1063561--12/20/2010--PROSPECT_MEDICAL_HOLDINGS

related topics

{regulation, government, change}

{acquisition, growth, future}

{capital, credit, financial}

{investment, property, distribution}

{cost, contract, operation}

{cost, operation, labor}

{system, service, information}

{tax, income, asset}

{personnel, key, retain}

{loss, insurance, financial}

{condition, economic, financial}

{product, liability, claim}

{product, market, service}

{operation, natural, condition}

{financial, litigation, operation}

{loan, real, estate}

{competitive, industry, competition}

{regulation, change, law}

{control, financial, internal}

{interest, director, officer}

Medicare, Medi-Cal, other government-sponsored programs and private third-party payor cost containment efforts and reductions in reimbursement rates could reduce our hospital revenue and our cash flow. In our hospital segment, the continued growth of uninsured and underinsured patients or further deterioration in the collectability of the accounts of such patients could harm our results of operations. Because our hospitals are obligated to provide care in certain circumstances regardless of whether we will get paid for providing such care, if the number of uninsured patients treated at our hospitals increases, our results of operations may be harmed. Decreases in the number of HMO enrollees using our Medical Group networks could reduce our profitability and inhibit future growth. Substantially all of our Medical Group segment revenues are generated from contracts with a limited number of HMOs, and if we were to lose HMO contracts or to renew HMO contracts on less favorable terms, our revenues and profitability could be significantly reduced. In our Medical Group segment, risk-sharing arrangements that our Medical Groups have with HMOs and hospitals could result in their costs exceeding the corresponding revenues, which could reduce or eliminate any shared risk profitability. The operating results of our Medical Group segment could be adversely affected if our actual healthcare claims exceed our reserves. In our Medical Group segment, we may be exposed to liability or fail to estimate IBNR claims accurately if we cannot process any increased volume of claims accurately and timely. The profitability of our Medical Group segment may be reduced or eliminated if we are not able to manage our healthcare costs effectively. The revenue and profitability of our Medical Group segment could be significantly reduced and could also fluctuate significantly from period to period under Medicare's Risk Adjusted payment methodology. An increasing portion of our Medical Group revenue is "at risk" and difficult to project, which increases uncertainty regarding future revenues, cash flow projections, and profitability. Our profitability could be adversely affected by any changes that would reduce payments to HMOs under government-sponsored health care programs and recent changes affecting payments to non-contract hospitals under Medi-Cal Managed Care. If any of our hospitals lose their Joint Commission and CMS accreditation, such hospitals could become ineligible to receive reimbursement under Medicare or Medi-Cal. Controls designed to reduce inpatient services may reduce our hospital revenue. Relocation of the Brotman emergency room facility in connection with the JHA option will require significant capital and may disrupt operations. Hospital operations are capital intensive and could prove to be a drain on cash. If we do not continually enhance our hospitals with the most recent technological advances in diagnostic and surgical equipment, our ability to maintain and expand our markets will be adversely affected. If we are unable to identify suitable acquisition candidates or to negotiate or complete acquisitions on favorable terms, our prospects for growth could be limited. In addition, we may not realize the anticipated benefits of any acquisitions that we are able to complete. We may not be able to make future acquisitions without obtaining additional financing. The acquisition of hospitals and subsequent integration with our Medical Group business may prove to be difficult and may outweigh the anticipated benefits of a hospital-Medical Group combination. Whenever we seek to make an acquisition of an entity that has an HMO contract, the HMO could potentially refuse to consent to the transfer of its contract, and this could effectively stop the acquisition or potentially deprive us of the revenues associated with that HMO contract if we choose to complete the acquisition without the HMO's consent. If we were to lose the services of Sam Lee or other key members of management, we might not be able to replace them in a timely manner with qualified personnel, which could disrupt our business and reduce our profitability and revenue growth. Our hospitals face competition for medical support staff, including nurses, pharmacists, medical technicians and other personnel, which may increase our labor costs and harm our results of operations. The performance of our hospital business segment depends on our ability to recruit and retain quality physicians. Our revenues and profits could be diminished if we lose the services of key primary care physicians. Our ability to control labor and employee benefit costs could be hindered by continued acquisition activity. We operate in a highly competitive market; increased competition could adversely affect our revenues. Hospitals with union contracts could experience setbacks from unfavorable negotiations with union members. We may be required to obtain a Knox-Keene license or otherwise restructure our Medical Group segment if the assignable option agreement or our management services agreements with affiliated physician organizations are deemed invalid under California's prohibition against the corporate practice of medicine. If our assignable option agreements with our physician shareholder nominee of our affiliated physician organizations are deemed invalid under California or federal law, are terminated as a result of changes in California law or application of Financial Accounting Standards Board policies, it would impact our consolidation of our affiliated physician organizations and total revenues. In the event our physician shareholder nominee under the assignable option agreements was to file a personal bankruptcy, we may need court approval to replace such physician nominee under such option agreements. We are subject to extensive government regulation regarding the conduct of our operations. If we fail to comply with any existing or new regulations, we could suffer civil or criminal penalties or be required to make significant changes to our operations. Providers in the hospital industry have been the subject of federal and state investigations and we could become subject to such investigations in the future. The healthcare industry is subject to many laws and regulations designed to deter and prevent practices deemed by the government to be fraudulent or abusive. We may be subjected to actions brought by the government under anti-fraud and abuse provisions or by individuals on the government's behalf under the False Claims Act's "qui tam" or whistleblower provisions. We are required to comply with laws governing the transmission, security and privacy of health information that require significant compliance costs, and any failure to comply with these laws could result in material criminal and civil penalties. We cannot predict the effect that health care reform and other changes in government programs may have on our business, financial condition, results of operations or cash flows. Future reforms in healthcare legislation and regulation could reduce our revenues and profitability. Recently enacted legislation may require us to spend significant capital on an electronic health record system to benefit from Medicare financial incentives and avoid financial and other penalties. If our affiliated physician organizations are not able to satisfy California Department of Managed Health Care financial solvency requirements, we could become subject to sanctions and our ability to do business in this segment in California could be limited or terminated. Because our business is currently limited to the Southern California area, any reduction in our revenues and profitability from local economic, regulatory, environmental and other developments would not be offset by operations in other geographic areas. We may be unable to expand into some geographic areas, or may be unable to do so without incurring significant additional costs. Our overall business results may suffer from the recent economic downturn. We must evaluate the effectiveness of our disclosure controls and internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters. We are required to upgrade and modify our management information systems to accommodate growth in our business and changes in technology and to satisfy new government regulations. As we seek to implement these changes, we may experience complications, delays and increasing costs, which could disrupt our business and reduce our profitability. We and our hospitals and affiliated physician organizations may become subject to claims of medical malpractice or HMO bad-faith liability claims for which our insurance coverage may not be adequate. Such claims could materially increase our costs and reduce our profitability. If our goodwill and intangible assets become impaired, the impaired portion has to be written off, which will materially reduce the value of our assets and reduce our net income for the year in which the write-off occurs. Our hospital revenues and volume trends may be adversely affected by certain factors over which we have no control, including weather conditions, severity of annual flu seasons and other factors. The financial statements of Brotman are being presented on a standalone basis and is expected to include a Going Concern emphasis paragraph We also face other risks that could adversely affect our business, financial condition or results of operations, which include:

Full 10-K form ▸

1063561--12/20/2010--PROSPECT_MEDICAL_HOLDINGS_INC