10-K 1 tmh-201510k.htm 10-K 10-K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K 
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     .
Commission File Number 001-34583
 
 
Team Health Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
36-4276525
(State or other jurisdiction
of incorporation)
 
 
 
(I.R.S. Employer
Identification No.)
265 Brookview Centre Way
Suite 400
Knoxville, Tennessee 37919
(865) 693-1000
(Address, zip code, and telephone number, including
area code, of registrant’s principal executive office.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange where registered
common stock, par value $0.01 per share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ  Yes    ¨  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filers, accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer  o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  þ
As of June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the voting and non-voting common equity held by non-affiliates (for this purpose, all outstanding and issued common stock minus stock held by the officers, directors and known holders of 10% or more of the registrant’s common stock) was $4.7 billion, based on the closing price of the registrant’s common stock reported on the New York Stock Exchange on such date of $65.33 per share.
As of February 18, 2016, there were outstanding 73,537,940 shares of common stock of Team Health Holdings, Inc, with a par value of $.01.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission relating to the 2016 Annual Meeting of Shareholders, which statement will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference into Part III of this report.
 





ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
Page
PART I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
PART IV
 
 
Item 15.
 
 

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PART I
Item 1.
Business
Unless the context requires otherwise, references   to “TeamHealth,” “we,” “our,” “us” and the “Company” or “Organization” refer to Team Health Holdings, Inc., its  subsidiaries and its affiliates, including its affiliated medical groups, all of which are part of the TeamHealth system. Separate subsidiaries or other affiliates of Team Health Holdings, Inc. carry out all operations and employ all employees within the TeamHealth system. The terms “clinical providers,”  “TeamHealth physicians or providers,” “affiliated providers,” “our providers” or “our clinicians” and similar terms mean and include: (i) physicians and other healthcare providers who are employed by subsidiaries or other affiliated entities of Team Health Holdings, Inc., and (ii) physicians and other healthcare providers who contract with subsidiaries or other affiliated entities of Team Health Holdings, Inc. All such physicians and other healthcare providers exercise their independent professional clinical judgment when providing clinical patient care. Team Health Holdings, Inc. is a holding company that does not contract with physicians to provide medical services nor does it practice medicine in any way.
Our Company
We believe we are one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States, based upon revenues, patient visits, and number of clients. We serve approximately 3,400 civilian and military hospitals, clinics and physician groups in 47 states with a team of more than 18,000 affiliated healthcare professionals, including physicians, physician assistants, nurse practitioners, and nurses. We recruit and contract with healthcare professionals who then provide professional services within third-party healthcare facilities. We are a physician-founded organization with physician leadership throughout all levels of our organization. Since our inception in 1979, we have provided outsourced services in emergency departments (EDs). We also provide comprehensive programs for anesthesiology, inpatient services (hospitalists comprising the specialties of internal medicine, orthopedic surgery, general surgery and OB/GYN), scribes, ambulatory care, pediatrics, post-acute care and other healthcare services, by providing permanent staffing that enables the management teams of hospitals and other healthcare facilities to outsource certain management, recruiting, hiring, payroll, billing and collection and benefits functions.
EDs are a significant source of hospital inpatient admissions with a majority of admissions for key medical service lines starting in EDs, making successful management of this department critical to a hospital’s patient satisfaction rates and overall success. This dynamic, combined with the challenges involved in billing and collections and physician recruiting and retention, is a primary driver for hospitals to outsource their clinical staffing and management services to companies such as ours. For the year ended December 31, 2015, our clinicians provided services to over 15 million patients within our EDs. Our net revenues from ED contracts increased by approximately 88% from the beginning of 2011 through 2015, or at a compound annual growth rate of approximately 17.0%. We have long-term relationships with customers under exclusive ED contracts with an approximate 96% renewal rate and a 93% physician retention rate as of December 31, 2015 (calculated on a preceding 12 months basis). The EDs that we staff are generally located in mid-sized to larger hospitals. We believe our experience and expertise in managing the complexities of these high-volume EDs enable our hospital clients to provide higher quality and more efficient physician and administrative services. In this type of setting, we can establish stable long-term relationships, recruit and retain high quality physicians and other providers and staff, and obtain attractive payor mixes and reasonable margins.
The range of services that we provide to our clients includes the following:
recruiting, scheduling and credential coordination for clinical and non-clinical medical professionals;
coding, billing and collection of fees for services provided by medical professionals;
provision of experienced medical directors;
administrative support services, such as payroll, professional liability insurance coverage, continuing medical education services and management training;
claims and risk management services; and
standardized procedures and operational consulting.
We are a national company delivering our services through 22 regional operating units located in key geographic markets. Our operating model enables us to provide a localized presence combined with the benefits of scale in centralized administrative and other back office functions that accrue to a larger, national company. The teams in our regional offices are responsible for managing our client relationships and providing healthcare administrative services.
Team Health Holdings, Inc., is a corporation organized under the laws of the State of Delaware in 2009. Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “TMH.”

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IPC Acquisition
On November 23, 2015, the Company completed the acquisition (IPC transaction) of IPC Healthcare, Inc. (IPC). IPC is a leading national acute hospital medicine and post-acute provider group practice in the United States. Hospital medicine is organized around inpatient care, delivered primarily in acute care hospitals, and post-acute medicine is delivered primarily in skilled nursing facilities. IPC’s clinical services are focused on providing, managing and coordinating the entire episode of care of inpatients. As of December 31, 2015, IPC had approximately 3,200 affiliated healthcare professionals, including physicians, physician assistants, nurse practitioners, and nurses. IPC’s affiliated clinicians are primarily full-time and part-time employees of its wholly owned subsidiaries or affiliated professional organizations. Collectively, IPC’s affiliated clinicians work with more than 48,000 referring physicians and 3,500 health plans.
IPC assists hospitals, post-acute care facilities and payors in improving quality of care, increasing operating efficiencies and reducing costs. Through IPC’s affiliated clinicians, IPC provides, manages and coordinates the care of hospitalized patients and serves as the inpatient partner of primary care physicians and specialists, allowing them to focus their time and resources on their office based practices or specialties. IPC provides its affiliated clinicians with the infrastructure, information management systems, specialized training programs and administrative support necessary to perform these services. These administrative services help reduce the burden associated with managing a physician practice, making IPC an attractive employer for hospitalists and post-acute clinicians whether practicing individually or in groups.
Pursuant to the terms of the agreement each share of IPC common stock issued and outstanding as of the date of the IPC Transaction were converted into the right to receive $80.25 per share in cash resulting in total net cash consideration paid of $1.41 billion. The Company also assumed $148.2 million of existing IPC debt which was redeemed simultaneous with the closing of the transaction. In addition to the cash consideration the Company replaced all of IPC's outstanding share-based payment awards as of the date of the completed transaction with equivalent Company share-based equity awards.
Service Lines
We provide a full range of outsourced physician staffing and administrative services in emergency medicine, hospital medicine, anesthesiology, inpatient services (hospitalists comprising the specialties of internal medicine, critical care, orthopedic surgery, general surgery, and OB/GYN), scribes, ambulatory care, pediatrics, post-acute care and other healthcare services. We also provide a full range of healthcare management services to military treatment and government facilities. In addition to physician-related services within a military treatment facility setting, we also provide non-physician staffing services, including such services as para-professional providers, nursing, specialty technicians and administrative staffing to military and government facilities.
Emergency Department. We believe we are one of the largest providers of outsourced clinical staffing and administrative services for hospital-based and free-standing EDs in the United States, based upon revenues and patient visits. We contract with hospitals to provide qualified emergency physicians, physician assistants and nurse practitioners for their EDs. In addition to the core services of contract management, recruiting, credentials coordination, staffing and scheduling, we provide our client hospitals with enhanced services designed to improve the efficiency and effectiveness of their EDs. We have specific programs that apply proven process improvement methodologies to departmental operations. By providing these enhanced services, we believe we increase the value of services we provide to our clients and improve client relations. Additionally, we believe these enhanced services also differentiate us from our competitors in sales situations and improve our chances of being selected in a competitive bidding process. As of December 31, 2015, we independently contracted with or employed approximately 4,900 hospital-based emergency physicians. Net revenues derived from our ED service line were 67%, 68% and 67% of our consolidated net revenues in 2013, 2014 and 2015, respectively.
IPC - Hospital Medicine and Post-Acute Provider Services (IPC Service Line). Through our recent acquisition of IPC we have significantly expanded our Hospital Medicine service line for both acute and post-acute care facilities. We assist hospitals, post-acute care facilities and payors in improving quality of care, increasing operating efficiencies and reducing costs. Our clinical services are focused on providing, managing and coordinating the entire episode of care of inpatients. Through our affiliated clinicians, we provide, manage and coordinate the care of hospitalized patients and serve as the inpatient partner of primary care physicians and specialists, allowing them to focus their time and resources on their office based practices or their specialties. Our clinicians assume the inpatient care responsibilities that are otherwise provided by the primary care physician or attending physician and are reimbursed by third parties using the same fee for service visit-based or procedural billing codes as would be used by the primary care physician or attending physician. By practicing each day in the same facility, our clinicians perform consistent functions, interact regularly with the same healthcare professionals and become highly accustomed to specific facility processes, which can result in greater efficiency, less process variability and better patient outcomes. We believe our hospitalists and post-acute clinicians are better able to achieve these results because of their exclusive focus on inpatient care without the inherent distraction of balancing both inpatient and outpatient care responsibilities. Likewise, we believe our clinicians generate operating and cost efficiencies by managing the treatment of a

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large number of patients with similar clinical needs. Net revenues derived from our IPC service line were 2% in 2015. For the year ended December 31, 2015, on a pro forma basis assuming the IPC Transaction had been completed on January 1, 2015, approximately 17% of our consolidated revenues would have been generated by the IPC service line.
Anesthesiology. We provide outsourced anesthesiology and pain management solutions to hospitals and ambulatory surgery centers on a ‘turn-key’ basis. The services provided by our anesthesiologists, certified registered nurse anesthetists (CRNAs), and anesthesiologist assistants include anesthesia for the full range of surgical subspecialties, including cardiac, pediatric, trauma, ambulatory, orthopedic, obstetrical, general and ear, nose and throat, as well as interventional pain management. We also provide comprehensive administrative oversight and business management of these services, including processes designed to improve the efficiency and effectiveness of the anesthesiology department and the hospital’s surgical services. We believe that this, along with our industry reputation and our focus on high levels of customer service, provide us with key market differentiation. As of December 31, 2015, we independently contracted with or employed approximately 400 anesthesiologists. Net revenues derived from our anesthesiology service line were 10% of our consolidated net revenues in 2013 and 11% 2014 and 2015.

Inpatient Services (Hospitalists Comprising the Specialties of Internal Medicine, Critical Care, Orthopedic Surgery, General Surgery and OB/GYN). We provide physician staffing and administrative functions for inpatient services, which include hospital medicine, intensivist and house coverage services. Hospital medicine is organized around inpatient care, delivered primarily in hospitals. We also contract directly with health plans. As of December 31, 2015, we independently contracted with or employed approximately 900 inpatient physicians. Net revenues derived from our inpatient services operations were 12% of our consolidated net revenues in 2013 and 11% in 2014 and 2015.
Military Staffing Services. We provide physician and other non-physician staffing services, including such services as nursing, specialty technician and administrative staffing, primarily in military treatment and outpatient clinical facilities within the United States. These services are generally provided on an hourly contract basis. Net revenues derived from our military staffing services line were 5%, 4%, and 3% of our consolidated net revenues in 2013 and 2014 and 2015, respectively.
Temporary Staffing. We provide temporary staffing (locum tenens) of physicians and advanced practice clinicians to hospitals and other healthcare organizations through our subsidiary, D&Y. We also use D&Y to provide locum tenens staffing to our internal operations when such opportunities are available. Temporary staffing specialties placed include anesthesiology, hospitalists, primary care, radiology, psychiatry and emergency medicine, among others. Revenues from these services are generally derived from a standard contract rate based upon the type of service provided. Customers include hospitals, military treatment facilities and medical groups.
Pediatrics. We provide outsourced pediatric physician staffing and administrative services for general and pediatric hospitals on a fee for service basis. These services include pediatric emergency medicine, neonatal intensive care, pediatric intensive care, urgent care centers, primary care centers, observation units and inpatient services. We also operate after-hours pediatric urgent care centers in Florida.
Scribes. Through our medical scribes company, PhysAssist, we provide documentation services to physicians and other medical personnel in a variety of healthcare environments. PhysAssist also provides scribes to our internal operations in certain locations.
Ambulatory Care. We provide cost-effective, high quality primary care physician staffing and administrative services in stand-alone urgent care clinics and in clinics located on the work-site of industrial clients. Urgent care is an emerging area that is an important part of the continuum of care and not only serves as a portal on the initial or front end of care but also as a site for the delivery of follow up post discharge care to patients. We believe that there will be a need for increased urgent care capacity as a result of an expansion in the number of individuals with health insurance under the Patient Protection and Affordable Care Act (PPACA) and the reemergence of cost-based initiatives will increase pressure to drive care to the lowest cost setting. As opportunities present themselves, we will look to develop urgent care clinics in attractive markets including working in concert with our hospital partners in various arrangements including potential joint ventures or staffing hospital owned facilities.
Medical Call Center Services. Through our subsidiary we provide medical call center services to hospitals, physician groups and managed care organizations. Our 24-hour medical call center is staffed by registered nurses and specially trained telephone representatives with consultation available from practicing physicians.
The services provided include:
physician after-hours call coverage;
community nurse lines;

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ED advice calls;
physician referral;
class scheduling;
appointment scheduling; and
web response.
In addition, we can provide our ED clients with outbound follow-up calls to patients who have been discharged from an ED. We believe this service results in increased patient satisfaction and decreased liability for the hospital.
Our medical call center is one of the few call centers nationwide that is accredited by the Utilization Review Accreditation Committee, an independent nonprofit organization that provides accreditation and certification programs for call centers.
Contractual Arrangements
We earn revenues from both fee for service arrangements and from flat-rate or hourly contracts. Neither form of contract requires any significant financial outlay, investment obligation or equipment purchase by us other than the professional expenses and administrative support costs associated with obtaining and staffing the contracts and the associated cost of working capital for such investments.
Our contracts with hospitals generally have terms of three years. Our present contracts with military treatment and government facilities are generally for one year. Both types of contracts often include automatic renewal options under similar terms and conditions unless either party gives notice to the other of an intent not to renew. Despite the fact that most contracts are terminable by either party upon notice of as little as 90 days, the average tenure of our existing ED contracts is approximately eleven years. The termination of a contract is usually due to either an award of the contract to another staffing provider as a result of a competitive bidding process or the termination of the contract by us due to a lack of an acceptable profit margin on fee for service patient volumes coupled with inadequate contract subsidies. Contracts may also be terminated as a result of a hospital facility closing due to facility mergers or a hospital attempting to insource the services being provided by us.
Hospitals. We provide outsourced physician staffing and administrative services to hospitals under fee for service contracts, flat-rate contracts and cost-plus contracts. Hospitals entering into fee for service contracts agree, in exchange for granting exclusivity to us for such services, to authorize us to bill and collect the professional component of the charges for such professional services. Under the fee for service arrangements, we bill patients and third-party payors for services rendered. Depending on the underlying economics of the services provided to the hospital, including its payor mix, we may also receive supplemental revenue from the hospital. In a fee for service arrangement, we accept responsibility for billing and collections.
Under flat-rate contracts, the hospital usually performs the billing and collection services of the professional component and assumes the risk of collectability. In return for providing the physician staffing and administrative services, the hospital pays us a contractually negotiated fee, often on an hourly basis. Under cost-plus contracts, the hospital typically reimburses us the amount of our total costs incurred in providing physicians and mid-level practitioners to perform the professional services, plus an agreed upon administrative management fee, less our billings and collections of the professional component of the charges for such professional services.
IPC’s affiliated clinicians are credentialed and maintain privileges at the hospitals they serve. Patients are referred to our affiliated clinicians through their community medical providers, emergency departments, payors and hospitals, in the same manner as many other medical professionals receive referrals. Third party payors and patients pay for our services in the same manner as they would pay the primary care physicians and other medical professionals who otherwise would be furnishing this direct patient care. Patient encounters are obtained through a network of more than 48,000 referring physicians and 3,500 health plans. Our hospitalist programs are structured to provide acute care hospitals with a consistent on-site physician presence that typically results in fewer admitting physicians overseeing patients in the hospital, thereby reducing process variability and enhancing the ability to implement standardized practices. We believe our affiliated clinicians’ consistent presence in the facilities leads to more efficient processes within the acute care hospitals, which can improve clinical outcomes, decrease average length of inpatient stay and lower costs per day. By concentrating the care of more patients with relatively fewer physicians, hospitals can more easily implement new initiatives and enhance compliance with protocols.
Alternative Sites of Inpatient and Post-Acute Care Facilities. Alternative sites of inpatient and post-acute care facilities such as long-term acute care facilities, specialty hospitals, psychiatric facilities, rehabilitation hospitals and skilled nursing facilities face many of the same challenges as acute care hospitals. There is increasing demand for facility-based care in the post-acute setting, and these facilities face challenges related to the narrow breadth of physician coverage that is typically

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available at such sites. Our affiliated clinicians provide alternative sites of inpatient care in the post-acute setting with consistent on-site physician availability and experience. We believe this benefits inpatient care in post-acute care facilities by providing a single point of contact and regular communication with other healthcare constituents outside the site of care. Our clinicians in both post-acute and acute care facilities may coordinate patient care with each other, thereby providing a continuum of care which improves quality of care while enhancing the patient experience. By coordinating inpatient care at such facilities, we believe our affiliated clinicians manage the appropriate utilization of patient care to the benefit of both the patients and the facility.
Military Treatment and Government Facilities. Our present contracts to provide staffing for military treatment and government facilities generally provide such staffing on an hourly or contracted fee basis.
Physicians. We contract with physicians as independent contractors or employees to provide the professional services necessary to fulfill our contractual obligations to our hospital clients. We typically pay physicians: (1) a base rate (generally for emergency physicians an hourly rate for each hour of coverage and a base salary for other physician specialties) provided at rates comparable to the market in which they work; (2) a productivity-based payment such as a relative value unit (RVU) based payment or (3) a combination of both a fixed rate and a productivity-based payment. The hourly rate varies depending on whether the physician is independently contracted or an employee. Independently contracted physicians are required to pay self-employment tax, social security, and workers’ compensation insurance premiums. By contrast, we pay these taxes and expenses for employed physicians. See “Risk Factors—Risks Related to Our Business—A reclassification of our independent contractor physicians by tax authorities could require us to pay retroactive taxes and penalties which could have a material adverse effect on us.”
Our contracts with physicians generally have automatic renewal provisions and can be terminated at any time under certain circumstances by either party without cause, typically upon 90 to 180 days notice. Our physician contracts may also be terminated immediately for cause by us under certain circumstances. In addition, we have generally required physicians to sign non-competition and non-solicitation agreements. Although the terms of our non-competition and non-solicitation agreements vary from physician to physician, they generally restrict the physician for two years after termination from divulging confidential information, soliciting or hiring our employees and physicians, inducing termination of our agreements, competing for and/or soliciting our clients and, in limited cases, providing services in a particular geographic region. As of December 31, 2015, we had working relationships with approximately 8,700 physicians, of which approximately 3,900 were independently contracted. See “Risk Factors—Risks Related to Our Business—If we are not able to successfully recruit and retain qualified physicians and nurses to serve as our independent contractors or employees, our net revenues could be adversely affected.”
Other Healthcare Professionals. We utilize other advanced practice clinicians, such as physician assistants, nurse practitioners, certified registered nurse anesthetists, anesthesiologist assistants and administrative support staff to assist physicians when staffing our hospital-based facilities. We also provide other healthcare professionals such as nurses, specialty technicians and administrative support staff on a contractual basis to military treatment and government facilities. As of December 31, 2015, we employed or contracted with approximately 9,300 other healthcare professionals.
Services
We provide a full range of outsourced physician and non-physician healthcare professional staffing and administrative services, including the following:
Contract Management. Our delivery of services for a clinical area of a healthcare facility is led by an experienced contract management team of clinical and other healthcare professionals. The team usually includes a regional medical director, an on-site medical director and a client services manager. The on-site medical director is a physician with the primary responsibility of coordinating the physician component of a clinical area of the facility. The medical director works with the team, in conjunction with the nursing staff and private medical staff, to improve clinical quality and operational effectiveness. Additionally, the medical director works closely with the regional operating unit’s operations staff to meet the client’s ongoing recruiting and staffing needs.
Operational Consulting.  We assist our clients in achieving or exceeding their clinical, operational and financial goals through operational consulting.  Our focus is on improving patient satisfaction, reducing patient throughput times, managing resource utilization, ensuring integration among multiple service lines, improving clinical outcomes, and overall enhancing efficiency and quality of patient care.  We utilize physician and nurse coaches in providing this consulting service.
Staffing. We provide a full range of staffing services to meet the unique needs of each healthcare facility. Our dedicated clinical teams include qualified, career-oriented physicians and other healthcare professionals responsible for the delivery of high quality, cost-effective care. These teams also rely on managerial personnel, many of whom have clinical experience, who oversee the administration and operations of the clinical area. As a result of our staffing services, healthcare facilities can focus

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their efforts on improving their core business of providing healthcare services for their communities as opposed to recruiting and managing physician staffing. We also provide temporary staffing services of physicians and other healthcare professionals to healthcare facilities on a national basis.
Recruiting. Many healthcare facilities lack the resources necessary to identify and attract specialized, career-oriented physicians. We have a staff of more than 100 professionals dedicated to the recruitment of qualified physicians and other clinicians. These professionals are regionally located and focus on matching qualified, career-oriented physicians with healthcare facilities. Common recruiting methods include the use of our robust residency relations program, proprietary national physician database, attendance at trade shows, the placement of website and professional journal advertisements, telemarketing efforts, and referrals from our existing providers.
We have committed significant infrastructure and personnel to the development of a proprietary national physician database to be shared among our regional operating units. This database is utilized at all of our operating units. Recruiters contact prospects through telemarketing, direct mail, conventions, journal advertising and our Internet site to confirm and update physicians’ information. Prospects expressing interest in one of our practice opportunities then provide more extensive background on their training, experience, and references, all of which are added to our database. Our goal is to ensure that the practitioner is a good match with both the facility and the community before proceeding with an interview.
Credentials Coordination. We gather primary source information regarding physicians to facilitate the review and evaluation of physicians’ credentials by the healthcare facility.
Scheduling. Our scheduling department assists the on-site medical directors in scheduling physicians and other healthcare professionals within the clinical area on a monthly basis.
Payroll Administration and Employee Benefits. We provide payroll administration services for the physicians and other healthcare professionals with whom we contract. Our clinical employees benefit significantly from our ability to aggregate eligible physicians and other healthcare professionals to negotiate more favorable employee benefit packages and to provide professional liability coverage at lower rates than many hospitals or physicians could negotiate individually. Additionally, healthcare facilities benefit from the elimination of the overhead costs associated with the administration of payroll and, where applicable, employee benefits.
Information Systems. We have invested in advanced information systems and proprietary software packages designed to assist hospitals in lowering administrative costs while improving the efficiency and productivity of a clinical area. These systems include TeamWorks, our national physician database and software package that facilitates the recruitment and retention of physicians and supports our contract requisition, credentials coordination, automated application generation, scheduling and payroll operations.
The strength of our electronic billing system and other information systems has enhanced our ability to properly collect patient payments and reimbursements in an orderly and timely fashion and has increased our billing and collections productivity. As a result of our investments in information systems and the company-wide application of operational best practices policies, we believe our average cost per patient billed and average recruiting cost per clinician are among the lowest in the industry.
Through our acquisition of IPC we provide our affiliated hospital medicine clinicians with access to IPC-Link ® and other third party applications (collectively IPC-Link ® ) through our web-based “Virtual Office” portal to support their clinical, administrative and communications needs. IPC-Link ® is distinctive in its ability to capture the results of each doctor-patient encounter and organize these results into a searchable database. IPC-Link ® enables our affiliated clinicians to view and record important patient data, and allows clinicians in a practice group to share patient information as needed. Additionally, the technology enables our affiliated clinicians to communicate directly and securely to our clinical call center and our risk management and compliance departments. IPC-Link ® includes a secure, HIPAA-compliant web interface, which allows us to assume responsibility for billing, collection and reimbursement for services rendered by our affiliated clinicians.
Within IPC, we use IPC-Link ® to create customized surveys for patients who are discharged to home from an inpatient facility. To assist in monitoring and documenting the patient’s discharge or transition to outpatient care, IPC-Link ® provides our call center with patient information and follow-up instructions. Our system provides for our dedicated call center staff of patient representatives and nurses to contact the discharged patient, usually within 48 hours of discharge, to discuss the patient’s ability to understand post-discharge instructions, obtain prescribed medication, schedule an appointment with a primary care physician, and fulfill other health-related post-discharge needs. Our system enables us to identify a patient’s post-discharge medical issues on a near real-time basis, coordinate care with the appropriate care provider, improve outcomes, lower the re-admission rate into inpatient facilities, and decrease our medical malpractice risk.

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Billing and Collections. Our billing and collection services are a critical component of our business. Our fee for service billing and collection internal operations are primarily conducted at one of seven billing locations. With the exception of the recently acquired IPC volume, our emergency medicine, acute-care, and anesthesia services operate on a uniform billing system using a state of the art billing and accounts receivable software package with comprehensive reporting capabilities. We are able to maintain fee schedules that vary for the level of care rendered and to apply contractually agreed upon allowances (in the case of commercial and managed care insurance payors) and reimbursement policy parameters (in the case of governmental payors) to allow us to process payor reimbursements at levels that are less than the gross charges resulting from our fee schedules. Our billing system calculates the contractual allowances at the time of processing of third-party payor remittances. The contractual allowance calculation is used principally to determine the propriety of subsequent third-party payor payments. The nature of emergency care services and the requirement to treat all patients in need of such care and often times under circumstances where complete and accurate billing information is not readily available at the time of discharge, precludes the use of our billing system to accurately determine contractual allowances on an individual patient basis for financial reporting purposes. As a result, management estimates net revenues, which is our revenue estimated to be collected after considering our contractual allowance obligations and our estimates of doubtful accounts, as further discussed in detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” IPC billing and collections are also performed internally utilizing a different billing and accounts receivable system. As part of the integration plan with IPC, we are in the process of migrating these functions to our existing billing system.
We have interfaced a number of other software systems with our billing system to further improve productivity and efficiency. Foremost among these is an electronic registration interface that has the capability to gather registration information directly from a hospital’s management information system. Additionally, we have invested in electronic submission of claims and remittance posting, as well as electronic chart capture, workflow, and online coding. These programs have resulted in lower labor and postage expenses. During 2015, approximately 89% of our nearly 17 million fee for service patient visits were processed through our enhanced billing system applications..
We also operate an internal collection agency. Substantially all non-IPC collection placements generated from our billing locations are sent to the agency. Comparative analysis has shown that the internal collection agency is more cost effective than the use of outside agencies and has improved the collectability of existing placements. Our advanced comprehensive billing and collection systems allow us to have full control of accounts receivable at each step of the process.
Risk Management. Through the organization’s Patient Safety Organization (PSO), claims management staff, quality assurance staff, Chief Risk Officer, and medical directors, we manage an aggressive risk management program for loss prevention and early intervention. We are proactive in promoting early reporting, evaluation and resolution of serious incidents that may evolve into claims or suits. Our risk management function is designed to prevent or minimize medical professional liability claims and includes:
incident reporting systems through which we monitor events that may potentially become claims;
tracking/trending the cause of events and claims looking for preventable sources of erroneous medical treatment or decision-making;
risk management quality improvement programs;
physician education and service programs, including peer review, clinical performance review and the provision of more than 300,000 hours of Category I continuing medical education credits in 2015;
collection of loss prevention information available to affiliated providers, enabling them to review current topics in medical care; and
early intervention in potential professional liability claims.
In addition, we believe we have one of the most comprehensive risk management information systems on the market. We use this information system to enhance our physician risk management assessments, malpractice claims/litigation management and the analysis of claims data to identify loss patterns/trends. The collection and analysis of claims data enables us to evaluate losses and target risk management intervention to proactively address potential liability exposures. We also use this information as the basis for our biannual actuarial analyses.

Patient Safety Organization. We have established a federally qualified PSO, whose mission is to improve patient care by conducting quality and safety analyses. Through the protection of the Patient Safety and Quality Improvement Act of 2005 and implementing regulations, confidentiality is afforded all patient safety work product analyzed within the PSO. The TeamHealth PSO creates a secure environment that enables professional analyses of clinical issues so that best practices can be developed and shared in a confidential environment that fosters a culture of continuous quality improvement in patient care and safety.

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Continuing Medical Education Services. The TeamHealth Institute is fully accredited by the Accreditation Council for Continuing Medical Education and the American Nurses Credentialing Center. This allows us to grant our clinicians continuing medical education credits for educational programs at a lower cost than if such credits were earned through external programs.
Sales and Marketing
Contracts for outsourced physician staffing and administrative services are generally obtained either through direct selling efforts or requests for proposals. We have a team of sales professionals located throughout the country. Each sales professional is responsible for developing sales opportunities for the operating unit in their territory. In addition to direct selling, the sales professionals are responsible for working in concert with the regional operating unit president and corporate development personnel to respond to requests for proposals or to take other steps to develop new business relationships. Although practices vary, healthcare facilities generally issue a request for proposal with demographic information of the facility department, a list of services to be performed, the length of the contract, the minimum qualifications of bidders, the selection criteria and the format to be followed in the bid. Supporting the sales professionals is a fully integrated marketing campaign comprised of an inside sales program, an internet website, journal advertising, direct mail, conventions/trade shows, online campaigns, social media, and a lead referral program.
Operations
As of December 31, 2015 we had multiple principal service lines located at 22 regional sites. Our regional sites are listed in the table below. The ED, Anesthesia and Acute Care Services units are managed by senior physician and business leaders with profit and loss accountability and the responsibility for pricing new contracts, recruiting and coordinating the schedules of physicians and other healthcare professionals, marketing locally and conducting day-to-day operations. The management of corporate functions such as accounting, payroll, human resources, capital spending, information systems and compliance and legal services are centralized.
 
