SEC Form 10-K filed by Apria Inc.

Table of Contents

​

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2021

OR

For The Transition Period From               To

Commission file number: 001-40053

Apria, Inc.

(Exact name of registrant as specified in its charter)

​

​

Registrant’s telephone number, including area code: (800) 990-9799

Securities registered pursuant to Section 12(b) of the Act:

​

​

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 ☐ 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 ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically; every Interactive Data File required to be submitted 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 such files).   Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

​

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 (based on the closing price per share as reported on the Nasdaq Stock Market LLC on the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $419.2 million.

As of February 18, 2022, there were 35,644,827 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this Form 10-K will be included in an amendment to this Form 10-K, which will be filed within 120 days after the registrant’s fiscal year ended December 31, 2021.

​

​

​

​

Table of Contents

TABLE OF CONTENTS

​

2

Table of Contents

FORWARD-LOOKING INFORMATION; RISK FACTOR SUMMARY

This Annual Report on Form 10-K (this “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which involve certain known and unknown risks and uncertainties. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Risk Factor Summary

Our actual results may differ significantly from any results expressed or implied by any forward-looking statements. A summary of the principal risk factors that might cause our actual results to differ from our forward-looking statements is set forth below. The following is only a summary of the principal risks that may materially adversely affect our business, financial condition and results of operations. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in Part I, Item 1A. “Risk Factors” in this report.

3

Table of Contents

We urge you to carefully consider the foregoing summary together with the risks discussed in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

WEBSITE AND SOCIAL MEDIA DISCLOSURE

We use our website (www.apria.com) and our corporate Facebook (www.facebook.com/ ApriaHealthcareCareers), LinkedIn (www.linkedin.com/company/Apria-Healthcare), Vimeo (www.vimeo.com/Apria, www.vimeo.com/ApriaCareers, and www.vimeo.com/ApriaMarketing) and YouTube (www.youtube.com/channel/ UCQSJ0Hrf1LJGT3_L6TlDEFQ/featured) accounts 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, Securities and Exchange Commission filings and public conference

4

Table of Contents

calls and webcasts. The contents of our website and social media channels are not, however, a part of this Annual Report on Form 10-K.

CERTAIN DEFINITIONS

As used in this report, unless otherwise noted or the context requires otherwise:

​

​

​

​

​

​

​

​

​

​

​

5

Table of Contents

PART I

Item 1. Business

Apria

We are a leading provider of integrated home healthcare equipment and related services in the United States. We offer a comprehensive range of products and services for in-home care and delivery across three core service lines: (1) home respiratory therapy (including home oxygen and non-invasive ventilation (“NIV”) services); (2) obstructive sleep apnea (“OSA”) treatment (including continuous positive airway pressure (“CPAP”) and bi-level positive airway pressure devices, and patient support services); and (3) negative pressure wound therapy (“NPWT”). Additionally, we supply a wide range of home medical equipment and other products and services to help improve the quality of life for patients with home care needs. Our revenues are generated through fee-for-service and capitation arrangements with Payors for equipment, supplies, services and other items we rent or sell to patients. Through our offerings, we also provide patients with a variety of clinical and administrative support services and related products and supplies, most of which are prescribed by a physician as part of a care plan. We are focused on being the industry’s highest-quality provider of home healthcare equipment and related services, while maintaining our commitment to being a low-cost operator. We offer a compelling value proposition to patients, providers and Payors by allowing patients to receive necessary care and services in the comfort of their own home, while, at the same time, reducing the costs of treatment. We generated over $1.1 billion of net revenue in 2021, of which approximately 83% was from home respiratory therapy and OSA treatment, service categories in which we believe we have a leading market position.

We believe our integrated product and service offerings, combined with our national scale and strong reputation, provide us with a strategic advantage in being a preferred home healthcare provider for patients, providers and Payors. Our Payors include substantially all of the national and regional insurers, managed care organizations and government Payors in the United States. We benefit from long-standing relationships with a community of providers and referral sources for post-acute services across the acuity spectrum because of the consistency and reliability of our high quality clinical support, our national distribution footprint and our breadth of Payor relationships.

Our product and service offerings are distinguished by the complexity and sophistication required in their clinical delivery, logistical coordination and payment arrangements. We offer patients and providers differentiated clinical service, leveraging our protocols and expertise to improve outcomes across our service lines. With an expansive network of delivery technicians and therapists that is not readily replicated, we are able to provide home healthcare therapies that require high-touch service, providing a bridge from the acute care setting to the home. In 2021, we served over 2 million patients, made over 2.4 million deliveries and conducted approximately 736,000 clinician interactions with our patients.

Pending Merger with Owens & Minor Inc. (“Owens & Minor”)

On January 7, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Owens & Minor under which Owens & Minor will acquire Apria for $37.50 in cash per share of common stock, representing an equity value of approximately $1.45 billion, as well as the assumption of debt and cash for a total transaction value of approximately $1.6 billion. The transaction is subject to customary closing conditions and other regulatory approvals and the approval of our stockholders and is expected to close during the first half of 2022. See further discussion at Note 13 – Subsequent Event in our audited financial statements. and “Item 1A. Risk Factors – Risks Related to Proposed Merger – The failure to complete the transaction announced on January 7, 2022 in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.”

