spend.
Costs under the PACE program are estimated to be 15% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of most recently available data by the National PACE Association in July 2023. Importantly, we believe we can deliver better health outcomes. Our care model reduces unnecessary or avoidable medical spend.
We, our healthcare professionals and our centers are also subject to a variety of other state laws and regulations, relating to, among other things, the quality of medical care, equipment, privacy of health information, physician relationships, personnel and operating policies and procedures.
We, our healthcare professionals and our centers are also subject to a variety of other state laws and regulations, relating to, among other things, the quality of medical care, equipment, privacy of health information, physician relationships, and qualifications of our personnel, and our operations.
We have built the largest PACE-focused operation in the country based on number of participants; we are almost twice the size of our closest PACE-focused competitor, more than 30 times larger than the typical PACE operator and the only for-profit PACE operator with a footprint in three or more states.
We have built the largest PACE-focused operation in the country based on number of 3 Table of Contents participants; we are 16% larger than the size of our closest PACE-focused competitor, more than 30 times larger than the typical PACE operator and the only for-profit PACE operator with a footprint in three or more states.
Based on historical results for the year ended June 30, 2022 and our experience and industry knowledge, we estimate an average annual revenue opportunity of $98,000 per participant (or $8,200 PMPM) and a total addressable market opportunity of $220 billion, based on our estimated market of approximately 2.2 million PACE eligible in the United States in 2021, as described above.
Based on historical results for the year ended June 30, 2023 and our experience and industry knowledge, we estimate an average annual revenue opportunity of $107,000 per participant (or $8,900 PMPM) and a total addressable market opportunity of $235 billion, based on our estimated market of approximately 2.2 million PACE eligible in the United States in 2022, as described above.
Costs under the PACE program were estimated to be 13% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in November 2020.
Costs under the PACE program were estimated to be 15% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in July 2023.
In addition, the ACA amended the federal Anti-Kickback Statute to provide that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the FCA. ​ The federal Anti-Kickback Statute includes statutory exceptions and regulatory safe harbors that protect certain arrangements. These exceptions and safe harbors are voluntary.
In addition, the ACA amended the federal Anti-Kickback Statute to provide that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the FCA, which is further discussed below. The federal Anti-Kickback Statute includes statutory exceptions and regulatory safe harbors that protect certain arrangements.
In addition, as of June 30, 2022, our participants had a 23% lower 30-day hospital readmission rate compared to a frail, dual-eligible or disabled waiver population. In addition to reducing spend, we also focus on ensuring our participants are satisfied and receive the necessary care.
In addition, as of June 30, 2023, our participants had a 12% lower 30-day hospital readmission rate compared 1 Table of Contents to a frail, dual-eligible or disabled waiver population. In addition to reducing spend, we also focus on ensuring our participants are satisfied and receive the necessary care.
Our participant satisfaction, based on our most recent survey of participants administered by an independent third party as of January 1, 2022, is 81%. We believe our value proposition to each constituency translates into a predictable economic model.
Our participant satisfaction, based on our most recent survey of participants administered by an independent third party as of March 1, 2023, is 78%. We believe our value proposition to each constituency translates into a predictable economic model.
Our Market Opportunity We are one of the largest healthcare platforms focused on frail, dual-eligible seniors, and we serve participants primarily through PACE.
Our Market Opportunity We are one of the largest healthcare platforms focused on frail, dual-eligible seniors, serving participants primarily through our PACE program.
We believe we provide fiscal certainty through our capitated payment arrangements and reduce the cost of both medical and long-term support and services for high-cost, dual-eligible seniors.
Government payors “Win” through fiscal certainty and lower costs. We believe we provide fiscal certainty through our capitated payment arrangements and reduce the cost of both medical and long-term support and services for high-cost, dual-eligible seniors.
Based on InnovAge data as of June 30, 2022, the typical InnovAge participant had, on average, eight chronic conditions and, based on the data most recently available to us from a 2018 health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).
Based on InnovAge data as of June 30, 2023, the typical InnovAge participant had, on average, eleven chronic conditions and, based on the data most recently available to us from a 2021 modified health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).
Further, many such state laws are often vague or have otherwise only been infrequently interpreted by courts or regulatory agencies.
Further, many such state laws are often vague or have otherwise only been infrequently interpreted by courts or regulatory agencies and are subject to change.
Were allegations to be asserted successfully before the appropriate judicial or administrative forums, we could be subject to adverse judicial or administrative penalties, certain contracts could be determined to be unenforceable and we may be required to restructure our contractual arrangements.
However, if allegations are successfully asserted before the appropriate judicial or administrative forums, we could be subject to adverse judicial or administrative penalties, certain of our contracts could be determined to be unenforceable, and we may be required to restructure our organization or our contractual arrangements.
Of these estimated PACE eligible participants, only approximately 61,000 are enrolled in a PACE program, based on a July 2022 report from the National PACE Association, and over the next six years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 20%.
Of these estimated PACE eligible participants, only approximately 70,000 are enrolled in a PACE program, based on a July 2023 report from the National PACE Association, and over the next five years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 21%.
Reporting must also be made to the HHS Office for Civil Rights and, for breaches of unsecured PHI involving more than 500 residents of a state or jurisdiction, to the media.
Reporting must also be made to the HHS Office for Civil Rights (“OCR”) and, for breaches of unsecured PHI involving more than 500 residents of a state or jurisdiction, to the media in accordance with HIPAA requirements.
If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: ​ ● suspension, termination or exclusion of our participation in government payor programs; ● ​ loss of our licenses required to operate healthcare facilities or administer prescription drugs in the states in which we operate; ● criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, the False Claims Act (“FCA”) and/or state analogs to these federal enforcement authorities, or other regulatory requirements; 8 Table of Contents ● enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees who believe their protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) has been impermissibly used or disclosed or not properly safeguarded, or their rights with respect to PHI/PII have been protected, in violation of federal or state health privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HIPAA, the California Consumer Privacy Act (“CCPA”) , other state comprehensive privacy laws, and the Privacy Act of 1974; ● mandated changes to our practices or procedures that significantly increase operating expenses or decrease our revenue; ● imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices which could lead to potential fines, among other things; ● termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors and real estate leases or contracts with specialty medical providers; ● changes in and reinterpretation of rules and laws by a regulatory agency or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business; ● ​ negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid; and ● harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants and physicians, our ability to obtain financing and our access to new business opportunities, among other things. ​ We expect that our industry will continue to be subject to substantial regulation, the scope and effect of which are difficult to predict.
If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payor programs; • loss of our licenses required to operate healthcare facilities or administer prescription drugs in the states in which we operate; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, the False Claims Act (“FCA”) and/or state analogs to these federal enforcement authorities, or other regulatory requirements; • enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees relating to breach of, impermissible use or disclosure of, or other incident relating to protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) that we collect, use, and disclose, in violation of federal or state health privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HIPAA, the CCPA as amended by the California Privacy Rights Act of 2020 (“CPRA”), other state data privacy and security laws, and the Privacy Act of 1974; • mandated changes to our practices or procedures that significantly increase operating expenses or decrease our revenue; • imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices which could lead to potential fines, among other things; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors, and real estate leases or contracts with clinical providers; • changes in and reinterpretation of rules and laws by a regulatory agency board, or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business; 7 Table of Contents • changes in payor reimbursement, including negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid; and • harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants, physicians, and other clinicians, our ability to obtain financing and our access to new business opportunities, among other things.
According to data from the Office of the Actuary of CMS, healthcare spending in the United States grew at approximately 5% per year from 2015 to 2020, and in 2020 represented $4.1 trillion of annual spend, or 19.7% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population.
According to data from the Office of the Actuary of CMS, healthcare spending in the United States grew at approximately 5% per year from 2016 to 2021, and in 2021 represented $4.3 trillion of annual spend, or 18.3% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population.
We leverage the InnovAge Platform which is designed to provide comprehensive, coordinated healthcare to enable our frail, nursing home-eligible seniors to live independently in their homes and communities.
We leverage the InnovAge Platform (as defined herein) which is designed to provide comprehensive, coordinated healthcare to enable our frail, eligible for skilled nursing seniors to live independently in their homes and communities.
Our Growth Strategy Increase participant enrollment and capacity within existing centers ● For the fiscal year ended June 30, 2022, our participant census was approximately 6,650 across our 18 centers in five states.
Our Growth Strategy Increase participant enrollment and capacity within existing centers • For the fiscal year ended June 30, 2023, our participant census was approximately 6,400 across our 17 centers in five states.
We employ our own sales force and attempt to meet the Anti-Kickback safe harbor for bona fide employment. ​ ​ If any of our business transactions or arrangements, including those described above, were found to violate the federal Anti-Kickback Statute, we could face, among other things, criminal, civil or administrative sanctions, including possible exclusion from participation in Medicare, Medicaid and other state and federal healthcare programs and FCA liability.
If any of our business transactions or arrangements, including those described above, were found to violate the federal Anti-Kickback Statute, we could face, among other things, criminal, civil or administrative sanctions, including possible exclusion from participation in Medicare, Medicaid and other state and federal healthcare programs and FCA liability.
Traditional healthcare providers faced dwindling fee-for-service visits during the stay-at-home orders, government restrictions and general patient fear of medical settings. This not only reduced revenues for traditional providers, but also strained their ability to provide necessary care for their patients.
The COVID-19 pandemic amplified several flaws in the current legacy healthcare delivery system. Traditional healthcare providers faced dwindling fee-for-service visits during the stay-at-home orders, government restrictions and general patient fear of medical settings. This not only reduced revenues for traditional providers, but also strained their ability to provide necessary care for their patients.
Our platform is the largest among PACE providers based on participants served and one of the most geographically diverse. ● We plan to continually invest in technology improvements and seek to unlock new insights through enhanced data analytics capabilities that will advance our care model. ● We believe our investments will ultimately result in better health outcomes and lower medical costs for participants.
Our platform is the largest among PACE providers based on participants served and one of the most geographically diverse. • We plan to continually invest in technology improvements and seek to unlock new insights through enhanced data analytics capabilities that will advance our care model. • We have begun to invest in building capabilities to increase our sophistication as a payor to drive clinical value, improve outcomes, and manage cost trends. • We believe our investments will ultimately result in better health outcomes and lower medical costs for participants.
Healthcare spending on nursing care facilities 2 Table of Contents and continuing care retirement communities was expected to reach approximately $188.1 billion in 2022, based on the latest projections made by the Office of the Actuary of CMS, which is a 6.4% decrease compared to the 2022 projection from the prior year.
Healthcare spending on nursing care facilities and continuing care retirement communities was expected to reach approximately $201.4 billion in 2023, based on the latest projections made by the Office of the Actuary of CMS, which is a 1.9% increase compared to the 2023 projection from the prior year.
In addition to state requirements, we and/or our healthcare professionals are in some cases subject to federal licensing and certification requirements, such as certification or waiver under the Clinical Laboratory Improvement Amendments of 1988 for performing limited laboratory testing and Drug Enforcement Administration registration for writing prescriptions for controlled substances.
In addition to state requirements, we, our centers, and our healthcare professionals are in some cases subject to federal licensing and certification requirements, such as certification or waiver under the Clinical Laboratory Improvement Amendments of 1988 for performing laboratory services and Drug Enforcement Administration registrations for prescribing, storing, and dispensing controlled substances.
In addition, employers are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls. Employers are also required to comply with various record-keeping requirements. Federal and state law also governs the dispensing of controlled substances by physicians.
In addition, employers are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety 14 Table of Contents devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls. Employers are also required to comply with various record-keeping requirements.
Through PACE, we manage, and in many cases directly provide, a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care); in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the PACE center and third-party medical appointments; and care management.
Through our Program of All-Inclusive Care for the Elderly (“PACE”) program, we fulfill a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care), in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to and from the PACE center and third-party medical appointments; and care management.
We endeavor to structure our vendor contracts that include discount or rebate provisions to comply with the federal Anti-Kickback Statute safe harbor for discounts. ● Sales Forces and Participant Recruitment.
We endeavor to structure our vendor contracts that include discount or rebate provisions to comply with the federal Anti-Kickback Statute safe harbor for discounts. • Sales Force and Participant Recruitment. We employ our own sales force and attempt to meet the Anti-Kickback safe harbor for bona fide employment.
If these types of changes are implemented in the future, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA. ● Legislation enacted in 2011 requires CMS to sequester or reduce all Medicare payments, including payments to PACE organizations, by two percent per year for a period of years.
If these types of changes are implemented in the future, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA. • Legislation enacted in 2011 requires CMS to sequester or reduce all Medicare payments, including payments to PACE organizations, by two percent per year for a period of years. • The Inflation Reduction Act of 2022 includes a few provisions intended to lower the costs of some drugs covered under Medicare Part D and to limit Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit.
The Company manages its business as one reportable segment, PACE. PACE As of June 30, 2022, the Company served approximately 6,650 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based on participants served, and operated 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
PACE As of June 30, 2023, the Company served approximately 6,400 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based on participants served, and operated 17 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
Our in-home care capabilities are designed to enable our participants to live safely in their homes and avoid nursing homes to the extent safely possible. We directly deliver or manage all skilled and unskilled care a participant may require to live independently at home.
Our in-home care capabilities are designed to enable our participants to live safely in their homes and avoid nursing homes to the extent safely possible. We directly deliver or manage all skilled and unskilled care a participant may require to live independently at home. Additionally, we have dedicated strategic partnerships with “hospital-at-home” providers to deliver acute care in-home when appropriate.