 
 
 
 
Name
Location
 
Principal Services
After Hours Pediatrics
Tampa, FL
 
Pediatrics
D&Y
Huntsville, AL
 
Locum Tenens
Heath Care Financial Services
Knoxville, TN
 
Billing
IPC Healthcare
North Hollywood, CA
 
Hospital Medicine/Post-Acute Provider Services
PhysAssist of TeamHealth
Fort Worth, TX
 
Scribes
Premier of TeamHealth
Dayton, OH
 
Emergency Medicine
Spectrum Healthcare Resources
St. Louis, MO
 
Military Staffing
TeamHealth Acute Care Services
Morrisville, NC
 
Specialty Hospitalist
TeamHealth Anesthesia
Denver, CO
 
Anesthesia
TeamHealth Anesthesia
Palm Beach Gardens, FL
 
Anesthesia
TeamHealth Atlantic
Knoxville, TN
 
Emergency Medicine
TeamHealth Central
Chicago, IL
 
Emergency Medicine
TeamHealth Central
Lexington, KY
 
Emergency Medicine
TeamHealth Hospital Medicine
Plantation, FL
 
Inpatient Services
TeamHealth Mid-Atlantic
Knoxville, TN
 
Emergency Medicine
TeamHealth Northeast
Middleburg Heights, OH
 
Emergency Medicine
TeamHealth Northeast
Woodbury, NJ
 
Emergency Medicine
TeamHealth Southeast
Plantation, FL
 
Emergency Medicine
TeamHealth Urgent Care
Amherst, NY
 
Ambulatory Care
TeamHealth West
Oklahoma City, OK
 
Emergency Medicine
TeamHealth West
Pleasanton, CA
 
Emergency Medicine
TeamHealth West
Seattle, WA
 
Emergency Medicine

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We require the physicians with whom we contract to obtain professional liability insurance coverage. For our contracted physicians and other healthcare providers, we typically provide for claims-made coverage with per incident and annual aggregate per physician limits and per incident and annual aggregate limits for various corporate entities. These limits are deemed appropriate by management based upon historical claims, the nature and risks of the business and standard industry practice.
We provide for a significant portion of our professional liability loss exposures through the use of a captive insurance company and through utilization of self-insurance reserves. We base a substantial portion of our provision for professional liability losses on periodic actuarial estimates of such losses. We also engage in commercial insurance programs to cover a portion of our professional liability exposure, primarily at IPC.
We are usually obligated to arrange for the provision of tail coverage for claims against our clinicians for incidents that are incurred but not reported during periods for which the related risk was covered by claims-made insurance. With respect to those clinicians for whom we are obligated to provide tail coverage, we accrue professional liability reserves based on the actuarial estimates of such incurred but not reported claims.
We also maintain general liability, vicarious liability, automobile liability, property, directors and officers and other customary coverages in amounts deemed appropriate by management based upon historical claims and the nature and risks of the business.
Employees and Independent Contractors
As of December 31, 2015, we had approximately 18,800 employees, of which approximately 4,900 worked in billing and collections, operations and administrative support functions, approximately 4,800 were physicians and approximately 9,100 were other healthcare providers. In addition, we had agreements with approximately 4,200 independent contractors, of whom approximately 3,900 were physicians.

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Competition
The market for outsourced ED staffing and management services is highly fragmented. We believe there are approximately 2,700 hospitals in our target market that operate full-time EDs. Of those, approximately 53 percent are either hospital employed or managed by a local physician group. Regional groups make up about 11 percent of the market, and national groups make up the balance of 36 percent.
We believe EmCare Emergency Medicine, a subsidiary of Envision Healthcare (formerly Emergency Medical Services Corporation) has one of the largest shares of the ED services market based upon revenues. There are several smaller companies that provide outsourced ED services and that operate in multiple states.
Such competition could adversely affect our ability to obtain new contracts, retain existing contracts and increase our profit margins. We compete with national and regional healthcare services companies and physician groups. In addition, some of these entities may have greater access than we do to physicians and potential clients. All of these competitors provide healthcare services that are similar in scope to some, if not all, of the services we provide. Although we and our competitors operate on a national or regional basis, the majority of the targeted hospital community for our services engages local physician practice groups to provide services similar to the services we provide. We therefore also compete against local physician groups and self-operated hospital EDs for satisfying staffing and scheduling needs.
The market for outsourced professional anesthesia services is large, diverse and highly fragmented. We believe there are approximately 2,000 hospitals in our target market, of which 79 percent are either hospital employees or local physician groups. Regional groups make up approximately 4 percent of the market, with the remaining 17 percent outsourcing to national groups.
We believe Mednax, Inc. and Sheridan Healthcare, a subsidiary of AmSurg Corp. are two of the largest providers in the anesthesia services market. There are several smaller companies, including several backed by private equity investors, that provide outsourced anesthesia services and that operate in multiple states.
The market for outsourced professional hospitalist and specialty hospitalist services is diverse and highly fragmented. We believe there are approximately 2,700 hospitals in our target market that operate hospitalist or specialty hospitalist programs. Of those, approximately 77 percent are either hospital employed or local physician groups. Regional groups make up approximately 4 percent of the market with the remaining 19 percent outsourcing to national groups.
We believe Sound Physicians and EmCare are two of the largest providers of hospitalist and specialty hospitalist services. There are several smaller physician groups that provide hospitalist services as well as some hospitals that continue to utilize the traditional model of local primary care providers rounding on patients during non-office hours.
The military has changed its approach toward providing most of its outsourced healthcare staffing needs through direct provider contracting on a competitive bid basis. As a result, competition for such outsourced military staffing contracts may be affected by such factors as:
the lowest bid price;
the ability to meet technical government bid specifications;
the ability to recruit and retain qualified healthcare providers; and
restrictions on the ability to competitively bid based on restrictive government bid lists or bid specifications designed to award government contracts to targeted business ownership forms, such as those determined to meet small business or minority ownership qualifications.
We believe we compete effectively in our industry for outsourced physician and other healthcare staffing and administrative services based, among other things, on:
our ability to improve department productivity and patient satisfaction while reducing overall costs;
the breadth of staffing and management services we offer;
our ability to recruit and retain qualified physicians, technicians and nurses;
our billing and reimbursement expertise;
our reputation for compliance with state and federal regulations; and
our financial stability.

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Financial Information About Segments
We provide our services through eight operating segments which are aggregated into four reportable segments: Hospital Based Services, IPC Healthcare, Specialty Services, and Other Services. The Hospital Based Services segment, which is an aggregation of emergency medicine, anesthesia, and our legacy acute care staffing services primarily within hospital settings, provides comprehensive healthcare service programs to users of healthcare services on a fee for service as well as a cost plus or contract basis. The IPC Healthcare segment consists of IPC and provides comprehensive acute hospital medicine and post-acute provider service programs to users of healthcare services and was acquired as part of the IPC Transaction in 2015. See Note 3 to the consolidated financial statements included in this Form 10-K for additional discussion of the IPC Transaction. The Specialty Services segment, which is an aggregation of military and government healthcare staffing, clinical services, and nurse call center operations, provides comprehensive healthcare service programs to users of healthcare services in a non-hospital based environment. The Other Services segment is an aggregation of locums staffing, scribes, and billing, collection and consulting services that provides a range of other comprehensive healthcare services. See Note 21 to the consolidated financial statements included in this Form 10-K for additional discussion of our segments.
Regulatory Matters
General. As a participant in the healthcare industry, our operations and relationships with healthcare providers such as hospitals are subject to extensive and increasing regulations by numerous federal, state and local governmental entities. The management services we provide under contracts with hospitals and other clients include:
the identification and recruitment of physicians and other healthcare professionals for the performance of emergency medicine, anesthesiology, hospital medicine, and other services at hospitals and other facilities;
utilization review of services and administrative overhead;
schedule coordination for staff physicians and other healthcare professionals who provide clinical coverage in designated areas of healthcare facilities; and
administrative services such as billing and collection of fees for professional services.
All of the above services are subject to changes in Medicare reimbursement. In November 2015, the Centers for Medicare and Medicaid Services (CMS) released its final 2016 Medicare Physician Fee Schedule (MPFS) payment changes covering the period from January 1, 2016 through December 31, 2016. This is the first regulatory update to the MPFS since the sustainable growth rate (SGR) formula was repealed in April 2015.
On April 14, 2015, Congress enacted the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which permanently repeals the SGR formula, and provides for annual updates of 0.5% for a 5-year period (starting July 1, 2015 through the end of 2019). Starting in 2020, through the end of 2025, there will be no annual updates to the payment rates, but physicians will have the opportunity to receive additional payment adjustments through the Merit-Based Incentive Payment System (MIPS), which is an incentive-based payment program that rewards quality performance related to four assessment categories: quality of care measures, resource use, meaningful use of electronic health records (EHRs), and clinical practice improvement activities. Physicians will receive a positive or negative payment adjustment based on how their composite performance score for each of the four assessment categories compared to the relevant performance threshold. Negative payment adjustments are capped at 4% in 2019, increasing each year, up to 9% in 2022. Positive payment adjustments can reach up to a maximum of three times the annual cap for negative payment adjustments in a particular year. Additional incentive payments will be available for “exceptional performers”. Alternatively, physicians who receive a significant share of their revenue through participation in alternative payment models (APMs) that involve risk of financial losses and a quality measurement component will receive a 5% bonus each year from 2019 through 2024. These physicians are excluded from participation in the MIPS. In 2026 and subsequent years, annual updates will differ based on whether a physician is participating in an APM that meets certain criteria. Physicians participating in qualifying APMs will receive a 0.75% update, and all other physicians will receive a 0.25% update. APMs include models being tested under the Center for Medicare and Medicaid Innovation (other than health care innovation awards), the Medicare Shared Savings Program, the Health Care Quality Demonstration Program, and other demonstrations required by Federal law. In addition to these changes to the Medicare physician payment system, the law also extends funding for CHIP. The CHIP program, which covers more than 8 million children and pregnant women in families that earn income above Medicaid eligibility levels, is currently authorized through 2019. Funding for the program has been extended for two years, through fiscal year 2017.
In addition to changes in reimbursement, these services are potentially subject to scrutiny and review by federal, state and local governmental entities and are subject to the rules and regulations promulgated by these governmental entities. Specifically, but without limitation, the following laws and regulations may affect our operations and contractual relationships.
Laws Regarding Licensing, Certification, and Enrollment. We and our affiliated healthcare providers are subject to various federal, state and local licensing and certification laws and regulations and accreditation standards and other laws

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relating to, among other things, the adequacy of medical care, equipment, personnel and operating policies and procedures. We are also subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditations. The Patient Protection and Affordable Care Act (PPACA) also adds new screening requirements for enrollment and re-enrollment, as well as enhanced oversight periods for new providers and suppliers, and new requirements for Medicare and Medicaid program providers and suppliers to establish compliance programs. CMS published a final rule on February 2, 2011 establishing procedures for provider screening and oversight, and increased enforcement activity related to enrollment is expected. We believe we are in substantial compliance with the final rule.
State Laws Regarding Prohibition of Corporate Practice of Medicine and Fee Splitting Arrangements. The laws and regulations relating to our operations in 47 states vary from state to state and many states prohibit general business corporations from practicing medicine, controlling physicians' medical decisions or engaging in some practices such as splitting professional fees with physicians. We believe that we are in substantial compliance with state laws prohibiting the corporate practice of medicine and fee-splitting. We currently employ or contract with providers or physician-owned professional corporations to provide outsourced staffing and administrative services to healthcare facilities in the 47 states in which we provide services. Other parties may assert that, despite the way we are structured, some part of the Company could be engaged in the corporate practice of medicine or unlawful fee-splitting. Were such allegations to be asserted successfully before the appropriate judicial or administrative forums, we could be subject to adverse judicial or administrative penalties, certain contracts could be determined to be unenforceable and we may be required to restructure our contractual arrangements. The laws of other states, including Florida, where we derived approximately 17% of our net revenues in 2015, do not prohibit non-physician entities from employing physicians to practice medicine but may retain a ban on some types of fee-splitting arrangements.
Debt Collection Regulation. Some of our operations are subject to compliance with the Fair Debt Collection Practices Act (FDCPA), the Telephone Consumer Protection Act (TCPA) and comparable statutes and licensure in many states. Under the FDCPA and TCPA, a third-party collection company is restricted in the methods it uses in contacting consumer debtors and eliciting payments with respect to placed accounts. Requirements under state collection agency statutes vary; however, most require compliance similar to that required under the federal FDCPA. We believe that we are in substantial compliance with the federal FDCPA and TCPA and comparable state statutes.
Anti-Kickback Statutes. We are subject to the federal healthcare fraud and abuse laws, including the Anti-Kickback Statute under section 1128B(b) of the Social Security Act (SSA). The Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate or other remuneration, directly or indirectly, in cash or in kind in return for referring an individual or to induce the referral of an individual to a person for the furnishing (or arranging for the furnishing) of any item or service, or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchasing, leasing, or ordering of any good, facility, service, or item for which payment may be made, in whole or in part, by a federal healthcare program. These fraud and abuse laws define federal healthcare programs to include plans and programs that provide health benefits, whether directly, through insurance, or otherwise, that are funded directly by the United States government or any state healthcare program other than the Federal Employee Health Plan. These programs include Medicare and Medicaid and the U.S. government's military healthcare system, among others.
A violation of the Anti-Kickback Statute is a felony punishable by imprisonment of up to five years, criminal fines of up to $25,000, civil fines of up to $50,000 per violation and three times the amount of the unlawful remuneration. A violation also may result in exclusion from Medicare, Medicaid or other federal healthcare programs. Further, PPACA makes clear that a claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false claim or fraudulent claim for purposes of the Federal False Claims Act. Pursuant to the PPCA amendment to the Anti-Kickback Statute, the government does not have to prove that an accused knew of the existence of the Anti-Kickback Statute or that he or she had the specific intent to violate it. Rather, the government only must prove that the individual knowingly and willfully engaged in the conduct. Entities and individuals may also be subject to civil prosecution for conduct that would violate the Anti-Kickback Statute under a civil statute, the “Civil Monetary Penalties Law.”
As authorized by Congress, the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) has issued safe harbor regulations that immunize certain business arrangements from prosecution under the Anti-Kickback Statute. The fact that a given business arrangement does not fall within one of these safe harbor provisions does not render the arrangement illegal, but business arrangements of healthcare service providers that fail to satisfy the applicable safe harbor criteria are reviewed based upon a facts and circumstances analysis to determine whether a violation may have occurred. Some of the financial arrangements that we may maintain may not meet all of the requirements for safe harbor protection. The authorities that enforce the Anti-Kickback Statute may in the future determine that one or more of these financial arrangements violate the Anti-Kickback Statute or other federal or state laws. A determination that a financial arrangement violates the Anti-Kickback Statute could subject us to liability under the SSA, including criminal and civil penalties, as well as exclusion from

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participation in government programs such as Medicare and Medicaid or other federal healthcare programs. Many states in which we operate have similar types of state laws.
In order to obtain additional clarification on the Anti-Kickback Statute or Civil Monetary Penalty Law, a provider can obtain written interpretative advisory opinions from the OIG regarding existing or contemplated transactions. Advisory opinions are binding as to HHS, but only with respect to the requesting party or parties. The advisory opinions are not binding as to other governmental agencies (e.g., the Department of Justice) and certain matters (e.g., whether certain payments made in conjunction with conduct seeking to meet certain safe harbor protections are at fair market value) are not within the purview of an advisory opinion.
In 1998, the OIG issued an advisory opinion in which it concluded that a proposed management services contract between a medical practice management company and a physician practice, which provided that the management company would be reimbursed for the fair market value of its operating services and its costs and paid a percentage of net practice revenues, may constitute illegal remuneration under the Anti-Kickback Statute. The OIG's analysis focused on the marketing activities conducted by the management company and concluded that the management services arrangement described in the advisory opinion included financial incentives to increase patient referrals, contained no safeguards against over-utilization, and included financial incentives that increased the risk of abusive billing practices. We believe that our contractual relationships with hospitals and physicians are distinguishable from the arrangement described in this advisory opinion with regard to both the types of services provided and the risk factors identified by the OIG. Nevertheless, we cannot assure you that the OIG, the Department of Justice or other federal regulators will not be able to successfully challenge our arrangements under the Anti-Kickback Statute in the future.
In addition, an increasing number of states in which we operate have laws that prohibit some direct or indirect payments, similar to the Anti-Kickback Statute, if those payments are designed to induce or encourage the referral of patients to a particular provider. Most states have anti-kickback statues that prohibit kickbacks relating to services provided to Medicaid beneficiaries. Some state statutes are broader and cover all patients. Possible sanctions for violation of these restrictions include exclusion from state-funded healthcare programs, loss of licensure, and civil and criminal penalties. Statutes vary from state to state, are often vague, and may not have been interpreted by courts or regulatory agencies. We cannot assure you that state regulators will not successfully challenge our arrangements under state anti-kickback statutes.
Physician Self-Referral Laws. Our contractual arrangements with physicians and hospitals may implicate the federal physician self-referral statute commonly known as the Stark Law. The Stark Law prohibits the referral of Medicare and Medicaid beneficiaries for any “designated health services” to an entity if the physician or a member of such physician's immediate family has a “financial relationship” with the entity, unless an exception in the Stark Law or regulations applies. The Stark Law is a strict liability statute and the government does not have to prove any intent.
The Stark Law provides that the entity that renders the “designated health services” may not present or cause to be presented a claim for “designated health services” furnished pursuant to a prohibited referral. A person who engages in a scheme to circumvent the Stark Law's prohibitions may be fined up to $100,000 for each applicable arrangement or scheme. In addition, anyone who presents or causes to be presented a claim in violation of the Stark Law is subject to payment denials, mandatory refunds, monetary penalties of up to $15,000 per service, an assessment of up to three times the amount claimed, and possible exclusion from participation in federal healthcare programs. PPACA includes some amendments to the Stark Law. For example, PPACA requires CMS to issue a Voluntary Self-Referral Disclosure Protocol (SRDP) as a vehicle through which health care providers and suppliers can disclose actual or potential violations of the Stark Law. The SRDP allows CMS to reduce the payment amounts due for Stark Law violations when the violation is self-disclosed but also requires the disclosing party to act within 60 days of identification of an overpayment and does not include any provision for government agency coordination in the event of disclosure.
The term “designated health services” includes services commonly performed or supplied by hospitals (including inpatient and outpatient hospital services and diagnostic radiology and radiation therapy services and supplies) or medical clinics for which we provide physician staffing. In addition, the term “financial relationship” is broadly defined to include any direct or indirect ownership or investment interest or compensation arrangement. There are a number of exceptions to the self-referral prohibition, including exceptions for many of the customary financial arrangements between physicians and providers, such as employment contracts, leases, professional services agreements, non-cash gifts having a value less than $392 and recruitment agreements. Penalties for violation of the Stark Law include fines of up to $15,000 per claim and up to three times the amount collected from the government program.
Since the Stark law was enacted there has been an evolving body of regulations. The adoption of new federal or state laws or regulations could affect many of the arrangements entered into by each of the hospitals with which we contract. In addition, courts, Congress, and law enforcement authorities, including the OIG, are increasing the scrutiny of arrangements

15


between healthcare providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to improperly pay for patient referrals and/or other business.
In addition, a number of the states in which we operate have similar prohibitions on physicians' self-referrals. These state prohibitions may differ from the Stark Law's prohibitions and exceptions may apply to a broader or narrower range of services and financial relationships, and may apply to other health care professionals in addition to physicians. Violations of these state laws may result in prohibition of payment for services rendered, loss of licenses, fines, and criminal penalties. State statutes and regulations also may require physicians or other healthcare professionals to disclose to patients any financial relationship the physicians or healthcare professionals have with a healthcare provider that is recommended to the patients. These laws and regulations vary significantly from state to state, are often vague and, in many cases, have not been interpreted by courts or regulatory agencies. Exclusions and penalties, if applied to us, could result in significant loss of reimbursement to us, thereby significantly affecting our financial condition.
False Claims Act. Our arrangements and operations may implicate other healthcare fraud and abuse laws, including federal and certain state laws related to false claims. For example, section 1128B of SSA imposes criminal liability on individuals who or entities that knowingly and willfully make or cause to be made any false statement of material fact in any application for any payment, or for use in determining rights to such payment, under a federal healthcare program. The statute also sets forth other specific activities that constitute the submission of false statements or representations. A violation of such section by a healthcare provider is a felony, and may result in fines up to $50,000 and exclusion from participation in federal healthcare programs.
The Federal False Claims Act, 31 U.S.C. § 3729 et seq., imposes civil liability on individuals and entities that submit or cause to be submitted false or fraudulent claims for payment to the government. False claims include miscoded or upcoded claims. Violations of the Federal False Claims Act may include treble damages and penalties of $5,500 to $11,000 per false or fraudulent claim.
The Fraud Enforcement and Recovery Act (FERA), enacted on May 20, 2009, greatly expanded the reach of the Federal False Claims Act by eliminating the prior requirement that a false claim be presented to a federal official, or that such a claim directly involve federal funds. FERA clarifies that liability attaches whenever an individual or entity makes a false claim to obtain money or property, any part of which is provided by the government, without regard to whether the individual or entity makes such claim directly to the federal government. Consequently, under FERA, liability attaches when such false claim is submitted to an agent acting on the government's behalf or with a third party contractor, grantee or other recipient of such federal money or property. Additionally, under FERA, individuals and entities violate the Federal False Claims Act by knowingly retaining historic improper payments (overpayments/overprovisions) even if the individual or entity did not make claim for such payments.
PPACA requires that overpayments be reported and returned within 60 days after the overpayment is identified or the corresponding cost report was due. Failure to report and return the overpayment creates the basis for Federal False Claims Act liability. In 2012, CMS released a proposed rule interpreting and implementing this provision of the PPACA. Despite the statutory provision’s legal effect, in February 2015, CMS announced a one-year delay in finalizing its guidance regarding the implementation of the rule. In addition, PPACA requires that claims submitted to private parties, such as Medicare Advantage or Medicaid managed care plans, that have received government funds are subject to Federal False Claims Act liability.
In addition to actions being brought under the Federal False Claims Act by government officials, the Federal False Claims Act also allows a private individual with direct knowledge of fraud to bring a whistleblower, or qui tam, lawsuit on behalf of the government for violations of the Federal False Claims Act. PPACA also broadens the direct knowledge requirement so that the private individual is not required to have direct knowledge of the allegations, but must provide information to the government before it is publicly disclosed and that is independent of and materially adds to any publicly disclosed allegations. In that event, the whistleblower is responsible for initiating a lawsuit that sets in motion a chain of events that may eventually lead to the recovery of money by the government. The Federal False Claims Act and FERA extend broad protections to whistleblowers that prohibit entities from demoting, harassing, terminating or otherwise retaliating against whistleblowers for making Federal False Claims Act allegations.
Violations of the Federal Anti-Kickback Statute and the Stark Law have also been used by prosecutors as a basis for Federal False Claims Act liability and under PPACA, a violation of the Federal Anti-Kickback Statute triggers Federal False Claims Act liability.
In addition to the Federal False Claims Act, several states and the District of Columbia have enacted false claims laws that allow the recovery of money that was fraudulently obtained by a healthcare provider from the state, such as Medicaid funds provided by the state, or, in some cases, from private payors, and assess other fines and penalties.

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Other Healthcare Fraud and Abuse Laws. In addition to the Federal False Claims Act, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) there are five additional federal criminal statutes: “healthcare fraud,” “false statements relating to healthcare matters,” “theft or embezzlement in connection with healthcare,” “obstruction of criminal investigations of healthcare offenses,” and “laundering of monetary instruments.” These HIPAA criminal statutes encompass fraud against private and government payors. Violations of these statutes constitute felonies and may result in fines, imprisonment, and/or exclusion from government-sponsored programs. The “healthcare fraud” provisions of HIPAA prohibit knowingly and willfully executing a scheme or artifice to defraud any healthcare benefit program, including private payors. The “false statements” provisions of HIPAA prohibit knowingly and willfully falsifying, concealing or covering up a material fact by any trick, scheme or device or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
In addition to criminal and civil monetary penalties, healthcare providers that are found to have defrauded the federal or state healthcare programs may be excluded from participation in government healthcare programs. Providers that are excluded are not entitled to receive payment under Medicare, or other federal and state healthcare programs for items or services provided to program beneficiaries. Exclusion for a minimum of five years is mandatory for a conviction with respect to the delivery of a healthcare item or service. The presence of aggravating circumstances in a case can lead to a longer period of exclusion. The OIG has the discretion to exclude providers for certain conduct even absent a criminal conviction. Such conduct includes participation in a fraud scheme, the payment or receipt of kickbacks, and failing to provide services of a quality that meets professionally recognized standards. The OIG also has the authority under certain circumstances where exclusion is not permitted to terminate Medicare billing privileges.
The federal government has made a policy decision to significantly increase the financial resources allocated to enforcing the general fraud and abuse laws. In addition, private insurers and various state enforcement agencies have increased their level of scrutiny of healthcare claims in an effort to identify and prosecute fraudulent and abusive practices in the healthcare area. We are subject to these increased enforcement activities and may be subject to specific subpoenas and requests for information.
Administrative Simplification and the Transactions, Privacy and Security Rules. HIPAA mandates the adoption of standards for the exchange of electronic health information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the healthcare industry. Ensuring privacy and security of patient information was one of the key factors behind the legislation, and subsequent regulations established electronic transaction standards that healthcare providers must use when submitting or receiving certain healthcare data electronically and regulated the use and disclosure of individuals' healthcare information, whether communicated electronically, on paper or verbally. We comply with electronic transaction standards and transmit data in the standardized format to health plans that are able to accept the format.
The regulations also provide patients with significant rights related to understanding and controlling how their health information is used or disclosed. We have privacy policies for our covered entity activities and have entered into business associate agreements with affiliated providers, including physicians, hospitals and other covered entities and our vendors. We believe we are in substantial compliance with the HHS' final regulations concerning the privacy of healthcare information.
We believe we are currently in substantial compliance with regulations that CMS issued concerning the security of electronic protected healthcare information. These regulations mandate the use of certain administrative, physical and technical safeguards to protect the confidentiality, integrity, and availability of electronic protected healthcare information. We evaluated our systems, procedures and policies relative to the security of electronic protected healthcare information and modified them as necessary to comply with the security regulations.
The Health Information Technology for Economic and Clinical Health Act (HITECH) enacted under the American Recovery and Reinvestment Act of 2009 (ARRA), and its amendments and its regulations, include additional requirements related to the privacy and security of patient information. It extends compliance with the HIPAA privacy and security regulations to business associates; requires, in certain instances, the reporting of incidents where the security of patient information has been compromised; increases penalties for HIPAA violations; and provides state attorneys general with enforcement authority over the HIPAA privacy and security regulations. HITECH’s breach notification provisions provide that in the event of a breach of “unsecured” patient information, disclosure must be made to the patient, the Secretary of HHS, and in some cases the media. Electronic patient information is “unsecured” if it is not encrypted in accordance with standards required by HHS. At this time we believe that our operations currently encrypt electronic patient information in accordance with HHS standards.
The HIPAA statute, as amended by HITECH, includes penalties for violations of the HIPAA regulations and extends the reach of these penalties to business associates, such as the Company. The Secretary of HHS is permitted to impose civil penalties for violations of HIPAA requirements ranging from $100 to $50,000 per violation (with an annual maximum of $25,000 to $1,500,000 in penalties per calendar year for the same type of violation). The Department of Justice has the