Although some provisions of the ACA have been and may be modified, the reforms could continue to have an impact on our business in a number of ways. Provisions of the ACA that impact the Medicare and Medicaid programs, in particular, may have an impact on our business.
Although some provisions of the ACA have been and may be modified, the reforms, particularly those relating to Medicare and Medicaid programs, could continue to have an impact on our business.
Due to this area of risk and the possibility of other allegations being brought against us, we cannot foreclose the possibility that we could face allegations of noncompliance with the Civil Monetary Penalty Statute that have the potential for a material adverse impact on our business, results of operations and financial condition. ​ Privacy and Security ​ The federal regulations promulgated under the authority of HIPAA require us to provide certain protections to our participants and their health information.
Due to this area of risk and the possibility of other allegations being brought against us, we cannot foreclose the possibility that we could face allegations of noncompliance with the Civil Monetary Penalty Statute that have the potential for a material adverse impact on our business, results of operations and financial condition.
Whether identified through these audits or other avenues, our failure to comply with the federal and state laws applicable to our business have and may continue to result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services. ​ Licensing Laws We, our healthcare professionals, and our centers are subject to various state and local licensure and certification requirements in connection with our provision of health care and other services.
Whether identified through such audits or other avenues, our failure to comply with the federal and state laws applicable to our business has and may continue to result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, corrective action plans, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services.
For example, the Prescription Drug Marketing Act governs the distribution of drug samples. Physicians are required to report relationships they have with the manufacturers of drugs, medical devices and biologics through the Open Payments Program database.
In addition, certain laws may apply to activities of our affiliated physicians and clinicians. For example, the Prescription Drug Marketing Act governs the provision of drug samples to physicians and other clinicians, and physicians and other clinicians are required to report relationships they have with the manufacturers of drugs, medical devices and biologics through the Open Payments Program database.
See Item 1A. Risk Factors, “​Risks Related to Regulation” for a description of current audits in the States of California, Colorado, and New Mexico and their results. We expect these audits to continue in the future.
Risk Factors, “Risks Related to Regulation” for a description of recent audits in the States of California, Colorado, and New Mexico. We expect these audits to continue in the future.
Medical costs also depend upon the number of business days in a period, and shorter periods will have lower medical costs. Business days can also create year-over-year comparability issues if a period in one year has a different number of business days compared to the same period in another.
Business days can also create year-over-year comparability issues if a period in one year has a different number of business days compared to the same period in another.
States are becoming increasingly active in using their false claims laws to police the same activities listed above, particularly with regard to capitated government-sponsored healthcare programs, such as Medicaid managed care and PACE. For additional information regarding allegations against us under Federal and State FCA statutes, see Item 1A.
States are becoming increasingly active in using their false claims laws to police the same activities listed above, particularly with regard to capitated government-sponsored healthcare programs, such as Medicaid managed care and PACE.
In addition, certain of the states where we currently operate or may choose to operate in the future regulate the operations and financial condition of risk bearing providers. These regulations can include capital requirements, licensing or certification, governance controls and other similar matters.
In addition, certain of the states where we currently operate regulate the operations and financial condition of risk bearing providers and impose capital requirements, licensing or certification, governance controls, and other obligations.
We leverage our differentiated care delivery model to improve the health of our participants and help them avoid unnecessary hospitalizations and nursing home care. We enable our participants to remain in their homes and age independently. As a result, as of June 30 2022, over 90% of our participants lived in their preferred setting: their home or community.
We leverage our differentiated care delivery model to improve the health of our participants and help them avoid unnecessary hospitalizations and nursing home care. We enable our participants to remain in their homes as long as possible and age independently.
Failure to return overpayments could subject us to liability under the FCA, exclusion from government healthcare programs and penalties under the federal Civil Monetary Penalty Statute. ​ The penalties for a violation of the FCA may include per claim penalties, plus up to three times the amount of damages caused by each false claim, which can be as much as the amounts received directly or indirectly from the government for each such false claim.
The penalties for a violation of the FCA may include per claim penalties, plus up to three times the amount of damages caused by each false claim, which can be as much as the amounts received directly or indirectly from the government for each such false claim.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our costs to pursue such opportunities; ​ ● we may not be able to recruit or retain a sufficient number of new participants to execute our growth strategy, and we may incur substantial costs to recruit new participants and we may be unable to recruit a sufficient number of new participants to offset those costs; ​ ● we may not be able to hire sufficient numbers of physicians and other clinical staff, particularly on account of heightened demand for healthcare personnel on account of the COVID-19 pandemic; ​ 25 Table of Contents ● when expanding our business into new states, we may be required to comply with laws and regulations that may differ from states in which we currently operate; and ​ ● we may have difficulty identifying appropriate acquisition targets, be precluded from acquiring targets as a result of the sanctions we face in the states of California and Colorado or due to other legal restrictions (e.g. federal or state antitrust laws), or make investments in acquisitions that we are unable to effectively integrate, involve associated risks or liabilities that we are unable to uncover in advance, or that require greater resources than anticipated. ​ There can be no assurance that we will be able to successfully capitalize on growth opportunities, which has negatively impacted our business model, revenues, results of operations and financial condition.
Biggest changeThis competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our costs to pursue such opportunities; • we may not be able to recruit or retain a sufficient number of new participants to execute our growth strategy or offset costs relating to recruiting new participants; • we may not be able to hire sufficient numbers of physicians and other clinical staff, particularly if there is a heightened demand for healthcare personnel or labor shortage, including as a result of macroeconomic conditions or an epidemic, pandemic or other health emergency, such as the COVID-19 pandemic; • when expanding our business into new states, we may be required to comply with laws and regulations that may differ from states in which we currently operate; • we may face larger than expected costs and legal, community or other obstacles in the construction and opening of de novo centers or expanding capacity in existing centers; and • we may have difficulty identifying appropriate acquisition targets, be precluded from acquiring targets as a result of the recent sanctions or due to other legal restrictions (e.g. federal or state antitrust laws), may fail to satisfy closing conditions or make investments in acquisitions that we are unable to effectively integrate, involve associated risks or liabilities that we are unable to uncover in advance, or that require greater resources than anticipated and that could include deficient quality of service.
We have experienced, and may continue to experience, and organizational change and growth, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, we completed our conversion from a not-for-profit to a for-profit organization in 2016 and completed our IPO in 2021.
We have experienced, and may continue to experience, organizational change and growth, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, we completed our conversion from a not-for-profit to a for-profit organization in 2016 and completed our IPO in 2021.
Risks Related to Regulation Allegations of failure and failure to adhere to all of the complex government laws and regulations that apply to our business have had and could in the future have material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
Risks Related to Regulation Allegations of failure and failure to adhere to all the complex government laws and regulations that apply to our business have had and could in the future have material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
If we are unable to convince the frail, dual-eligible senior population of the benefits of the InnovAge Platform or if potential or existing participants prefer the healthcare provider model of one of our competitors, we may not be able to effectively implement our growth strategy, which depends on our ability to attract new participants, if permitted.
If we are unable to convince the frail, dual-eligible senior population of the benefits of the InnovAge Platform or if potential or existing participants prefer the healthcare provider model of one of our competitors, we may not be able to effectively implement our growth strategy, which depends on our ability to attract new participants.
The 2021 Credit Agreement (as defined in Note 8, “Long-term Debt” to the consolidated financial statements) contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to: ● incur additional indebtedness or other contingent obligations; ​ ● create liens; ​ ● make investments, acquisitions, loans, guarantees and advances; ​ ● consolidate, merge, liquidate or dissolve; ​ ● sell, transfer, lease or otherwise dispose of our assets; ​ ● pay dividends on our equity interests or make other payments in respect of capital stock; and ​ ● materially alter the business we conduct.
The 2021 Credit Agreement (as defined in Note 7, “Long-term Debt” to the consolidated financial statements) contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to: • incur additional indebtedness or other contingent obligations; • create liens; • make investments, acquisitions, loans, guarantees and advances; • consolidate, merge, liquidate or dissolve; • sell, transfer, lease or otherwise dispose of our assets; • pay dividends on our equity interests or make other payments in respect of capital stock; and • materially alter the business we conduct.
Among other things, these provisions: ● allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders; ​ ● provide for a classified board of directors with staggered three-year terms; ​ ● prohibit shareholder action by written consent from and after the date on which the Principal Shareholders beneficially own, in the aggregate, less than 35% of our common stock then outstanding; ​ ● provide that, from and after the date on which the Principal Shareholders beneficially own less than 50% of our common stock then outstanding, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 66 2 ∕ 3 % in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and ​ ● establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings, provided, however, that at any time when a Principal Shareholder beneficially owns at least 5% of our common stock then outstanding, such advance notice procedure will not apply to such Principal Shareholder.
Among other things, these provisions: • allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders; • provide for a classified board of directors with staggered three-year terms; • prohibit shareholder action by written consent from and after the date on which the Principal Shareholders beneficially own, in the aggregate, less than 35% of our common stock then outstanding; 45 Table of Contents • provide that, from and after the date on which the Principal Shareholders beneficially own less than 50% of our common stock then outstanding, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 66 2 ∕ 3 % in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and • establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings, provided, however, that at any time when a Principal Shareholder beneficially owns at least 5% of our common stock then outstanding, such advance notice procedure will not apply to such Principal Shareholder.
We are, from time to time, and may in the future be, a party to various lawsuits, demands, claims, governmental investigations, and audits (including investigations or other actions resulting from our obligation to self-report suspected violations of law) and other legal matters.
We are, from time to time, and may in the future continue to be, a party to various lawsuits, demands, claims, governmental investigations, audits (including investigations or other actions resulting from our obligation to self-report suspected violations of law), and other legal matters.
Negative publicity regarding the managed healthcare industry generally, or the PACE program in particular, may result in increased regulation and legislative review of industry practices that further increase our costs of doing business and adversely affect our results of operations or business by: ● requiring us to change our integrated healthcare services model; ​ ● increasing the regulatory, including compliance, burdens under which we operate, which, in turn, may negatively impact the manner in which we provide services and increase our costs of providing services; ​ ● adversely affecting our ability to market our products or services through the imposition of further regulatory restrictions or guidelines regarding the manner in which plans and providers market to PACE enrollees; or ​ ● adversely affecting our ability to attract and retain participants. ​ ​ Item 1B.
Negative publicity regarding the managed healthcare industry generally, or the PACE program in particular, may result in increased regulation and legislative review of industry practices that further increase our costs of doing business and adversely affect our results of operations or business by: • requiring us to change our integrated healthcare services model; • increasing the regulatory, including compliance, burdens under which we operate, which, in turn, may negatively impact the manner in which we provide services and increase our costs of providing services; • adversely affecting our ability to market our products or services through the imposition of further regulatory restrictions or guidelines regarding the manner in which plans and providers market to PACE enrollees; or • adversely affecting our ability to attract and retain participants.
We do not know whether we will be able to take any of these actions on a timely basis, or on terms satisfactory to us or at all. 44 Table of Contents Our indebtedness and the cash flow needed to satisfy our debt have important consequences, including: ● limiting funds otherwise available for financing our capital expenditures and pursuing our growth strategies by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt; ​ ● making us more vulnerable to rising interest rates; and ​ ● making us more vulnerable in the event of a downturn in our business.
We do not know whether we will be able to take any of these actions on a timely basis, or on terms satisfactory to us or at all. 40 Table of Contents Our indebtedness and the cash flow needed to satisfy our debt have important consequences, including: • limiting funds otherwise available for financing our capital expenditures and pursuing our growth strategies by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt; • making us more vulnerable to rising interest rates; and • making us more vulnerable in the event of a downturn in our business.
Additionally, any future pandemic, epidemic or outbreak of an infectious disease may adversely affect our business if one of the geographies we serve is affected by such outbreak, particularly at the onset of any such outbreak before response protocols have been developed.
Any future pandemic, epidemic or outbreak of an infectious disease may adversely affect our business if one of the geographies we serve is affected by such outbreak, particularly at the onset of any such outbreak before response protocols have been developed.
Our ability to compete successfully varies from location to location and depends on a number of factors, including the number of payors who run competitive programs in the local market, our local reputation for quality participant care, the commitment and expertise of our medical staff or contracted health care providers, our local service offerings and community programs, the cost of care in each locality, and the physical appearance, location and condition of our centers.
Our ability to compete successfully varies from location to location and depends on a number of factors, including the number of payors who run competitive programs in the local market, our local reputation for quality participant care, the commitment and expertise of our medical staff or contracted healthcare providers, our local service offerings and community programs, the cost of care in each locality, and the physical appearance, location and condition of our centers.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we no longer qualify as an “emerging growth company” or a “smaller reporting company.” As a new public company, we incur legal, accounting and other expenses that we did not previously incur.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we no longer qualify as an “emerging growth company” or a “smaller reporting company.” As a newer public company, we incur legal, accounting and other expenses that we did not previously incur.
This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance.
This market volatility, as well as general economic, market or political conditions, could continue to subject the market price of our shares to wide price fluctuations regardless of our operating performance.
Security breaches of this infrastructure, whether ours or of our third-party service providers, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, and employee or contractor error, negligence or malfeasance, have occurred in the past, and have in the past and could in the future, create system disruptions, shutdowns or unauthorized access, acquisition, use, disclosure or modifications of such data or information, and could cause PHI/PII to be accessed, acquired, used, disclosed or modified without authorization, to be made publicly available, or to be further accessed, acquired, used or disclosed.
Security breaches of this infrastructure, whether ours or of our third-party service providers, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, and employee or contractor error, negligence or malfeasance, have occurred in the past, and have in the past and could in the future, create system disruptions, shutdowns or unauthorized access, acquisition, use, disclosure or 31 Table of Contents modifications of such data or information, and could cause PHI/PII to be accessed, acquired, used, disclosed or modified without authorization, to be made publicly available, or to be further accessed, acquired, used or disclosed.
The market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
The market price of our common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
Some of the states in which we currently operate have laws that prohibit business entities, such as us, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions by physicians or engaging in certain arrangements, such as fee-splitting, with physicians (such activities generally referred to as the “corporate practice of medicine”).
Some of the states in which we currently operate have laws that prohibit business entities, such as us, from practicing medicine, employing physicians or other clinicians to practice medicine, exercising control over medical decisions by physicians or other clinicians or engaging in certain arrangements, such as fee-splitting, with physicians or other clinicians (such activities generally referred to as the “corporate practice of medicine”).
Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to repayment obligations or penalties. The claims and encounter records that we submit to government payors impact data that support the RAF scores attributable to participants.
Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to repayment obligations or penalties. The claims and encounter records that we submit to government payors involve data that support the RAF scores attributable to participants.
Government-funded healthcare programs in the states in which we operate face a number of risks, including higher than expected health care costs and lack of predictability of tax basis and budget needs. If the financial condition of the states in which we operate declines, our credit risk could increase.
Government-funded healthcare programs in the states in which we operate face a number of risks, including higher than expected healthcare costs and lack of predictability of tax basis and budget needs. If the financial condition of the states in which we operate declines, our credit risk could increase.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” Additionally, the federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare, Medicaid and other federally funded health care programs.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” Additionally, the federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare, Medicaid, and other federally funded healthcare programs.
Our operations are dependent on a limited number of government payors, particularly Medicare and Medicaid, with whom we directly contract to provide services to participants. We generally manage our contracts on a state-by-state basis, entering into a separate contract in each state.
Our revenues and operations are dependent upon a limited number of government payors, particularly Medicare and Medicaid. Our operations are dependent on a limited number of government payors, particularly Medicare and Medicaid, with whom we directly contract to provide services to participants. We generally manage our contracts on a state-by-state basis, entering into a separate contract in each state.
We must effectively increase our headcount, ensure our personnel have the necessary licenses and competencies and continue to effectively train and manage our employees. We will be unable to manage our business effectively if we are unable to alleviate the strain on resources caused by growth in a timely and efficient manner.
We must ensure our personnel have the necessary licenses and competencies and continue to effectively train and manage our employees. We will be unable to manage our business effectively if we are unable to alleviate the strain on resources caused by growth in a timely and efficient manner.
If we are not able to implement the requirements of Section 404 of the Sarbanes- 49 Table of Contents Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC.
If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC.
If, in aggregate, our expenses exceed the underlying capitation payment received, we will not be able to fund operations and pursue acquisitions. ​ ● Our revenues and operations are dependent upon a limited number of government payors, particularly Medicare and Medicaid.
If, in aggregate, our expenses exceed the underlying capitation payment received, we will not be able to fund operations and pursue growth. • Our revenues and operations are dependent upon a limited number of government payors, particularly Medicare and Medicaid.
Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows and reputation. If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting U.S. healthcare reform, our business may be harmed.
Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows, and reputation. 37 Table of Contents If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting U.S. healthcare reform, our business may be harmed.
Substantial changes in the risk adjustment mechanism, including changes that result from enforcement or audit actions, could materially affect our capitated reimbursement. Renegotiation, non-renewal or termination of capitation agreements with government payors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Substantial changes in the risk adjustment mechanism, including changes that result from enforcement or audit actions, could materially affect our capitated reimbursement. 27 Table of Contents Renegotiation, non-renewal or termination of capitation agreements with government payors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In the ordinary course of our business, we create, receive, maintain, transmit, collect, store, use, disclose, share and process (collectively, “Process”) sensitive data, including protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) relating to our 34 Table of Contents employees, participants and others.
In the ordinary course of our business, we create, receive, maintain, transmit, collect, store, use, disclose, share and process (collectively, “Process”) sensitive data, including protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) relating to our employees, participants and others.
Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In certain geographic areas, we have a large concentration of centers that may be simultaneously affected by pandemics, such as the COVID-19 pandemic, adverse weather conditions or other events.
Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In certain geographic areas, we have a large concentration of centers that may be simultaneously affected by health emergencies, such as the COVID-19 pandemic, adverse weather conditions or other events.
Our operating results and the trading price of our shares may fluctuate in response to various factors, including: ● developments and results of current audits, sanctions, investigations and litigation; ● market conditions in our industry or the broader stock market; 51 Table of Contents ​ ● actual or anticipated fluctuations in our quarterly financial and operating results; ​ ● introduction of new solutions or services by us or our competitors; ​ ● issuance of new or changed securities analysts’ reports or recommendations; ​ ● sales, or anticipated sales, of large blocks of our stock; ​ ● additions or departures of key personnel; ​ ● regulatory or political developments; ​ ● litigation and governmental investigations; ​ ● changing economic conditions; ​ ● investors’ perception of us and our prospects; ​ ● events beyond our control such as inflationary pressures, increased interest rates, weather, public health events, such as the COVID-19 pandemic and Monkeypox, and war, including uncertainties surrounding the Russia and Ukraine conflict; and ​ ● any default on our indebtedness.
In addition, our operating results and the trading price of our shares may fluctuate in response to various factors, including: • developments and results of audits, sanctions, investigations and litigation; • market conditions in our industry or the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new solutions or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory or political developments; • litigation and governmental investigations; • changing economic conditions; • investors’ perception of us and our prospects; 47 Table of Contents • events beyond our control such as inflationary pressures, increased interest rates, weather, public health events, such as the COVID-19 pandemic, and war, including uncertainties surrounding the Russia and Ukraine war; and • any default on our indebtedness.
As a result of the sanctions and deficiencies identified during the audits of our centers, our reputation has been harmed which has impacted and could in the future continue to impact our ability to attract new participants.
As a result of the sanctions and deficiencies identified during recent audits of our centers, our reputation has been harmed, which has impacted and could in the future continue to impact our ability to retain and attract new participants.
Reductions in PACE reimbursement rates or changes in the rules governing PACE programs could have a material adverse effect on our financial condition and results of operations. We receive a substantial portion of our revenue through the PACE program, which accounted for 99.8% and 99.6% of our revenue for the years ended June 30, 2022 and 2021, respectively.
Reductions in PACE reimbursement rates or changes in the rules governing PACE programs could have a material adverse effect on our financial condition and results of operations. We receive a substantial portion of our revenue through the PACE program, which accounted for 99.8% and 99.8% of our revenue for the years ended June 30, 2023 and 2022, respectively.
Individual physicians, physician groups and companies in other healthcare industry segments, some of which have greater financial, marketing and staffing resources, may become competitors in providing health care services, and this competition may have a material adverse effect on our business operations and financial position. 33 Table of Contents Our presence is currently limited to Colorado, California, New Mexico, Pennsylvania and Virginia, and we may not be able to successfully establish a presence in new geographic markets.
Individual physicians, physician groups and companies in other healthcare industry segments, some of which have greater financial, marketing and staffing resources, may become competitors in providing healthcare services, and this competition may have a material adverse effect on our business operations and financial position. 30 Table of Contents Our presence is currently limited to Colorado, California, New Mexico, Pennsylvania and Virginia, and we may not be able to successfully establish a presence in new geographic markets.
If this were to occur, we could be subject to civil and/or criminal penalties, 42 Table of Contents our agreements with physicians could be found legally invalid and unenforceable (in whole or in part) or we could be required to restructure our arrangements with respect to the physicians that care for our participants, in each case in one or more of the jurisdictions in which we operate.
If this were to occur, we could be subject to civil and/or criminal penalties, our agreements with physicians could be found legally invalid and unenforceable (in whole or in part) or we could be required to restructure our arrangements with respect to the physicians that care for our participants, in each case in one or more of the jurisdictions in which we operate.
These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you 50 Table of Contents desire, including actions that you may deem advantageous, or negatively affect the trading price of our common stock.
These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our common stock.
When an entity is determined to have violated the FCA, the government may impose civil fines and penalties ranging from $12,537 to $25,076 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; ​ ● the federal false claims laws, which impose criminal penalties on individuals who make or present a false, fictitious, or fraudulent claim to the government that the individual knew was false, fictitious, or fraudulent, and was made with the specific intent to violate the law or with a consciousness of wrongdoing; ​ ● state false claims laws, which generally follow the FCA and apply to claims submitted to state healthcare programs, and state health insurance fraud laws that impose penalties for the submission of false or fraudulent claims by providers to commercial insurers or other payors of healthcare services; ​ ● the federal Civil Monetary Penalties Statute and associated regulations, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know such remuneration is likely to influence the beneficiary’s selection of a particular provider or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies, and which authorize assessments and program exclusion for various forms of fraud and abuse involving the Medicare and Medicaid programs; ​ ● the federal health care fraud statute and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; ​ ● federal and state laws regarding the collection, use disclosure and, protection of personal identifiable information or PII and protected health information or PHI (e.g., HIPAA, CCPA) and the storage, handling, shipment, disposal and/or dispensing of pharmaceuticals and blood products and other biological materials, and many other applicable state and federal laws and requirements; ​ ● state and federal statutes and regulations that govern workplace health and safety; ​ ● federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to provide services to patients or to enroll and participate in the Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re-enroll in these programs when changes in direct or indirect ownership occur; ​ ● federal and state scope of practice and other laws pertaining to the provision of services by qualified health care providers; ​ ● federal or state consumer protection laws that regulate various trade practices (e.g. consumer communications or consumer-facing activities); and ​ ● federal and state laws pertaining to the provision of services by nurse practitioners and physician assistants in certain settings, including physician supervision of those services.
When an entity is determined to have violated the FCA, the government may impose civil fines and penalties ranging from $13,508 to $27,018 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; • the federal false claims laws, which impose criminal penalties on individuals who make or present a false, fictitious, or fraudulent claim to the government that the individual knew was false, fictitious, or fraudulent, and was made with the specific intent to violate the law or with a consciousness of wrongdoing; • state false claims laws, which generally follow the FCA and apply to claims submitted to state healthcare programs, and state health insurance fraud laws that impose penalties for the submission of false or fraudulent claims by providers to commercial insurers or other payors of healthcare services; • the federal Civil Monetary Penalties Statute and associated regulations, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know such remuneration is likely to influence the beneficiary’s selection of a particular provider or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies, and which authorize assessments and program exclusion for various forms of fraud and abuse involving the Medicare and Medicaid programs; • the federal healthcare fraud statute and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • federal and state laws regarding the collection, use disclosure and, protection of personal identifiable information or PII and protected health information or PHI (e.g., HIPAA, CCPA) and the storage, handling, 35 Table of Contents shipment, disposal and/or dispensing of pharmaceuticals and blood products and other biological materials, and many other applicable state and federal laws and requirements; • state and federal statutes and regulations that govern workplace health and safety; • federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to provide services to patients or to enroll and participate in the Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re-enroll in these programs when changes in direct or indirect ownership occur; • federal and state scope of practice and other laws pertaining to the provision of services by qualified healthcare providers, including those pertaining to the provision of services by nurse practitioners and physician assistants in certain settings and requirements for physician supervision of those services; • state laws restricting the corporate practice of medicine; and • federal or state consumer protection laws that regulate various trade practices (e.g. consumer communications or consumer-facing activities).
Our operations are subject to extensive federal, state and local government laws and regulations, such as: ● Medicare, Medicaid, and PACE statutes and regulations; ​ ● federal and state anti-kickback laws, which prohibit, among other things, the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback or remuneration, whether in cash or in kind, for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or leasing of items 38 Table of Contents or services covered, in whole or in part, by federal healthcare programs, such as Medicare and Medicaid, or by any payor; ​ ● the federal civil false claims laws, including the FCA and associated regulations, which impose civil penalties through governmental, whistleblower or qui tam actions, on individuals or entities for, among other things, knowingly submitting false or fraudulent claims for payment to the government or knowingly making, or causing to be made, a false statement in order to have a claim paid.
Our operations are subject to extensive federal, state and local government laws and regulations, such as: • Federal Medicare, federal and state Medicaid, and federal and state PACE statutes and regulations, which are continuously changing and evolving; • federal and state anti-kickback and self-referral laws, which prohibit, among other things, the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback or remuneration, whether in cash or in kind, for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or leasing of items or services covered, in whole or in part, by federal healthcare programs, such as Medicare and Medicaid, or by any payor; • the federal civil false claims laws, including the FCA and associated regulations, which impose civil penalties through governmental, whistleblower or qui tam actions, on individuals or entities for, among other things, knowingly submitting false or fraudulent claims for payment to the government or knowingly making, or causing to be made, a false statement in order to have a claim paid.
If those changes are implemented, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states 29 Table of Contents that expanded their Medicaid programs in response to the ACA.
If those changes are implemented, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA.
The Principal Shareholders may also assign such right to their affiliates. The Director Nomination Agreement also provides for certain consent rights for each of the Principal Shareholders so long as such shareholder owns at least 5% of the Original Amount, including for any increase to the size of our Board.
The Principal Shareholders may also assign such right to their affiliates. The Director Nomination Agreement also provides for certain consent rights for each of the Principal Shareholders so long as such 42 Table of Contents shareholder owns at least 5% of the Original Amount, including for any increase to the size of our Board.
We have encountered and will continue to encounter significant risks and uncertainties frequently experienced by new companies in rapidly changing and highly regulated industries, such as determining appropriate investments for our limited resources, competition from other providers, acquiring and retaining participants, hiring, integrating, training and retaining skilled personnel, unforeseen expenses and 31 Table of Contents challenges in forecasting accuracy.