17


authority to enforce criminal violations of HIPAA that include fines of between $50,000 and $250,000, and 10 years' imprisonment, or both. Criminal offenses include knowingly (i) using or causing to be used a unique health identifier in violation of the privacy standards, (ii) obtaining individually identifiable health information relating to an individual in violation of the privacy standards, or (iii) disclosing individually identifiable health information to another person in violation of the privacy standards. Other bases for criminal prosecution, for example, include committing an offense with the intent to use individually identifiable health information for commercial advantage, personal gain, or malicious harm. Further, state attorneys general are empowered to bring suit on behalf of residents of their state for injunctions, statutory damages, and attorneys' fees.
On January 25, 2013, a final rule published in the Federal Register implemented modifications to the HIPAA privacy, security, enforcement, and breach notification regulations as required by HITECH, such as business associate compliance, reporting of data breaches, changes to enforcement practice, as well as modifications as required in the Genetic Information Nondiscrimination Act. The final rule revised the "harm standard" used to determine when entities are required to report data breaches, which will likely result in covered entities and business associates having to report virtually all breaches. The final rule also made covered entities liable for the acts of their business associates and business associates liable for the acts of their subcontractors, who are now also deemed business associates.
PPACA also required HHS to issue a series of regulations designed to streamline healthcare administrative transactions, encourage greater use of standards by providers, and make existing standards work more effectively. Based on the existing and proposed administrative simplification of HIPAA regulations, we believe the cost of our compliance with HIPAA will not have a material adverse effect on our business, financial condition or results of operations.
The U.S. healthcare industry's transition from ICD-9 to ICD-10 for medical diagnosis and inpatient procedure coding occurred in two stages, each requiring significant investment in appropriate software as well as training and changes in business operations and workflows. Disruptions in service may also occur as a result of these changes. As of January 1, 2012, all standards for electronic healthcare transactions related to claims, eligibility inquiries, and remittance advice were required to be converted to Version 5010, which accommodates the ICD-10 codes. The implementation date of ICD-10 coding itself was delayed multiple times. Following Congressional action in April 2014, CMS issued a final rule delaying the date on which ICD-10 codes must be used on all HIPAA transactions, including outpatient claims and inpatient claims, to October 1, 2015.
In July 2010, HHS issued regulations establishing the technical capabilities required for certified EHR technology and “meaningful use” objectives that providers must meet to qualify for bonus payments under the Medicare Program. Bonus payments began in May 2011 and will continue until 2016. Starting in 2015, Medicare reimbursement will be adjusted for providers that have not demonstrated meaningful use. HHS has issued a series of regulations establishing standards, implementation specifications, certification criteria and reporting requirements that providers must meet to qualify for “meaningful use” bonus payments. Most recently, HHS issued a final regulation on October 6, 2015 implementing Stage 3 of the meaningful use program as well as modifications to the current stages of the program. Significant expenditures may be necessary to facilitate connectivity to hospital systems or otherwise develop e-prescribing and electronic medical record capabilities.
There are other federal and state laws relating to privacy, security and confidentiality of patient healthcare information. In addition to federal privacy regulations, there are a number of state laws governing confidentiality of health information that are applicable to our operations. New laws governing privacy may be adopted in the future as well. We have taken steps to comply with health information privacy requirements to which we are aware that we are subject. However, we can provide no assurance that we are or will remain in compliance with the diverse privacy requirements in all of the jurisdictions in which we do business. Failure to comply with privacy requirements could result in civil or criminal penalties, which could have a materially adverse impact on our business.
Financial Information and Privacy Standards. In addition to privacy and security laws focused on health-care data, multiple other federal and state laws regulate the use and disclosure of consumers’ financial information (Personal Information). Many of these laws also require administrative, technical, and physical safeguards to prevent unauthorized use or disclosure of Personal Information, including mandated processes and timeframes for notification of possible or actual breaches of Personal Information to the affected individual. The Federal Trade Commission (FTC) primarily oversees compliance with the federal laws relevant to us, while state laws are addressed by the state attorney general or other accountable state agency. As with HIPAA, enforcement of laws protecting financial and other consumer information is increasing. Examples of relevant federal laws include the Fair Credit Reporting Act, the Electronic Communications Privacy Act, and the Computer Fraud and Abuse Act.
Deficit Reduction Act of 2005. Among other mandates, the DRA created a new Medicaid Integrity Program designed to enhance federal and state efforts to detect Medicaid fraud, waste and abuse. Additionally, section 6032 of the DRA requires entities that make or receive annual Medicaid payments of $5.0 million or more from any one state to provide their employees,

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contractors and agents with written policies and employee handbook materials on federal and state False Claims Acts and related statues. The Company was required to comply with section 6032 in 2015 because it received payments of over $5.0 million from Medicaid during the federal fiscal year ending in 2014 from at least one state. The Company maintains policies and procedures for preventing and detecting fraud, waste and abuse and has made those written policies and employee handbook materials available to all employees and to specified contractors and agents as required by the DRA. We cannot predict what new state statutes or enforcement efforts may emerge from the DRA and what impact they may have on our operations.
Related Laws and Guidelines. Because we perform services at hospitals, outpatient facilities and other types of healthcare facilities, we and our affiliated providers may be subject to laws that are applicable to those entities. For example, our operations are impacted by the Emergency Medical Treatment and Labor Act (EMTALA) that prohibits “patient dumping” by requiring Medicare-participating hospitals and hospital ED physicians or hospital urgent care center physicians to provide a medical screening examination to any patient presented to the hospital's ED or urgent care center, regardless of the patient's ability to pay, legal status or citizenship. In addition, if it is determined that the individual has an emergency medical condition, the facility must provide stabilizing treatment within its capabilities or provide for an appropriate transfer of the individual. Many states in which we operate have similar state law provisions concerning patient dumping.
In addition to the EMTALA and its state law equivalents, significant aspects of our operations are subject to state and federal statutes and regulations governing workplace health and safety, dispensing of controlled substances and the disposal of medical waste. Changes in ethical guidelines and operating standards of professional and trade associations and private accreditation commissions such as the American Medical Association and The Joint Commission may also affect our operations. We believe our operations as currently conducted are in substantial compliance with these laws and guidelines.
Corporate Compliance Program. We have developed a corporate compliance program in an effort to monitor compliance with federal and state laws and regulations applicable to healthcare entities and to implement policies and procedures so that employees act in compliance with all applicable laws, regulations and company policies.
The OIG has issued a series of compliance program guidance documents in which the OIG has set out the elements of an effective compliance program. Our compliance program has been structured to include these elements and we believe we have taken reasonable steps to implement them. The primary compliance program components recommended by the OIG, all of which we have attempted to implement, include:
formal policies and written procedures;
designation of a compliance officer;
education and training programs;
auditing, monitoring and risk assessments;
responding appropriately to detected misconduct;
open lines of communication; and
discipline and accountability.
We conduct routine compliance auditing and monitoring, including checks of relevant governmental exclusion and debarment lists, and we audit compliance with our compliance program on a randomized sample basis. Although such an approach reflects a reasonable and accepted approach in the industry, we cannot assure you that our program will detect and rectify all compliance issues in all markets and for all time periods. If we fail to detect such issues, depending on the nature and scope of the issue, this could result in future claims for recoupment of overpayments, civil fines and penalties, or other material adverse consequences.
U.S. Sentencing Guidelines. The U.S. Sentencing Guidelines are used by federal judges in determining sentences in federal criminal cases. The guidelines are advisory, not mandatory. With respect to corporations, the guidelines state that having an effective ethics and compliance program may be a relevant mitigating factor in determining sentencing. To comply with the guidelines, the compliance program must be reasonably designed, implemented, and enforced such that it is generally effective in preventing and detecting criminal conduct. The guidelines also state that a corporation should take certain steps such as periodic monitoring and appropriately responding to detected criminal conduct. OIG has followed the model of the Sentencing Guidelines in issuing its Compliance Guidances (which also are advisory, not mandatory). While we have attempted to develop and implement our corporate compliance program to be consistent with these guidelines, we cannot be certain that a court (or the OIG) would agree.

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Website and Social Media Disclosure
We use our website www.teamhealth.com, our corporate Facebook page (https://www.facebook.com/teamhealth) and our corporate Twitter account (https://twitter.com/teamhealth) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report. Information on the Company's website is not incorporated by reference herein and is not a part of this Form 10-K. The Company makes available free of charge, and provides a link on its website to, the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission. To access these filings, go to the Company's website, then click on “SEC Filings” under the “Financials” heading on the “Investor Relations” page.
Special Note About Forward-Looking Statements
Statements made in this Form 10-K that are not historical facts and that reflect the current view of the Company about future events and financial performance are hereby identified as “forward-looking statements.” Some of these statements can be identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “could,” “should” “may,” “plan,” “project,” “predict” and similar expressions and include references to assumptions that we believe are reasonable and relate to our future prospects, developments and business strategies. The Company cautions readers of this Form 10-K that such “forward-looking statements,” including without limitation, those relating to the Company's future business prospects, revenue, working capital, professional liability expense, liquidity, capital needs, interest costs and income, wherever they occur in this Form 10-K or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward-looking statements.” For a discussion of factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements, see “Item 1A-Risk Factors” below and “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates.”
The Company's forward-looking statements speak only as of the date of this report or as of the date they are made. The Company disclaims any intent or obligation to update “forward-looking statements” made in this Form 10-K to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
 
Item 1A.
RISK FACTORS
You should carefully consider the following information about these risks, together with the other information contained in this Form 10-K, including “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the notes thereto. If any of the following risks actually occurs, our business, financial condition, operating results and prospects could be adversely affected.

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Risks Related to the IPC Transaction
We may be unable to successfully integrate IPC’s operations or to realize targeted cost savings, revenues or other benefits of the IPC Transaction.
We face numerous risks and challenges to successful integration of IPC, including the following:
the potential for unexpected costs, delays and challenges that may arise in integrating IPC into our existing business;
limitations on our ability to realize the expected cost savings and synergies from the IPC Transaction, which may impact the goodwill associated with the consideration paid;
challenges related to integrating IPC’s operations that has a management team and a company culture that differs from our own;
challenges related to the integration of businesses that operate in new geographic areas, including difficulties in identifying and gaining access to customers in new markets;
difficulties of managing operations outside of our existing core business, which may require development of additional skills and competencies; and
discovery of previously unknown liabilities in connection with the IPC Transaction, including, among other things, the qui tam whistleblower action and the Florida Medicaid temporary reimbursement suspension.
Risks Related to Our Business
The current U.S. and global economic conditions could materially adversely affect our results of operations and business condition.
Our operations and performance depend significantly on economic conditions. The U.S. economy has experienced a prolonged economic downturn. While economic conditions have recently improved, there are still lingering effects of economic weakness such as high unemployment and financial institutions not providing debt financing in amounts and on terms they provided prior to 2008. If the current economic situation weakens, our business could be negatively impacted by reduced demand for our services or third-party disruptions resulting from higher levels of unemployment, government budget deficits and other adverse economic conditions. For example, loss of jobs and lack of health insurance as a result of the deterioration of the economy could depress demand for healthcare services generally. Patient volume trends in our staffed hospital EDs could be adversely affected as individuals potentially defer or forgo seeking care in such departments due to the loss or reduction of coverage previously available to such individuals under commercial insurance or government healthcare programs. In addition, the continuation of the economic downturn may adversely impact our ability to collect for the services we provide as higher unemployment and reductions in commercial managed care enrollment may increase the number of uninsured and underinsured patients seeking healthcare at one of our staffed EDs.
We could also be negatively affected if the federal government or the states reduce funding of Medicare, Medicaid and other federal and state healthcare programs in response to increasing deficits in their budgets. For example, the Budget Control Act (BCA) enacted on August 2, 2011 established a bipartisan, bicameral panel to identify up to $1.5 trillion in spending cuts. The failure of that panel to reach consensus triggered 2% across-the-board cuts in Medicare reimbursement starting April 1, 2013. The Bipartisan Budget Act of 2013 (Budget Act) enacted on December 26, 2013 provided limited relief from sequestration cuts for certain defense and non-defense spending for fiscal years 2014 and 2015, but continued the 2% cuts in Medicare reimbursement. Further, Congress has taken a number of actions, most recently in the two-year bipartisan budget agreement enacted on November 2, 2015, to further extend the 2% Medicare sequestration cuts through 2025.
Additionally, private third-party payors may take cost-containment measures, including lowering reimbursement rates or increasing patient co-payments, coinsurance and deductibles, which may be costly for patients and hard to collect and could adversely affect our business. Many of the plans offered on the state health insurance exchanges have large deductibles and required coinsurance. In addition, private payors may further limit physicians and hospitals in their networks. There can be no assurance that we will be able to obtain or maintain preferred provider status with significant third-party payors in the communities where we operate. Any of these risks, among other economic factors, could have a material adverse effect on our financial condition and operating results, and the risks could become more pronounced if the problems in the U.S. and global economies become worse.
The current U.S. and state health reform legislative or implementation initiatives could adversely affect our operations and business condition.
On March 23, 2010, President Obama signed into law the PPACA which significantly affects the United States healthcare system. One of PPACA's key goals is to increase access to health benefits for the uninsured or underinsured

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populations. PPACA also includes Medicare payment and delivery reforms aimed at containing costs, rewarding quality and improving outcomes through coordinated care arrangements. For example, PPACA reduces annual payment rates for Medicare providers, implements productivity adjustments to the hospital market basket update, and reduces Medicare Disproportionate Share Hospital payments to hospitals. Payments to hospitals will also be reduced if the hospital has excessive readmission rates or hospital acquired conditions. PPACA requires the creation of a value-based purchasing program, starting in 2013, that rewards hospitals for improving on or achieving performance standards related to quality measures. PPACA also requires the establishment of a physician value-based payment system, starting on January 1, 2015, adjusts payments to high performing physicians through the use of a “value-modifier”.
PPACA includes provisions to test new payment and delivery models, such as accountable care organizations, bundled payment arrangements, and patient-centered medical homes, which require collaboration among providers and integration of care in order to reduce costs and increase quality. There are similar reductions and reforms under the Medicaid program. PPACA also provides Medicare bonus payments to primary care physicians and general surgeons practicing in health professional shortage areas as well as increased Medicaid payments for primary care services furnished by certain physicians at the Medicare rates in 2013 and 2014. A limited number of the Company’s providers qualified for the increased Medicaid payments in certain states in 2013 and 2014. Congress has not acted to extend federal funding for the enhanced Medicaid payments, which expired on December 31, 2014.
Some key provisions in PPACA involve new federal rules related to private health insurance offerings. For example, there is a new review for unreasonable premium increases and new medical loss ratio obligations designed to maximize benefits to consumers. These and other new federal rules in PPACA are expected to create pricing pressure on private health insurance premiums. As a result, there may be pricing pressure for providers such as the affiliated provider groups of the Company. PPACA also includes provisions that expand and increase the government's ability to audit, investigate and combat healthcare program fraud, abuse and waste.
On June 28, 2012, the Supreme Court upheld the constitutionality under Congress's taxing power of the requirement in PPACA that individuals maintain health insurance or pay a penalty. The Supreme Court upheld the PPACA provision expanding Medicaid eligibility to new populations as constitutional, but only so long as the expansion of the Medicaid program is optional for the states. States that choose not to expand their Medicaid programs to newly eligible populations in PPACA can only lose the new federal Medicaid funding in PPACA but not their eligibility for existing federal Medicaid matching payments. To date, 31 states and the District of Columbia have announced their intention to expand their Medicaid programs, three states are still considering expansion, and 16 states, including states in which we do business, have announced that they will not expand. As there is no deadline for states to implement the Medicaid expansion, it is unclear at this time how many states will ultimately expand their Medicaid programs under PPACA. In addition, on June 25, 2015, the Supreme Court upheld the provision of tax credits and federal subsidies to individuals who purchase health insurance through a federally-facilitated exchange.
We believe that upholding the current PPACA law means that there is an increased likelihood that there will be more people in the U.S. marketplace who will have access to health insurance benefits. However, it is unclear what the pricing will be for covered services under those health insurance benefits or what the effect will be in states that do not expand their Medicaid programs. Further, it is unclear if additional challenges to the health reform law, changes to the controlling party in Congress, or the outcome of the 2016 presidential election will affect how the law is implemented or its impact on insurance coverage rates across the country.
Some states also have similar health reform legislative initiatives pending. Both federal and state changes to the healthcare system put pressure on our operations and business condition. The focus on payment and delivery reforms may require us to improve efficiencies and possibly to develop new collaborative arrangements as efforts to transform healthcare delivery are tested.
Laws and regulations that regulate payments for medical services made by government sponsored or government regulated healthcare programs could cause our revenues to decrease.
Our affiliated provider groups derive a significant portion of their net revenues from payments made by government sponsored healthcare programs such as Medicare and state reimbursed programs. There are public and private sector pressures to restrain healthcare costs and to restrict reimbursement rates for medical services. Any change in reimbursement policies, practices, interpretations, regulations or legislation that places limitations on reimbursement amounts or practices could significantly affect hospitals, and consequently affect our operations unless we are able to renegotiate satisfactory contractual arrangements with our hospital clients and contracted physicians. Any limitations on reimbursement amounts or practices also could significantly affect direct payments received by our affiliated provider groups, which would consequently affect our operations unless such reductions are offset through cost reductions, increased volume or otherwise.
Certain changes to payor mix may also affect our revenue and business operations. PPACA is expected to reduce the number of uninsured by approximately 25 million by 2020. Some will be covered under private health insurance. Others will be

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covered under optional new eligibility standards for Medicaid. Historically and generally speaking, payment rates from private health insurance for physician services have been greater than the Medicaid rates for the same services. However, at this time we cannot accurately estimate the payment rates for these new lives expected to be brought into the covered health benefits population. Our revenue could be adversely impacted if states aggressively pursue lower rates or cost containment strategies as a result of any expansion of their existing Medicaid programs to include newly eligible populations under PPACA. This possible expansion comes at a time of increasing state budget deficits. Also, as states create health insurance exchanges to facilitate coverage for new lives expected to be brought into the covered health benefits population, there may be increased pricing pressure on providers, regardless of payor.
Under Medicare law, CMS was required to update the MPFS payment rates annually based on a formula which includes application of the SGR that was adopted in the Balanced Budget Act of 1997. This formula yielded negative updates every year beginning in 2002, although CMS took administrative steps to avert a reduction in 2003, and Congress took a series of legislative actions to prevent reductions from 2004 through March 31, 2015.
On April 14, 2015, Congress enacted MACRA, which permanently repeals the SGR formula, and provides for annual updates of 0.5% for a 5-year period (starting July 1, 2015 through the end of 2019). Starting in 2020, through the end of 2025, there will be no annual updates to the payment rates but physicians will have the opportunity to receive additional payment adjustments through the MIPS, which is an incentive-based payment program that rewards quality performance related to four assessment categories: quality of care measures, resource use, meaningful use of EHRs, and clinical practice improvement activities. Physicians will receive a positive or negative payment adjustment based on how their composite performance score for each of the four assessment categories compared to the performance threshold. Negative payment adjustments are capped at 4% in 2019, increasing each year, up to 9% in 2022. Positive payment adjustments can reach up to a maximum of three times the annual cap for negative payment adjustments in a particular year. Additional incentive payments will be available for “exceptional performers”. Alternatively, physicians who receive a significant share of their revenue through participation in APMs that involve risk of financial losses and a quality measurement component will receive a 5% bonus each year from 2019 through 2024. These physicians are excluded from participation in the MIPS. In 2026 and subsequent years, annual updates will differ based on whether a physician is participating in an APM that meets certain criteria. Physicians participating in qualifying APMs will receive a 0.75% update, and all other physicians will receive a 0.25% update. APMs include models being tested under the Center for Medicare and Medicaid Innovation (other than health care innovation awards), the Medicare Shared Savings Program, the Health Care Quality Demonstration Program, and other demonstrations required by Federal law. In addition to these changes to the Medicare physician payment system, the law also extends funding for CHIP. The CHIP program, which covers more than 8 million children and pregnant women in families that earn income above Medicaid eligibility levels, is currently authorized through 2019. Funding for the program has been extended for two years, through fiscal year 2017.
In November 2015, CMS released the final rule to update the 2016 MPFS. This is the first final regulatory update to the MPFS since the SGR formula was repealed in April 2015. The 2016 MPFS final rule resulted in a blended adjustment, impacted not just by MACRA, but also by the Protecting Access to Medicare Act of 2014 (PAMA) and the Achieving a Better Life Experience Act of 2014 (ABLE). A reduction in the 2016 Conversion Factor (CF) offset against a slightly reduced adjustment to the respective specialties' PE RVUs, will result in a slight negative adjustment to the 2016 MPFS.
For 2013 and 2014, eligible professionals earned a bonus payment of 0.5% for satisfactory reporting under the Physician Quality Reporting System (PQRS). Starting in 2015, a downward payment adjustment is now applied to physicians who do not satisfactorily report data on quality measures under the PQRS. Additionally, effective as of January 1, 2013, Medicare now pays certified registered nurse anesthetists (CRNAs) for all anesthesiology and pain management services that they are permitted to provide under state scope of practice laws.
Another provision that affects physician payments is an adjustment under the Medicare statute to reflect the geographic variation in the cost of delivering physician services, by comparing those costs to the national average. This concerns the “work” component of the GPCI. If Congress does not block this adjustment, payments would be decreased to any geographic area with an index of less than 1.0. Although Congress has delayed the GPCI payment adjustment several times, most recently in the MACRA, which blocks the GPCI payment adjustment until January 1, 2018, there is no guarantee that Congress will block the adjustment in the future, which could result in a decrease in payments we receive for physician services.
Section 5501(a) of the PPACA authorized a quarterly PCIP program to augment the Medicare payment for primary care services when furnished by primary care practitioners beginning in 2011. Incentive payments equal 10 percent of the Medicare paid amount for eligible primary care services. Unless extended, the PCIP payment program will end and further bonus payments under the program will be unavailable after December 31, 2015.
In November 2012, CMS released a final rule to increase Medicaid payments for primary care services furnished by certain physicians to the Medicare rates in 2013 and 2014. Physicians were determined to be eligible for the increased Medicaid payments if they maintain a current board certification in internal medicine, family medicine, or pediatric medicine

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and greater than 60% of their billings are the qualifying primary care evaluation and management codes. Certain states imposed additional requirements that affect a physician’s eligibility for the increased Medicaid payments even for those physicians who maintain an appropriate board certification, including site of service restrictions that would exclude primary care services rendered in a hospital emergency department. A limited number of the Company’s providers qualified for the increased Medicaid payments in certain states in 2013 and 2014. Congress has not acted to extend federal funding for the enhanced Medicaid payments, which expired on December 31, 2014.
Any future reductions in amounts paid by government programs for physician services or changes in methods or regulations governing payment amounts or practices could cause our revenues to decline and we may not be able to offset reduced operating margins through cost reductions, increased volume or otherwise.
 If governmental authorities determine that we violate Medicare, Medicaid or other government payor reimbursement laws or regulations, our revenues may decrease and we may have to restructure our method of billing and collecting Medicare, Medicaid or other government program payments, respectively. If third party payors disallow requests for reimbursement, our revenues may decrease and our business practices may be subject to challenge.
The Medicare Prescription Drug Improvement and Modernization Act of 2003 amended the Medicare reassignment statute as of December 8, 2003 to permit our independent contractor physicians to reassign their right to receive Medicare payments to us. We have restructured our method of billing and collecting Medicare payments in light of this statutory reassignment exception. In addition, state Medicaid programs have similar reassignment rules. While we seek to comply substantially with applicable Medicaid reassignment regulations, government authorities may find that we do not comply in all respects with these regulations or that our compliance is not sufficient.
We may staff physician assistants and nurse practitioners, sometimes referred to collectively as advanced practice clinicians, to provide care under the supervision of physicians. State and federal laws require that such supervision be performed and documented using specific procedures. We believe our billing and documentation practices related to our use of advanced practice clinicians substantially comply with applicable state and federal laws, but enforcement authorities may find that our practices violate such laws.
When our clinicians' services are covered by multiple third-party payors, such as a primary and a secondary payor, financial responsibility must be allocated among the multiple payors in a process known as “coordination of benefits” (COB). The rules governing COB are complex, particularly when one of the payors is Medicare or another government program. Although we believe we currently have procedures in place to assure that we comply with applicable COB rules and that we process refunds appropriately when we receive overpayments, payors or enforcement agencies may determine that we have violated these requirements.
Reimbursement is typically conditioned on our providing the correct procedure and diagnosis codes and properly documenting both the service itself and the medical necessity of the service. Despite our measures to ensure coding accuracy, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable, that the service was not medically necessary, that there was a lack of sufficient supporting documentation, or for other reasons. Incorrect or incomplete documentation and billing information, or the incorrect selection of codes, could result in nonpayment, recoupment or allegations of billing fraud.
Management is not aware of any material inquiry, investigation or notice from any governmental entity indicating that we are in violation of any of the Medicare, Medicaid or other government payor reimbursement laws and regulations. However, such laws and related regulations and regulatory guidance may be ambiguous or contradictory, and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. Accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws.
We may incur substantial costs defending our interpretations of federal and state government regulations and if we lose, the government could force us to restructure our operations and subject us to fines, monetary penalties and exclusion from participation in government-sponsored health care programs such as Medicare and Medicaid.
Our operations, including our billing and other arrangements with healthcare providers, are subject to extensive federal and state government regulation and are subject to audits, inquiries and investigations from government agencies from time to time. Such regulations include numerous laws directed at payment for services, conduct of operations, and preventing fraud and abuse, laws prohibiting general business corporations, such as us, from practicing medicine, controlling physicians' medical decisions or engaging in some practices such as splitting fees with physicians, and laws regulating billing and collection of reimbursement from government programs, such as Medicare and Medicaid, and from private payors. Those laws may have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to our operations, including our arrangements with hospitals, physicians and professional corporations. See “Business-Regulatory Matters.”

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We believe we are in substantial compliance with these laws, rules and regulations based upon what we believe are reasonable and defensible interpretations of these laws, rules and regulations. However, federal and state laws are broadly worded and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. Accordingly, our arrangements and business practices may be the subject of government scrutiny or be found to violate applicable laws. If federal or state government officials challenge our operations or arrangements with third parties that we have structured based upon our interpretation of these laws, rules and regulations, the challenge could potentially disrupt our business operations and we may incur substantial defense costs, even if we successfully defend our interpretation of these laws, rules and regulations. In addition, if the government successfully challenges our interpretation as to the applicability of these laws, rules and regulations as they relate to our operations and arrangements with third parties, it may have a material adverse effect on our business, financial condition and results of operations.
In the event regulatory action were to limit or prohibit us from carrying on our business as we presently conduct it or from expanding our operations to certain jurisdictions, we may need to make structural, operational and organizational modifications to our company and/or our contractual arrangements with third party payors, physicians, professional corporations and hospitals. Our operating costs could increase significantly as a result. We could also lose contracts or our revenues could decrease under existing contracts. Moreover, our financing agreements may also prohibit modifications to our current structure and consequently require us to obtain the consent of the holders of such indebtedness or require the refinancing of such indebtedness. Any restructuring would also negatively impact our operations because our management's time and attention would be diverted from running our business in the ordinary course.
For example, while we believe that our operations and arrangements comply substantially with existing applicable laws relating to the corporate practice of medicine and fee splitting, we cannot assure you that our existing contractual arrangements, including restrictive covenant agreements with physicians, professional corporations and hospitals, will not be successfully challenged in certain states as unenforceable or as constituting the unlicensed practice of medicine or prohibited fee splitting. In this event, we could be subject to adverse judicial or administrative interpretations or to civil or criminal penalties, our contracts could be found to be legally invalid and unenforceable or we could be required to restructure our contractual arrangements with our affiliated provider groups.
We and the health care providers for which we provide staffing are subject to billing investigations and audits by private payors, federal and state authorities, as well as auditing contractors for governmental programs that could have a material adverse effect on our business, financial conditions and results of operations.
State and federal statutes impose substantial penalties, including civil and criminal fines, exclusion from participation in government healthcare programs and imprisonment, on entities or individuals (including any individual corporate officers or physicians deemed responsible) that fraudulently or wrongfully bill to or fail to refund historic incorrect payments to governmental or other third-party payors for healthcare services. Entities or individuals that are excluded may not furnish or direct the furnishing of services or goods that are payable under Medicare, or other federal and state healthcare programs. Entities that employ or contract with excluded individuals are prohibited from receiving payment for services or goods covered by government healthcare programs and provided to government healthcare program beneficiaries. We conduct routine checks of the relevant governmental exclusion and debarment lists, but we and/or the hospitals at which we furnish services may be subject to repayments, fines or civil penalties if the services or goods of an excluded person are inadvertently billed to government healthcare programs.
In addition, federal and certain state laws allow a private person to bring a civil action in the name of the U.S. government for false billing violations or other types of false claims. Moreover, the federal government has contracted with private entities to audit and recover revenue resulting from payments made in excess of federal and state program requirements. These entities include Recovery Audit Contractors (RACs) who are responsible for auditing Medicare claims, and Medicaid Integrity Contractors, who are responsible for auditing Medicaid claims. The RAC program was expanded from a demonstration to a permanent Medicare program in 2006, and was further expanded by PPACA in 2010 to include Medicaid and Medicare Parts C (the Medicare Advantage Plans) and D (the Medicare Drug Benefit). In addition, Zone Program Integrity Contractors are responsible for the identification of suspected fraud through medical record review. We believe that additional audits, inquiries and investigations from government agencies will continue to occur from time to time in the ordinary course of our business, including as a result of our arrangements with hospitals and healthcare providers. In addition, we may be subject to increased audits from private payors and pursuant to federal, civil and criminal statutes that relate to our billings to private payors. This could result in substantial defense costs to us and a diversion of management's time and attention. Such pending or future audits, inquiries or investigations, or the public disclosure of such matters, may have a material adverse effect on our business, financial condition and results of operations.

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We are subject to complex rules and regulations that govern our licensing and certification, and the failure to comply with these rules can result in delays in, or loss of, reimbursement for our services or civil or criminal sanctions.
We, our affiliated entities, providers and the facilities in which they operate are subject to various federal, state and local licensing and certification laws and regulations and accreditation standards and other laws relating to, among other things, the adequacy of medical care, equipment, personnel and operating policies and procedures. We are also subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditations.
In certain jurisdictions, changes in our ownership structure require pre- or post-notification to governmental licensing and certification agencies. Relevant laws and regulations may also require re-application and approval to maintain or renew operating authorities or require formal application and approval to continue providing services under certain government contracts.
The relevant laws and regulations are complex and may be unclear or subject to interpretation. We pursue the steps we believe we must take to retain or obtain all requisite operating authorities. While we have made reasonable efforts to substantially comply with federal, state and local licensing and certification laws and regulations and accreditation standards based upon what we believe are reasonable and defensible interpretations of these laws, regulations and standards, agencies that administer these programs may find that we have failed to comply in some material respects. Failure to comply with these licensing, certification and accreditation laws, regulations and standards could result in our affiliated providers' services being found non-reimbursable or prior payments being subject to recoupment, and can give rise to civil or, in extreme cases, criminal penalties.
In order to receive payment from Medicare, Medicaid and certain other government programs, healthcare providers are required to enroll in these programs by completing complex enrollment applications. PPACA requires all providers and suppliers that enrolled in Medicare prior to March 25, 2011 to revalidate their enrollment information under new screening criteria. Revalidation took place on a rolling basis through March 23, 2015. Certain government programs, including the Medicare and Medicaid programs, require notice or re-enrollment when certain ownership changes occur. Generally, in jurisdictions where we are required to obtain a new licensing authority, we may also be required to re-enroll in that jurisdiction's government payor program. If the payor requires us to complete the re-enrollment process prior to submitting reimbursement requests, we may be delayed in receiving payment, receive refund requests or be subject to recoupment for services provided in the interim.
Compliance with these changes in ownership requirements is complicated by the fact that they differ from jurisdiction to jurisdiction, and in some cases are not uniformly applied or interpreted even within the same jurisdiction. Failure to comply with these enrollment and reporting requirements could lead not only to delays in payment and refund requests, but in extreme cases could give rise to civil (including refunding of payments for services rendered and other monetary penalties) or criminal penalties in connection with prior changes in our operations and ownership structure. While we made reasonable efforts to comply with these requirements in connection with prior changes in our operations and ownership structure, the agencies that administer these programs may find that we have failed to comply in some material respects.
 