We have encountered and will continue to encounter significant risks and uncertainties frequently experienced by new companies in rapidly changing and highly regulated industries, such as determining appropriate investments for our limited resources, competition from other providers, acquiring and retaining participants, hiring, integrating, training and retaining skilled personnel, unforeseen expenses and challenges in forecasting accuracy.
If any of our operations are found to violate these or other government laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: ● suspension, termination or exclusion of our participation in government payment programs; ​ ● refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods; ​ ● loss of our licenses required to operate healthcare centers, complete certain limited lab testing or administer prescription drugs in the states in which we operate; ​ ● criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the Anti-Kickback Statute, Civil Monetary Penalties Statute and FCA, or other failures to meet regulatory requirements; ​ 40 Table of Contents ● enforcement actions by governmental agencies or state attorneys general and/or state law claims for monetary damages by patients or employees who believe their PHI/PII has been impermissibly used or disclosed or not properly safeguarded, or their rights with respect to PHI/PII have been protected, in violation of federal or state health privacy laws, including, for example and without limitation, HIPAA, CCPA, and the Privacy Act of 1974; ​ ● mandated changes to our practices or procedures that significantly increase operating expenses; ​ ● imposition of and compliance with corporate integrity agreements, monitoring agreements or corrective action plans that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines, among other things; ​ ● termination of various relationships and/or contracts related to our business, including joint venture arrangements, real estate leases and consulting agreements; and ​ ● harm to our reputation, which could negatively impact our business relationships, affect our ability to attract and retain participants and healthcare professionals, affect our ability to obtain financing and decrease access to new business opportunities, among other things.
In addition to the provisions of the FCA, the federal government can use several criminal statutes to prosecute persons who are alleged to have submitted false or fraudulent claims for payment to the federal government. 36 Table of Contents If any of our operations are found to violate these or other government laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payment programs; • refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods; • loss of our licenses required to operate healthcare centers, complete certain limited lab testing or administer prescription drugs in the states in which we operate; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the Anti-Kickback Statute, Civil Monetary Penalties Statute and FCA, or other failures to meet regulatory requirements; • enforcement actions by governmental agencies or state attorneys general and/or state law claims for monetary damages by patients or employees who believe their PHI/PII has been impermissibly used or disclosed or not properly safeguarded, or their rights with respect to PHI/PII have been protected, in violation of federal or state health privacy laws, including, for example and without limitation, HIPAA, CCPA as amended by the CPRA, and the Privacy Act of 1974; • mandated changes to our practices or procedures that significantly increase operating expenses; • imposition of and compliance with corporate integrity agreements, monitoring agreements or corrective action plans that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines, among other things; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, real estate leases and consulting agreements; and • harm to our reputation, which could negatively impact our business relationships, affect our ability to attract and retain participants and healthcare professionals, affect our ability to obtain financing and decrease access to new business opportunities, among other things.
As a result of PACE contracts with CMS and state government agencies, state licenses and participation in Medicaid, we are routinely subject to various governmental inspections, reviews, audits, requests for information and investigations to verify our compliance with applicable laws and regulations, assess the quality of our services provided to our participants and evaluate the accuracy of the risk adjustment data we submit.
As a result of PACE contracts with CMS and state government agencies, state licenses and participation in Medicaid, we are regularly subject to various routine and non-routine governmental inspections, reviews, audits, requests for information and investigations to verify our compliance with applicable laws and regulations, assess the quality of our services provided to our participants and evaluate the accuracy of the risk adjustment data we submit.
Our use, disclosure, and other Processing of PHI/PII is subject to HIPAA, CCPA and other federal and state privacy and security regulations, and our failure to comply with those laws and regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our participant base and revenue.
Our use, disclosure, and other processing of PHI/PII is subject to HIPAA, CCPA as amended by the CPRA and other federal and state privacy and security regulations, and our failure to comply with those laws and regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our participant base and revenue.
We receive a substantial portion of our revenue through the PACE program, which accounted for 99.8% and 99.6% of our revenue for the years ended June 30, 2022 and 2021, respectively. As a result, our operations are dependent on government funding levels for PACE programs.
We receive a substantial portion of our revenue through the PACE program, which accounted for 99.8% and 99.8% of our revenue for the years ended June 30, 2023 and 2022, respectively. As a result, our operations are dependent on government funding levels for PACE programs.
As a result of these restrictions, we may be: ● limited in how we conduct our business; ​ 45 Table of Contents ● unable to raise additional debt or equity financing to operate during general economic or business downturns; or ​ ● unable to compete effectively or to take advantage of new business opportunities.
As a result of these restrictions, we may be: • limited in how we conduct our business; • unable to raise additional debt or equity financing to operate during general economic or business downturns; or • unable to compete effectively or to take advantage of new business opportunities.
Risk Factors, “Risks Related to Our Business—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the ongoing effects of COVID-19, could adversely affect our business” and “Risks Related to Our Business—We conduct a significant percentage of our operations in the State of Colorado and, as a result, we are particularly susceptible to any reduction in budget appropriations for our services or any other adverse developments in that state.” Because we rely on a limited number of government-funded agencies, namely CMS and state Medicaid agencies, for a significant portion of our revenues, we depend on federal funding, as well as the financial condition of the states in which we operate, and each state’s commitment to its participation in the PACE program.
Risk Factors, “Risks Related to Our Business—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide has and in the future could adversely affect our business” and “Risks Related to Our Business—We conduct a significant percentage of our operations in the State of Colorado and, as a result, we are particularly susceptible to any reduction in budget appropriations for our services or any other adverse developments in that state.” Because we rely on a limited number of government-funded agencies, namely CMS and state Medicaid agencies, for a significant portion of our revenues, we depend on federal funding, as well as the financial condition of the states in which we operate, and each state’s commitment to its participation in the PACE program.
Because a substantial portion of our revenue is through the PACE program, any negative changes to the PACE benchmark payment rates could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Because a substantial portion of our revenue is through the PACE program, any negative changes to the PACE benchmark 26 Table of Contents payment rates could have a material adverse effect on our business, results of operations, financial condition and cash flows.
For example, open source software is generally provided without any warranties or other contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. We lease approximately half of our centers and may experience risks relating to lease termination, lease expense escalators, lease extensions and special charges. We currently lease eight of our 18 centers.
For example, open source software is generally provided without any warranties or other contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. We lease approximately half of our centers and may experience risks relating to lease termination, lease expense escalators, lease extensions and special charges. We currently lease seven of our 17 centers.
Under our PACE contracts, we assume all of the risk that the cost of providing services will exceed our compensation. Approximately 99.7% and 99.5% of our revenue for the years ended June 30, 2022 and 2021, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
Under our PACE contracts, we assume all of the risk that the cost of providing services will exceed our compensation. Approximately 99.8% and 99.7% of our revenue for the years ended June 30, 2023 and 2022, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
We are also required to disclose changes made in our internal controls and procedures on a quarterly basis. To comply with these requirements, we have and may further need to undertake various costly and time-consuming actions, such as implementing new controls and procedures and hiring additional accounting or internal audit staff.
We are also required to disclose changes made in our internal controls and procedures on a quarterly basis. To comply with these requirements, we have and may further need to undertake various costly and time-consuming actions, 44 Table of Contents such as implementing new controls and procedures and hiring additional accounting or internal audit staff.
These investments may be more costly than we expect, and if we do not achieve the benefits anticipated from these investments, or if the realization of these benefits is delayed, our profitability could decline in future periods. If our growth rate were to decline significantly or become negative, it could adversely affect our financial condition and results of operations.
These investments may be more costly than we expect, and if we do not achieve the benefits anticipated from these investments, or if the realization of these benefits is delayed, our profitability could continue to decline. If our growth rate were to decline significantly or become negative, it could adversely affect our financial condition and results of operations.
We expect a majority of our revenues will continue to be derived from a limited number of key government payors, which may terminate their 20 Table of Contents contracts with us upon the occurrence of certain events.
We expect a majority of our revenues will continue to be derived from a limited number of key government payors, which may terminate their contracts with us upon the occurrence of certain events.
Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future 53 Table of Contents offerings.
Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings.
If our data were found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact our participants and providers and hinder our ability to provide services, retain and attract participants, manage our participant risk profiles, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among other things.
If our data were found to be inaccurate or unreliable due to error or fraud, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems, including our new electronic medical records system, and data integrity effectively, we could experience operational disruptions that may impact our participants and providers and hinder our ability to provide services, retain and attract participants, manage our participant risk profiles, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among other things.
If any of these suppliers do not meet our needs for the products they supply, including sustained price increases as a result of inflation, a product recall, product shortage or dispute, and we are not able to find adequate alternative sources, it could have a material adverse impact on our business, results of operations, financial condition and cash flows.
If any of these suppliers do not meet our needs for the products they supply, including as a result of price increases, a product recall, product shortage or other supply chain issues, or a dispute, and we are not able to find adequate alternative sources, it could have a material adverse impact on our business, results of operations, financial condition and cash flows.
In addition, factors such as failing to meet the expectations of or provide quality medical care for our participants, adverse cyber or data security events, adverse publicity or litigation involving or surrounding us, one of our centers or our management, such as news articles and market rumors with respect to our ongoing audits, litigation and other processes described above, have and may in the future diminish our reputation or that of our management and harmed our brand, making it substantially more difficult for us to attract new participants.
In addition, factors such as failing to meet the expectations of or provide quality medical care for our participants, adverse cyber or data security events, adverse publicity or litigation involving or surrounding us, one of our centers or our management, such as news articles and market rumors with respect to audits, litigation and other processes described in these risk factors, have diminished and may in the future diminish our reputation or that of our management and have harmed and may in the future harm our brand, making it substantially more difficult for us to attract new participants.
However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period.
However, if certain events occur prior to the end of such five-year period, including if we become a “large 43 Table of Contents accelerated filer,” our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period.
We expect to continue to increase our headcount and to hire or contract with more physicians, nurses and other specialized medical personnel in the future as we grow our business and open or acquire new centers.
In addition, as we grow our business and open or acquire new centers, we expect to continue to increase our headcount and to hire or contract with more physicians, nurses and other specialized medical personnel.
From time to time, federal and state authorities may identify aspects of the finances of our PACE organizations that do not comply with federal or state requirements and may require us to submit clarifications and/or take action to adjust the capitalization or other financial status of such entities. We endeavor to comply with all legal requirements.
From time to time, federal and state authorities may identify aspects of the finances of our PACE organizations that do not comply with federal or state requirements and may require us to submit clarifications and/or take action to adjust the capitalization or other financial status of such entities.
Because we have no current plans to pay regular cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
Because we have no plans to pay regular cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it. We do not anticipate paying any regular cash dividends on our common stock for the foreseeable future.
We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and 48 Table of Contents accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company.
We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company.
As a result of these increased expenditures, we may not succeed in increasing our revenue sufficiently to maintain our current profit margins. To date, we have financed our operations principally from the sale of our equity, revenue from our participant services and the incurrence of indebtedness.
As a result of these increased expenditures, we may not succeed in increasing our revenue sufficiently to improve our profit margins. To date, we have financed our operations principally from revenue from our participant services, the incurrence of indebtedness, and the sale of our equity in the IPO.
Our ability to grow organically depends upon a number of factors, including the results of ongoing and future audits (including our audits in California, Colorado and New Mexico), investigations and remediation efforts, recruiting new participants, finding suitable geographies that have aging populations and viable rate structures, entering into government payor arrangements in new jurisdictions, ensuring compliance with regulatory and contractual requirements, identifying appropriate centers, purchasing centers or obtaining leases, completing build-outs of new centers within proposed timelines and budgets and hiring members of our IDTs and other employees.
Our ability to grow depends upon a number of factors, including future audits, investigations and ongoing or new remediation efforts, recruiting new participants, finding suitable geographies that have aging populations and viable rate structures, entering into government payor arrangements in new jurisdictions, ensuring compliance with regulatory and contractual requirements, identifying appropriate locations or existing centers, purchasing centers or obtaining leases, completing build-outs of new centers within proposed timelines and budgets and hiring members of our IDTs and other employees.
Approximately 99.7% and 99.5% of our revenue for the years ended June 30, 2022 and 2021, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
Approximately 99.8% and 99.7% of our revenue for the years ended June 30, 2023 and 2022, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
These laws and regulations are often uncertain, contradictory, and subject to changing or differing interpretations, and we expect new laws, rules and regulations regarding privacy, data protection, and information security to be proposed and enacted in the future.
These laws and regulations are often uncertain, contradictory, and subject to changing or differing 39 Table of Contents interpretations, and we expect new laws, rules and regulations regarding privacy, data protection, and information security to be proposed and enacted in the future.
For the years ended June 30, 2022 and 2021, our total center-level employee costs represented 18.5% and 17.7%, respectively, of our revenue. We also depend on the available labor pool of semi-skilled and unskilled workers in each of the markets in which we operate.
For the years ended June 30, 2023 and 2022, our total center-level employee costs represented 18.8% and 18.5%, respectively, of our revenue. We also depend on the available labor pool of semi-skilled and unskilled workers in each of the markets in which we operate.
Due to budget constraints, including those resulting from the COVID-19 pandemic or a potential economic downturn or recession, we may experience negative Medicaid capitated rate payment pressure from certain states where we operate, such as Colorado, where we conduct a significant percentage of our operations.
Due to budget constraints, including resulting from a potential economic downturn or recession, we may experience negative Medicaid capitated rate payment pressure from certain states where we operate, such as Colorado, where we conduct a significant percentage of our operations.
We began operating as a for-profit company in 2016 and have limited operating history as a for-profit company. Accordingly, our historical and recent financial and business results may not be representative of what they may be in the future. We were originally formed in 2007 as a not-for-profit company and converted to a for-profit company in 2016.
We were originally formed in 2007 as a not-for-profit company and converted to a for-profit company in 2016. Due to our relatively limited operating history as a for-profit company, our historical and recent financial and business results may not be representative of what they may be in the future.
We are party to lawsuits and legal proceedings from employees, participants and various third parties in the normal course of business. These matters are often expensive and disruptive to normal business operations.
We are party to lawsuits and legal proceedings in the normal course of business from participants, employees, or other third parties for various actions. These matters are often expensive and disruptive to normal business operations.
We also face or may face allegations or litigation related to our acquisitions, securities issuances or business practices, including public disclosures about our business.
We also face or may face allegations or litigation related to our potential and completed acquisitions, securities issuances or business practices, including public disclosures about our business.
This and future lawsuits brought against us could incur substantial costs defending the lawsuit. Such lawsuits also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. A significant portion of our total outstanding shares may be sold into the market in the near future.
We incur substantial costs defending against these lawsuits. Such lawsuits also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. A significant portion of our total outstanding shares may be sold into the market in the near future.
Cyber-attacks are becoming more sophisticated, and frequent, and we or our third-party service providers may be unable to anticipate these techniques or to implement adequate protective measures against them or to prevent future attacks. The remote work environment as a result of COVID-19 has increased these risks.
Cyber-attacks are becoming more sophisticated, and frequent, and we or our third-party service providers may be unable to anticipate these techniques or to implement adequate protective measures against them or to prevent future attacks. The remote work environment has increased these risks.
When aggregating the revenue associated with Medicare and Medicaid by state, Colorado, California and Virginia accounted for a total of approximately 83.3% and 82.6% of our capitation revenue for the years ended June 30, 2022 and 2021, respectively.
When aggregating the revenue associated with Medicare and Medicaid by state, Colorado, California and Virginia accounted for a total of approximately 83.0% and 83.3% of our capitation revenue for the years ended June 30, 2023 and 2022, respectively.
See Item 1A.Risk Factors “—Risks Related to Our Business—Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to repayment obligations or penalties.” ​ The COVID-19 pandemic has and continues to exacerbate difficulties to hire additional healthcare professionals, causing certain of our centers to be understaffed or staffed with personnel that requires training.
Risk Factors “—Risks Related to Our Business—Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to repayment obligations or penalties.” The COVID-19 pandemic exacerbated difficulties to hire additional healthcare professionals, causing certain of our centers to be understaffed or staffed with personnel that required training.
For the fiscal year ended June 30, 2022, 25.8% of our total revenues were derived from contracts with government agencies in the State of Colorado.
For the fiscal year ended June 30, 2023 and 2022, 23.6% and 25.8% of our total revenues were derived from contracts with government agencies in the State of Colorado.
In addition to the above, PACE contracts also impose complex and extensive requirements upon our operations. 39 Table of Contents Federal and state manuals, policies, and other guidance may also affect our operations.
In addition to the above, PACE contracts also impose complex and extensive requirements upon our operations. Federal and state manuals, policies, and other guidance may also affect our operations.
If certain of our suppliers do not meet our needs, if the price increases on supplies is sustained as a result of inflation, if we are not reimbursed or adequately reimbursed for medical products we purchase or if we are unable to effectively access new technology or medical products, it could negatively impact our ability to effectively provide the services we offer and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
If certain of our suppliers do not meet our needs, if we are not reimbursed or adequately reimbursed for medical products we purchase or if we are unable to effectively access new technology or medical products, it could negatively impact our ability to effectively provide the services we offer and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The Company confirmed that this former third-party service provider has removed the PHI/PII of our participants from its servers, and the service provider has advised that all vulnerabilities in its environment and lack of security controls have been resolved.
We confirmed that this former third-party service provider had removed the PHI/PII of our participants from its servers, and the service provider advised that all vulnerabilities in its environment and lack of security controls had been resolved.
Accordingly, the failure to adequately predict and control medical costs and expenses and to make reasonable estimates and maintain adequate accruals for incurred but not reported claims, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Accordingly, the failure to adequately predict and control medical costs and expenses, execute or realize the benefits of our clinical value initiatives, and to make reasonable estimates and maintain adequate accruals for incurred but not reported claims, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward greater participant engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices.
Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward greater participant engagement in healthcare require new and enhanced technologies, including more sophisticated applications for mobile devices. Connectivity among technologies is becoming increasingly important.
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of June 30, 2022, we had 135,532,811 outstanding shares of common stock.
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of June 30, 2023, we had 135,639,845 outstanding shares of common stock.
In some markets, the lack of availability of clinical personnel, such as nurses and mental health professionals, has become a significant operating issue facing all healthcare providers, which situation was further exacerbated by the COVID-19 pandemic. This shortage has required us to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel.
In some markets, the lack of availability of clinical personnel, such as nurses and mental health professionals, has become a significant operating issue facing all healthcare providers. This shortage has required us to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe occupy approximately 45,000 square feet of a 69,000 square foot facility for administration, sales and marketing, technology and development and professional services in Denver, Colorado.
Biggest changeOur principal executive offices are located in Denver, Colorado, where we own facilities totaling approximately 290,000 square feet across the state. We occupy a 69,000 square foot facility for administration, sales and marketing, technology and development and professional services in Denver, Colorado.
Item 2. PROPERTIES As of June 30, 2022, we operated an aggregate of 18 centers, of which 10 were owned and eight were leased, representing approximately 410,000 and 160,000 gross square feet, respectively.
Item 2. PROPERTIES As of June 30, 2023, we operated an aggregate of 17 centers, of which 10 were owned and seven were leased, representing approximately 410,000 and 140,000 gross square feet, respectively. Our centers are located in 11 markets and five states.
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Our centers are located in 11 markets and five states. 55 Table of Contents Our principal executive offices are located in Denver, Colorado, where we own facilities totaling approximately 290,000 square feet across the state.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are currently unable to predict the outcome of this investigation. ​ On April 20, 2022, the Board of Directors of the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.
Biggest changeOn April 20, 2022, the Board of Directors received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, Brian Hall, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.
Refer to Note 10 “Commitments and Contingencies” to the Consolidated Financial Statements included in this Annual Report for more information. ​ ​ Item 4. MINE SAFETY DISCLOSURES Not applicable. ​ ​ ​ 57 Table of Contents PART II
Refer to Note 9 “Commitments and Contingencies” to the Consolidated Financial Statements included in this Annual Report for more information. Item 4. MINE SAFETY DISCLOSURES Not applicable. 51 Table of Contents PART II
Item 3. LEGAL PROCEEDINGS From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. ​ In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act.
LEGAL PROCEEDINGS From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. 50 Table of Contents Civil Investigative Demands In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act.
We are currently unable to predict the outcome of this matter. ​ Because the results of legal proceedings and claims are inherently unpredictable and uncertain, we are currently unable to predict whether the legal proceedings we are involved in will, either individually or in the aggregate, have 56 Table of Contents a material adverse effect on our business, financial condition, or cash flows.
Because the results of legal proceedings and claims are inherently unpredictable and uncertain, we are currently unable to predict whether the legal proceedings we are involved in will, either individually or in the aggregate, have a material adverse effect on our business, financial condition, or cash flows.
The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado. The Company continues to fully cooperate with the Attorney General and produce the requested information and documentation.
The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado. The Company continues to fully cooperate with the Attorney General and produce the requested information and documentation. We are currently unable to predict the outcome of this investigation.
We are currently unable to predict the outcome of this investigation. ​ On October 14, 2021, and subsequently amended on June 21, 2022, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period.
Stockholder Lawsuits On October 14, 2021, and subsequently amended on June 21, 2022, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period (the “Securities Action”).
We are currently unable to predict the outcome of this matter. ​ In February 2022, the Company received a civil investigative demand from the Department of Justice (“DOJ”) under the Federal False Claims Act on similar subject matter.
In February 2022, the Company received a civil investigative demand from the Department of Justice (“DOJ”) under the Federal False Claims Act on similar subject matter.
The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia). The Company continues to fully cooperate with the DOJ and produce the requested information and documentation.
The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia). In December 2022, the Company received a supplemental civil investigative demand requesting supplemental information on the same matters.
Added
The Company continues to fully cooperate with the DOJ and produce the requested information and documentation. We are currently unable to predict the outcome of this investigation.
Added
On September 13, 2022, the Company and the officer and director defendants and Apax Partners, L.P. and Welsh, Carson, Anderson & Stowe filed a motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted.
Added
Hall filed a lawsuit in the Delaware Court of Chancery asserting derivative claims for breach of fiduciary duty against certain of the Company’s current and former officers and directors generally relating to alleged failures by the defendants to take remedial actions to address the matters that resulted in sanctions by CMS at certain of the Company’s centers, and alleged misstatements in the Company’s public filings relating to those matters.
Added
On June 28, 2023, upon stipulation of the parties, the court entered an order staying the litigation pending the resolution of the motion to dismiss in the Securities Action or upon fifteen days’ notice by any party to the litigation. We are currently unable to predict the outcome of these matters.
Added
Other Matters In the third fiscal quarter of 2023, the Company agreed to settle a wage and hour class action lawsuit in the State of California for a cash payment of $1.2 million. The agreement is subject to court approval.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Securities Market Information Our common stock is listed on the Nasdaq Global Select Market under the symbol “INNV.” Holders of Record As of September 12, 2022, there were approximately eight stockholders of record for our common stock.
Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Securities Market Information Our common stock is listed on the Nasdaq Global Select Market under the symbol “INNV.” Holders of Record As of September 11, 2023, there were approximately seven stockholders of record for our common stock.
Recent Sales of Unregistered Securities There were no unregistered sales of equity securities during the year ended June 30, 2022, except as previously reported. Issuer Purchases of Equity Securities None.
Recent Sales of Unregistered Securities There were no unregistered sales of equity securities during the year ended June 30, 2023, except as previously reported. Issuer Purchases of Equity Securities None.
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Use of Proceeds from Registered Securities On March 8, 2021, we completed the initial public offering (“IPO”) and issued and sold 18,995,901 shares of our common stock, including the partial exercise of the underwriters’ option to purchase additional shares, at a price to the public of $21.00 per share for net proceeds of approximately $373.6 million.
Removed
As of June 30, 2022, we had used all of the net proceeds from our IPO.
Removed
There was no material change in the expected use of such proceeds from that described in the final prospectus, dated March 3, 2021, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement on Form S-1 (File No. 333-252853) (“Registration Statement”), as amended. Item 6. [Reserved] ​ ​ 58 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe variance between the expense recorded and the cumulative actual incurred claims ranges between approximately 1% and 3% of actual total incurred claims over the periods presented, and such variance may vary based on the factors described above in this section. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses Recorded for the Fiscal Years Ended June 30, ​ ​ 2018 ​ 2019 ​ 2020 ​ 2021 ​ 2022 ​ ​ in thousands Claims incurred year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FY 2018 ​ $ 123,821 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FY 2019 ​ ​ ​ ​ $ 171,128 ​ ​ ​ ​ ​ ​ ​ ​ ​ FY 2020 ​ ​ ​ ​ ​ ​ ​ $ 211,381 ​ ​ ​ ​ ​ ​ FY 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 234,070 ​ ​ ​ FY 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 299,432 Total ​ $ 123,821 ​ $ 171,128 ​ $ 211,381 ​ $ 234,070 ​ $ 299,432 Pharmacy expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 83,614 External provider costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 383,046 ​ 75 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative Actual Incurred Claims for the Fiscal Years Ended June 30, ​ ​ 2018 ​ 2019 ​ 2020 ​ 2021 ​ 2022 ​ ​ in thousands Claims incurred year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FY 2018 ​ $ 119,687 ​ $ 119,687 ​ $ 119,687 ​ $ 119,862 ​ $ 119,860 FY 2019 ​ ​ ​ ​ ​ 173,047 ​ ​ 173,061 ​ ​ 172,855 ​ ​ 172,802 FY 2020 ​ ​ ​ ​ ​ ​ ​ ​ 210,512 ​ ​ 205,633 ​ ​ 205,550 FY 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 239,207 ​ ​ 238,488 FY 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 291,315 Total ​ $ 119,687 ​ $ 292,734 ​ $ 503,260 ​ $ 737,557 ​ $ 1,028,015 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative Actual Paid Claims for the Fiscal Years Ended June 30, ​ ​ 2018 ​ 2019 ​ 2020 ​ 2021 ​ 2022 ​ ​ in thousands Claims incurred year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FY 2018 ​ $ 109,022 ​ $ 119,759 ​ $ 119,687 ​ $ 119,862 ​ $ 119,860 FY 2019 ​ ​ ​ ​ ​ 144,943 ​ ​ 173,048 ​ ​ 172,855 ​ ​ 172,803 FY 2020 ​ ​ ​ ​ ​ ​ ​ ​ 179,616 ​ ​ 205,601 ​ ​ 205,550 FY 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 205,356 ​ ​ 238,476 FY 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 252,665 Total ​ $ 109,022 ​ $ 264,702 ​ $ 472,351 ​ $ 703,674 ​ $ 989,354 Other claims-related liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (207) Reported and estimated claims ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 38,454 ​ Recent Accounting Pronouncements See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for more information. ​
Biggest changeExpenses Recorded for the Fiscal Years Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 171,128 FY 2020 $ 211,381 FY 2021 $ 234,070 FY 2022 $ 299,432 FY 2023 $ 291,988 Total $ 171,128 $ 211,381 $ 234,070 $ 299,432 $ 291,988 Pharmacy expense 82,541 External provider costs $ 374,529 67 Table of Contents Cumulative Actual Incurred Claims for the Fiscal Year Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 173,047 $ 173,061 $ 172,855 $ 172,802 $ 172,555 FY 2020 210,512 205,633 205,550 205,301 FY 2021 239,207 238,488 204,792 FY 2022 291,315 333,752 FY 2023 285,118 Total $ 173,047 $ 383,573 $ 617,695 $ 908,155 $ 1,201,518 Cumulative Actual Paid Claims for the Fiscal Year Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 144,943 $ 173,048 $ 172,855 $ 172,803 $ 172,555 FY 2020 179,616 205,601 205,550 205,301 FY 2021 205,356 238,476 204,792 FY 2022 252,665 333,748 FY 2023 241,770 Total $ 144,943 $ 352,664 $ 583,812 $ 869,494 $ 1,158,166 Other claims-related liabilities (353) Reported and estimated claims $ 42,999 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for more information.