We could be subject to professional liability lawsuits, some of which we may not be fully insured against or have reserved for, which could adversely affect our financial condition and results of operations.
In recent years, physicians, hospitals and other participants in the healthcare industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing, and vicarious liability for acts of their employees or independent contractors. Many of these lawsuits involve large claims and substantial defense costs. Although we do not engage in the practice of medicine or provide medical services nor do we control the practice of medicine by our affiliated physicians or affiliated medical groups or the compliance with regulatory requirements applicable to such physicians and physician groups, we have been and are involved in this type of litigation, and we may become so involved in the future. In addition, through our management of hospital departments and provision of non-physician healthcare personnel, patients who receive care from physicians or other healthcare providers affiliated with medical organizations and physician groups with whom we have a contractual relationship could sue us.
Effective March 12, 2003, we began insuring our professional liability risks principally through a program that includes self-insurance reserves, commercial insurance and a captive insurance company arrangement. Under our current professional liability insurance program our exposure for claim losses under professional liability insurance policies provided to affiliated physicians and other healthcare practitioners is limited to the amounts of individual policy coverage limits. However, in situations where we have opted to retain risk, there is generally no limitation on the exposure associated with the aggregate cost of claims that fall within individual policy limits provided to affiliated physicians and other healthcare practitioners. Also, there is no limitation on exposures for individual or aggregate professional liability losses incurred by us or other corporate entities that exceed policy loss limits under commercial insurance policies. Further, we may be exposed to individual claim losses in excess of limits of coverage under historical insurance programs. While our provisions for professional liability claims and

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expenses are determined through actuarial estimates, such actuarial estimates may be exceeded by actual losses and related expenses in the future. Claims, regardless of their merit or outcome, may also adversely affect our reputation and ability to expand our business.
We could also be liable for claims against our clinicians for incidents that occurred but were not reported during periods for which claims-made insurance covered the related risk. Under generally accepted accounting principles, the cost of professional liability claims, which includes the estimated costs associated with litigating or settling claims, is accrued when the incidents that give rise to the claims occur. The accrual includes an estimate of the losses that will result from incidents, which occurred during the claims-made period, but were not reported during that period. These claims are referred to as incurred-but-not-reported (IBNR) claims. With respect to those clinicians for whom we provide coverage for claims that occurred during periods prior to March 12, 2003, we have acquired extended reporting period coverage (tail coverage) for IBNR claims from a commercial insurance company. Claim losses for periods prior to March 12, 2003 may exceed the limits of available insurance coverage or reserves established by us for any losses in excess of such insurance coverage limits.
Furthermore, for those portions of our professional liability losses that are insured through commercial insurance companies, we are subject to the credit risk of those insurance companies. While we believe our commercial insurance company providers are currently creditworthy, such insurance companies may not remain so in the future.
The reserves that we have established for our professional liability losses are subject to inherent uncertainties and any deficiency may lead to a reduction in our net earnings.
We have established reserves for losses and related expenses that represent estimates at a given point in time involving actuarial and statistical projections of our expectations of the ultimate resolution and administration of costs of losses incurred for professional liability risks for the period on and after March 12, 2003. We have also established a reserve for potential losses in excess of commercial insurance aggregate coverage limits for the period prior to March 12, 2003. Insurance reserves are inherently subject to uncertainty. Our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial assumptions. Studies of projected ultimate professional liability losses are performed biannually. We use the actuarial estimates to establish professional liability loss reserves. Our reserves could be significantly affected should current and future occurrences differ from historical claim trends and expectations. While claims are monitored closely when estimating reserves, the complexity of the claims and the wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. Actual losses and related expenses may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. If our estimated reserves are determined to be inadequate, we will be required to increase reserves at the time of such determination, which would result in a corresponding reduction in our net earnings in the period in which such deficiency is determined. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates-Insurance Reserves” and Note 11 to the consolidated financial statements incorporated by reference herein.
We depend on reimbursements by third-party payors, as well as payments by individuals, which could lead to delays and uncertainties in the reimbursement process.
We receive a substantial portion of our payments for healthcare services on a fee for service basis from third-party payors, including Medicare, and Medicaid, private insurers and managed care organizations. Excluding IPC in 2015, we estimate that we have received approximately 68% and 71% of our net revenues from such third-party payors during 2014 and 2015, respectively. We estimate that such amounts included approximately 17% and 19% from Medicare in 2014 and 2015, respectively, 12% and 11% from Medicaid programs in 2014 and 2015, respectively. In addition, we estimate net revenues from military and the military healthcare system were 4% and 3% in 2014 and 2015, respectively.
The reimbursement process is complex and can involve lengthy delays. Third-party payors continue their efforts to control expenditures for healthcare, including proposals to revise reimbursement policies. While we recognize revenue when healthcare services are provided, there can be delays before we receive payment. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, that services rendered in an ED did not require ED level care or that additional supporting documentation is necessary. Retroactive adjustments may change amounts realized from third-party payors. We are subject to governmental audits of our reimbursement claims under Medicare, Medicaid, the U.S. government's military healthcare system and other governmental programs and may be required to repay these agencies if found that we were incorrectly reimbursed. Delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional borrowing costs.
We also may not be paid with respect to co-payments and deductibles that are the patient's financial responsibility or in those instances when physicians provide healthcare services to uninsured or underinsured individuals. Many of the plans offered on the state health insurance exchanges have high deductibles and required coinsurance that patients cannot afford to pay. Amounts not covered by third-party payors are the obligations of individual patients from whom we may not receive

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whole or partial payment. We also may not receive whole or partial payments from uninsured and underinsured individuals. As a result of government laws and regulations requiring hospitals to screen and treat patients who have an emergency medical condition regardless of their ability to pay and our obligation to provide such screening or treatment, a substantial increase in self-pay patients could result in increased costs associated with physician services for which sufficient net revenues are not realized to offset such additional physician service costs. In such an event, our earnings and cash flow would be adversely affected, potentially affecting our ability to maintain our restrictive debt covenant ratios and meet our financial obligations.
We make efforts to collect from patients any co-payments and other payments for services that our affiliated providers provide to the patients. The federal FDCPA and TCPA restrict the methods that companies may use to contact and seek payment from consumer debtors regarding past due accounts. State laws vary with respect to debt collection practices, although most state requirements are similar to those under the FDCPA and TCPA. If our collection practices are viewed as inconsistent with these standards, we may be subject to damages and penalties.
While federal healthcare reform should decrease the number of uninsured and underinsured persons in future years, the risks associated with third-party payors, co-payments and deductibles and uninsured individuals and the inability to monitor and manage accounts receivable successfully could still have a material adverse effect on our business, financial condition and results of operations. Furthermore, our collection policies or our provisions for allowances for Medicare, Medicaid and contractual discounts and doubtful accounts receivable may not be adequate.
We are subject to the financial risks associated with fee for service contracts which could decrease our revenues, including changes in patient volume, mix of insured and uninsured patients and patients covered by government sponsored healthcare programs and third party reimbursement rates.
We derive our revenues from ED services provided by affiliated provider groups primarily through two types of arrangements. If we have a flat fee contract with a hospital, the hospital generally bills and collects fees for physician services and remits a negotiated amount to us monthly. If there is a fee for service contract with a hospital, either we or our affiliated provider groups collect the fees for professional services. Consequently, under fee for service contracts, we assume the financial risks related to changes in the mix of insured, uninsured and underinsured patients and patients covered by government sponsored healthcare programs, third party reimbursement rates and changes in patient volume. We are subject to these risks because under fee for service contracts, fees decrease if a smaller number of patients receive physician services or if the patients who do receive services do not pay their bills for services rendered or we are not fully reimbursed for services rendered. Our fee for service contractual arrangements also involve a credit risk related to services provided to uninsured and underinsured individuals. This risk is exacerbated in the hospital ED physician-staffing context because federal law requires hospital EDs to evaluate all patients regardless of the severity of illness or injury and to stabilize any patient with an emergency medical condition. We believe that uninsured and underinsured patients are more likely to seek care at hospital EDs because they frequently do not have a primary care physician with whom to consult. We also collect a relatively smaller portion of our fees for services rendered to uninsured and underinsured patients than for services rendered to insured patients. In addition, fee for service contracts also have less favorable cash flow characteristics in the start-up phase than traditional flat-rate contracts due to longer collection periods. Our revenues could also be reduced if third-party payors successfully negotiate lower reimbursement rates for our physician services.
Failure to timely or accurately bill for services could have a negative impact on our net revenues before provision for uncollectibles, bad debt expense and cash flow.
Billing for fee for service patient visits and encounters in a hospital setting is complex. The practice of providing medical services in advance of payment or, in many cases, prior to an assessment of a patient's ability to pay for such services or whether the physicians providing the medical services are in or out of the patient's insurance plan's network, may have a significant negative impact on our net revenues before provision for uncollectibles, bad debt expense and cash flow. We bill numerous and varied payors, including self-pay patients, various forms of commercial insurance companies and Medicare, Medicaid, the U.S. government's military healthcare system and other government programs. These different payors typically have differing forms of billing requirements that must be met prior to receiving payment for services rendered. Reimbursement to us is typically conditioned on our providing the proper procedure and diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered. In addition, PPACA requires that all claims must be submitted within 12 months of the date of service in order to be paid, unless the delay is due to coordination of benefits.
Additional factors that could complicate our billing include:
disputes between payors as to which party is responsible for payment;
differences in payment rates for medical services provided by out-of-network providers and the ability to balance bill patients for medical services provided by out-of-network providers;
variation in coverage for similar services among various payors;

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the difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties;
failure to obtain proper physician enrollment and documentation in order to bill various commercial and governmental payors;
failure to identify and obtain the proper insurance coverage for the patient; and
failure to properly code for services rendered.
To the extent that the complexity associated with billing for our services causes delays in our cash collections, we assume the financial risk of increased carrying costs associated with the aging of our accounts receivable as well as the increased potential for bad debts.
In addition, the majority of the patient visits for which we bill payors are processed in one of seven regional billing centers, which we estimate amounts to nearly 17 million patient claims per year. A disruption of services at any one of these locations could result in a delay in billing and thus cash flows to us, as well as potential additional costs to process billings in alternative settings or locations. While we employ what we believe are adequate back-up alternatives in the event of a main computer site disaster, failure to execute our back-up plan successfully or timely may cause a significant disruption to our cash flows and temporarily increase our billing costs. In the event that we do not timely or accurately bill for our services, our net revenues may be subject to a significant negative impact.
Our hospital medicine business model includes the use of physician assistants and nurse practitioners (Midlevel Practitioners), which implicates supervision and documentation requirements, as well as additional billing rules which may not be applicable to physicians.
Our hospital medicine business utilizes Midlevel Practitioners to provide care under the supervision of its physicians. State and federal laws require that such supervision be performed and documented using specific procedures. For example, in some states some or all of the Midlevel Practitioner’s chart entries must be countersigned. Under applicable Medicare rules, in certain cases, a Midlevel Practitioner’s services are reimbursed at a rate equal to 85% of the MPFS amount. However, in certain circumstances when a Midlevel Practitioner assists a physician who is directly and personally involved in the patient’s care, the Company may bill for the services of the physician at the full MPFS rates and does not bill separately for the Midlevel Practitioner’s services. The Company believes its billing and documentation practices related to its use of Midlevel Practitioners comply with applicable state and federal laws, but there can be no assurance that enforcement authorities will not find that its practices violate such laws.
If we are unable to timely enroll healthcare professionals in the Medicare or Medicaid programs, or with third-party payors, our collections and revenues will be harmed.
In the 2009 MPFS, CMS substantially reduced the time within which physicians and other healthcare professionals can retrospectively bill Medicare for services provided by such providers from 27 months prior to the effective date of the enrollment to 30 days prior to the effective date of the billing privileges. In addition, the new enrollment rules set forth in the 2009 MPFS provide that the effective date of the enrollment will be the later of the date on which the enrollment was filed and approved by the Medicare contractor and the date on which the healthcare professional began providing services. PPACA also adds new screening requirements for enrollment and re-enrollment, as well as enhanced oversight periods for new providers and suppliers, and new requirements for Medicare and Medicaid program providers and suppliers to establish compliance programs. If we are unable to properly enroll our physicians and other healthcare professionals within the 30 days after such provider begins providing services, we will be precluded from billing Medicare for any services that were provided to a Medicare beneficiary more than 30 days prior to the effective date of the enrollment. Such failure to timely enroll healthcare professionals could have a material adverse effect on our business, financial condition and results of operations. Medicaid and commercial third-party payors also require enrollment in their programs by physicians and other healthcare professionals in order to bill for their services. Enrollment challenges with the Medicaid programs and third-party payors could also have a material adverse effect on our business, financial condition and results of operations.
A reclassification of our independent contractor physicians by tax authorities could require us to pay retroactive taxes and penalties, which could have a material adverse effect on us.
As of December 31, 2015, we contracted with approximately 3,900 affiliated physicians as independent contractors to fulfill our contractual obligations to clients. Because we consider many of the physicians with whom we contract to be independent contractors, as opposed to employees, we do not withhold federal or state income or other employment related taxes, make federal or state unemployment tax or Federal Insurance Contributions Act payments, or provide workers' compensation insurance with respect to such affiliated physicians. Our contracts with our independent contractor physicians obligate these physicians to pay these taxes. The classification of physicians as independent contractors depends on the facts

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and circumstances of the relationship. In the event federal or state taxing authorities determine that the physicians engaged as independent contractors are employees, we may be adversely affected and subject to retroactive taxes and penalties. Under current federal tax law, a safe harbor from reclassification, and consequently retroactive taxes and penalties, is available if our current treatment is consistent with a long-standing practice of a significant segment of our industry and if we meet certain other requirements. If challenged, we may not prevail in demonstrating the applicability of the safe harbor to our operations. Further, interested persons have recently proposed to eliminate the safe harbor and may do so again in the future. If such proposals are reintroduced and passed by Congress, they could impact our classification of affiliated physicians as independent contractors which could have a material adverse effect on our business, financial condition and results of operations.
Our practices with respect to the classification of our independent contractors have periodically been reviewed by the Internal Revenue Service (IRS) with no adjustments or changes to our practices required as a result of such review. The IRS completed its most recent review of our affiliated provider groups in 2007 with no proposed changes. The IRS relied on the results of prior reviews in 2000 and 2001 and our adherence to the conditions of the safe harbor provisions. Nonetheless, the tax authorities may decide to reclassify our independent contractor physicians as employees or require us to pay retroactive taxes and penalties, which could have a material adverse effect on our business, financial condition and results of operations.
A significant number of our programs are concentrated in certain states, particularly Florida, Ohio and Tennessee, which makes us particularly sensitive to regulatory, economic and other conditions, including natural disasters, in those states.
During the year ended December 31, 2015, Florida, Ohio, and Tennessee accounted for approximately 17%, 10% and 9%, respectively, of our net revenues. If our programs in these states are adversely affected by changes in regulatory, economic and other conditions or natural disasters in such states, our revenues and profitability may decline. Adverse changes or conditions affecting these states where our operations are concentrated, such as healthcare reforms, changes in laws and regulations, reduced Medicaid reimbursements and government investigations, may have a material adverse effect on our business, financial condition and results of operations.
We derive a portion of our net revenues from services provided to the U.S. Department of Defense (DOD) and other government agencies. These revenues are derived from contracts subject to a competitive bidding process.
We are a vendor of healthcare professionals that serve military personnel and their dependents in military treatment and other government beneficiaries in government facilities nationwide. Our net revenues derived from military healthcare staffing totaled $121.6 million in 2013, $115.4 million in 2014 and $109.5 million in 2015.

Most of our contracts awarded by the DOD and other government agencies are funded for a term of one year. Under a number of these contracts, the government has the option to renew the contract each year for an additional one-year term, subject to a specified maximum number of renewal terms (anywhere from one to four renewal terms). Those contracts without any renewal option are subject to an automatic rebidding and award process at the end of the one-year term. Each contract with a renewal option will become subject to the automatic rebidding and award process upon the earlier of (i) the government electing not to exercise its annual renewal option of such contract or (ii) the expiration of the final renewal term for such contract. In addition, all contracts, including contracts with renewal options, can be terminated by the government at any time without notice. The outcome of any rebidding and award process is uncertain and we may not be awarded new contracts. Our contracts with renewal options may not be so renewed and the government may exercise its rights to terminate the contracts.
In addition, we provide services to our U.S. government customers pursuant to subcontracting arrangements where we serve as a subcontractor to a primary contractor, generally a small business, that has entered into a direct contract with the government. Subcontracting arrangements pose unique risks to us because our ability to generate revenue under the subcontract is contingent upon the continued existence of the primary contract, which is beyond our control. If the primary contract is terminated, whether for non-performance by the primary contractor, the loss of the primary contractor's small business status or otherwise, then our subcontract will similarly terminate. Any loss of or failure to renew contracts with the DOD or other governmental agencies may have a material adverse effect on our business, financial condition and results of operations.
We may become involved in litigation that could harm the value of our business.
In the normal course of our business, we are involved in lawsuits, claims, audits and investigations, including those arising out of services provided, personal injury claims, professional liability claims, our billing, collections and marketing practices, employment disputes and contractual claims. The outcome of these matters could have a material adverse effect on our financial position or results of operations. We do not believe that any such claims that may be pending are likely to have such an effect. However, we may become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources. In addition, since our current growth strategy includes acquisitions, among other things, we may become exposed to legal claims arising out of the activities of an acquired business prior to the time of any acquisition.

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Our quarterly operating results may fluctuate significantly and may cause the value of our common stock to decline, which could affect our ability to raise new capital for our business.
Our quarterly operating results may vary significantly in the future depending on many factors that may include, but are not limited to, the following:
the overall patient demand for healthcare services;
our ability to accurately receive and process on a timely basis billing related information and other demographic factors that in turn can affect our fee for service revenue estimates;
the relative proportion of revenues we derive from various services;
increased competition in our local markets;
changes in our operating expenses;
our ability to recruit and train new physicians in new or existing local markets;
changes in our business strategy; and
economic and political conditions, including fluctuations in interest rates and tax increases.
Fluctuations in our quarterly operating results could affect our ability to raise new capital for our business.
Our revenues could be adversely affected by a net loss of contracts.
A significant portion of our growth has historically resulted from increases in the number of patient visits and fees for services provided under existing contracts and the addition and acquisition of new contracts. Our contracts with hospitals for staffing generally have terms of three years and include automatic renewal options under similar terms and conditions, unless either party gives notice of an intent not to renew. Most of these contracts are terminable by either of the parties upon notice of as little as 90 days. These contracts may not be renewed or, if renewed, may contain terms that are not as favorable to us as our current contracts. In most cases, the termination of a contract is principally due to either an award of the contract to another source of provider staffing or termination of the contract by us due to a lack of an acceptable profit margin. Additionally, to a much lesser extent, contracts may be terminated due to such conditions as a hospital facility closing because of facility mergers or a hospital attempting to provide themselves the service being provided by us. We may experience a net loss of contracts in the future and any such net loss may have a material adverse effect on our operating results and financial condition.
Our failure to accurately assess the costs we will incur under new contracts could have a material adverse effect on our business, financial condition and results of operations.
Our new contracts increasingly involve a competitive bidding process. When we obtain new contracts, we must accurately assess the costs we will incur in providing services in order to realize adequate profit margins and otherwise meet our financial and strategic objectives. Increasing pressures from healthcare payors to restrict or reduce reimbursement rates at a time when the costs of providing medical services continue to increase make assessing the costs associated with the pricing of new contracts, as well as maintenance of existing contracts, more difficult. In addition, integrating new contracts, particularly those in new geographic locations, could prove more costly, and could require more management time than we anticipate. Our failure to accurately predict costs or to negotiate an adequate profit margin could have a material adverse effect on our business, financial condition and results of operations.
If we are not able to find suitable acquisition candidates or successfully integrate completed acquisitions, including the IPC Transaction, into our current operations, we may not be able to profitably operate our consolidated company.
During the period between 2011 and 2015, acquisitions have contributed approximately 73% toward overall growth in net revenues. We expect to continue to seek opportunities to grow through attractive acquisitions. However, our acquisition strategy could present some challenges. Some of the difficulties we could encounter include: problems identifying all service and contractual commitments of the acquired entity, evaluating the stability of the acquired entity's hospital contracts, integrating financial and operational software, accurately projecting physician and employee costs, and evaluating their regulatory compliance. Our acquisition strategy is also subject to the risk that, in the future, we may not be able to identify suitable acquisition candidates, be successful in expanding into new lines of business, obtain acceptable financing or consummate desired acquisitions, any of which could inhibit our growth. Additionally, we compete for acquisitions with other potential acquirers, some of which may have greater financial or operational resources than we do. This competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our acquisition costs. Also, we may acquire individual or group medical practices that operate with lower profit margins as compared with our current or expected profit margins or which have a different payor mix than our other practice groups, which would reduce our profit margins. We may also incur or assume indebtedness or issue equity in connection with acquisitions. The issuance of shares of our common stock for an acquisition may result in dilution to our existing shareholders and depending on the number of shares that we issue,

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the resale of such shares could affect the trading price of our common stock. In addition, in connection with acquisitions, we may need to obtain the consent of third parties who have contracts with the entity to be acquired, such as managed care companies or hospitals contracting with the entity. We may be unable to obtain these consents. If we fail to integrate acquired operations, fail to manage the cost of providing our services or fail to price our services appropriately, our operating results may decline.
Furthermore, the diversion of management's attention and any delays or difficulties encountered in connection with the integration of businesses we acquire could negatively impact our business and results of operations. Finally, as a result of our acquisitions of other healthcare businesses, we may be subject to the risk of unanticipated business uncertainties or legal liabilities relating to such acquired businesses for which we may not be indemnified by the sellers of the acquired businesses.
 
If we fail to implement our business strategy, our business, financial condition and results of operations could be materially and adversely affected.
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Our business strategy envisions several initiatives, including increasing revenues from existing customers, capitalizing on outsourcing opportunities to win new contracts, focusing on risk management and pursuing selected acquisitions. We may not be able to implement our business strategy successfully or achieve the anticipated benefits of our business plan. If we are unable to do so, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all.
If we do not manage our growth effectively, our financial condition may be adversely affected.
Even if we are successful in obtaining new business, failure to manage our growth could adversely affect our financial condition. We may experience extended periods of very rapid growth. If we are not able to manage our growth effectively, our business and financial condition could materially suffer. Our growth may significantly strain our managerial, operational and financial resources and systems. To manage our growth effectively, we will have to continue to implement and improve our operational, financial and management controls, reporting systems and procedures. In addition, we must effectively expand, train and manage our employees. We will be unable to manage our businesses effectively if we are unable to alleviate the strain on resources caused by growth in a timely and successful manner. We may not be able to manage our growth and our failure to do so could have a material adverse effect on our business.
We may write-off intangible assets, such as goodwill.
As a result of purchase accounting for our various acquisition transactions, our balance sheet at December 31, 2015 contained intangible assets designated as either goodwill or other intangibles totaling approximately $2.43 billion in goodwill and approximately $335.6 million in other intangibles. Additional acquisitions that result in the recognition of additional intangible assets would cause an increase in these intangible assets. On an ongoing basis, we evaluate whether facts and circumstances indicate any impairment of the value of intangible assets. As circumstances change, we cannot assure you that the value of these intangible assets will be realized by us. If we determine that a significant impairment has occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
We may be required to seek additional financing to meet our future capital needs and our failure to raise capital when needed could harm our competitive position, business, financial condition and results of operations.
Continued expansion of our business may require additional capital. In the future, it is possible that we will be required to raise additional funds through public or private financings, collaborative relationships or other arrangements. In recent years, global credit markets and the financial services industry experienced a period of unprecedented turmoil, characterized by the bankruptcy, failure or sale of various financial institutions and an unprecedented level of intervention from the U.S. and other governments. These events led to unparalleled levels of volatility and disruption to the capital and credit markets and significantly adversely impacted global economic conditions, resulting in additional, significant recessionary pressures and further declines in investor confidence and economic growth. While the adverse effects of that period have abated to a degree, there continues to be lingering disruptions in the global credit markets and the financial services industry, and continued disruptions in the financial markets may adversely impact the current availability of credit and the availability and cost of credit in the future. Accordingly, if we need to seek additional funding, we may be significantly reduced in our ability to attract public or private financings or financial partners or relationships as a source of additional capital. In addition, this additional funding, if needed, may not be available on terms attractive to us, if at all. Furthermore, any additional debt financing, if available, may involve restrictive covenants that could restrict our ability to raise additional capital or operate our business. Our failure to raise capital when needed could harm our competitive position, business, financial condition and results of operations.

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If we are not able to successfully recruit and retain qualified physicians and other healthcare providers to serve as our independent contractors or employees, our net revenues could be adversely affected.
Our affiliated provider groups provide facility-based services in virtually all types of settings. These include urban and suburban hospitals as well as rural and remote facilities. Our ability to recruit and retain affiliated physicians and qualified personnel for such settings can significantly affect our performance at such facilities. Certain of these locations present difficulties in recruiting providers due to limits on compensation, facility and equipment availability, reduced back-up by other specialists and personal and family lifestyle preferences. In addition, a number of our client hospitals increasingly demand a greater degree of specialized skills, training and experience in the physicians who staff their contracts. This decreases the number of physicians who are qualified to staff potential and existing contracts.
In general, recruiting physicians to staff contracts in regions of the country for economically disadvantaged hospitals is challenging. Occasionally, the recruiting of providers may not occur quickly enough to fill all openings with permanent staff. In these situations, clinical shifts are often filled temporarily by our existing clinicians from other areas of our company. If such assistance is not available for any reason, we utilize staffing from our locum tenens company to fill the staffing need until a permanent candidate is identified. Finally, if the aforementioned alternatives are unsuccessful, we contract with one of the many third-party locum tenens companies that exist to provide these services to healthcare facilities or companies such as ours. The use of temporary physicians to fill staff openings generally is more expensive than the use of permanent staff, which could have a negative impact on our operating results.
Our ability to attract and retain clinicians depends on several factors, including our ability to provide competitive benefits and wages. If we do not increase benefits and wages in response to increases by our competitors, we could face difficulties attracting and retaining qualified healthcare personnel. In addition, if we raise wages in response to our competitors' wage increases and are unable to pass such increases on to our clients, our margins could decline, which could adversely affect our business, financial condition and results of operations.
Additionally, our ability to recruit physicians is closely regulated. For example, the types, amount and duration of assistance we can provide to recruited physicians are limited by the Stark law, the Anti-Kickback Statute, state anti-kickback statutes, and related regulations. For example, the Stark law requires, among other things, that recruitment assistance can only be provided to physicians who meet certain geographic and practice requirements, that the amount of assistance cannot be changed during the term of the recruitment agreement, and that the recruitment payments cannot generally benefit physicians currently in practice in the community beyond recruitment costs actually incurred by them. In addition to these legal requirements, there is competition from other communities and facilities for these physicians, and this competition continues after the physician is practicing in one of our communities.
Our non-competition and non-solicitation contractual arrangements with some affiliated physicians and professional corporations may be successfully challenged in certain states as unenforceable, which could have a material adverse effect on us.
We have contracts with physicians in many states. State laws governing non-competition and non-solicitation agreements vary from state to state. Some states prohibit non-competition and non-solicitation contractual arrangements with physicians or are otherwise reluctant to strictly enforce such agreements. In such event, we would be unable to prevent former affiliated physicians and professional corporations from soliciting our contracts or otherwise competing with us, potentially resulting in the loss of some of our hospital contracts and other business which could adversely impact our business, financial condition and results of operations.
Restrictions on immigration may affect our ability to compete for and provide services to clients, which could adversely affect our ability to meet growth and revenue targets.
The ability of affiliated providers who are not U.S. citizens to work in the United States depends on the Company’s ability to obtain the necessary work visas and work permits. Existing and proposed limitations on, and eligibility restrictions for, these visas could have a significant impact on the Company’s ability to recruit providers. Further, in response to recent global political events, the level of scrutiny in granting visas has increased. New security procedures may delay the issuance of visas and affect the Company’s ability to hire providers in a timely manner.
The Company’s reliance on work visas for a number of its affiliated providers makes it particularly vulnerable to legislative changes and strict enforcement of new national security procedures, as it affects its ability to hire providers who are not U.S. citizens. If the Company is not able to obtain a sufficient number of visas for these affiliated providers or encounters delays or additional costs in obtaining or maintaining such visas, its ability to recruit and retain providers and meet its growth and revenue targets could be adversely affected.