This includes costs related to IDTs, salaries, wages and benefits for center-level staff, participant transportation, medical supplies, occupancy, insurance and other operating costs. IDT employees include medical doctors, registered nurses, social workers, physical, occupational, and speech therapists, nursing assistants, and transportation workers. Center-level employees include clinic managers, dieticians, activity assistants and certified nursing assistants.
This includes costs related to salaries, wages and benefits for IDT and other center-level staff, participant transportation, medical supplies, occupancy, insurance and other operating costs. IDT employees include medical doctors, registered nurses, social workers, physical, occupational, and speech therapists, nursing assistants, and transportation workers. Other center-level employees include clinic managers, dieticians, activity assistants and certified nursing assistants.
While we are liable for potentially large medical claims, our care model focuses on delivering high-quality medical care in cost efficient, community-based settings as a means of avoiding costly inpatient and outpatient services.
In addition, while we are liable for potentially large medical claims, our care model focuses on delivering high-quality medical care in cost efficient, community-based settings as a means of avoiding costly inpatient and outpatient services.
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility nor control over the timing of such payments. ​ Components of Results of Operations ​ Revenue ​ Capitation Revenue .
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility into nor control over the timing of such payments. Components of Results of Operations Revenue Capitation Revenue .
Provision for Income Taxes. The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units. There were no indicators of impairment identified and no goodwill impairments recorded during the years ended June 30, 2022 and 2021.
A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units. There were no indicators of impairment identified and no goodwill impairments recorded during the years ended June 30, 2023 and 2022.
Our participants are managed on a capitated, or at-risk, basis, where InnovAge is financially responsible for all of their medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care.
Our participants are managed on a capitated, or at-risk, basis, where InnovAge is financially responsible for all of participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care.
We evaluate our sales and marketing expenses relative to our participant growth and will invest more heavily in sales and marketing from time-to-time to the extent we believe such investment can further our growth without negatively affecting profitability. ​ Corporate, General and Administrative Expenses. Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs.
We evaluate our sales and marketing expenses relative to our participant growth and will invest more heavily in sales and marketing from time-to-time to the extent we believe such investment can accelerate our growth without negatively affecting profitability. Corporate, General and Administrative Expenses. Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs.
Our recorded medical claims expense estimate is approximately within +/- 5-10% of actual medical claims expense incurred, or less than 1% of our total operating expense. The following tables provide information about incurred and paid claims reporting and development as of June 30, 2022 (except as otherwise noted).
Our recorded medical claims expense estimate is approximately within +/- 5-10% of actual medical claims expense incurred, or less than 1% of our total operating expense. The following tables provide information about incurred and paid claims reporting and development as of June 30, 2023 (except as otherwise noted).
Census Our census is comprised of our capitated participants for whom we are financially responsible for their total healthcare costs. Total member months We define Total Member Months as the total number of participants multiplied by the number of months within a year in which each participant was enrolled in our program.
Census Our census is comprised of our capitated participants for whom we are financially responsible for their total healthcare costs. Total member months We define Total Member Months as the total number of participants as of period end multiplied by the number of months within a year in which each participant was enrolled in our program.
For a discussion of our revenue recognition policies, please see Critical Accounting Policies and Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K . ​ Operating Expenses ​ External Provider Costs. External provider costs consist primarily of the costs for medical care provided by non-InnovAge providers.
For a discussion 56 Table of Contents of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K. Operating Expenses External Provider Costs. External provider costs consist primarily of the costs for medical care provided by non-InnovAge providers.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. ​ Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. 65 Table of Contents Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Medical costs vary most significantly as a result of (i) the weather, with certain illnesses, such as the influenza virus and possibly COVID-19, being more prevalent during colder months of the year, which generally increases per-participant costs and (ii) the number of business days in a period, with shorter periods generally having lower medical costs all else equal.
Medical costs vary most significantly as a result of (i) the weather, with certain illnesses, such as the influenza and COVID-19 viruses, being more prevalent during colder months of the year, which generally increases per-participant costs and (ii) the number of business days in a period, with shorter periods generally having lower medical costs all else equal.
The estimated reserve for unpaid claims liability is included in the liability for reported and estimated claims in the consolidated balance sheets and requires estimates including actual member utilization of health care services, unit cost trends, participant acuity, changes in net census, known outbreaks of disease, including COVID-19 or increased incidence of illness such as influenza and other factors.
The estimated reserve for unpaid claims liability is included in the liability for reported and estimated claims in the consolidated balance sheets and requires estimates including actual member utilization of healthcare services, unit cost trends, participant acuity, changes in net census, known outbreaks of disease, including COVID-19 or increased incidence of illness such as influenza and other factors.
For more information about our debt, see Note 8 “Long-term Debt” to our audited Consolidated Financial Statements. Our material cash requirements from known contractual and other obligations primarily relate to long-term debt and lease obligations.
For more information about our debt, see Note 7 “Long-term Debt” to our audited consolidated financial statements. Our material cash requirements from known contractual and other obligations primarily relate to long-term debt and lease obligations.
We separate external provider costs into four categories: inpatient (e.g., hospital), housing (e.g., assisted living), outpatient and pharmacy. In aggregate, external provider costs represent the largest portion of our expenses. ​ Cost of Care, Excluding Depreciation and Amortization. Cost of care, excluding depreciation and amortization, includes the costs we incur to operate our care delivery model.
We separate external provider costs into four categories: inpatient (e.g., hospital), housing (e.g., assisted living and skilled nursing facility), outpatient and pharmacy. In aggregate, external provider costs represent the largest portion of our expenses. Cost of Care, Excluding Depreciation and Amortization. Cost of care, excluding depreciation and amortization, includes the costs we incur to operate our care delivery model.
As of June 30, 2022, we also had $2.4 million principal amount outstanding under our convertible term loan. Monthly principal and interest payments are approximately $0.02 million, and the loan bears interest at an annual rate of 6.68%. The remaining principal balance is due upon maturity, which is August 20, 2030.
As of June 30, 2023, we also had $2.3 million principal amount outstanding under our convertible term loan. Monthly principal and interest payments are approximately $0.02 million, and the loan bears interest at an annual rate of 6.68%. The remaining principal balance is due upon maturity, which is August 20, 2030.
Our historical results are not necessarily indicative of the results that may occur in the future and actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Forward-Looking Statements” included in this Annual Report on Form 10-K. ​ Overview General InnovAge Holding Corp.
Our historical results are not necessarily indicative of the results that may occur in the future and actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Forward-Looking Statements” included in this Annual Report on Form 10-K.
As part of its actions to do so, the Company has worked with the appropriate authorities to make the necessary changes within the Company to increase care coordination and care documentation among our centers, including working to fill critical personnel gaps at our centers, standardizing the process of our IDTs, strengthening our home care network and reliability, improving timelines of scheduling and coordinating care with providers outside our centers, among others.
As part of its actions to do so, the Company has worked with the appropriate regulators to make the necessary changes within the Company to improve care coordination and care documentation among our centers, including working to fill critical personnel gaps at our centers, standardizing the process of our IDTs, strengthening our home care network and reliability, improving timelines of scheduling and coordinating care with providers outside our centers, among others. • Our participants.
The concentration of capitation revenue from our various payors was: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Medicaid 54 % 53 % Medicare 46 % 47 % Private pay and other * % * % Total 100 % 100 % * denotes less than 1% ​ Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program.
The concentration of capitation revenue from our various payors was: 2023 2022 Medicaid 54 % 54 % Medicare 46 % 46 % Private pay and other *% *% Total 100 % 100 % * denotes less than 1% Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program.
For more information relating to Center-level Contribution Margin, see Note 14 “Segment Reporting” to our consolidated financial statements.
For more information relating to Center-level Contribution Margin, see Note 13 “Segment Reporting” to our consolidated financial statements.
Furthermore, we experience low levels of voluntary disenrollment, averaging 5% annually over the last three fiscal years. Approximately 75% of our historical disenrollments have been involuntary, due primarily to participant death and otherwise to participants moving out of our service areas. ● Effectively managing the cost of care for our participants .
Furthermore, we experience low levels of voluntary disenrollment, averaging 5.9% annually over the last three fiscal years. Approximately 71% of our historical disenrollments have been involuntary, due primarily to participant death or otherwise due to participants moving out of our service areas. • Effectively managing the cost of care for our participants .
For a definition and reconciliation of these non-GAAP measures to the most closely comparable GAAP measures for the period indicated, see below under “—Adjusted EBITDA.” ​ Centers We define our centers as those centers open for business and attending to participants at the end of a particular period.
For a definition and reconciliation of these non-GAAP measures to the most closely comparable GAAP measures for the period indicated, see below. Centers We define our centers as those centers open for business and attending to participants at the end of a particular period.
We periodically assess our estimates with an independent actuarial expert to ensure our estimates represent the best, most reasonable estimate given the data available to us at the time the estimates are made. We have included incurred but not reported claims of approximately $38.5 million and $33.2 million on our balance sheet as of June 30, 2022 and 2021, respectively.
We periodically assess our estimates with an independent actuarial expert to ensure our estimates represent the best, most reasonable estimate given the data available to us at the time the estimates are made. We have included incurred but not reported claims of approximately $43.0 million and $38.5 million on our balance sheet as of June 30, 2023 and 2022, respectively.
This is driven by two factors: (i) we manage a higher acuity population, with an average RAF score of 2.40 based on InnovAge data as of June 30, 2022, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2020 ; and (ii) we manage Medicaid spend in addition to Medicare.
This is driven by two factors: (i) we manage a higher acuity population, with an average RAF score of 2.46 based on InnovAge data as of June 30, 54 Table of Contents 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2020; and (ii) we manage Medicaid spend in addition to Medicare.
Through our Program of All-Inclusive Care for the Elderly (“PACE”), we manage, and in many cases directly provide, a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care); in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the PACE center and third-party medical appointments; and care management.
Through our Program of All-Inclusive Care for the Elderly (“PACE”) program, we fulfill a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care), center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to and from the PACE center and third-party medical appointments; and care management.
Depreciation and amortization expenses are primarily attributable to our buildings and leasehold improvements and our equipment and vehicles. Depreciation and amortization are recorded using the straight-line method over the shorter of estimated useful life or lease terms, to the extent the assets are being leased. 63 Table of Contents ​ Equity Loss.
Depreciation and amortization expenses are primarily attributable to our buildings and leasehold improvements and our equipment and vehicles. Depreciation and amortization are recorded using the straight-line method over the shorter of estimated useful life or lease terms, to the extent the assets are being leased.
Collectively, these obligations are expected to represent a significant liquidity requirement of our Company on both a short-term (next 12 months) and long-term (beyond 12 months) basis. For additional information regarding our lease obligations, debt and commitments, see 70 Table of Contents Notes 7 “Leases,” 8 “Long-term Debt,” and 10 “Commitments and Contingencies,” respectively, to our Audited Consolidated Financial Statements.
Collectively, these obligations are expected to represent a significant liquidity requirement of our Company on both a short-term (next 12 months) and long-term (beyond 12 months) basis. For additional information regarding our lease obligations, debt and commitments, see Notes 6 “Leases,” 7 “Long-term Debt,” and 9 “Commitments and Contingencies,” respectively, to our audited consolidated financial statements.
The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of provision for income taxes. During the years ended June 30, 2022 and 2021, we reported provision for income taxes of $0.7 million and $9.8 million, respectively.
The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of provision for income taxes. During the years ended June 30, 2023 and 2022, we reported provision for income taxes of $(7.2) million and $0.7 million, respectively.
The PACE state contracts between us and the respective state Medicaid administering agency are amended annually each 62 Table of Contents June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. W e are currently operating in good standing under each of our PACE state contracts .
The PACE state contracts between us and the respective state Medicaid administering agency are amended annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. We are currently operating in good standing under each of our PACE state contracts.
We believe that our cash and cash equivalents and our cash flows from operations, available funds and access to financing sources, including our 2021 Credit Agreement and Revolving Credit Facility (each as discussed and defined below), will be sufficient to fund our operating and capital needs for the next 12 months and beyond.
We believe that our cash and cash equivalents and our cash flows from operations, available funds and access to financing sources, including our 2021 Credit Agreement (as defined in Note 7, “Long-term Debt”) and Revolving Credit Facility (as discussed and defined below), will be sufficient to fund our operating and capital needs for the next 12 months and beyond.
We also will continue investing in the effective implementation of corrective remediation plans (CAPs) and other corrective initiatives as a result of deficiencies found during audits at some of our centers, and our ability to continually provide necessary and quality services to our participants.
We also will continue investing in the effective implementation of post-sanction corrective remediation plans (CAPs) and other corrective initiatives as a result of deficiencies found during our recent audits, and our ability to continually provide necessary and quality services to our participants.
In addition, general and administrative expenses include all corporate technology and occupancy costs associated with our regional corporate offices.
In addition, general and administrative expenses include all corporate technology and occupancy costs associated with our corporate office.
Our consolidated financial statements could be materially impacted if actual risk scores are different from the estimated risk scores. If our accrual estimates for risk scores at June 30, 2022 were to differ by +/- 5%, the impact on revenues would be approximately $0.5 million. These adjustments are not expected to be material.
Our consolidated financial statements could be materially impacted if actual risk scores are different from the estimated risk scores. If our accrual estimates for risk scores at June 30, 2023 were to differ by 5%, the impact on revenues would be approximately $0.5 million.
The cumulative actual incurred claims table represents the actual amount of claims incurred by the Company with the benefit of the passage of time.
The cumulative actual incurred claims table represents the actual amount of claims incurred by the Company with the benefit of the passage of time. The cumulative actual paid claims table represents the actual amount of claims paid by the Company during the period.
The Company has provided a subordinated loan to SH1 and has provided a guarantee for the convertible term loan held by SH1. The SH1 interest is reflected within equity as noncontrolling interests.
The most significant activity of SH1 is the operation of the housing facility. The Company has provided a subordinated loan to SH1 and has provided a guarantee for the convertible term loan held by SH1. The SH1 interest is reflected within equity as noncontrolling interests.
Interest expense, net, consists primarily of interest payments on our outstanding borrowings, net of interest income earned on our cash and cash equivalents and restricted cash. Interest expense, net was $2.5 million for the year ended June 30, 2022, a decrease of $14.3 million, or 85.0%, compared to $16.8 million for the year ended June 30, 2021.
Interest expense, net, consists primarily of interest payments on our outstanding borrowings, net of interest income earned on our cash and cash equivalents and restricted cash. Interest expense, net was $1.5 million for the year ended June 30, 2023, a decrease of $1.0 million, or 39.7%, compared to $2.5 million for the year ended June 30, 2022.
The members of SH1 (as defined below under “— Net Loss Attributable to Noncontrolling Interests ”) and InnovAge Sacramento have elected to be taxed as partnerships, and no provision for income taxes for SH1 or InnovAge Sacramento is included in these consolidated financial statements A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.
The members of InnovAge Senior Housing Thornton, LLC (“SH1”) and InnovAge Sacramento have elected to be taxed as partnerships, and no provision for income taxes for SH1 or InnovAge Sacramento is included in these consolidated financial statements A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
See Note 2 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
Management estimates related to revenue are discussed below in more detail. Capitation revenue Our PACE operating unit provides comprehensive health care services to participants on the basis of estimated PMPM amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources.
Our PACE operating unit provides comprehensive healthcare services to participants on the basis of estimated PMPM amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources.
Judgment is also required in determining the intangible asset’s useful life. ​ Reported and estimated claims Reported and estimated claims expenses are costs for third-party healthcare service providers that provide medical care to our participants for which we are contractually obligated to pay (through our full-risk capitation arrangements).
Reported and estimated claims Reported and estimated claims expenses are costs for third-party healthcare service providers that provide medical care to our participants for which we are contractually obligated to pay (through our full-risk capitation arrangements).
For a discussion of our revenue recognition policies, please see Critical Accounting Policies and Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K . ​ Other Service Revenue.
For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K. Other Service Revenue. Other service revenue primarily consists of revenues derived from fee-for-service arrangements, state food grants, rent revenues and management fees.
Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA.
Our presentation of Adjusted EBITDA should not be construed to imply 62 Table of Contents that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA. Our use of the term Adjusted EBITDA varies from others in our industry.
(“InnovAge”), formerly TCO Group Holdings, Inc., became a public company in March 2021. The Company serves approximately 6,650 PACE participants, making it the largest PACE provider in the U.S. based upon participants served, and operates 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
Overview General InnovAge Holding Corp. (“InnovAge”), formerly TCO Group Holdings, Inc., became a public company in March 2021. The Company served approximately 6,400 PACE participants as of June 30, 2023, making it the largest PACE provider in the U.S. based upon participants served, and operates 17 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
This increase was driven by (i) an increase in capitation rates and (ii) a 4.3% increase total in member months (as defined below under “Key Business Metrics and non-GAAP Measures – Total member months”).
This decrease was driven by a 6.6% decrease in member months (as defined below under “Key Business Metrics and non-GAAP Measures – Total member months”) partially offset by a 5.5% increase in capitation rates.
Our actual results could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, our ability to retain and grow the number of PACE participants, subject to our ability to effectively remediate deficiencies identified in our Colorado and Sacramento centers, and the expansion of sales and marketing activities.
Our actual results could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, our ability to retain and grow the number of PACE participants, and the expansion of sales and marketing activities and other costs of operating the business.
For the year ended June 30, 2022, our net loss margin was 1.1%, as compared to our net loss margin of 7.0% for the year ended June 30, 2021. For the year ended June 30, 2022, our Adjusted EBITDA margin was 4.9%, as compared to our Adjusted EBITDA margin for the year ended June 30, 2021 of 13.4%.
For the year ended June 30, 2023, our Adjusted EBITDA margin was (0.2%), as compared to our Adjusted EBITDA margin for the year ended June 30, 2022 of 4.9%.
Our capital resources are generally used to fund (i) debt service requirements, the majority of which relate to the quarterly principal payments of the Term Loan Facility (as defined in Note 8 “Long-term Debt” to the consolidated financial statements) due 2026, (ii) capital and operating lease obligations, which are generally paid on a monthly basis and include maturities through 2025 and 2032, respectively, (iii) the operations of our business, including special projects such as our transition to a new EMR vendor, with respect to which we expect to incur non-recurring implementation costs over the next 12 months, and ongoing costs through 2026, and third party support to address remediation efforts, and (iv) income tax payments, which are generally due on a quarterly and annual basis.
Our cash and cash equivalents primarily consist of highly liquid investments in demand deposit accounts and cash. 63 Table of Contents Our capital resources are generally used to fund (i) debt service requirements, the majority of which relate to the quarterly principal payments of the Term Loan Facility (as defined in Note 7 “Long-term Debt” to the audited consolidated financial statements) due 2026, (ii) finance and operating lease obligations, which are generally paid on a monthly basis and include maturities through 2028 and 2032, respectively, (iii) the operations of our business, including special projects such as our transition to a new EMR vendor, with respect to which we incurred non-recurring implementation costs over the last 12 months, and expect to incur ongoing costs through 2024 and beyond, and third party support to address remediation efforts, (iv) income tax payments, which are generally due on a quarterly and annual basis, and (v) capital additions, which included costs relating to the development of de novo centers, including those in Florida and California.
The Company is the primary beneficiary of SH1 because it has the power to direct the activities that are most significant to SH1 and has an obligation to absorb losses or the right to receive benefits from SH1. The most significant activity of SH1 is the operation of the housing facility.
InnovAge Senior Housing Thornton, LLC is a variable interest entity (“VIE”). The Company is the primary beneficiary of SH1 and consolidates SH1. The Company is the primary beneficiary of SH1 because it has the power to direct the activities that are most significant to SH1 and has an obligation to absorb losses or the right to receive benefits from SH1.
We continue to assess key roles and benchmarks to market while monitoring trends in the labor market where we continue to see wage inflation in fiscal year 2023.
We continue to assess key roles and benchmarks to market while monitoring trends in the labor market.
Cost of care excludes any expenses associated with sales and marketing activities incurred at a local level as well as any allocation of our corporate, general and administrative expenses. A portion of our cost of care is fixed relative to the number of participants we serve, such as occupancy and insurance expenses.
Cost of care excludes any expenses associated with sales and marketing activities incurred at a local level as well as any allocation of our corporate, general and administrative expenses. A portion of our cost of care, including our employee-related costs, is directly related to the number of participants cared for in a center.
Adjusted EBITDA We define Adjusted EBITDA as net income (loss) adjusted for interest expense, depreciation and amortization, and provision for income tax as well as addbacks for non-recurring expenses or exceptional items, including charges relating to management equity compensation, final determination of rates, executive severance and recruitment, litigation, M&A transaction and integration, business optimization, electronic medical record (“EMR”) implementation, gain on consolidation of equity investee, financing-related fees and contingent consideration.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income (loss) adjusted for interest expense, depreciation and amortization, and provision (benefit) for income tax as well as addbacks for non-recurring expenses or exceptional items, including relating to management equity compensation, executive severance and recruitment, litigation costs and settlement, M&A and de novo center development, business optimization, and electronic medical record (“EMR”) implementation.
Our share of earnings is recorded in the consolidated statements of operations as net loss attributable to noncontrolling interests. ​ Net Income (Loss) ​ During the years ended June 30, 2022 and 2021, we reported net loss of $8.0 million and $44.7 million, respectively, consisting of (i) loss from operations of $4.4 million and $12.3 million, respectively, (ii) other expense of $2.8 million and $22.6 million, respectively, and (iii) provision for income taxes of $0.7 million and $9.8 million, respectively, each as described above. ​ 67 Table of Contents For more information relating to our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K . ​ Key Business Metrics and Non-GAAP Measures In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Net Income (Loss) During the years ended June 30, 2023 and 2022, we reported net loss of $43.6 million and $8.0 million, respectively, consisting of (i) loss from operations of $49.4 million and $4.4 million, respectively, (ii) other expense of $1.4 million and $2.8 million, respectively, and (iii) provision for income taxes of $7.2 million and $0.7 million, respectively, each as described above. 60 Table of Contents Key Business Metrics and Non-GAAP Measures In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
The 2021 Credit Agreement consists of a senior secured term loan (the “Term Loan Facility”) of $75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $100.0 million maximum borrowing capacity. Principal on the Term Loan Facility is paid each calendar quarter in an amount equal to 1.25% of the initial term loan on closing date.
The 2021 Credit Agreement consists of a senior secured term loan (the “Term Loan Facility”) of $75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $100.0 million maximum borrowing capacity.
Proceeds of the Term Loan Facility, together with proceeds from the IPO, were used to repay amounts outstanding under the 2016 Credit Agreement. Any outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of June 30, 2022, the interest rate on the Term Loan Facility was 3.83%.
Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of June 30, 2023 and 2022, the interest rate on the Term Loan Facility was 6.95% and 3.83%, respectively.
Our use of the term Adjusted EBITDA varies from others in our industry. ​ Liquidity and capital resources General To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, and most recently from the sale of common stock in our IPO that occurred in March 2021.
(e) Reflects non-recurring expenses relating to the implementation of a new EMR vendor. Liquidity and capital resources General To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, from the sale of common stock in our IPO that occurred in March 2021.
These measures may not be comparable to similarly-titled performance indicators used by other companies. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ 2022 ​ 2021 ​ ​ dollars in thousands Key Business Metrics: ​ ​ ​ Centers (a) ​ 18 ​ 18 ​ Census (a)(b) ​ 6,650 ​ 6,850 ​ Total Member Months (a) ​ 82,820 ​ 79,430 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Center-level Contribution Margin ​ $ 135,372 ​ ​ $ 174,080 ​ Center-level Contribution Margin as a % of revenue ​ 19.4 % ​ 27.3 % ​ ​ ​ ​ ​ ​ Non-GAAP Measures: ​ ​ ​ ​ ​ ​ ​ ​ Adjusted EBITDA (c) $ 34,253 ​ $ 85,333 ​ Adjusted EBITDA Margin (c) ​ 4.9 % ​ 13.4 % (a) Includes InnovAge Sacramento, which the Company owns and controls through a joint venture and is consolidated in our financial statements.
Year Ended June 30, 2023 2022 dollars in thousands Key Business Metrics: Centers (a) 17 18 Census (a)(b) 6,400 6,650 Total Member Months (b) 77,370 82,820 Non-GAAP Measures: Center-level Contribution Margin (c) $ 101,288 $ 135,372 Center-level Contribution Margin as a % of revenue (c) 14.7 % 19.4 % Adjusted EBITDA (c) $ (1,261) $ 34,253 Adjusted EBITDA Margin (c) (0.2) % 4.9 % ___________________________________ (a) Includes InnovAge Sacramento, which the Company owns and controls through a joint venture and is consolidated in our financial statements.
Maintaining, supporting and growing these relationships, particularly as we enter new geographies, is critical to our long-term success. ● Investing to support growth . We intend to continue investing in our centers, value-based care model, and sales and marketing organization to support long-term growth.
We intend to continue investing in our centers, value-based care model, and sales and marketing organization to support long-term growth.
We have multiple touch points with participants and their families, which enhances participant receptivity to our services, leading to an 81% participant satisfaction rating as of January 1, 2022 and average participant tenure of 3.7 years as of June 30, 2022, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years.
We achieved a 78% participant satisfaction rating as of March 1, 2023 and average participant tenure was 3.7 years as of June 30, 2023, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years.
Consolidated Statements of Cash Flows Our consolidated statements of cash flows for the year ended June 30, 2022 and 2021 are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ ​ ​ ​ 2022 2021 ​ $ Change in thousands ​ ​ ​ ​ ​ ​ ​ Net cash provided by (used in) operating activities ​ $ 27,302 ​ $ (7,548) ​ $ 34,850 Net cash used in investing activities ​ (40,238) ​ (19,541) ​ ​ (20,697) Net cash provided by (used in) financing activities ​ (6,318) ​ 116,224 ​ ​ (122,542) Net change in cash, cash equivalents and restricted cash ​ $ (19,254) ​ $ 89,135 ​ $ (108,389) ​ Operating Activities.