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Some of the hospitals where our affiliated providers provide services may have their medical staff closed to non-contracted providers.
In general, our affiliated providers may only provide services in a hospital where they have certain credentials, called privileges, which are granted by the medical staff and controlled by legally binding medical staff bylaws of the hospital. The medical staff decides who will receive privileges, and the medical staff of the hospitals where we currently provide services or wish to provide services could decide that non-contracted hospitalists can no longer receive privileges to practice there. Such a decision would limit our ability to furnish services in a hospital, decrease the number of our affiliated providers who could provide services, or preclude us from entering new hospitals. In addition, hospitals may attempt to enter into exclusive contracts for hospitalist services, which would reduce access to certain populations of patients within the hospital.
The high level of competition in our industry could adversely affect our contract and revenue base.
The provision of outsourced physician staffing and administrative services to hospitals and clinics is characterized by a high degree of competition. Competition for outsourced physician and other healthcare staffing and administrative service contracts is based primarily on:
the ability to improve department productivity and patient satisfaction while reducing overall costs;
the breadth of staffing and management services offered;
the ability to recruit and retain qualified physicians, technicians and other healthcare providers;
billing and reimbursement expertise;
a reputation for compliance with state and federal regulations; and
financial stability, demonstrating an ability to pay providers in a timely manner and provide professional liability insurance.
Such competition could adversely affect our ability to obtain new contracts, retain existing contracts and increase our profit margins. We compete with national and regional healthcare services companies and physician groups. In addition, some of these entities may have greater access than we do to physicians and potential clients. All of these competitors provide healthcare services that are similar in scope to some, if not all, of the services we provide. Although we and our competitors operate on a national or regional basis, the majority of the targeted hospital community for our services engages local physician practice groups to provide services similar to the services we provide. We therefore also compete against local physician groups and self-operated hospital clinical departments for satisfying staffing and scheduling needs.This competition may have a material adverse effect on our business operations and financial position.
Further, our hospital medicine business is based on referrals for its services. We receive referrals from community medical providers, emergency departments, payors, and hospitals in the same manner as other medical professionals receive patient referrals. We do not provide compensation or other remuneration to referral sources for referring patients to us. A decrease in these referrals due to competition, concerns about the quality of our services, and other factors could result in a significant decrease in our revenues and adversely impact our financial condition.
The military has changed its approach toward providing most of its outsourced healthcare staffing needs through direct provider contracting on a competitive bid basis. As a result, competition for such outsourced military staffing contracts may be affected by such factors as:
the lowest bid price;
the ability to meet technical government bid specifications;
the ability to recruit and retain qualified healthcare providers; and
restrictions on the ability to competitively bid based on restrictive government bid lists or bid specifications designed to award government contracts to targeted business ownership forms, such as those determined to meet small business or minority ownership qualifications.
Our services and quality screening considerations may not result in the lowest competitive bid price and thus result in a failure to win contracts where the decision is based strictly or primarily on pricing considerations.
Our business depends on numerous complex information systems, some of which are licensed from third parties, and any failure to successfully maintain these systems or implement new systems or any disruptions in our information systems could materially harm our operations.
Our business depends on complex, integrated information systems and standardized procedures for operational, financial and billing operations. We may not be able to enhance existing information systems or implement new information systems where necessary. Additionally, we license certain of our information systems, and these licenses may be terminated, or may no longer be available at all or on terms that are acceptable to us. Furthermore, we may experience unanticipated delays,

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complications and expenses in implementing, integrating and operating our systems. In addition, our information systems may require modifications, improvements or replacements that may require substantial expenditures and may require interruptions in operations during periods of implementation. Implementation of these systems is further subject to the availability of information technology and skilled personnel to assist us in creating and implementing the systems. We also provide certain vendors (either within the U.S. or abroad) with limited access to portions of our complex information systems.
Any system failure that causes a disruption to, or impacts the availability of, our information systems could adversely affect our operations. Although our information systems are protected through a secure hosting facility and additional backup remote processing capabilities exist in the event our primary systems fail, our systems are vulnerable to computer viruses, break-ins, cyber attacks, disruptions caused by unauthorized tampering or outages caused by natural disasters. In the event our systems remain inaccessible for an extended period of time, our ability to maintain billing and clinical records reliably, bill for services efficiently, maintain our accounting and financial reporting accurately and otherwise conduct our operations would be impaired. Furthermore, our operations rely on the reliable and secure processing, storage and transmission of confidential and other information in our computer systems and networks. In the event we experience security breaches of our information systems, we could be subject to liabilities under privacy and security laws, suffer significant reputational harm and be subject to litigation by individuals whose information is breached. Although we believe we have robust information security procedures and other safeguards in place, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
 There are evolving standards in the healthcare industry relating to electronic medical records and e-prescribing. In 2006, both the OIG and CMS issued exceptions to the Stark law and safe harbors to the federal Anti-Kickback Statute for certain e-prescribing arrangements and established the conditions under which entities may donate to physicians (and certain other recipients under the safe harbor) interoperable electronic health records software, information technology and training services. Additionally, the rules permit hospitals and certain other entities to provide physicians (and certain other recipients under the safe harbor) with hardware, software, or information technology and training services necessary and used solely for electronic prescribing. Both rules are permissive, meaning that if requirements are met, they permit the offering or furnishing of free or discounted technology to referral sources. However, the government has signaled its interest in making certain universal e-prescribing and EHRs mandatory. The safe harbors and Stark law exceptions, originally set to expire on December 31, 2013, were extended through December 31, 2021 in two final rules published by the OIG and CMS on December 27, 2013.
The HITECH provisions of the ARRA require the government to adopt standards-based EHRs. Final regulations issued in July 2010 establish the technical capabilities required for certified EHRs, as well as “meaningful use” objectives that providers must meet to qualify for bonus payments under the Medicare Program. HHS has issued a series of regulations establishing standards, implementation specifications, certification criteria and reporting requirements that providers must meet to qualify for “meaningful use” bonus payments. CMS is also in the process of implementing a series of regulations designed to streamline health care administrative transactions, encourage greater use of standards by providers, and make existing standards work more effectively. We are devoting resources to facilitate connectivity to hospital systems or otherwise develop e-prescribing and electronic medical record capabilities. The failure to successfully implement and maintain operational, financial and billing information systems could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to protect our proprietary technology and services, which form the basis of our complex information systems, our competitive position could be adversely affected.
Our success depends in part on our ability to protect our proprietary technology and services. To do so, we rely upon a combination of trade secret, copyright, trade and service mark, and patent law, as well as confidentiality and other contractual restrictions. These legal means, however, afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Despite our efforts to protect our proprietary technology and services, unauthorized persons may be able to copy, reverse engineer or otherwise use some of our technology or services. It is also possible that others will develop and market similar or better technology or services to compete with us. For these reasons, we may have difficulty protecting our proprietary technology and services. Any of these events could have a material adverse effect on our competitive position. Furthermore, litigation may be necessary to protect our proprietary technology and services, which is often costly, time-consuming and a diversion of management's attention from our business.
Loss of key personnel and/or failure to attract and retain highly qualified personnel could make it more difficult for us to generate cash flow from operations and service our debt.
Our success depends to a significant extent on the continued services of our core senior management team. If one or more of our senior management team, including our President and CEO or Executive Chairman, were unable or unwilling to continue in his or her present position and we were unable to successfully find replacements for our core senior management

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with the same level of skill and experience, our business could be disrupted. Finding and hiring any such replacements could be costly and might require us to grant significant incentive compensation, which could adversely impact our financial results.
 We may be subject to criminal or civil sanctions if we fail to comply with privacy regulations regarding the use and disclosure of patient information.
Provisions of HIPAA and HITECH limit how covered entities, business associates and business associate sub-contractors may use and disclose individually identifiable protected health information (PHI) and the security measures that must be taken in connection with protecting that information and related systems. HIPAA also requires the adoption of national standards for electronic health care transactions and codes sets and unique health identifiers. These provisions have been implemented through a series of HIPAA administrative simplification regulations.
Transactions and code set regulations establish format and data content standards for eight of the most common healthcare transactions. When we perform billing and collection services on behalf of our customers, we may be engaging in one or more of these standard transactions and are required to conduct those transactions in compliance with the required standards. HIPAA privacy regulations restrict the use and disclosure of patient information, require entities to safeguard that information and to provide certain rights to individuals with respect to that information. HIPAA security regulations establish elaborate requirements for safeguarding patient health information transmitted or stored electronically.
The HIPAA privacy and security regulations require the development and implementation of detailed policies, procedures, contracts and forms to assure compliance. We have implemented such compliance measures, but we may be required to make additional costly system purchases and modifications to comply with evolving HIPAA rules and our failure to comply may result in liability and adversely affect our business.
HIPAA applies to covered entities, which include our affiliated provider groups, professional corporations and lay business corporations that employ physicians to furnish professional medical services, and most healthcare facilities and health plans that contract with us for our services. HIPAA also applies to “business associates” of covered entities, individuals and entities that provide services for or on behalf of covered entities. We enter into contracts as a business associate to our affiliated provider groups and to those other covered entities to which we provide services that involve our receipt of protected health information, and with vendors who perform services on our behalf. If we or any of our business associates experience a breach of patient information the expanded breach reporting requirements and the expanded liability for business associates required by HITECH could result in substantial financial liability and reputational harm.
HITECH and regulations promulgated under HITECH include additional requirements related to the privacy and security of patient health information. We face potential administrative, civil and criminal sanctions if we do not comply with the existing or new laws and regulations, as well as possible harm to our reputation. Imposition of these sanctions could have a material adverse effect on our operations.
Numerous other federal and state laws that protect the confidentiality, privacy, availability, integrity and security of patient information apply to us directly by law or indirectly through contractual obligations to our customers that are directly subject to the laws. These laws in many cases are more restrictive than, and not preempted by, the HIPAA rules and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our customers and potentially exposing us to additional expense, adverse publicity and liability. We may not remain in compliance with the diverse privacy requirements in all of the jurisdictions in which we do business.
Further, federal and state consumer laws are being applied increasingly by the FTC and state attorneys general to regulate the collection, use and disclosure of personal or patient health information, through web sites or otherwise, and to regulate the presentation of web site content. Courts may also adopt the standards for fair information practices promulgated by the FTC that concern consumer notice, choice, security and access.
New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying with standards could be significant. If we do not properly comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions. See “Business-Regulatory Matters.”
If we fail to comply with federal or state anti-kickback laws, we could be subject to criminal and civil penalties, loss of licenses and exclusion from Medicare, Medicaid and other federal and state healthcare programs, which could have a material adverse effect on our business, financial condition and results of operations.
Section 1128B(b) of the SSA commonly referred to as the “Anti-Kickback Statute”, prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or services payable by the Medicare and Medicaid programs or any other federally funded healthcare program. The Anti-Kickback Statute is very broad in scope, and many of its provisions have not been uniformly or definitively interpreted by courts or regulations.

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In the operation of our business, we pay various healthcare providers or other referral sources for items or services they provide to us, and healthcare providers or other referral sources pay us for items or services we provide to them. In addition, we have non-financial relationships with referral sources. All of our financial relationships with healthcare providers and other referral sources, and with referral recipients (such as service agreements, equipment leases and space leases) potentially implicate the Anti-Kickback Statute, and some of our non-financial relationships may implicate the Anti-Kickback Statute. In addition, most of the states in which we operate also have adopted laws similar to the Anti-Kickback Statute, although some of them are broader and apply regardless of the source of payment for the item or service provided.
Violations of the Anti-Kickback Statute and similar state laws may result in significant fines, imprisonment and exclusion from the Medicare, Medicaid and other federal or state healthcare programs. Such fines and exclusion could have a material adverse effect on our business, financial condition and results of operations. While we believe that our arrangements with healthcare providers and other referral sources and recipients fall within applicable safe harbors or otherwise do not violate the law, there can be no assurance that federal or state regulatory authorities will not challenge these arrangements under anti-kickback laws. See “Business-Regulatory Matters.”
 If the OIG, the Department of Justice or other federal regulators determine that certain of our management services arrangements with hospitals where we are compensated based upon a percentage of charges generated by the physician services rendered to patients at the hospital violate the Anti-Kickback Statute, we could be subject to criminal and civil penalties, loss of licenses and exclusion from Medicare, Medicaid and other federal and state healthcare programs, which could have a material adverse effect on our business, financial condition and results of operations.
In the operation of our business, we provide outsourced physician staffing and administrative services to hospitals and other healthcare providers through contractual arrangements with physicians and hospitals. In some instances, we may enter into contractual arrangements that provide that, as compensation for staffing a hospital department, we will receive a percentage of charges generated by the physician services rendered to patients seeking treatment in the department.
In 1998, the OIG issued an advisory opinion in which it concluded that a proposed management services contract between a medical practice management company and a physician practice, which provided that the management company would be reimbursed for the fair market value of its operating services and its costs and paid a percentage of net practice revenues, may constitute illegal remuneration under the Anti-Kickback Statute. The OIG's analysis focused on the marketing activities conducted by the management company and concluded that the management services arrangement described in the advisory opinion included financial incentives to increase patient referrals, contained no safeguards against overutilization and included financial incentives that increased the risk of abusive billing practices.
While we believe that the nature of our business and our contractual relationships with hospitals and physicians are distinguishable from the arrangement described in this advisory opinion with regard to both the types of services provided and the risk factors identified by the OIG, regulatory authorities may challenge these arrangements under the Anti-Kickback Statute. Violations of the Anti-Kickback Statute may result in significant fines, imprisonment and exclusion from the Medicare, Medicaid and other federal or state healthcare programs. Such fines and exclusion could have a material adverse effect on our business, financial condition and results of operations. See "Business-Regulatory Matters."
If we fail to comply with federal and state physician self-referral laws and regulations as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur a significant loss of reimbursement revenue and be subject to significant monetary penalties, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to federal and state laws and regulations that limit the circumstances under which physicians who have a financial relationship with entities that furnish certain specified healthcare services may refer to such entities for the provision of such services, including inpatient and outpatient hospital services, clinical laboratory services, home health services, occupational and physical therapy services, radiology and other imaging services and certain other diagnostic services. These physician self-referral laws and regulations also prohibit such entities from billing for services provided in violation of the laws and regulations.
We have financial relationships with physicians and hospitals in the form of compensation arrangements for services rendered. In addition, we have financial relationships with physicians to the extent they own an equity interest in us. While we believe our compensation arrangements with physicians and hospitals are in material compliance with applicable laws and regulations, government authorities might take a contrary position or prohibited referrals may occur. Further, because we cannot be certain that we will have knowledge of all physicians who may hold an indirect ownership interest, referrals from any such physicians may cause us to violate these laws and regulations.
Violation of these laws and regulations may result in the prohibition of payment for services rendered, significant fines and penalties, and exclusion from Medicare, Medicaid and other federal and state healthcare programs, any of which could

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have a material adverse effect on our business, financial condition and results of operations. In addition, expansion of our operations to new jurisdictions, new interpretations of laws in our existing jurisdictions or new physician self-referral laws could require structural and organizational modifications of our relationships with physicians to comply with those jurisdictions' laws. Such structural and organizational modifications could result in lower profitability and failure to achieve our growth objectives. See “Business-Regulatory Matters.”
We could experience a loss of contracts with physicians or be required to sever relationships with our affiliated provider groups in order to comply with antitrust laws.
Our contracts with physicians include contracts with physicians organized as separate legal professional entities (e.g., professional medical corporations) and as individuals. As such, the antitrust laws deem each such physician/practice to be separate, both from us and from each other and, accordingly, each such physician/ practice is subject to a wide range of laws that prohibit anti-competitive conduct among separate legal entities or individuals. A review or action by regulatory authorities or the courts that is negative in nature as to the relationship between us and the physicians/practices with which we contract, could force us to terminate our contractual relationships with physicians and affiliated professional corporations. Since we derive a significant portion of our revenues from these relationships, our revenues could substantially decrease. Moreover, if any review or action by regulatory authorities required us to modify our structure and organization to comply with such action or review, our debt covenants may not permit such modifications, thereby requiring us to obtain the consent of the holders of such indebtedness or requiring the refinancing of such indebtedness.
If changes in laws or regulations affect our operations, including our arrangements with physicians, professional corporations, hospitals and other facilities, and third party payors, we may incur additional costs, lose contracts and suffer a reduction in revenue under existing contracts and we may need to refinance our debt or obtain debt holder consent.
Legislators have introduced and may introduce in the future numerous proposals in the U.S. Congress and state legislatures relating to various healthcare issues. We do not know the ultimate content, timing or effect of any healthcare legislation, nor is it possible at this time to estimate the impact of potential legislation. Further, although we exercise care in structuring our arrangements with physicians, professional corporations, hospitals and other facilities to comply in all significant respects with applicable law: (1) government officials charged with responsibility for enforcing those laws may assert that we, or arrangements into which we have entered, violate those laws or (2) governmental entities or courts may not ultimately interpret those laws in a manner consistent with our interpretation.
In addition to the regulations referred to above, aspects of our operations are also subject to state and federal statutes and regulations governing workplace health and safety and, to a small extent, the disposal of medical waste.
Changes in ethical guidelines and operating standards of professional and trade associations and private accreditation commissions such as the American Medical Association and The Joint Commission may also affect our operations.
Accordingly, changes in existing laws and regulations, adverse judicial or administrative interpretations of these laws and regulations or enactment of new legislation could adversely affect our operations. If restructuring our relationships becomes necessary, this could cause our operating costs to increase significantly. A restructuring could also result in a loss of contracts or a reduction in revenues under existing contracts. Moreover, if these laws require us to modify our structure and organization to comply with these laws, our financing agreements may prohibit such modifications and require us to obtain the consent of the holders of such indebtedness or require the refinancing of such indebtedness.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition, our ability to operate our business, react to changes in the economy or our industry, pay our debts and could divert our cash flow from operations for debt payments.
We have a significant amount of indebtedness. As of December 31, 2015, our total aggregate indebtedness was $2.46 billion, excluding $53.2 million of deferred financing costs, and $628.0 million of availability under our senior secured revolving credit facility (without giving effect to $6.4 million of undrawn letters of credit which reduces availability). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this Form 10-K. A 0.25% increase in the expected rate of interest under our senior secured credit facilities would increase our annual interest expense by approximately $2.9 million.
Our substantial debt could have important consequences, including the following:
it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt and the notes;
our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;

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requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities and other purposes;
we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;
our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and the restrictive covenants in our credit agreement;
our ability to borrow additional funds or to refinance debt may be limited; and
it may cause potential or existing customers or physicians to not contract with us due to concerns over our ability to meet our financial obligations, such as the payment of physicians or insuring against our professional liability risks, under such contracts.
Furthermore, all of our debt under our senior secured credit facilities bears interest at variable rates. We are subject to an increase in rates under our Term A loan and revolving credit facility in the event our leverage ratio increases. If these rates were to increase significantly, the risks related to our substantial debt would intensify.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our credit agreement and the indenture governing our notes contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. If we incur additional debt above the levels currently in effect, the risks associated with our leverage, including those described above, would increase. The senior secured revolving credit facility provides aggregate availability of up to $650.0 million, of which $22.0 million was drawn (excluding $6.4 million in undrawn outstanding letters of credit which reduces availability) as of December 31, 2015. We also have the option to exercise our incremental facility for an amount up to the greater of (x) $350 million ($165 million of which was drawn on the effective date of the Company's amended and restated credit agreement under an incremental tranche B term loan facility) and (y) an amount such that, after giving pro forma effect to the increase, the first lien leverage ratio does not exceed 3.75:1.00, subject to the consent of lenders and the satisfaction of certain conditions, as of December 31, 2015.
Servicing our debt will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.
Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors and reimbursement actions of governmental and commercial payors, all of which are beyond our control. Lower net revenues before provision for uncollectibles, or higher provision for uncollectibles, generally will reduce our cash flow.
If we are unable to generate sufficient cash flow to service our debt, including the notes, and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting any of these alternatives.
Restrictive covenants in our senior secured credit facilities and the indenture governing our notes may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.
The operating and financial restrictions and covenants in our senior secured credit facilities and the indenture governing the notes may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. The senior secured credit facilities limit our ability, among other things, to:
incur additional debt or issue certain preferred shares;
pay dividends on or make distributions in respect of our common stock or make other restricted payments;
make certain investments;
sell certain assets;
create liens on certain assets;

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consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and
designate our subsidiaries as unrestricted subsidiaries.
In addition, the senior secured credit facilities require us to maintain certain financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may not be able to meet those ratios and tests. A breach of any of these covenants could result in a default under the senior secured credit facilities. Upon the occurrence of an event of default under the senior secured credit agreement, the lenders could elect to declare all amounts outstanding under the senior secured credit agreement to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the senior secured credit agreement could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under the senior secured credit agreement. Our future operating results may not be sufficient to enable compliance with the covenants in the senior secured credit agreement, the indenture governing the notes or any other indebtedness and we may not have sufficient assets to repay the senior secured credit agreement as well as our unsecured indebtedness, including the notes. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments, including those under the notes.
 
A decline in our operating results or available cash could cause us to experience difficulties in complying with covenants contained in more than one agreement, which could result in our bankruptcy or liquidation.
If we were to sustain a decline in our operating results or available cash, we could experience difficulties in complying with the financial covenants contained in the senior secured credit agreement. The failure to comply with such covenants could result in an event of default under the senior secured credit agreement and by reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. In addition, should an event of default occur, the lenders under our senior secured credit agreement could elect to terminate their commitments thereunder, cease making loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our senior secured credit agreement to avoid being in default. If we breach our covenants under our senior secured credit agreement and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our senior secured credit agreement, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
Risks Related to Our Common Stock
Future sales of our common stock or the possibility or perception of such future sales may depress our stock price.
The market price of our common stock may be volatile, which could cause the value of our common stock to decline. The market price of our common stock may be volatile due to a number of factors such as those listed under the caption “Risks Related to Our Business” above and the following, some of which are beyond our control:
quarterly variations in our results of operations;
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
announcements by third parties of significant claims or proceedings against us;
future sales of our common stock; and
general U.S. and global economic conditions.
Furthermore, the stock market over the last five years has experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of our senior management team from our business regardless of the outcome of such litigation.
Anti-takeover provisions in our certificate of incorporation, by-laws and Delaware law could delay or prevent a change in control.

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Our certificate of incorporation and by-laws may delay or prevent a merger or acquisition that a stockholder may consider favorable by, among other things, establishing a classified board of directors, permitting our board of directors to issue one or more series of preferred stock, requiring advance notice for stockholder proposals and nominations and placing limitations on convening stockholder meetings. Our certificate of incorporation also includes certain provisions (similar to the provisions of the Delaware General Corporation Law), that restrict certain business combinations with interested stockholders. These provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price.
We do not intend to pay cash dividends in the foreseeable future.
We do not intend to pay cash dividends on our common stock. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our ability to pay dividends on our common stock is currently limited by the covenants of our senior secured credit facilities and may be further restricted by the terms of any future debt or preferred securities. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.


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Item 1B.
Unresolved Staff Comments
Not Applicable.
 
Item 2.
Properties
As of December 31, 2015, we leased approximately 95,000 square feet at 265 Brookview Centre Way, Knoxville, Tennessee for our corporate headquarters. We also lease or sublease other facilities for our corporate functions as well as for the operations of our clinics, billing centers and certain regional operations. We believe our present facilities are substantially adequate to meet our current and projected needs. The leases and subleases have various terms primarily ranging from one to fifteen years and monthly rents ranging from approximately $1,000 to $175,000. Our monthly lease payments total approximately $2.0 million. We expect to be able to renew each of our leases or to lease comparable facilities on terms commercially acceptable to us.
 
Item 3.
Legal Proceedings
We are currently a party to various legal proceedings arising in the ordinary course of business. The legal proceedings we are involved in from time to time include lawsuits, claims, audits and investigations, including those arising out of services provided, personal injury claims, professional liability claims, our billing, collection and marketing practices, employment disputes and contractual claims, and seek monetary and other relief, including statutory damages and penalties. While we currently believe that the ultimate outcome of such proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our net earnings in the period in which the ruling occurs. The estimate of the potential impact from such legal proceedings on our financial position or overall results of operations could change in the future.
On August 14, 2015, prior to the closing of the IPC Transaction, a purported shareholder of IPC filed a complaint in the Delaware Court of Chancery captioned Smukler v. IPC Healthcare, Inc., et al. (Case No. 11392-CB), on behalf of a purported class of  IPC shareholders. The lawsuit names as defendants IPC, each of its directors at the time the merger with the Company was announced (the Individual Defendants), the Company, and Intrepid Merger Sub, Inc. (Sub). The August 14, 2015 complaint alleged that the Individual Defendants breached their fiduciary duties by, among other things, failing to take appropriate steps to maximize the value of IPC to its shareholders, failing to value IPC properly, and taking steps to avoid competitive bidding by alternate potential acquirers. The complaint also alleged that IPC, the Company, and Sub aided and abetted those alleged breaches of fiduciary duties by the Individual Defendants. The complaint sought, among other things, certification of the action as a class action; injunctive relief enjoining the merger; an accounting of all damages purportedly suffered by the plaintiff and the class (including rescissory damages in favor of the plaintiff and the class); and the fees and costs associated with the litigation. On August 18, 2015, an additional lawsuit was filed in the Delaware Court of Chancery, asserting similar claims and allegations to those in the Smukler lawsuit and seeking similar relief on behalf of the same putative class. Crescente v. Singer, et al. (Case No. 11405-CB).
Additionally, on August 19, 2015, prior to the closing of the IPC Transaction, a lawsuit was filed in the Superior Court for the State of California in Los Angeles County. Khemthong v. IPC Healthcare Networks, Inc., et al. (No. BC 591953). The lawsuit asserted similar claims and allegations to those in the Smukler lawsuit and sought similar relief on behalf of the same putative class. On August 27, 2015, the plaintiff filed a request for voluntary dismissal of the suit without prejudice, and on August 28, 2015, the court entered an order granting that request.
 Pursuant to a September 11, 2015 order from the Delaware Court of Chancery (the Consolidation Order), the Smukler and Crescente actions were consolidated, and all further litigation relating to or arising out of the Company’s merger with IPC were directed to be consolidated with such actions under the caption In re IPC Healthcare, Inc. Stockholders Litigation (Case No. 11392-CB) (the Consolidated Action).  On September 17, 2015, an action captioned Spencer v. IPC Healthcare, Inc. (Case. No. 11516-CB) was filed in the Delaware Court of Chancery. Under the Consolidation Order, such action is required to be consolidated with the previously-filed actions. On September 18, 2015, a verified consolidated class action complaint was filed in the Consolidated Action (the Consolidated Complaint).  The Consolidated Complaint alleges substantially the same breaches of fiduciary duty as the August 14, 2015 complaint in the Smukler action, and additionally alleges that the Individual Defendants breached their duty of disclosure by failing to disclose to IPC shareholders all material information necessary for them to evaluate the merger. On October 2, 2015, the defendants in the Consolidated Action moved to dismiss the Consolidated Complaint.


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On November 6, 2015, we and the other defendants in the Consolidated Action entered into a Memorandum of Understanding with the plaintiffs in the Consolidated Action providing for the settlement and the release of all claims that were or could have been brought against us and the other defendants in the Consolidated Action based upon a duty arising under Delaware law to disclose or not omit material information in connection with the IPC Transaction, upon entry of a final order by the Delaware Court of Chancery approving the settlement. The Memorandum of Understanding contemplates that, subject to completion of certain confirmatory discovery by counsel to the plaintiffs, the parties will enter into a stipulation of settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve the settlement even if the parties enter into such a stipulation. If the Delaware Court of Chancery does not approve the settlement, such proposed settlement, as contemplated by the Memorandum of Understanding, may be terminated.
It is not possible to predict when the above matter may be resolved, the time or resources that we will need to devote to the matter, or what impact, if any, the outcome of the matter might have on our business, consolidated financial position, results of operations, or cash flows.
Government Claim
On June 7, 2010, our subsidiary, IPC, received a civil investigative demand (CID) issued by the DOJ, U.S. Attorney’s Office for the Northern District of Illinois. The CID requested information concerning claims that IPC had submitted to Medicare and Medicaid. The CID covered the period from January 1, 2003, through June 4, 2010, and requested production of a range of documents relating to IPC’s Medicare and Medicaid participation, physician arrangements, operations, billings and compliance programs. IPC produced responsive documents and was in contact with representatives of the DOJ who informed IPC that the inquiry related to a qui tam whistleblower action filed under court seal in the U.S. District Court for the Northern District of Illinois (Chicago). The case is captioned United States ex rel. Oughatiyan v. IPC The Hospitalist Company, Inc. (Civ. No. 09-C-5418). IPC also was informed that several state attorneys general were examining its Medicaid claims in coordination with the DOJ.
On December 5, 2013, the U.S. District Court partially lifted the seal on the civil False Claims Act case related to this investigation. The unsealed portions of the Court docket at that time included the whistleblower’s Complaint which contains allegations of improper billing to Medicare and Medicaid, a Notice of Election to Intervene filed by the federal government and a Notice of Election to Decline Intervention filed by the State of Illinois and 12 other states that participated in the investigation. On June 16, 2014, the federal government filed its Complaint in Intervention against IPC and several of its subsidiaries in the U.S. District Court. The Complaint in Intervention contains allegations of improper billing to Medicare, Medicaid and other federal healthcare programs from January 1, 2003 to the present, seeks to recover treble damages and civil penalties under the civil False Claims Act, and seeks to recover damages under common law theories of payment by mistake and unjust enrichment. On August 13, 2014, our subsidiary, IPC and the IPC subsidiary defendants filed a joint motion to dismiss the Complaint in Intervention or, in the alternative, to sever claims against the defendants. The federal government filed its response on September 18, 2014, to which the defendants replied on September 25, 2014. The court’s decision, which was filed on February 17, 2015, granted the motion to dismiss in part and denied it in part. The Court’s Opinion and Order dismissed the 29 IPC subsidiary and affiliate defendants without prejudice, but the Court denied the request to dismiss IPC Healthcare, Inc., which remains the sole defendant in the lawsuit. The parties are engaged in discovery. The parties are engaged in negotiations to attempt to resolve the matter, but if a reasonable settlement cannot be reached, IPC intends to continue vigorously contesting the case.
Shareholder Derivative Lawsuit
Although the underlying government lawsuit was still in an early stage and no liability had been found by a court, on October 20 and 24, 2014, shareholder derivative lawsuits were filed in the Court of Chancery of the State of Delaware against certain of our subsidiary, IPC’s, current and former directors and officers. IPC was named as a nominal defendant in both suits. The actions both asserted alleged breaches of fiduciary duty related to IPC’s billing practices, and incorporated allegations from the False Claims Act case. The lawsuits sought a variety of relief, including monetary damages and injunctive relief. On December 4, 2014, the derivative lawsuits were consolidated into one action. On January 22, 2016 (i.e., after the November 23, 2015 closing of the IPC Acquisition), the plaintiffs moved to voluntarily dismiss the action. The Court of Chancery granted Plaintiffs’ motion on January 25, 2016.
Florida Medicaid Reimbursement Suspension
Our subsidiary, IPC, received notice on August 7, 2015 that the Florida Agency for Health Care Administration (AHCA) temporarily suspended Medicaid fee-for-service and Medicaid managed care payments to IPC’s Florida affiliate, InPatient Consultants of Florida, Inc. d/b/a IPC of Florida, because IPC of Florida is “under investigation by a state or federal agency.” Since receiving this notice, and based on its failure to contain the required specificity under the applicable federal regulation, IPC has sought additional information from AHCA regarding the basis of the payment suspension, including through repeated

43


discussions with the responsible AHCA officials; by submitting a request for documents through the Florida Public Records Law (PRL) on August 27, 2015; and by filing a petition for formal administrative review on September 4, 2015.
Following these actions, IPC received a revised letter on September 9, 2015 in which AHCA clarified that the investigation causing the payment suspension concerns IPC of Florida’s alleged “up-coding” and “billing for the highest level of inpatient hospital care, which may not be medically necessary.” Since receipt of this revised notice, which still failed to contain the required specificity, IPC has continued to engage with AHCA to obtain information that would enable IPC to rebut the basis for the payment suspension. These efforts have included submitting a second PRL request on September 18, 2015 and submitting a letter to AHCA providing information to support a determination by AHCA that it has “good cause” to discontinue the payment suspension, consistent with the applicable federal regulation. On October 23, 2015, IPC received an order dismissing IPC’s petition for formal administrative review on the grounds that there is no final agency action and because the suspension is a contract action not appropriate for an administrative hearing. IPC is continuing discussions with AHCA officials in an effort to resolve this matter.
It is not possible to predict when any of the above matters may be resolved, the time or resources that we will need to devote to the matters, or what impact, if any, the outcome of any of the matters might have on our business, consolidated financial position, results of operations, or cash flows.
 