Consolidated Statements of Cash Flows Our consolidated statements of cash flows for the year ended June 30, 2023 and 2022 are summarized as follows: Year Ended June 30, $ Change 2023 2022 in thousands Net cash provided by (used in) operating activities $ 20,236 $ 27,302 $ (7,066) Net cash used in investing activities (69,521) (40,238) (29,283) Net cash used in financing activities (7,896) (6,318) (1,578) Net change in cash, cash equivalents and restricted cash $ (57,181) $ (19,254) $ (37,927) Operating Activities.
Cost of care, excluding depreciation and amortization expense was $180.2 million for the year ended June 30, 2022, an increase of $25.8 million, or 16.7%, compared to $154.4 million for the year ended June 30, 2021, primarily due to the net effect of (i) an increase of 4.3% in member months and (ii) an increase of 11.9% in cost per participant.
Cost of care, excluding depreciation and amortization expense was $212.3 million for the year ended June 30, 2023, an increase of $32.0 million, or 17.8%, compared to $180.2 million for the year ended June 30, 2022, primarily due to an increase of $43.9 million, or 26.1%, in cost per participant partially offset by a decrease of $11.9 million, or 6.6%, in member months.
Other service revenue was $1.6 million for the year ended June 30, 2022, a decrease of $0.8 million, or 33.7%, from $2.5 million for the year ended June 30, 2021.
Capitation revenue was $686.8 million for the year ended June 30, 2023, a decrease of $10.2 million, or 1.5%, compared to $697.0 million for the year ended June 30, 2022.
We receive capitated payments to manage the totality of a participant’s medical care across all settings. Because our participants are among the most frail and medically complex individuals in the U.S. healthcare system, our external provider costs and cost of care, excluding depreciation and amortization, represented approximately 79% of our revenue in the year ended June 30, 2022.
We receive capitated payments to manage the totality of a participant’s medical care across all settings. Our participants are among the most frail and medically complex individuals in the U.S. healthcare system and average acuity rises with the passage of time.
Under the terms of the 2021 Credit Agreement, the Revolving Credit Facility fee accrues at 0.25% of the average daily unused amount and is paid quarterly. As of June 30, 2022, we had no borrowings outstanding under the Revolving Credit Facility and, therefore, had full capacity thereunder, subject to applicable covenant compliance restrictions and any other conditions precedent to borrowing.
Under the terms of the 2021 Credit Agreement, the Revolving Credit Facility fee accrues at 0.25% of the average daily unused amount and is paid quarterly. As of June 30, 2023, we had no borrowings outstanding, $2.8 million of letters of credit issued, and $97.2 million of remaining capacity under the Revolving Credit Facility.
Trends and Uncertainties During fiscal year 2022, the U.S. and global economies experienced adverse macroeconomic effects in part resulting from the ongoing effects of the COVID-19 pandemic. These effects included inflation and increase in wages due to labor shortages.
Trends and Uncertainties Affecting the Company During fiscal year 2023, the U.S. and global economies experienced adverse macroeconomic effects in part resulting from the ongoing effects of the COVID-19 pandemic, as discussed in more detail below.
For dual-eligible participants, we receive PMPM payments directly from Medicare and Medicaid, which provides recurring revenue streams and significant visibility into our revenue growth trajectory.
For dual-eligible participants, we receive PMPM payments directly from Medicare and Medicaid, which provides recurring revenue streams and significant visibility into our revenue. The Medicare portion of our capitated payment is risk-based on the underlying medical conditions and frailty of each participant.
The remainder of our cost of care, including our employee-related costs, is directly related to the number of participants cared for in a center. As a result, as revenue increases due to census growth, cost of care, excluding depreciation and amortization, typically decreases as a percentage of revenue.
The remainder of our cost of care is fixed relative to the number of participants we serve, such as occupancy and insurance expenses. As a result, as revenue increases due to census growth, cost of care, excluding depreciation and amortization, moderately decreases as a percentage of revenue.
Corporate, general and administrative expenses were $101.7 million for the year ended June 30, 2022, a decrease of $30.7 million, or 23.2%, compared to $132.3 million for the year ended June 30, 2021.
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $115.6 million for the year ended June 30, 2023, an increase of $14.0 million, or 13.8% compared to $101.7 million for the year ended June 30, 2022.
For the years ended June 30, 2022 and 2021, our net loss was $8.0 million and $44.7 million, respectively, representing a year-over-year decline of 82.2%, and Adjusted EBITDA was $34.3 million and $85.3 million, respectively, representing a year-over-year decline of 59.9%.
Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the years ended June 30, 2023 and 2022, our net loss was $43.6 million and $8.0 million, respectively, representing a year-over-year decline of 445%, and Adjusted EBITDA was $(1.3) million and $34.3 million, respectively, representing a year-over-year decline of 104%.
See Item 1A. 60 Table of Contents Risk Factors, “Risks Related to Our Business — We face inspections, reviews, audits and investigations under federal and state government programs and contracts.
Several factors can affect our ability to grow enrollment and capacity within existing centers, including sanctions issued by regulators. See Item 1A. Risk Factors, “Risks Related to Our Business—We face inspections, reviews, audits and investigations under federal and state government programs and contracts.
We also expect to incur additional expenses for the foreseeable future in connection with current and future audits to our centers, remediation plans and current and potential legal and regulatory proceedings. We plan to invest in future growth judiciously and maintain focus on managing our results of operations.
We expect our expenses to increase in absolute dollars for the foreseeable future to support our growth and due to additional costs we are incurring in connection with current and future audits to our centers, remediation plans and current and potential legal and regulatory proceedings.
We directly contract with government payors, such as Medicare and Medicaid, through PACE and receive a capitated risk-adjusted payment to manage the totality of a participant’s medical care across all settings. InnovAge manages participants that are, on average, more complex and medically fragile than other Medicare-eligible patients, including those in Medicare Advantage (“MA”) programs.
We focus on providing all-inclusive care to frail, high-cost, dual-eligible seniors. We directly contract with government payors, such as Medicare and Medicaid, through PACE and receive a capitated risk-adjusted payment to manage the totality of a participant’s medical care across all settings.
Other service revenue primarily consists of revenues derived from fee-for-service arrangements, state food grants, rent revenues and management fees. We generate fee-for-service revenue from providing home-care services to non-PACE patients in their homes, for which we bill the patient or their insurance plan on a fee-for-service basis.
Prior to June 30, 2022, we generated fee-for-service revenue from providing home-care services to non-PACE patients in their homes, for which we bill the patient or their insurance plan on a fee-for-service basis. We no longer offer in-home care services to non-PACE patients.
Expected timing of those payments are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Next 12 Months ​ Beyond 12 Months ​ ​ ​ ​ in thousands Long-term debt (excluding interest) (1) ​ $ 73,577 ​ $ 3,793 ​ $ 69,784 ​ Operating leases (2) ​ ​ 31,666 ​ ​ 4,873 ​ ​ 26,793 ​ Capital leases (excluding interest) ​ ​ 15,460 ​ ​ 4,405 ​ ​ 11,055 ​ Total ​ $ 120,703 ​ $ 13,071 ​ $ 107,632 ​ (1) Represents principal amounts related to the credit agreements. 71 Table of Contents (2) We have not adopted ASU 2016-02, which requires lessees to recognize almost all leases on the balance sheet.
Expected timing of those payments are as follows: Total Next 12 Months Beyond 12 Months in thousands Long-term debt (excluding interest) (1) $ 69,784 $ 3,796 $ 65,988 Operating leases (2) 27,675 4,882 22,793 Finance leases (excluding interest) 20,793 5,970 14,823 Total $ 118,252 $ 14,648 $ 103,604 ___________________________________ (1) Represents principal amounts related to the 2021 Credit Agreement. 64 Table of Contents (2) We adopted ASU 2016-02 on July 1, 2022, which requires lessees to recognize almost all leases on the balance sheet.
The decrease in Center-level Contribution Margin for fiscal year 2022 was primarily due to a year-over-year increase in external provider costs and cost of care of 23.8% and 16.7%, respectively. This was slightly offset by a 9.5% increase in total revenue during the same period.
Center-level Contribution Margin was $101.3 million and $135.4 million for the years ended June 30, 2023 and 2022, respectively. The decrease in Center-level Contribution 61 Table of Contents Margin for fiscal year 2023 was primarily due to a year-over-year increase in cost of care of 17.8% and a 1.5% decrease in total revenue during the same period.
Depreciation and amortization expense was $13.9 million for the year ended June 30, 2022, an increase of $1.6 million, or 13.3%, compared to $12.3 million for the year ended June 30, 2021. The increase in depreciation expense was a result of capital additions in the normal course of business. ​ Equity loss.
Depreciation and amortization expense was $15.4 million for the year ended June 30, 2023, an increase of $1.5 million, or 10.7%, compared to $13.9 million for the year ended June 30, 2022.
Our economic model relies on our capitated arrangements with government payors, namely Medicare and Medicaid. We view the government not only as a payor but also as a key partner in our efforts to expand into new geographies and access more participants in our existing markets.
We view the government not only as a payor but also as a key partner in our efforts to expand into new geographies and access more participants in our existing markets. Maintaining, supporting and growing these relationships, in existing markets as well as new geographies, is critical to our long-term success. • Investing to support growth .
As we serve more participants in existing centers, we leverage our fixed cost base at those centers and the value of a center to our business increases over time . At this time, the enrollment sanctions in place in Sacramento, California and Colorado limit our ability to grow our participant census and impact Center-level Contribution Margin. See Item 1A.
As we serve more participants in existing centers, we expect to leverage our fixed cost base at those centers and increase the value of a center to our business increases over time. • Our ability to expand via de novo centers within existing and new markets.
In determining the fair value of our reporting units, we estimate a number of factors including anticipated future cash flows and discount rates.
In determining the fair value of our reporting units, we estimate a number of factors including anticipated future cash 66 Table of Contents flows and discount rates. Although we believe these estimates are reasonable, actual results could differ from those estimates due to the inherent uncertainty involved in making such estimates.
Operations InnovAge aims to allow frail seniors to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible.
During the year ended June 30, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania. Operations InnovAge’s programs are designed to allow frail seniors to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our business, financial condition or results of operations. 76 Table of Contents Inflation risk Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results.
Biggest changeWe do not believe that an increase or decrease 68 Table of Contents in interest rates of 100 basis points would have a material effect on our business, financial condition or results of operations.
Our cash and cash equivalents and interest payments in respect of our debt are subject to market risk due to changes in interest rates. We had cash and cash equivalents of $184.4 million as of June 30, 2022, which are deposited with high credit quality financial institutions and are primarily in demand deposit accounts.
Our cash and cash equivalents and interest payments in respect of our debt are subject to market risk due to changes in interest rates. We had cash and cash equivalents of $127.2 million as of June 30, 2023, which are deposited with high credit quality financial institutions and are primarily in demand deposit accounts.
We are exposed to changes in interest rates as a result of our variable-rate borrowings under the 2021 Credit Agreement. Generally, the Company may designate specific borrowings under the 2021 Credit Agreement as either base rate borrowings or LIBOR rate borrowings.
We are exposed to changes in interest rates as a result of our variable-rate borrowings under the 2021 Credit Agreement. Generally, the Company may designate specific borrowings under the 2021 Credit Agreement as either base rate borrowings or Secured Overnight Financing Rate (“SOFR”) borrowings.
As of June 30, 2022, based on our secured net leverage ratio, the margins of our borrowings under the Term Loan Facility and Revolving Credit Facility (as defined in Note 8 to the consolidated financial statements) were (a) 0.75% for alternate base rate borrowings and (b) 1.75% for Eurodollar borrowings.
As of June 30, 2023, based on our secured net leverage ratio, the margins of our borrowings under the Term Loan Facility and Revolving Credit Facility (as defined in Note 7 to the audited consolidated financial statements) were (a) 0.75% for alternate base rate borrowings and (b) 1.75% for Term SOFR borrowings.
Interest rate risk As of June 30, 2022, we had total outstanding borrowings of (i) $71.2 million principal amount under the Term Loan Facility (as defined in Note 8 to the consolidated financial statements) and (ii) $2.4 million principal amount under the convertible term loan.
Interest rate risk As of June 30, 2023, we had total outstanding borrowings of (i) $67.5 million principal amount under the Term Loan Facility (as defined in Note 7 to the audited consolidated financial statements) and (ii) $2.3 million principal amount under the convertible term loan.
There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Management’s Discussion of Financial Condition and Results of Operations—Trends and Uncertainties Affecting the Company.” There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
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As of June 30, 2022, we had total outstanding debt of $71.3 million in principal amount under the Term Loan Facility and $2.3 under the Convertible Term Loan. As of June 30, 2023 and 2022, the interest rate on the Term Loan Facility was 6.95% and 3.83%, respectively.
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We amended our 2021 Credit Agreement during the fourth quarter ended June 30, 2023 to replace the London Interbank Offered Rate (“LIBOR”) reference rate with SOFR prior to the discontinuance of LIBOR.
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We had short-term investments $46.2 and $— as of June 30, 2023 and 2022, respectively, which are primarily invested in managed income funds managed by major financial institutions. The funds mainly invest in investment grade, U.S. denominated short-term fixed and floating rate debt securities. Securities are subject to market risk and sensitive to changes in interest rates.
Added
While the instruments held by the funds are generally less sensitive to interest rate changes than instruments with longer maturities due to their short-term nature, the funds may face a heightened level of interest rate risk due to changes in monetary policy.
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During periods when interest rates are low or negative, the funds yields, and total returns may also be low, or the funds may be unable to maintain positive returns. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on these short-term investments.
Added
Inflation risk Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. See more information under Item 7.

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