Item 4.
Mine Safety Disclosures
Not Applicable.
 

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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock is traded on the NYSE under the symbol “TMH.” As of February 18, 2016, there were 186 holders of record of our common stock. This does not include persons who hold our common stock in nominee or “street name” accounts through brokers or banks.
The following table sets forth the high and low sales prices per share of our common stock as reported on the NYSE during the years ended December 31, 2014 and 2015:
 
 
High
 
Low
Year ended December 31, 2014:
 
 
 
First quarter
$
48.07

 
$
41.37

Second quarter
$
52.18

 
$
43.18

Third quarter
$
60.94

 
$
48.80

Fourth quarter
$
63.13

 
$
52.36

Year ended December 31, 2015:
 
 
 
First quarter
$
61.85

 
$
50.83

Second quarter
$
67.79

 
$
56.98

Third quarter
$
70.21

 
$
52.78

Fourth quarter
$
63.56

 
$
43.15

Dividend Policy
We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our ability to pay dividends on our common stock is currently limited by the covenants of our senior secured credit facilities and may be further restricted by the terms of any future debt or preferred securities. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends.
Sales of Unregistered Equity Securities
There were no unregistered sales of equity securities during the quarter ended December 31, 2015.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended December 31, 2015.
 
Item 6.
Selected Financial Data
The following table sets forth our selected historical financial data as of the dates and for the periods indicated. The selected historical financial data as of December 31, 2014 and 2015 and for each of the three years in the period ended December 31, 2015 have been derived from our audited consolidated financial statements included elsewhere in this Form 10-K. We derived the selected historical financial data as of December 31, 2011, 2012 and 2013 and for the years ended December 31, 2011 and 2012 from our audited consolidated financial statements that are not included in this Form 10-K.
You should read the data presented below together with, and qualified by reference to, our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included elsewhere in this Form 10-K.
 

45


 
Year Ended December 31,
 
2011

2012

2013

2014

2015
 
(Dollars in thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Net revenues
$
1,745,328

 
$
2,069,023

 
$
2,383,595

 
$
2,819,643

 
$
3,597,247

Cost of services rendered (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
 
 
Professional service expenses
1,348,255

 
1,611,884

 
1,867,817

 
2,179,837

 
2,836,474

Professional liability costs
65,982

 
71,556

 
74,185

 
97,609

 
107,505

General and administrative expenses (includes contingent purchase and other acquisition compensation expense of $13,575, $36,850, $23,962, $30,637 and $17,293 for the years ended December 31, 2011, 2012, 2013, 2014 and 2015, respectively)
169,147

 
220,799

 
228,911

 
281,054

 
308,193

Other (income) expenses, net
242

 
(4,757
)
 
(4,536
)
 
(4,588
)
 
(1,935
)
Depreciation
12,208

 
14,495

 
17,070

 
20,886

 
24,581

Amortization
17,756

 
29,765

 
37,550

 
55,647

 
83,581

Interest expense, net
12,782

 
16,339

 
14,910

 
15,050

 
30,986

Loss on extinguishment and refinancing of debt
6,022

 
194

 

 
3,648

 

Transaction costs
4,149

 
4,368

 
3,809

 
7,179

 
58,301

Earnings before income taxes
108,785

 
104,380

 
143,879

 
163,321

 
149,561

Provision for income taxes
43,264

 
40,571

 
56,313

 
65,232

 
66,786

Net earnings
65,521

 
63,809

 
87,566

 
98,089

 
82,775

Net earnings attributable to noncontrolling interest

 
37

 
157

 
351

 
64

Net earnings attributable to Team Health Holdings, Inc.
$
65,521

 
$
63,772

 
$
87,409

 
$
97,738

 
$
82,711

Per Share Data:
 
 
 
 
 
 
 
 
 
Basic net earnings per share
$
1.01

 
$
0.96

 
$
1.27

 
$
1.39

 
$
1.15

Weighted average basic shares outstanding (in thousands)
65,041

 
66,371

 
68,988

 
70,400

 
72,086

Diluted net earnings per share
$
0.98

 
$
0.93

 
$
1.24

 
$
1.35

 
$
1.12

Weighted average diluted shares outstanding (in thousands)
66,580

 
68,277

 
70,624

 
72,164

 
73,807

Cash Flows and Other Financial Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
96,828

 
$
71,558

 
$
154,409

 
$
198,663

 
$
145,824

Net cash used in investing activities
(141,410
)
 
(171,948
)
 
(194,089
)
 
(543,017
)
 
(1,636,780
)
Net cash provided by financing activities
24,100

 
131,775

 
30,771

 
332,117

 
1,499,425

Capital expenditures(a) 
11,977

 
22,005

 
21,378

 
24,576

 
40,690

 
As of December 31,
 
2011
 
2012
 
2013
 
2014
 
2015
 
(in thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,855

 
$
41,240

 
$
32,331

 
$
20,094

 
$
28,563

Working capital (deficit)(b) 
(1,430
)
 
80,332

 
64,258

 
(143,054
)
 
169,245

Total assets
925,029

 
1,201,716

 
1,355,553

 
1,967,802

 
4,060,842

Total debt(c)
414,785

 
511,540

 
495,706

 
798,330

 
2,406,263

Total shareholders' equity including noncontrolling interests
19,377

 
126,057

 
268,481

 
422,636

 
646,688

(a)
Reflects expenditures for property and equipment used in our business.
(b)
Working capital means current assets minus current liabilities.
(c)
Includes current portion of long-term debt. See Note 10 to the consolidated financial statements included elsewhere in the Form 10-K for a discussion of long-term debt.


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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
We believe we are one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States, based upon revenues and patient visits. Our regional operating models also include comprehensive programs for inpatient care, pediatrics and other healthcare services, principally within hospital departments, post-acute settings and other healthcare treatment facilities. We have focused, however, primarily on providing outsourced services to hospital EDs, which accounts for the majority of our net revenues.
Factors and Trends that Affect Our Results of Operations
In reading our financial statements, you should be aware of the following factors and trends that we believe are important in understanding our financial performance.
IPC Healthcare Acquisition
On November 23, 2015, we completed the acquisition of IPC, a national acute hospital medicine and post-acute provider organization. Pursuant to the terms of the agreement each share of IPC common stock issued and outstanding as of the date of the transaction were converted into the right to receive $80.25 per share in cash resulting in total net cash consideration paid of $1.41 billion. We also assumed $148.2 million of existing IPC debt which was paid simultaneously with the closing of the transaction. In addition to the cash consideration we replaced all of IPC's outstanding share-based payment awards (IPC Replacement Awards) as of the date of the completed transaction with equivalent Company share-based equity awards.
In connection with the transaction, we entered into an amended and restated credit agreement consisting of the existing credit facilities, a new tranche B term loan facility in an aggregate principal amount of $1.15 billion and an incremental tranche B term loan facility in an aggregate principal amount of $165.0 million and issued $545.0 million aggregate principal amount of 7.25% Senior Notes due 2023 (Notes) pursuant to a private placement transaction conducted under Rule 144A and Regulation S of the Securities Act of 1933, as amended.
The exchange of IPC's outstanding share-based payment awards was based on a conversion ratio, as defined in the agreement, that maintained the same relative fair value before and after the exchange. We issued approximately 578,000 of restricted stock unit awards and 1,393,000 stock option awards to IPC share-based award holders.
General Economic Conditions
Any lingering effects of the recent economic conditions may adversely impact our ability to collect for the services we provide as higher unemployment and reductions in commercial managed care and governmental healthcare enrollment may also increase the number of uninsured and underinsured patients seeking healthcare at one of our staffed EDs or other clinical facilities. We could be negatively affected if the federal government or the states reduce funding of Medicare, Medicaid and other federal and state healthcare programs in response to increasing deficits in their budgets. Also, patient volume trends in our staffed hospital clinical departments could be adversely affected as individuals potentially defer or forgo seeking care in such departments due to the loss or reduction of coverage previously available to such individuals under commercial insurance or governmental healthcare programs.
Healthcare Reform
In 2010, the President of the United States and the U.S. Congress enacted significant reforms to the U.S. healthcare system. These reforms, contained primarily in the Patient Protection and Affordable Care Act, Pub.L. 111-148 (PPACA) and its companion act, the Health Care Education and Reconciliation Act, Pub.L. 111-152, (HCERA), (collectively, the Healthcare Reform Laws,) have significantly altered the U.S. healthcare system by establishing, among many other things, (i) increased access to health insurance benefits for the uninsured and underinsured populations, (ii) new facilitators and providers of health insurance as well as new health insurance purchasing access points (i.e., exchanges); (iii) incentives for certain employer groups to purchase health insurance for their employees; (iv) opportunities for subsidies to certain qualifying individuals to help defray the cost of premiums and other out-of-pocket costs associated with the purchase of health insurance; and over the longer term, (v) mechanisms to foster alternative payment and reimbursement methodologies focused on outcomes, quality and care coordination.
Since its passage in 2010, the Health Care Reform Laws have faced several challenges. Notably, in June 2012, the U.S. Supreme Court upheld the constitutionality of the requirement in the PPACA that individuals maintain health insurance or be required by law to pay a penalty (known as the individual mandate). In that ruling, the individual mandate was upheld by the U.S. Supreme Court under Congress's taxing power. Additionally, the U.S. Supreme Court held in the same ruling that states were not obligated to expand their Medicaid programs as stipulated in the PPACA to eligible recipients based solely on income.

47


 Consequently, the ruling held that each state retained the option to expand their Medicaid roles or not. States that choose not to expand their Medicaid roles will forego a 100% federal matching fund made available to states through 2020 and 90% thereafter for the expanded Medicaid population, but those states that do not expand will not lose their existing federal Medicaid matching payments. Currently, 32 states (including the District of Columbia) have implemented or announced their intention to expand their Medicaid programs for individuals with incomes at or less than 138% of the Federal Poverty Limit (FPL), 3 states are considering expansion and remain in discussions with the federal Department of Health & Human Services (HHS), and 16 states have elected not to expand. In addition, in June 2015, the U.S. Supreme Court upheld the provision of tax credits and federal subsidies available to individuals who purchase health insurance through a federally-facilitated exchange, irrespective of whether the exchange is run by the state or the federal government.
The Healthcare Reform Laws triggered numerous other changes to the U.S. healthcare system, some of which have already gone into effect, such as the individual mandate which went into effect on January 1, 2014, while others have been delayed until 2016 and beyond. For instance, the requirement that mid-size employers (defined as groups between 50 and 99 employees) and large size employers (defined as 100 or more employees) provide health insurance to their employees or pay an employee fine, per employee (the employer mandate) has been delayed several times and is now not scheduled to be fully implemented until 2016. Additionally, in December 2015, Congress, as part of the Consolidated Appropriations Act for 2016, (i) suspended the health insurance industry fee (the health insurance tax) which applies to employer purchased insured plans, not self-insured plans, for one year, 2017; (ii) defunded the Independent Payment Advisory Board (IPAB), which is a 15-member panel of health care experts created by the PPACA and tasked with making annual cost-cutting recommendations for Medicare if Medicare spending exceeds a specified growth rate, for one year, 2016; (iii) eliminated the Medical Device Excise Tax (Medical Device Tax), which imposed a 2.3% tax on manufacturers of certain medical devices, for two years, 2016 and 2017; and (iv) delayed the implementation of the “Cadillac Tax”, which imposed an excise tax of 40% on premiums for individuals and families that exceeded a certain minimum threshold of $10,200 for individuals and $27,500 for families until 2020.
Most recently, in January 2016, and for the first time since the inception of the Healthcare Reform Laws, Congress sent a bill to the President of the United States, repealing, in full, the Healthcare Reform Laws. President Obama vetoed this bill and it is unlikely that Congress will have sufficient votes to override the President’s veto, but notwithstanding, further challenges to the Healthcare Reform Laws are expected which could impact further implementation of these laws, or the law itself. Consequently, the outcome of the upcoming 2016 presidential elections will likely be determinative on the long-term future of the Health Care Reform Laws.
Changes in Payor Mix
Since implementation of the Health Care Reform Laws, many of the patients presenting to the Company’s affiliated health care professionals have experienced increased access to health benefits either through the expansion of state Medicaid programs or through access to exchange enrollment opportunities. Since 2014, the Company has realized a decline in the percentage of self-pay visits for our consolidated fee for service volume and an increase in the percentage of Medicaid visits which we believe is attributable to healthcare reform. Other provisions, however, such as Medicare payment reforms and reductions that could potentially reduce provider payments, may have an adverse effect on the reimbursement rates we receive for services provided by affiliated healthcare professionals.
Medicare and Medicaid Payments for Physician Services
CMS reimburses for our services to Medicare beneficiaries based upon the rates in the MPFS, which were updated each year based on the SGR formula enacted under the Balanced Budget Act of 1997. Many private payors use the MPFS to determine their own reimbursement rates. The application of the SGR formula to the MPFS yielded negative updates every year beginning in 2002, although CMS was able to take administrative steps to avoid a reduction in 2003 and Congress took a series of legislative actions to prevent reductions each year from 2004 through March 31, 2015.
On April 14, 2015, Congress enacted legislation known as the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that permanently repealed the SGR formula, replacing it with a formula that calls for annual updates of 0.5% for a 5-year period (starting July 1, 2015 through the end of 2019). Starting in 2020, and through the end of 2025, there will be no annual updates to the payment rates but physicians will have the opportunity to receive additional payment adjustments through the MIPS. MIPS is an incentive-based payment program that rewards quality performance related to four assessment categories: quality of care measures, resource use, meaningful use of EHRs, and clinical practice improvement activities. Physicians will receive a positive or negative payment adjustment based on how their composite performance score for each of the four assessment categories compared to the relevant performance threshold. Negative payment adjustments are capped at 4% in 2019, increasing each year, up to 9% in 2022. Positive payment adjustments can reach up to a maximum of three times the annual cap for negative payment adjustments in a particular year. Additional incentive payments will be available for “exceptional performers”. Alternatively, physicians who receive a significant share of their revenue through participation in

48


APMs that involve risk of financial losses and a quality measurement component will receive a 5% bonus each year from 2019 through 2024. These physicians are excluded from participation in the MIPS. In 2026 and subsequent years, annual updates will differ based on whether a physician is participating in an APM that meets certain criteria. Physicians participating in qualifying APMs will receive a 0.75% update, and all other physicians will receive a 0.25% update. APMs include models being tested by the Center for Medicare and Medicaid Innovation (other than health care innovation awards), the Medicare Shared Savings Program, under the Health Care Quality Demonstration Program, and other demonstrations required by Federal law. In addition to these changes to the Medicare physician payment system, the law also extends funding for CHIP. The CHIP program, which covers more than 8 million children and pregnant women in families that earn income above Medicaid eligibility levels, is currently authorized through 2019. Funding for the program has been extended for two years, through fiscal year 2017.
2016 Medicare Physician Fee Schedule (2016 MPFS)
In November 2015, CMS released the final rule to update the 2016 MPFS. This is the first final regulatory update to the MPFS since the SGR formula was repealed in April 2015. The 2016 MPFS final rule resulted in a blended adjustment, impacted not just by MACRA, but also by the Protecting Access to Medicare Act of 2014 (PAMA) and the Achieving a Better Life Experience Act of 2014 (ABLE). A reduction in the 2016 Conversion Factor (CF) offset against a slightly reduced adjustment to the respective specialties' PE RVUs, will result in a slight negative adjustment to the 2016 MPFS.
Medicaid Parity
The PPACA provided Medicare bonus payments to primary care physicians and general surgeons practicing in health professional shortage areas, and from 2013 through 2014, increased Medicaid payments for primary care services furnished by certain physicians at the Medicare rates. A limited number of the Company’s providers qualified for the increased Medicaid payments in certain states through the Medicaid Primary Care Rate Increase Program under Section 1202 of the PPACA. Congress failed to extend federal funding for this program, which expired on December 31, 2014. As of December 31, 2014 and 2015, we recognized $39.7 million and $3.9 million, respectively, of estimated net revenue from the Medicaid parity program.The Medicaid parity program revenue recognized in 2015 is related to changes in estimated revenue from prior year services and the election by certain states to extend elements of the Medicaid parity program on a state funded basis for a limited period of time.
Budget Control Act - Medicare Sequestration
In August 2011, Congress enacted the BCA, which committed the U.S. government to significantly reduce the federal deficit over ten years. The BCA established caps on discretionary spending through 2021. It also established a Joint Select Committee of Congress on Deficit Reduction (Joint Committee) that was responsible for identifying an additional $1.5 trillion in deficit reductions. The Joint Committee was unable to identify the additional deficit reductions by the deadline, thereby triggering a second provision of the BCA called “sequestration.” Sequestration calls for automatic spending cuts of $1.2 trillion over a nine-year period, beginning January 2, 2013, split between defense and non-defense programs, including spending cuts to Medicare programs averaging 2%.
In January 2013, President Obama signed the American Taxpayor Relief Act of 2012 into law. This legislation delayed the sequestration cuts that would have reduced Medicare payments by 2% until March 1, 2013. Since Congress and the White House failed to act by March 1, 2013, across-the-board cuts to Medicare payments took effect for Medicare services furnished on or after April 1, 2013. The Budget Act enacted on December 26, 2013 provided limited relief from sequestration cuts for certain defense and non-defense spending for fiscal years 2014 and 2015, but continued the 2% cuts in Medicare reimbursement. Congress has taken additional actions, most recently in the two year bipartisan budget agreement enacted on November 2, 2015, to further extend the 2% Medicare sequestration cuts through 2025.
Out-of-Network Emergency Care: “Greatest of Three”
In June 2010, CMS in concert with the Department of Labor (DoL) and Internal Revenue Service (IRS) published an interim rule (IFR) outlining patient protections under the PPACA, including a mechanism for the reimbursement of out-of-network emergency care, commonly referred to as the ‘Greatest of Three’ rule.
In November, 2015, CMS, DoL and IRS published a Final Rule (FR) establishing a three prong ‘test’ as the basis for determining fair payment to providers for the reimbursement of out-of-network emergency services. Under the FR, this test is satisfied if the health insurance benefit plan reimburses the provider an amount equal to not less than the greater of: (1) the median amount negotiated with in-network providers for the emergency services; (2) the amount for the emergency services calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary, and reasonable amount); or (3) the amount that would have been paid under Medicare for the emergency services.

49


A material change from the IFR to the FR was the reference to “usual, customary, and reasonable amounts” in the FR, as opposed to “usual, customary, and reasonable charges” in the IFR. This is material because health benefit plans can satisfy the Greatest of Three test without regard to a provider’s submitted billed charges. Additionally, the FR does not prohibit providers from balance billing patients for out-of-network emergency services, but the “Greatest of Three’ rule does not apply in states that ban balance billing.
Bundled Payments for Care Improvement (BPCI) Program
BPCI is an initiative sponsored by CMS that is designed to allow organizations to enter into payment arrangements that include financial and performance accountability for certain episodes of care. The objective of the BPCI program is to achieve higher quality and more coordinated care at a lower cost to Medicare. The BPCI program is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. The various models of care cover both acute care hospital stays as well as post-acute care. The Company participates primarily in Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care.
The Company has contracted with Remedy BPCI Partners who is serving as the convening organization that brings together multiple health care providers to participate in BPCI. The Company’s participation in Phase II of the BPCI program began on July 1, 2015. Currently, 31 of the Company’s provider groups (TINs) participate in the BPCI program in several different geographic locations. The Company significantly expanded its participation in BPCI through its acquisition of IPC. During the initial phase of participation in the BPCI program, the Company does not anticipate any material financial impact, due to anticipated delays in the adjudication of claims and determination of any benefits under the program.
State programs, similar to BPCI, exist too. In Tennessee for instance, the state Medicaid program, known as TennCare, as well as the Tennessee state employees benefit plans are experimenting with a program known as Tennessee's Health Care Innovation Initiative (HCII). First announced in February 2013, HCII shall reward health care providers for improved quality and outcomes for patients with selected medical conditions under defined episodes of care. The HCII also addresses the transformation of the delivery of primary care and long-term care services. The potential financial impact in subsequent years is dependent on the Company’s ability to meet the specific goals and objectives of the BPCI program and state programs, like HCII, and other commercial insurance products as they continue to evolve.
Comprehensive Care for Joint Replacement Model
In November 2015, CMS published a final rule implementing the Comprehensive Care for Joint Replacement Model (CCJR), with a start date of April 1, 2016. The CCJR model aims to support better and more efficient care for beneficiaries undergoing the most common inpatient surgeries for Medicare beneficiaries: hip and knee replacements (also called lower extremity joint replacements or LEJR). The CCJR model tests bundled payment mechanisms by holding participant hospitals financially accountable for the quality and cost of a CCJR episode of care and incentivizes increased coordination of care among hospitals, physicians, and post-acute care providers. The episode of care begins with the admission to a participant hospital of a beneficiary who is ultimately discharged under MS-DRG 469 (Major joint replacement or reattachment of lower extremity with major complications or comorbidities) or 470 (Major joint replacement or reattachment of lower extremity without major complications or comorbidities) and ends 90 days post-discharge in order to cover the complete period of care and recovery for beneficiaries.
The CCJR episode of care includes all related items and services paid under Medicare Part A and Part B for Medicare fee-for-service beneficiaries undergoing LEJR procedures, subject to certain exclusions. Participant hospitals will receive episode target prices for MS-DRGs 469 and 470 each year, reflecting the differences in spending for episodes initiated by each MS-DRG. All providers and suppliers are paid under the usual payment system rules and procedures of the Medicare program for episode services throughout the year. At the end of a model performance year, actual spending for the episode (total expenditures for related services under Medicare Parts A and B) is compared to the episode target price for the participant hospital. Depending on the participant hospital’s quality and episode spending performance, the hospital may receive an additional payment from Medicare or be required to repay Medicare for a portion of the episode spending.
CMS has implemented the CCJR model in 67 geographic areas, defined by metropolitan statistical areas (MSAs). MSAs are counties associated with a core urban area that has a population of at least 50,000. Non-MSA counties (no urban core area or urban core area of less than 50,000 in population) were not selected for participation in the CCJR model.
Military and Government Healthcare Staffing
We are a provider of healthcare professionals serving patients eligible to receive care in government treatment facilities nationwide administered by the Department of Defense and beneficiaries of other government agencies in their respective clinical locations. Our revenues derived from military and government facility healthcare staffing totaled $115.4 million and $109.5 million for the twelve months ended December 31, 2014 and 2015, respectively. Of these revenues, $70.2 million and

50


$62.9 million for the twelve months ended December 31, 2014 and 2015, respectively, are generated from contracts that are subject to a competitive bidding process which primarily takes place during the third quarter of each year. A portion of the contracts awarded during the third quarter of 2014 have expired during 2015 and were subject to a competitive rebidding and award process. We were successful in retaining existing business and winning new bids in the estimated annualized amount of $111.4 million following the completion of the bidding process as of October 1, 2015. The estimated annualized amount of $111.4 million included $23.8 million awarded under one-year contracts. All contracts, including contracts with renewal options, can be terminated by the government at any time without notice. The outcome of any rebidding and award process is uncertain and we may not be awarded new contracts. Our contracts with renewal options may not be renewed and the government may exercise its rights to terminate the contracts.
In addition, over the last several years the process of awarding military and government facility healthcare staffing contracts has developed a bias toward intentionally awarding certain contracts to qualified small and minority owned businesses. Although we participate in such small and minority owned business awards to the extent we can serve as a sub-contractor, our revenues from these arrangements are limited compared to a contract award we retain through the regular competitive bidding process. Approximately 27.6% and 26.6% of our military staffing revenue for each of the twelve months ended December 31, 2014 and 2015, respectively, was derived through sub-contracting agreements with small business prime contractors.
Acquisition Activity
In 2014 and continuing into 2015, we realized an increase in the number of acquisitions, including the IPC Transaction, when compared to prior years. Given the inherent uncertainty in being presented appropriate acquisition opportunities, in addition to our current state of indebtedness, while we remain focused on continuing to execute opportunistic acquisitions, we might not continue acquisitions at the same pace. See Note 3 of the consolidated financial statements included in this Form 10-K for a detailed discussion of our acquisitions.
Critical Accounting Policies and Estimates
The following discussion provides an assessment of our results of operations, liquidity and capital resources and should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-K.
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Net Revenues Before Provision for Uncollectibles. Net revenues before provision for uncollectibles consist of fee for service revenue, contract revenue and other revenue. Net revenues before provision for uncollectibles are recorded in the period services are rendered. Our net revenues before provision for uncollectibles are principally derived from the provision of healthcare staffing services to patients within healthcare facilities. The form of billing and related risk of collection for such services may vary by customer. The following is a summary of the principal forms of our billing arrangements and how net revenues before provision for uncollectibles are recognized for each.
A significant portion (approximately 87% of our net revenues before provision for uncollectibles in the year ended December 31, 2015 and 85% in the year ended December 31, 2014) resulted from fee for service patient visits. Fee for service revenue represents revenue earned under contracts in which we bill and collect the professional component of charges for medical services rendered by our contracted and employed physicians. Under the fee for service arrangements, we bill patients for services provided and receive payment from patients or their third-party payors. Fee for service revenue is reported net of contractual allowances and policy discounts. All services provided are expected to result in cash flows and are therefore reflected as net revenues before provision for uncollectibles in the financial statements. Fee for service revenue is recognized in the period that the services are rendered to specific patients and reduced immediately for the estimated impact of contractual allowances in the case of those patients having third-party payor coverage. The recognition of net revenues before provision for uncollectibles (gross charges less contractual allowances) from such visits is dependent on such factors as proper completion of medical charts following a patient visit, the forwarding of such charts to one of our billing centers for medical coding and entering into our billing systems and the verification of each patient’s submission or representation at the time services are rendered as to the payor(s) responsible for payment of such services. Net revenues before provision for uncollectibles are recorded based on the information known at the time of entering such information into our billing systems as well as an estimate of the net revenues before provision for uncollectibles associated with medical charts for a given service period that have not yet been processed into our billing systems. The above factors and estimates are subject to change. For example, patient payor information may change following an initial attempt to bill for services due to a change in payor status. Such

51


changes in payor status have an impact on recorded net revenues before provision for uncollectibles due to differing payors being subject to different contractual allowance amounts. Such changes in net revenues before provision for uncollectibles are recognized in the period that such changes in the payor become known. Similarly, the actual volume of medical charts not processed into our billing systems may be different from the amounts estimated. Such differences in net revenues before provision for uncollectibles are adjusted the following month based on actual chart volumes processed.
Contract revenue represents revenue generated under contracts in which we provide physician and other healthcare staffing and administrative services in return for a contractually negotiated fee. In these types of arrangements we are the principal in the transaction and therefore recognize contract revenue on a gross basis. Contract revenue consists primarily of billings based on hours of healthcare staffing provided at agreed upon hourly rates. Revenue in such cases is recognized as the hours worked by our staff and contractors. Additionally, contract revenue includes supplemental revenue from hospitals where we may have a fee for service contract arrangement. Contract revenue for the supplemental billing in such cases is recognized based on the terms of each individual contract. Such contract terms generally either provide for a fixed monthly dollar amount or a variable amount based upon measurable monthly activity, such as hours staffed, patient visits or actual patient collections compared to a minimum activity threshold. Such supplemental revenues based on variable arrangements are usually contractually fixed on a monthly, quarterly or annual calculation basis considering the variable factors negotiated in each such arrangement. Such supplemental revenues are recognized as revenue in the period when such amounts are determined to be fixed and therefore contractually obligated as payable by the customer under the terms of the respective agreement.
Other revenue consists primarily of revenue from management and billing services provided to outside parties. Revenue is recognized for such services pursuant to the terms of the contracts with customers. Generally, such contracts consist of fixed monthly amounts with revenue recognized in the month services are rendered or as hourly consulting fees recognized as revenue as hours worked in accordance with such arrangements. Additionally, we derive a portion of our revenues from providing billing services that are contingent upon the collection of third-party physician billings by us on behalf of such customers. Revenues are not considered earned and therefore not recognized as revenue until actual cash collections are achieved in accordance with the contractual arrangements for such services.
Net Revenues. Net revenues reflect management’s estimate of billed amounts to ultimately be collected. Management, in estimating the amounts to be collected resulting from nearly seventeen million annual fee for service patient visits and procedures, considers such factors as prior contract collection experience, current period changes in payor mix and patient acuity indicators, reimbursement rate trends in governmental and private sector insurance programs, resolution of overprovision account balances, the estimated impact of billing system effectiveness improvement initiatives, and trends in collections from self-pay patients and external collection agencies. In developing our estimate of collections per visit or procedure, we consider the amount of outstanding gross accounts receivable by period of service, but do not use an accounts receivable aging schedule to establish estimated collection valuations. Individual estimates of net revenues by contractual location are monitored and refreshed each month as cash receipts are applied to existing accounts receivable and other current trends that have an impact upon the estimated collections per visit are observed. Such estimates are substantially formulaic in nature. In the ordinary course of business we experience changes in our initial estimates of net revenues during the year following commencement of services. Such provisions and any subsequent changes in estimates may result in adjustments to our operating results with a corresponding adjustment to our accounts receivable allowance for uncollectibles on our balance sheet. Differences between amounts ultimately realized and the initial estimates of net revenues have historically not been material.
The table below summarizes our approximate payor mix as a percentage of consolidated fee for service patient volume, excluding the results of IPC operations, for the periods indicated:
 
Year Ended December 31,
 
2013
 
2014
 
2015
Payor:
 
 
 
 
 
Medicare
24.4
%
 
24.8
%
 
25.4
%
Medicaid
25.9

 
29.4

 
31.5

Commercial and managed care
26.5

 
26.4

 
26.2

Self-pay
21.2

 
17.6

 
15.6

Other
2.0

 
1.8

 
1.3

Total
100.0
%
 
100.0
%
 
100.0
%

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The table below summarizes our approximate payor mix as a percentage of consolidated net revenues, excluding the results of IPC operations for the periods indicated:
 
Year Ended December 31,
 
2013
 
2014
 
2015
Commercial and managed care plans
37
%
 
39
%
 
41
%
Medicare program
16
%
 
17
%
 
19
%
Medicaid program
10
%
 
12
%
 
11
%
Self-pay
9
%
 
7
%
 
5
%
Total FFS revenue
72
%
 
75
%
 
76
%
Contract revenue
27
%
 
23
%
 
21
%
Other revenue
1
%
 
2
%
 
3
%
Total
100
%
 
100
%
 
100
%
Accounts Receivable. As described above and below, we determine the estimated value of our accounts receivable based on estimated cash collection run rates of estimated future collections, by facility contract, for patient visits under our fee for service contract revenue. Accordingly, we are unable to report the payor mix composition on a dollar basis of our outstanding net accounts receivable. However, a 1% change in the estimated carrying value of our net fee for service patient accounts receivable before consideration of the allowance for uncollectible accounts at December 31, 2015 could have an after tax effect of approximately $6.8 million on our financial position and results of operations. Our days of revenue outstanding at December 31, 2014 and at December 31, 2015, were 59.0 days and 62.7 days, respectively, excluding the effect of the acquired IPC accounts receivable. The number of days outstanding will fluctuate over time due to a number of factors, including the timing of cash collections and valuation adjustments recorded during the period and changes in average revenue per day that are primarily attributed to changes in gross charges, patient volumes, and changes in pricing with managed care plans. Our allowance for doubtful accounts totaled $500.6 million as of December 31, 2015.
Approximately 98% of our allowance for doubtful accounts is related to gross fees for fee for service patient visits. Our principal exposure for uncollectible fee for service visits is centered in self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance. While we do not specifically allocate the allowance for doubtful accounts to individual accounts or specific payor classifications, the portion of our allowance, excluding IPC, associated with fee for service charges as of December 31, 2015 was equal to approximately 93% of outstanding self-pay fee for service patient accounts.
The majority of our fee for service patient visits are for the provision of emergency care in hospital settings. Due to federal government regulations governing the provision of such care, we are obligated to provide emergency care regardless of the patient’s ability to pay or whether or not the patient has insurance or other third-party coverage for the costs of the services rendered. While we attempt to obtain all relevant billing information at the time emergency care services are rendered, there are numerous patient encounters where such information is not available at time of discharge. In such cases where detailed billing information relative to insurance or other third-party coverage is not available at discharge, we attempt to obtain such information from the patient or client hospital billing record information subsequent to discharge to facilitate the collections process. Collections at the time of rendering such services (emergency room discharge) are not significant. Primary responsibility for collection of fee for service accounts receivable resides within our internal billing operations. Once a claim has been submitted to a payor or an individual patient, employees within our billing operations are responsible for the follow-up collection efforts. The protocol for follow-up differs by payor classification. For self-pay patients, our billing system will automatically send a series of dunning letters on a prescribed time frame requesting payment or the provision of information reflecting that the balance due is covered by another payor, such as Medicare or a third-party insurance plan. Generally, the dunning cycle on a self-pay account will run from 90 to 120 days. At the end of this period, if no collections or additional information is obtained from the patient, the account is no longer considered an active account and is transferred to a collection agency. Upon transfer to a collection agency, the patient account is written-off as a bad debt. Any subsequent cash receipts on accounts previously written-off are recorded as a recovery. For non-self-pay accounts, billing personnel will follow-up and respond to any communication from payors such as requests for additional information or denials until collection of the account is obtained or other resolution has occurred. At the completion of our collection cycle, selected accounts may be transferred to collection agencies under a contingent collection basis. The projected value of future contingent collection proceeds expected to be collected over a multi-year period are considered in the estimation of our overall accounts receivable valuation. For contract accounts receivable, invoices for services are prepared in our various operating areas and mailed to our customers, generally on a monthly basis. Contract terms under such arrangements generally require payment within 30 days of receipt of the invoice.

53


Outstanding invoices are periodically reviewed and operations personnel with responsibility for the customer relationship will contact the customer to follow-up on any delinquent invoices. Contract accounts receivable will be considered as bad debt and written-off based upon the individual circumstances of the customer situation after all collection efforts have been exhausted, including legal action if warranted, and it is the judgment of management that the account is not expected to be collected.
Methodology for Computing Allowance for Doubtful Accounts. We employ several methodologies for determining our allowance for doubtful accounts depending on the nature of the net revenues before provision for uncollectibles recognized. We initially determine gross revenue for our fee for service patient visits based upon established fee schedule prices. Such gross revenue is reduced for estimated contractual allowances for those patient visits covered by contractual insurance arrangements to result in net revenues before provision for uncollectibles. Net revenues before provision for uncollectibles are then reduced for our estimate of uncollectible amounts. Fee for service net revenues represent our estimated cash to be collected from such patient visits and is net of our estimate of account balances estimated to be uncollectible. The provision for uncollectible fee for service patient visits is based on historical experience resulting from nearly seventeen million annual fee for service patient visits. The significant volume of patient visits and the terms of thousands of commercial and managed care contracts and the various reimbursement policies relating to governmental healthcare programs do not make it feasible to evaluate fee for service accounts receivable on a specific account basis. Fee for service accounts receivable collection estimates are reviewed on a quarterly basis for each of our fee for service contracts by period of accounts receivable origination. Such reviews include the use of historical cash collection percentages by contract adjusted for the lapse of time since the date of the patient visit. In addition, when actual collection percentages differ from expected results, on a contract by contract basis, supplemental detailed reviews of the outstanding accounts receivable balances may be performed by our billing operations to determine whether there are facts and circumstances existing that may cause a different conclusion as to the estimate of the collectibility of that contract’s accounts receivable from the estimate resulting from using the historical collection experience. Contract-related net revenues are billed based on the terms of the contract at amounts expected to be collected. Such billings are typically submitted on a monthly basis and aged trial balances prepared. Allowances for estimated uncollectible amounts related to such contract billings are made based upon specific accounts and invoice periodic reviews once it is concluded that such amounts are not likely to be collected. The methodologies employed to compute allowances for doubtful accounts were unchanged between 2015 and 2014.

54



Insurance Reserves
The nature of our business is such that it is subject to professional liability claims and lawsuits. Historically, to mitigate a portion of this risk, we have maintained insurance for individual professional liability claims with per incident and annual aggregate limits per physician for all incidents. Prior to March 12, 2003, we obtained such insurance coverage from commercial insurance providers. Effective March 12, 2003, we have provided for a significant portion of our professional liability loss exposures through the use of a captive insurance company and through greater utilization of self-insurance reserves. Since March 12, 2003, the most significant cost element within our professional liability program has consisted of the actuarial estimates of losses by occurrence period. In addition to the estimated actuarial losses, other costs that are considered by management in the estimation of professional liability costs include program costs such as brokerage fees, claims management expenses, program premiums and taxes, and other administrative costs of operating the program, such as the costs to operate the captive insurance subsidiary. Net costs in any period reflect our estimate of net losses to be incurred in that period as well as any changes to our estimates of the reserves established for net losses of prior periods.
The estimation of medical professional liability losses is inherently complex. Medical professional liability claims are typically resolved over an extended period of time, often as long as ten years or more. The combination of changing conditions and the extended time required for claim resolution results in a loss estimation process that requires actuarial skill and the application of judgment, and such estimates require periodic revision. A report of actuarial loss estimates is prepared at least biannually. Management’s estimate of our professional liability costs resulting from such actuarial studies is significantly influenced by assumptions and assessments regarding expectations of several factors. These factors include, but are not limited to: historical paid and incurred loss development trends; hours of exposure as measured by hours of physician and related professional staff services; trends in the frequency and severity of claims, which can differ significantly by jurisdiction due to the legislative and judicial climate in such jurisdictions; coverage limits of third-party insurance; the effectiveness of our claims management process; and the outcome of litigation. As a result of the variety of factors that must be considered by management, there is a risk that actual incurred losses may develop differently from estimates.
The underlying information that serves as the foundational basis for making our actuarial estimates of professional liability losses is our internal database of incurred professional liability losses. We have captured extensive professional liability loss data going back, in some cases, over twenty years, that is maintained and updated on an ongoing basis by our internal claims management personnel. Our database contains comprehensive incurred loss information for our existing operations as far back as fiscal year 1997 (reflecting the initial timeframe in which we migrated to a consolidated professional liability program concurrent with the consummation of several significant acquisitions) and, in addition, we possess additional loss data that predates 1997 dates of occurrence for certain of our operations. Loss information reflects both paid and reserved losses incurred when we were covered by outside commercial insurance programs as well as paid and reserved losses incurred under our self-insurance program. Because of the comprehensive nature of the loss data and our comfort with the completeness and reliability of the loss data, this is the information that is used in the development of our actuarial loss estimates. We believe this database is one of the largest repositories of physician professional liability loss information available in our industry and provides us and our actuarial consultants with sufficient data to develop reasonable estimates of the ultimate losses under our self-insurance program. In addition to the estimated losses, as part of the actuarial process, we obtain revised payment pattern assumptions that are based upon our historical loss and related claims payment experience. Such payment patterns reflect estimated cash outflows for aggregate incurred losses by period based upon the occurrence date of the loss as well as the report date of the loss. Although variances have been observed in the actuarial estimate of ultimate losses by occurrence period between actuarial studies, the estimated payment patterns have shown much more limited variability. We use these payment patterns to develop our estimate of the discounted reserve amounts. The relative consistency of the payment pattern estimates provides us with a foundation in which to develop a reasonable estimate of the discount value of the professional liability reserves based upon the most current estimate of ultimate losses to be paid and the reasonable likelihood of the related cash flows over the payment period. Our estimated loss reserves under such programs are discounted at approximately 1.1% and 1.6% at December 31, 2014 and 2015, respectively, which was the weighted average Treasury rate, over a 10 year period at the measurement dates, which reflects the risk free interest rate over the expected period of claims payments.
In establishing our initial reserves for a given loss period, management considers the results of the actuarial loss estimates for such periods as well as assumptions regarding loss retention levels and other program costs to be incurred. On a biannual basis, upon receipt of the revised actuarial report, we will review our professional liability reserves considering not only the reserves and loss estimates associated with the current period, but also the reserves established in prior periods based upon revised actuarial loss estimates. The actuarial estimation process employed utilizes a frequency severity simulation model to estimate the ultimate cost of claims for each loss period. The results of the simulation model are then validated by a comparison to the results from several different actuarial methods (paid loss development, incurred loss development, incurred Bornhuetter-Ferguson method, paid Bornhuetter-Ferguson method) for reasonableness. Each method contains assumptions

55


regarding the underlying claims process. Actuarial loss estimates at various confidence levels capture the variability in the loss estimates for process risk but assume that the underlying model and assumptions are correct. Adjustments to professional liability loss reserves will be made as needed to reflect revised assumptions and emerging trends and data. Any adjustments to reserves are reflected in the current operations. Due to the size of our reserve for professional liability losses, even a small percentage adjustment to these estimates can have a material effect on the results of operations for the period in which the adjustment is made. Given the number of factors considered in establishing the reserves for professional liability losses, it is neither practical nor meaningful to isolate a particular assumption or parameter of the process and calculate the impact of changing that single item. The actuarial reports provide a variety of loss estimates based upon statistical confidence levels reflecting the inherent uncertainty of the medical professional liability claims environment in which we operate. Initial year loss estimates are generally recorded using the actuarial expected loss estimate, but aggregate professional liability loss reserves may be carried at amounts in excess of the expected loss estimates provided by the actuarial reports due to the relatively short time period in which we have provided for our losses on a self-insured basis and the expectation that we believe additional adjustments to prior year estimates may occur as our reporting history and loss portfolio matures. In addition, we are subject to the risk of claims in excess of insured limits as well as unlimited aggregate risk of loss in certain loss periods. As our self-insurance program continues to mature and additional stability is noted in the loss development trends in the initial years of the program, we expect to continue to review and evaluate the carried level of reserves and make adjustments as needed.

Our most recent actuarial valuation was completed in October 2015. Based on the results of the semi-annual actuarial study completed during October 2015, management determined no additional change was necessary in our consolidated reserves for professional liability losses related to prior year loss estimates.

IPC is fully insured on a claims-made basis up to policy limits through a third party malpractice insurance policy, which ends December 31 of each year. We have established reserves for this segment, on an undiscounted basis, for claims incurred and reported and IBNR during the policy period. These reserves of $26.0 million as of December 31, 2015 and the timing of payment of such amounts are estimated based upon actuarial loss projections, which are updated semi-annually and is preliminary as we are in the process of finalizing the purchase price allocation for the IPC acquisition.
The following reflects the current reserves for professional liability costs including IPC reserves of $26.0 million as of December 31, 2015 (in millions) as well as the sensitivity of the reserve estimates at a 65%, 75% and 90% confidence level:
 
As reported
$
245.1

At 65% confidence level
$
250.2

At 75% confidence level
$
257.2

At 90% confidence level
$
273.3

It is not possible to quantify the amount of the change in our estimate of prior year losses by individual fiscal period due to the nature of the professional liability loss estimates that are provided to us on an occurrence period basis and the nature of the coverage that is obtained in the commercial insurance market which is generally underwritten on a claims made or report period basis. Even though we are self-insured for a significant portion of our risk, due to customer contracting requirements and state insurance regulations, we still, at times, must place coverage on a claims made or report period basis with commercial insurance carriers. When evaluating the appropriate carrying level of our self-insured professional liability reserves, management considers the current estimates of occurrence period loss estimates as well as how such loss estimates and related future claims will interact with previous or current commercial insurance programs when projecting future cash flows. However, the complexity that is associated with multiple occurrence periods interacting with multiple report periods that contain risks and related reserves retained by us, as well as transferred to commercial insurance carriers, makes it impossible to allocate the change in prior year loss estimates to individual occurrence periods. Instead, we evaluate the future expected cash flows for all historical loss periods in the aggregate and compare such estimates to the current carrying value of our professional liability reserves. This process provides the basis for us to conclude that our reserves for professional liability losses are reasonable and properly stated. Management considers the results of actuarial studies when estimating the appropriate level of professional liability reserves and no adjustments to prior year loss estimates were made in periods where updated actuarial loss estimates were not available.
Due to the complexity of the actuarial estimation process, there are many factors, trends, and assumptions that must be considered in the development of the actuarial loss estimates and we are not able to quantify and disclose which specific elements are primarily contributing to changes in revised loss estimates of historical occurrence periods when such adjustments may be recorded. However, we believe that our internal investments in enhanced risk management and claims management resources and initiatives, such as the employment of additional claims and litigation management personnel and practices and an expansion of programs such as root cause loss analysis, early claim evaluation, and litigation support for insured providers,

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as well as the improved legal environment resulting from professional liability tort reform efforts in certain key jurisdictions such as Florida and Texas have allowed the Company to manage this risk in a cost effective manner since 2003.
Impairment of Intangible Assets
In assessing the recoverability of our intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. Specifically, in estimating the fair value of a reporting unit, we use valuation techniques based on the historical and expected future performance of the specific reporting units and the current valuation multiples of entities that have comparable operations and economic characteristics. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.
All reporting units that have recorded goodwill, based on the results of our annual impairment test, are not considered to be at risk as of December 31, 2015. The results of step one of the annual impairment test completed as of October 1, 2015, and as prescribed by the provisions of ASC 350 “Intangibles—Goodwill and Other,” which is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill, indicated there had been no impairment and the fair value exceeded the carrying value for the respective reporting units.
Results of Operations
The following discussion provides an analysis of our results of operations and should be read in conjunction with our consolidated financial statements included elsewhere in this Form 10-K. The operating results of the periods presented were not significantly affected by general inflation in the U.S. economy. Net revenues are an estimate of future cash collections and as such it is a key measurement by which management evaluates performance of individual contracts as well as our company as a whole. The following table sets forth the components of net earnings as a percentage of net revenues for the periods indicated:
 
 
Year Ended December 31,
 
2013
 
2014
 
2015
Net revenues
100.0
%
 
100.0
%
 
100.0
%
Professional service expenses
78.4

 
77.3

 
78.9

Professional liability costs
3.1

 
3.5

 
3.0

General and administrative expenses
9.6

 
10.0

 
8.6

Other (income) expenses, net
(0.2
)
 
(0.2
)
 
(0.1
)
Depreciation
0.7

 
0.7

 
0.7

Amortization
1.6

 
2.0

 
2.3

Interest expense, net
0.6

 
0.5

 
0.9

Loss on refinancing of debt

 
0.1

 

Transaction costs
0.2

 
0.3

 
1.6

Earnings before income taxes
6.0

 
5.8

 
4.2

Provision for income taxes
2.4

 
2.3

 
1.9

Net earnings
3.7

 
3.5

 
2.3

Net earnings attributable to noncontrolling interest

 

 

Net earnings attributable to Team Health Holdings, Inc.
3.7
%
 
3.5
%
 
2.3
%
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Net Revenues Before Provision for Uncollectibles. Net revenues before provision for uncollectibles in the year ended December 31, 2015 increased $1.20 billion, or 25.0%, to $6.00 billion from $4.80 billion in the year ended December 31, 2014. The increase in net revenues before provision for uncollectibles resulted primarily from increases in fee for service revenue of $1.13 billion, contract revenue of $67.7 million and other revenue of $0.2 million. The increase in fee for service revenue was a result of a 34.9% increase in total fee for service visits and procedures and increases in estimated collections per billed visit. Estimated collections per visit increased due to annual increases in gross charges and managed care pricing improvements as well as increases in average patient acuity levels. The increase in contract revenue was due primarily to the impact of acquired contracts.
Provision for Uncollectibles. The provision for uncollectibles was $2.40 billion in the year ended December 31, 2015 compared to $1.98 billion in the corresponding period in 2014, an increase of $421.0 million, or 21.2%. The provision for uncollectibles as a percentage of net revenues before provision for uncollectibles declined to 40.0% in 2015 compared to 41.3%

57


in 2014. The provision for uncollectibles was primarily related to revenue generated under fee for service contracts that is not expected to be fully collected. The increase in the provision was due to annual increases in gross fee schedules and increases in patient volume and procedures. Changes in payor mix, particularly the level of self-pay fee for service visits, also had an impact on the provision for uncollectibles. For the year ended December 31, 2015, self-pay fee for service visits were approximately 15.6% of total fee for service visits compared to approximately 17.6% for 2014 which constrained the growth in the provision for uncollectibles between years.
Net Revenues. Net revenues in the year ended December 31, 2015 increased $777.6 million, or 27.6%, to $3.60 billion from $2.82 billion in the year ended December 31, 2014. Acquisitions contributed 19.1% (inclusive of a 2.9% contribution associated with IPC), new contracts, net of terminations, contributed 4.3% and same contract revenue contributed 4.2% of the increase in year over year growth in net revenues. Within the acquisitions category, new hospital contracting opportunities that were initially developed by our sales and marketing process contributed 5.1% of overall net revenue growth between years.
Total same contract revenue, which consists of contracts under management in both years, increased $117.7 million, or 4.9%, to $2.50 billion in 2015 from $2.38 billion in 2014. For the year ended December 31, 2015, increases in same contract fee for service volume of 5.1% contributed same contract revenue growth of 3.8% between years while an increase in same contract estimated collections on fee for service visits of 1.0% provided a 0.9% increase in same contract revenue growth. The increase in the estimated collections per visit is attributable to annual increases in gross charges and managed care pricing improvements and increases in Medicare reimbursement as well as increases in average patient acuity levels, Medicaid parity revenue, and favorable changes in payor mix between years. Contract and other revenue provided a 0.2% increase in same contract revenue growth between years. Acquisitions contributed $537.3 million (inclusive of $81.1 million associated with IPC) of growth between periods, while net new contract revenue increased $122.6 million. The benefit from Medicaid parity revenue recognized in the twelve months ended December 31, 2015 was $3.9 million, of which $1.1 million was same contract revenue compared to $39.7 million in 2014, of which $33.4 million was same contract revenue. The decrease in Medicaid parity revenue constrained consolidated revenue growth by 1.3% and and same contract revenue growth by 1.4% between years.
We typically gain new contracts by replacing competitors at hospitals that currently outsource such services, obtaining new contracts from facilities that do not currently outsource such service and responding to contracting opportunities within the military healthcare system. Factors influencing new contracting opportunities include the depth and breadth of our service offerings, our reputation and experience, our ability to recruit and retain qualified clinicians, and pricing considerations when a subsidy or contract payment is required. Contracts are typically terminated due to economic considerations, a change in hospital administration or ownership, dissatisfaction with our service offerings or, primarily relating to our military staffing arrangements, at the end of the contract term.
The components of net revenues include revenue from contracts that have been in effect for prior periods (same contracts) and from new and acquired contracts during the periods, as set forth in the table below:
 

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Year Ended December 31,
 
2014
 
2015
 
(In thousands)
Same contracts:
 
 
 
Fee for service revenue
$
1,812,725

 
$
1,924,284

Contract and other revenue
571,363

 
577,473

Total same contracts
2,384,088

 
2,501,757

New contracts, net of terminations:
 
 
 
Fee for service revenue
188,360

 
316,467

Contract and other revenue
111,053

 
105,593

Total new contracts, net of terminations
299,413

 
422,060

Acquired contracts:
 
 
 
Fee for service revenue
116,014

 
587,610

Contract and other revenue
20,128

 
85,820

Total acquired contracts
136,142

 
673,430

Consolidated:
 
 
 
Fee for service revenue
2,117,099

 
2,828,361

Contract and other revenue
702,544

 
768,886

Total net revenues
$
2,819,643

 
$
3,597,247

The following table reflects the visits and procedures included within fee for service revenues described in the table above:
 
 
Year Ended December 31,
 
2014
 
2015
 
(In thousands)
Fee for service visits and procedures:
 
 
 
Same contract
10,540

 
11,078

   New and acquired contracts, net of terminations
1,879

 
5,677

Total fee for service visits and procedures
12,419

 
16,755

Professional Service Expenses. Professional service expenses, which include physician and provider costs, billing and collection expenses, and other professional expenses, totaled $2.84 billion for the year ended December 31, 2015 compared to $2.18 billion for the year ended December 31, 2014, an increase of $656.6 million, or 30.1%. The increase between years is attributable to an increase of approximately $542.7 million related to our acquisitions and net new contract growth and $113.9 million associated with increases in the average rates paid per hour of provider service and increased hours of coverage on a same contract basis. Increases in average rates paid reflect wage and benefit increases associated with the provision of clinical services. Professional service expenses as a percentage of net revenues was 78.9% for the year ended December 31, 2015 compared to 77.3% for the year ended December 31, 2014.
Professional Liability Costs. Professional liability costs were $107.5 million in the year ended December 31, 2015 compared to $97.6 million in the year ended December 31, 2014, an increase of $9.9 million or 10.1%. Professional liability costs for the year ended December 31, 2014 included an increase in the discounted carrying value of professional liability reserves related to prior years of $7.1 million. Excluding the prior year reserve adjustment of $7.1 million in 2014, professional liability costs increased $17.0 million, or 18.8%, between years. The increase was primarily attributable to acquisitions and net new contracts. Professional liability costs as a percentage of net revenue were 3.0% and 3.5% in 2015 and 2014, respectively. Excluding the prior year reserve adjustment in 2014, professional liability costs as a percentage of net revenues were 3.0% in 2015 and 3.2% in 2014.
General and Administrative Expenses. General and administrative expenses increased $27.1 million, or 9.7% to $308.2 million for the year ended December 31, 2015 from $281.1 million in the year ended December 31, 2014. Included in the 2015 and 2014 general and administrative expenses are $17.3 million and $30.6 million, respectively, of contingent purchase and other acquisition compensation expense incurred in connection with acquisitions. Excluding these charges, general and administrative expenses increased $40.5 million, or 16.2%, in 2015 from 2014. The increase in general and administrative expense was primarily due to acquisitions and growth in salaries and new positions, and increases in professional fees between

59


years. Total general and administrative expenses as a percentage of net revenues were 8.6% in 2015 and 10.0% in 2014. Excluding contingent purchase and other acquisition compensation expense, general and administrative expenses as a percentage of net revenues were 8.1% in 2015 and 8.9% in 2014.
Other (Income) Expenses, Net. For the year ended December 31, 2015, we recognized $1.9 million of other income, net compared to $4.6 million in 2014. The income recognized in 2015 is primarily related to the sale of our cost method investment in a hospital-based telemedicine consultation provider and certain assets that were held for sale, partially offset by a loss on sale of assets related to our outsourced medical coding practice and decline in the fair value of assets related to our non-qualified deferred compensation plan. The income recognized in 2014 includes a $2.3 million net gain of the sale and disposal of assets, including the sale of certain assets associated with our clinic operations and income related to the change in the fair value of assets related to our non-qualified deferred compensation plan.
Depreciation. Depreciation expense was $24.6 million in the year ended December 31, 2015 compared to $20.9 million for the year ended December 31, 2014. The increase of $3.7 million was primarily due to capital expenditures in 2015 and 2014.
Amortization. Amortization expense was $83.6 million in the year ended December 31, 2015 compared to $55.6 million for the year ended December 31, 2014. The increase of $27.9 million was result of an increase in other intangibles recognized in connection with our acquisitions in 2015 and 2014.
Interest Expense, Net. Net interest expense increased to $31.0 million in the year ended December 31, 2015, compared to $15.1 million in 2014. The increase is primarily related to the addition of the tranche B term loan and the newly issued 7.25% Senior Notes due in 2023 in connection with the financing of the IPC acquisition, as well as average increased borrowings under the revolving credit facility and an increase in the amortization of deferred financing costs compared to 2014.
Loss on Refinancing of Debt. The $3.6 million loss in 2014 consists of the write-off of previously recognized deferred financing costs as well as certain fees and expenses associated with the 2014 refinancing.
Transaction Costs. Transaction costs reflect expenses associated with accounting, legal, due diligence and other transaction fees related to acquisition and integration activity. For the year ended December 31, 2015, transaction costs were $58.3 million compared to $7.2 million for the year ended December 31, 2014. The $58.3 million of transactions costs recognized in 2015 includes costs related to the IPC acquisition of $51.7 million, of which $12.6 million related to equity based compensation associated with the acceleration of equity awards under contractual terms.
Earnings Before Income Taxes. Earnings before income taxes in the year ended December 31, 2015 were $149.6 million compared to $163.3 million in 2014.
Provision for Income Taxes. The provision for income taxes was $66.8 million in the year ended December 31, 2015 compared to $65.2 million in 2014. The effective tax rate was 44.7% in 2015 compared to 39.9% in 2014. The increase in the effective tax rate between years was primarily a result of an increase in nondeductible transaction costs, contingent compensation and amortization expense on stock transactions.
Net Earnings. Net earnings were $82.8 million in the year ended December 31, 2015 compared to $98.1 million in the year ended December 31, 2014.
Net Earnings Attributable to Noncontrolling Interests. Net earnings attributable to noncontrolling interests were $0.1 million for the year ended December 31, 2015 compared to $0.4 million for the year ended December 31, 2014.
Net Earnings Attributable to Team Health Holdings, Inc. Net earnings attributable to Team Health Holdings, Inc. were $82.7 million and $97.7 million for the years ended December 31, 2015 and 2014, respectively.
Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Net Revenues Before Provision for Uncollectibles. Net revenues before provision for uncollectibles in the year ended December 31, 2014 increased $487.0 million, or 11.3%, to $4.80 billion from $4.31 billion in the year ended December 31, 2013. The increase in net revenues before provision for uncollectibles resulted primarily from increases in fee for service revenue of $459.1 million, contract revenue of $25.5 million and other revenue of $2.4 million. The increase in fee for service revenue was a result of a 15.2% increase in total fee for service visits and procedures and increases in estimated collections per billed visit. Estimated collections per visit increased due to annual increases in gross charges and managed care pricing improvements as well as increases in average patient acuity levels. The increase in contract revenue was due primarily to the impact of acquired contracts.

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Provision for Uncollectibles. The provision for uncollectibles was $1.98 billion in the year ended December 31, 2014 compared to $1.93 billion in the corresponding period in 2013, an increase of $51.0 million, or 2.6%. The provision for uncollectibles as a percentage of net revenues before provision for uncollectibles declined to 41.3% in 2014 compared to 44.7% in 2013. The provision for uncollectibles was primarily related to revenue generated under fee for service contracts that is not expected to be fully collected. The increase in the provision was due to annual increases in gross fee schedules and increases in patient volume and procedures. Changes in payor mix, particularly the level of self-pay fee for service visits, also had an impact on the provision for uncollectibles. For the year ended December 31, 2014, self-pay fee for service visits were approximately 17.6% of total fee for service visits compared to approximately 21.2% for 2013 which constrained the growth in the provision for uncollectibles between years.
Net Revenues. Net revenues in the year ended December 31, 2014 increased $436.0 million, or 18.3%, to $2.82 billion from $2.38 billion in the year ended December 31, 2013. Acquisitions contributed 11.3%, same contract revenue contributed 5.0% and new contracts, net of terminations, contributed 1.9% of the increase in year over year growth in net revenues.
Total same contract revenue, which consists of contracts under management in both years, increased $119.5 million, or 6.1%, to $2.09 billion in 2014 from $1.97 billion in 2013. For the year ended December 31, 2014, increases in same contract estimated collections on fee for service visits of 5.9% provided a 4.5% increase in same contract revenue growth. The increase in the estimated collections per visit is attributable to annual increases in gross charges and managed care pricing improvements and increases in Medicare reimbursement as well as increases in average patient acuity levels, Medicaid parity revenue, and favorable changes in payor mix between years. Fee for service volume increases of 3.1% contributed same contract revenue growth of 2.2% between years. Contract and other revenue constrained same contract revenue growth between years by 0.6%. Acquisitions contributed $270.1 million of growth between periods, while net new contract revenue increased $46.4 million. The benefit from Medicaid parity revenue recognized in the twelve months ended December 31, 2014 was $39.7 million, of which $33.0 million was same contract revenue compared to $25.9 million in 2013, of which $23.9 million was same contract revenue. The increase in Medicaid parity revenue contributed 0.6% to consolidated revenue growth and 0.5% to same contract revenue growth between years.
We typically gain new contracts by replacing competitors at hospitals that currently outsource such services, obtaining new contracts from facilities that do not currently outsource such service and responding to contracting opportunities within the military healthcare system. Factors influencing new contracting opportunities include the depth and breadth of our service offerings, our reputation and experience, our ability to recruit and retain qualified clinicians, and pricing considerations when a subsidy or contract payment is required. Contracts are typically terminated due to economic considerations, a change in hospital administration or ownership, dissatisfaction with our service offerings or, primarily relating to our military staffing arrangements, at the end of the contract term.
The components of net revenues include revenue from contracts that have been in effect for prior periods (same contracts) and from new and acquired contracts during the periods, as set forth in the table below:
 

61


 
Year Ended December 31,
 
2013
 
2014
 
(In thousands)
Same contracts:
 
 
 
Fee for service revenue
$
1,439,473

 
$
1,571,172

Contract and other revenue
531,341

 
519,176

Total same contracts
1,970,814

 
2,090,348

New contracts, net of terminations:
 
 
 
Fee for service revenue
205,290

 
258,536

Contract and other revenue
136,683

 
129,829

Total new contracts, net of terminations
341,973

 
388,365

Acquired contracts:
 
 
 
Fee for service revenue
63,530

 
287,391

Contract and other revenue
7,278

 
53,539

Total acquired contracts
70,808

 
340,930

Consolidated:
 
 
 
Fee for service revenue
1,708,293

 
2,117,099

Contract and other revenue
675,302

 
702,544

Total net revenues
$
2,383,595

 
$
2,819,643

The following table reflects the visits and procedures included within fee for service revenues described in the table above:
 
 
Year Ended December 31,
 
2013
 
2014
 
(In thousands)
Fee for service visits and procedures:
 
 
 
Same contract
8,975

 
9,249

   New and acquired contracts, net of terminations
1,809

 
3,170

Total fee for service visits and procedures
10,784

 
12,419

Professional Service Expenses. Professional service expenses, which include physician and provider costs, billing and collection expenses, and other professional expenses, totaled $2.18 billion for the year ended December 31, 2014 compared to $1.87 billion for the year ended December 31, 2013, an increase of $312.0 million, or 16.7%. The increase between years is attributable to an increase of approximately $254.9 million related to our acquisitions and net new contract growth and $57.1 million associated with increases in the average rates paid per hour of provider service and increased hours of coverage on a same contract basis. Increases in average rates paid reflect wage and benefit increases associated with the provision of clinical services. Professional service expenses as a percentage of net revenues declined to 77.3% for the year ended December 31, 2014 compared to 78.4% for the year ended December 31, 2013.
Professional Liability Costs. Professional liability costs were $97.6 million in the year ended December 31, 2014 compared to $74.2 million in the year ended December 31, 2013, an increase of $23.4 million or 31.6%. Professional liability costs for the year ended December 31, 2014 included an increase in the discounted carrying value of professional liability reserves related to prior years of $7.1 million. Excluding the prior year reserve adjustment in 2014, professional liability costs increased $16.3 million, or 22.0%, between years. The increase was primarily attributable to an increase in provider hours including increases from acquisitions and an increase in allocation rates between years. Excluding the prior year reserve adjustment in 2014, professional liability costs as a percentage of net revenues were 3.2% in 2014 and 3.1% in 2013.
General and Administrative Expenses. General and administrative expenses increased $52.1 million, or 22.8% to $281.1 million for the year ended December 31, 2014 from $228.9 million in the year ended December 31, 2013. Included in the 2014 and 2013 general and administrative expenses are $30.6 million and $24.0 million, respectively, of contingent purchase and other acquisition compensation expense incurred in connection with acquisitions. Excluding these charges, general and administrative expenses increased $45.5 million, or 22.2%, in 2014 from 2013. The increase in general and administrative expense was due primarily to inflationary growth in salaries and new positions, increases in incentive and equity based compensation and the impact of acquisitions in 2013 and 2014. Included in the increase in general and administrative costs

62


between years is an elevated level of severance costs as a result of the acquisitions that closed in 2014 and recent changes in our management organization as well as the accelerated recognition of equity based compensation associated with changes in vesting requirements on equity awards, primarily related to an amendment to the employment agreement of our Executive Chairman. Total general and administrative expenses as a percentage of net revenues were 10.0% in 2014 and 9.6% in 2013. Excluding contingent purchase and other acquisition compensation expense, general and administrative expenses as a percentage of net revenues were 8.9% in 2014 and 8.6% in 2013.
Other (Income) Expenses, Net. For the year ended December 31, 2014, we recognized $4.6 million of other income compared to $4.5 million in 2013. The income recognized in 2014 includes a $2.3 million net gain of the sale and disposal of assets, including the sale of certain assets associated with our clinic operations and income related to the change in the fair value of assets related to our non-qualified deferred compensation plan. In 2013, the income recognized related to the change in the fair value of assets related to our non-qualified deferred compensation plan.
Depreciation. Depreciation expense was $20.9 million in the year ended December 31, 2014 compared to $17.1 million for the year ended December 31, 2013. The increase of $3.8 million was primarily due to capital expenditures in 2014 and 2013.
Amortization. Amortization expense was $55.6 million in the year ended December 31, 2014 compared to $37.6 million for the year ended December 31, 2013. The increase of $18.1 million was result of an increase in other intangibles recognized in connection with our acquisitions in 2014 and 2013.
Interest Expense, Net. Net interest expense increased to $15.1 million in the year ended December 31, 2014, compared to $14.9 million in 2013. The increase is primarily related to an increase in interest on revolver borrowings due to the funding of our acquisitions and redemption of our Term B Loan in 2014 offset by a reduction of interest on the Term Debt.
Loss on Refinancing of Debt. In connection with the refinancing of our debt facility, in October 2014 we recognized a loss of $3.6 million. The loss consists of the write-off of previously recognized deferred financing costs as well as certain fees and expenses associated with the refinancing.
Transaction Costs. Transaction costs were $7.2 million for the year ended December 31, 2014 compared to $3.8 million for the year ended December 31, 2013. These costs relate to advisory, legal, accounting and other fees incurred related to acquisition activity during the respective years and the increase between years is due to an increased level of acquisition activity in 2014.
Earnings Before Income Taxes. Earnings before income taxes in the year ended December 31, 2014 were $163.3 million compared to $143.9 million in 2013.
Provision for Income Taxes. The provision for income taxes was $65.2 million in the year ended December 31, 2014 compared to $56.3 million in 2013. The effective tax rate was 39.9% in 2014 compared to 39.1% in 2013. The increase in the effective tax rate between years was primarily a result of an increase in nondeductible expenses, such as contingent compensation and amortization expense on stock transactions.
Net Earnings. Net earnings were $98.1 million in the year ended December 31, 2014 compared to $87.6 million in the year ended December 31, 2013.
Net Earnings Attributable to Noncontrolling Interests. Earnings attributable to noncontrolling interests were $0.4 million for the year ended December 31, 2014 compared to $0.2 million for the year ended December 31, 2013.
Net Earnings Attributable to Team Health Holdings, Inc. Net earnings attributable to Team Health Holdings, Inc. were $97.7 million and $87.4 million for the years ended December 31, 2014 and 2013, respectively.
Liquidity and Capital Resources
Our principal ongoing uses of cash are to meet working capital requirements, fund debt obligations and to finance our acquisitions and capital expenditures. We believe that our cash needs, other than for significant acquisitions, will continue to be met through the use of existing available cash, cash flows derived from future operating results and borrowings under our senior secured revolving credit facility.
Cash provided by operating activities in the year ended December 31, 2015 was $145.8 million compared to $198.7 million in 2014. There were $12.7 million contingent purchase price payments in 2015 and $24.5 million in 2014. Also impacting operating cash flow in 2015 was $33.2 million of cash transaction and integration costs associated with the IPC acquisition. Excluding the impact of the 2015 and 2014 contingent purchase payments and the IPC related transaction and

63


integration costs, operating cash flows were $191.7 million in 2015 compared to $223.2 million in 2014. The reduction in operating cash flows of $31.5 million between years reflects an increased level of interest payments and working capital funding. Cash used in investing activities in the year ended December 31, 2015 was $1.64 billion compared to $543.0 million in the year ended December 31, 2014. The $1.09 billion increase was principally due to an increase in cash used for acquisitions. Cash provided by financing activities in the year ended December 31, 2015 was $1.50 billion compared to $332.1 million in the year ended December 31, 2014. The change in cash provided by financing activities was primarily due to increased borrowings in connection with the financing of the IPC acquisition.
We spent $40.7 million in 2015 and $24.6 million in 2014 for capital expenditures. These expenditures were primarily for billing and information technology investments and related development projects along with projects in support of operational initiatives.
As of December 31, 2015, we had total cash and cash equivalents of approximately $28.6 million. There are no known liquidity restrictions or impairments on our cash and cash equivalents as of December 31, 2015.
As of December 31, 2015, we had $2.46 billion in aggregate indebtedness (excluding $53.2 million of deferred financing costs), which included borrowings under our Revolving Credit Facility in the amount of $22.0 million. We had an additional $628.0 million of borrowing capacity available under the Revolving Credit Facility, without giving effect to $6.4 million of undrawn letters of credit which reduces availability.
In connection with the financing of the IPC Transaction we entered into an amendment and restatement of our existing credit agreement, consisting of a new tranche B term loan in an aggregate principal amount of $1.15 billion and an incremental tranche B term loan facility in an aggregate principal amount of $165 million and issued $545.0 million of 7.25% Senior Notes due 2023. The proceeds of $1.87 billion were used to fund the IPC Transaction, repay IPC's assumed outstanding debt of $148.2 million, pay fees and transaction costs and reduce our revolving credit facility. See Note 3 to the consolidated financial statements included in this Form 10-K for additional discussion of the IPC Transaction.
Our senior credit facility agreement, as amended, contains both affirmative and negative covenants, including limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business and pay dividends, and require us to comply with a maximum total net leverage ratio, tested quarterly. At December 31, 2015, we were in compliance with all covenants under the senior credit facility agreement. The senior credit facility is secured by substantially all of our and our U.S. subsidiaries’ assets.
The indenture governing our Notes contains restrictive covenants that limit among other things, the ability of us and our restricted subsidiaries to incur or guarantee additional debt or issue disqualified stock or certain preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into certain transactions with affiliates; merge or consolidate; enter into agreements that restrict the ability of certain restricted subsidiaries to make dividends or other payments to us or each of our existing and future material domestic wholly-owned restricted subsidiaries, referred to, collectively, as “Guarantors"; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important limitations and exceptions. The indenture also contains customary events of default which would permit the holders of the Notes to declare those Notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Notes or other material indebtedness, the failure to satisfy covenants and specified events of bankruptcy and insolvency.
Subject to any contractual restrictions, we and our subsidiaries or affiliates may from time to time, in their sole discretion, purchase, repay, redeem or retire any of our outstanding equity or debt securities in privately negotiated or open market transactions, by tender offer or otherwise.
We have historically been an acquirer of other physician staffing businesses and related interests. During 2015, total cash used related to acquisitions totaled $1.63 billion, which consisted of $1.60 billion for the acquisitions reported in investing cash flows and $22.3 million of contingent payments related to prior year acquisitions and other acquisition-related non shareholder payments. $12.7 million of the $22.3 million contingent payments were reported in operating cash flows and the remaining $9.6 million was reporting in financing cash flows.
For the year ended December 31, 2014, total cash used related to acquisitions totaled $580.8 million consisting of $556.2 million for the acquisitions that were reported in investing cash flows and $24.5 million of contingent payments related to prior year acquisitions and other acquisition-related non shareholder payments that were reported in operating cash flows.
During 2013, total cash used in acquisitions was $188.2 million, which consisted of $159.1 million of payments for the acquisitions that were reported in investing cash flows and $29.1 million of contingent payments on prior year acquisitions reported in cash provided by operating activities.

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Generally our acquisitions contain a contingent payment provision that is based on the achievement of certain financial targets. We estimate future contingent payment obligations to be approximately $77.7 million for acquisitions made prior to December 31, 2015, which we expect to fund over a period of three years based upon current projected achievement of defined performance objectives of the acquired operations. $57.1 million was recorded as a liability on our consolidated balance sheet as of December 31, 2015, while the remaining estimated liability of $20.6 million will be recorded as contingent purchase or other acquisition compensation expense over the remaining performance period. See Note 3 of the consolidated financial statements included in this Form 10-K for a detailed discussion of our acquisitions and contingent payment obligations.
We are currently in discussions with certain physician staffing businesses regarding potential acquisition opportunities. If we consummate any of these potential acquisitions, we would expect to fund such acquisitions using our existing cash, or borrowings under our revolving credit facility, or the issuance of new debt or equity.
Effective March 12, 2003, we began providing for professional liability risks in part through a captive insurance company. Prior to such date we insured such risks principally through the commercial insurance market. The change in the professional liability insurance program initially resulted in increased cash flow due to the retention of cash formerly paid out in the form of insurance premiums to a commercial insurance company coupled with a long period (typically 2-4 years or longer on average) before cash payout of such losses occurs. A portion of such cash retained is retained within our captive insurance companies and invested and therefore not immediately available for general corporate purposes. See Note 8 of the consolidated financial statements included in this Form 10-K for a discussion of the investments held by the Company and our captive insurance subsidiaries.
Effective June 1, 2014, we renewed our fronting carrier program with a commercial insurance carrier through May 31, 2016. In connection with this renewal, we paid cash premiums of $14.1 million and paid an additional $16.5 million to the commercial insurance carrier in June 2015. For the year ended December 31, 2015, we funded approximately $43.0 million of premiums to our captive subsidiary.
Effective July 31, 2012, the Company entered into a contract with a commercial reinsurance carrier to provide coverage for professional liability claims for the first $0.5 million of indemnity and allocated expense exposure for such claims. The program provides coverage of net obligations on a reported basis for claims reported between March 12, 2003 and June 1, 2011 but unpaid as of July 31, 2012. It will remain effective until all obligations have been satisfied. Under the terms of the policy, the commercial reinsurance carrier will insure any incurred indemnity up to certain limits per claim based on a 70%/30% quota share. The total commercial reinsurance carrier exposure is subject to a total aggregate limit of 130% of the net premium paid.
The following tables reflect a summary of obligations and commitments outstanding as of December 31, 2015:
 
 
Payments Due by Period
 
Less than
1 year
 
1-3 years
 
4-5 years
 
After
5 years
 
Total
 
(Dollars in thousands)
Contractual cash obligations:
 
 
 
 
 
 
 
 
 
Long-term debt
$
68,900

 
$
135,050

 
$
461,300

 
$
1,794,250

 
$
2,459,500

Operating leases
23,574

 
41,304

 
31,619

 
51,969

 
148,466

Interest payments
119,429

 
233,532

 
208,169

 
226,609

 
787,739

Subtotal
$
211,903

 
$
409,886

 
$
701,088

 
$
2,072,828

 
$
3,395,705

 
 
 
 
 
 
 
 
 
 
 
Amount of Commitment Expiration Per Period
 
Less than
1 year
 
1-3 years
 
4-5 years
 
After
5 years
 
Total
 
(Dollars in thousands)
Other commitments:
 
 
 
 
 
 
 
 
 
Standby letters of credit
$
6,400

 
$

 
$

 
$

 
$
6,400

Contingent purchase payments
31,127

 
46,491

 
75

 

 
77,693

Subtotal
37,527

 
46,491

 
75

 

 
84,093

Total obligations and commitments
$
249,430

 
$
456,377

 
$
701,163

 
$
2,072,828

 
$
3,479,798


We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net earnings attributable to Team Health Holdings, Inc. before interest expense, taxes, depreciation and amortization, as further

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adjusted to exclude the non-cash items and the other adjustments shown in the table below. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of and compliance with, our debt agreements. Adjusted EBITDA is a material component of these covenants.
Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. In evaluating our performance as measured by Adjusted EBITDA, management recognizes and considers the limitations of this measure. Adjusted EBITDA does not reflect certain cash expenses that we are obligated to make, and although depreciation and amortization are non-cash charges, assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements. In addition, other companies in our industry may calculate Adjusted EBITDA differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.
The following table sets forth a reconciliation of net earnings attributable Team Health Holdings, Inc. to Adjusted EBITDA.
 
 
Year Ended December 31,
 
2013
 
2014
 
2015
 
(In thousands)
Net earnings attributable to Team Health Holdings, Inc.
$
87,409

 
$
97,738

 
$
82,711

Interest expense, net
14,910

 
15,050

 
30,986

Provision for income taxes
56,313

 
65,232

 
66,786

Depreciation
17,070

 
20,886

 
24,581

Amortization
37,550

 
55,647

 
83,581

Other (income) expenses, net(a) 
(4,536
)
 
(4,588
)
 
(1,935
)
Loss on refinancing of debt(b) 

 
3,648

 

Contingent purchase and other acquisition compensation expense(c)
23,962

 
30,637

 
17,293

Transaction costs(d) 
3,809

 
7,179

 
58,301

Equity based compensation expense(e) 
9,889

 
16,152

 
17,538

Insurance subsidiaries interest income
1,795

 
2,012

 
2,108

Professional liability loss reserve adjustments associated with prior years

 
7,088

 

Severance and other charges
3,097

 
8,553

 
5,589

Adjusted EBITDA
$
251,268

 
$
325,234

 
$
387,539

 
(a)
Reflects gain or loss on sale of assets, realized gains on investments, and changes in fair value of investments associated with the Company's non-qualified retirement plan in 2013, 2014 and 2015.
(b)
Reflects certain fees and expenses associated with the debt amendment and the write-off of deferred financing costs of $2.7 million from the previous term loan in 2014.
(c)
Reflects expense recognized for historical and estimated future contingent payments and other compensation expense activity associated with acquisitions.
(d)
Reflects expenses associated with accounting, legal, due diligence and other transaction fees related to acquisition and integration activities, including costs associated with the IPC acquisition of $51.7 million, of which $12.6 million related to equity based compensation associated with the acceleration of equity awards under contractual terms.
(e)
Reflects costs related to options and restricted shares granted under the Company's equity based compensation plans.
Inflation
We do not believe that general inflation in the U.S. economy has had a material impact on our financial position or results of operations.
Seasonality

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Historically, our revenues and operating results have reflected minimal seasonal variation due to the significance of revenues derived from patient visits to EDs, which are generally open on a 365/366 day basis, and also due to our geographic diversification. However, the timing, severity, and geographical impact of influenza activity within the United States will generally impact fee for service visits and related net revenues. Revenue from our non-ED staffing lines is dependent on a healthcare facility being open during selected time periods. Revenue in such instances will fluctuate depending upon such factors as the number of holidays in the period.
Recently Issued Accounting Standards
See Note 2 of the consolidated financial statements included in this Form 10-K for a discussion of recently issued accounting standards. 

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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates. We do not use derivative financial instruments for speculative or trading purposes.
Our earnings are affected by changes in short-term interest rates as a result of borrowings under our senior secured credit facilities. Interest rate swap agreements have been used to manage a portion of our interest rate exposure, however, no swap agreements are currently in effect as of December 31, 2015.
At December 31, 2014, the estimated fair value of the Company’s outstanding debt was $788.2 million compared to a carrying value of $805.3 million. At December 31, 2015, the estimated fair value of the Company’s outstanding debt was $2.48 billion compared to a carrying value of $2.46 billion. We had $805.3 million of variable debt outstanding at December 31, 2014 and $1.91 billion outstanding at December 31, 2015. If the market interest rates for our variable rate borrowings had averaged 1% more subsequent to December 31, 2014 and 2015, our interest expense would have increased, and earnings before income taxes would have decreased, by approximately $4.8 million and $8.9 million, respectively, for the year ended December 31, 2014 and 2015. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management could take actions in an attempt to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

Item 8.
Financial Statements and Supplementary Data
The financial statements and schedules are listed in Part IV Item 15 of this Form 10-K and are incorporated herein by reference.
 
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
 
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired objectives. As of December 31, 2015, we conducted an evaluation under the supervision and with the participation of our management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Consistent with the guidance of the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures in the year of acquisition, management excluded an assessment of the effectiveness of the Company's disclosure controls and procedures related to IPC Healthcare, Inc. The Company acquired all of the issued and outstanding shares of IPC Healthcare Inc. on November 23, 2015. IPC represents $1.80 billion and $1.59 billion of total and net assets, respectively, as of December 31, 2015 and $81.1 million and ($13.5 million) of net revenues and net earnings, respectively, for the year then ended. Based on this evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that as of December 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process

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designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an assessment of the effectiveness of its internal control over financial reporting as of December 31, 2015. The assessment was based on criteria established in the framework Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2015.
Consistent with the guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted form management's report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company's internal control related to IPC Healthcare, Inc. which is included in the December 31, 2015 consolidated financial statements of Team Health Holdings, Inc. and constituted $1.80 billion and $1.59 billion of total and net assets, respectively, as of December 31, 2015 and $81.1 million and $13.5 million of net revenues and net loss, respectively, for the year then ended.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young LLP, an independent registered public accounting firm. Their report appears with the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
 
Item 9B.
Other Information
The Board of Directors of the Company has fixed the date of the 2016 annual meeting of the shareholders for May 25, 2016. We expect there will be two proposals to be voted on at the annual meeting: (1) election of H. Lynn Massingale, M.D., Michael D. Snow and Joseph L. Herring as Class I director nominees and (2) ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2016.


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PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated herein by reference from the sections captioned “Proposal No. 1—Election of Directors,” “The Board of Directors and Certain Governance Matters—Committee Membership—Audit Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s definitive proxy statement for the 2016 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days of December 31, 2015 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the 2016 Proxy Statement).
Set forth below is information as of January 31, 2016 regarding our executive officers:
 
Name
 
Age
 
Position
H. Lynn Massingale, M.D.
 
63
 
Executive Chairman and Director
Michael D. Snow
 
60
 
President and Chief Executive Officer and Director
David P. Jones
 
48
 
Executive Vice President and Chief Financial Officer
Oliver V. Rogers
 
62
 
Executive Vice President and Chief Operating Officer
Steven E. Clifton
 
55
 
Executive Vice President, General Counsel
Miles S. Snowden, M.D.
 
60
 
Chief Medical Officer
H. Lynn Massingale, M.D., has been a member of our board since November 2005 and was named Executive Chairman in May 2008. Prior to that, Dr. Massingale had been the Chief Executive Officer and director of the Company since 1994 and also held the title of President until October 2004. Dr. Massingale previously served as President and Chief Executive Officer of Southeastern Emergency Physicians, a provider of emergency physician services to hospitals in the Southeast and the predecessor of TeamHealth, Inc., which Dr. Massingale co-founded in 1979. Dr. Massingale served as the director of Emergency Services for the state of Tennessee from 1989 to 1993. Dr. Massingale is a graduate of the University of Tennessee Medical Center for Health Services.
Michael D. Snow has served as TeamHealth’s President and Chief Executive Officer and a Director since September 2014. Mr. Snow joined the Company as President in April 2013. Throughout his career, Mr. Snow has held numerous executive-level positions in the healthcare arena. Mr. Snow served as President of HCA’s Gulf Coast Division from 1996 to 2004. From 2004 to 2007, Mr. Snow served as Executive Vice President and Chief Operating Officer of HealthSouth Corporation. From 2007 to 2008, Mr. Snow served as President and Chief Executive Officer of Surgical Care Affiliates. Mr. Snow served as President and Chief Executive Officer of Wellmont Health System from 2008 to 2009. From 2010 to 2011, Mr. Snow served as Chief Operating Officer of Amedisys, Inc. Mr. Snow earned his Bachelor of Science degree from the University of Alabama and a Master's Degree in Business Administration from Troy State University.
David P. Jones has been our Chief Financial Officer since May 1996. In November 2010, Mr. Jones assumed the title of Executive Vice President and Chief Financial Officer. From 1994 to 1996, Mr. Jones was our Controller. Prior to that, Mr. Jones worked at Pershing, Yoakley and Associates, a regional healthcare audit and consulting firm, as a Supervisor. Before joining Pershing, Yoakley and Associates, Mr. Jones worked at KPMG Peat Marwick as an Audit Senior. Mr. Jones received a B.S. in Business Administration from the University of Tennessee.
Oliver V. Rogers has served as our Executive Vice President and Chief Operating Officer since September 2014. Mr. Rogers was previously President of the Company’s hospital based services. Mr. Rogers has more than 40 years of management experience in a variety of healthcare organizations, including hospitals and large physician practice groups. He joined TeamHealth Southeast in 2003 as Executive Vice President and was promoted to Chief Executive Officer of that division in 2006. Rogers was promoted to President of TeamHealth Hospital Based Services in 2010 and was responsible for national contract management of TeamHealth’s emergency medicine, anesthesia, hospital medicine, urgent care and specialty hospitalist service lines. Prior to joining TeamHealth, Rogers was responsible for a $1.5 billion revenue division of a publicly traded healthcare company. He earned his Bachelor’s Degree from the University of North Carolina and a Master’s Degree in Health Administration from Duke University.
Steven E. Clifton joined the Company as Executive Vice President, General Counsel and Corporate Secretary in September 2015. Prior to joining TeamHealth, Mr. Clifton served as Senior Vice President and General Counsel at Health Management Associates (HMA) and the Vice President of Legal Operations at Hospital Corporation of America (HCA). Mr.

70


Clifton received his Bachelor of Art’s degree from Western Kentucky University and his Juris Doctorate degree from the University of Kentucky.
Miles S. Snowden. M.D. has served as TeamHealth’s Chief Medical Officer since September 2014. Dr. Snowden has more than 30 years of clinical leadership experience in a variety of healthcare organizations. Dr. Snowden's professional background includes serving as the chief medical officer for Optum, UnitedHealth Group’s services division, and Delta Air Lines. Prior to these positions, Dr. Snowden held a private practice in Louisville, Kentucky, and founded an occupational health consulting business. Dr. Snowden received his medical degree from the University of Louisville School of Medicine. Dr. Snowden completed an internal medicine residency at the University of Alabama - Birmingham and is board certified in internal medicine and preventive medicine. Dr. Snowden also holds a master’s of public health degree. 
Code of conduct
Information regarding our code of conduct (TeamHealth, Inc. Code of Conduct) applicable to our principal executive officer, our principal financial officer, our controller and other senior financial officers is available on the Investor Relations page of our internet website at www.teamhealth.com. If we ever were to amend or waive any provision of our Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our internet website set forth above rather than by filing a Form 8-K.
 
Item 11.
Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the sections captioned “Executive Compensation” and “Director Compensation” of the 2016 Proxy Statement.
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated herein by reference from the sections captioned “Ownership of Securities” and “Equity Compensation Plan Information” of the 2016 Proxy Statement.
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated herein by reference from the section captioned “Transactions with Related Person” and “The Board of Directors and Certain Governance Matters” of the 2016 Proxy Statement.
 
Item 14.
Principal Accounting Fees and Services
The information required by this Item 14 is incorporated herein by reference from the sections captioned “Proposal No. 2-Ratification of Independent Registered Public Accounting Firm” of the 2016 Proxy Statement.

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PART IV
Item  15.
Exhibits, Financial Statement Schedules
(a)
 
(1) Consolidated Financial Statements of Team Health Holdings, Inc.
 
 
 
 
Reports of Independent Registered Public Accounting Firm
 
 
 
 
Consolidated Balance Sheets