Service Lines

Our business activities comprise a single operating segment focused on three core service lines: (1) home respiratory therapy (including oxygen and NIV services); (2) OSA treatment (including CPAP and bi-level positive airway pressure devices, and patient support services); and (3) NPWT. Additionally, we supply a wide range of home medical equipment, other products and services to help improve the quality of life for patients with home care needs. Through

6

Table of Contents

our offerings, we also provide a broad range of home healthcare products and services, and provide patients with a variety of clinical and administrative support services and supplies, most of which are prescribed by a physician as part of a care plan. We provide substantial benefits to both patients and Payors by allowing patients to receive necessary care and services in the comfort of their own home while reducing the cost of treatment. Our services include:

The following table sets forth a summary of total net revenues by service line, expressed as percentages of total net revenues:

​

​

Home Respiratory Therapy. $467.4 million, $453.8 million and $435.7 million, or 40.8%, 40.9% and 40.0%, of our net revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

We are one of the largest providers of home respiratory therapies in the United States, which includes the supply of stationary and portable home oxygen equipment and non-invasive ventilators. Our distribution model allows our respiratory care practitioners to educate, on a timely and efficient basis, newly-diagnosed patients about their condition, the equipment their physician has prescribed for them, and the long-term importance of complying with the physician’s order. Our services offer a compelling relative cost advantage to our patients and Payors. Patients utilize our products to treat a variety of conditions, including chronic obstructive pulmonary diseases, such as emphysema and chronic bronchitis (collectively, the third leading cause of death in the United States), neuromuscular disorders and restrictive thoracic disorder.

We employ a nationwide clinical staff of approximately 410 respiratory care professionals, including home respiratory therapists who perform patient assessments and set-ups for highly complex clinical equipment, and provide direct patient care, monitoring and 24-hour support services under physician-directed treatment plans and in accordance with our proprietary program.

OSA Treatment. $480.2 million, $454.4 million and $438.6 million, or 41.9%, 41.0% and 40.3%, of our net revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

We are one of the largest providers of OSA therapy devices, including CPAP and bi-level positive airway pressure devices, and patient support services in the United States. The incidence and diagnosis of OSA continues to increase in the United States. We believe that the strength of our position in this market is partly due to our significant presence in

7

Table of Contents

the commercial Payor market, since the initial diagnosis of OSA typically occurs among adults between the ages of 35 and 65 rather than the population served by Medicare. To manage our significant new and recurring patient volumes in a cost-effective, clinically sound manner, we developed an innovative care model, which includes initial delivery and instructional services, an ongoing customer service relationship, and offering sleep supplies to patients for convenience purposes and continuing to provide such supplies to the patients into the future. We believe that an increasing focus on our user-friendly e-commerce platform will help contribute to this provision of sleep supplies. In addition, we operate a comprehensive patient compliance model to ensure that commercially insured patients and Medicare beneficiaries adhere to their therapy according to their physician’s prescription and the established guidelines for reimbursement, and a Payor compliance and monitoring model. The patient compliance model includes both one-on-one patient education and teaching performed in group settings, as well as remote monitoring technologies.

NPWT. $40.5 million, $43.0 million and $42.1 million, or 3.5%, 3.9% and 3.9%, of our net revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

We provide NPWT pumps, supplies, and the dressings needed for patients’ individualized therapy. The most common types of wounds treated with NPWT are pressure ulcers, diabetic ulcers, post-surgical wounds, burns or other wounds developed as a result of traumatic injury. Our strength comes from partnering with manufacturers who are proven leaders in wound care to provide state-of-the-art pumps, supplies and dressings with an individualized patient care model to help promote wound healing while minimizing dressing-related pain and trauma. In order to facilitate a streamlined care transition, we leverage our national distribution network to deliver the initial kit either before the patient is transitioned from the hospital or shortly after they return home. We continue to provide supplies to the patient to ensure continuity in therapy as prescribed by their physician. This service integrates well with our goal of being the home healthcare provider that helps transition patients from the hospital setting to home healthcare.

Other Equipment and Services. $157.2 million, $157.5 million and $172.5 million, or 13.7%, 14.2% and 15.8%, of our net revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

In addition to the core services described above, we also supply a wide range of home medical equipment, other respiratory services and other products to help improve the quality of life for patients with home care needs. Our integrated service approach allows patients, hospital and physician referral sources and managed care organizations accessing any of our service offerings to also access needed home medical equipment and other respiratory services through a single source. The use of home medical equipment provides a significant relative cost advantage to our patients and Payors.

Patients and Payors

Patients and Payors rely on the equipment and high quality services that we provide in managing patients with chronic conditions.

Patients. In contrast to many healthcare services which are single transaction in nature, Apria develops long-term relationships with its patients through the provision of recurring services over time to treat chronic conditions. Home healthcare patients are generally diagnosed at a point in their disease progression where the proper use of durable medical equipment allows them to manage their diseases at home over an extended period of time. For respiratory therapy and OSA treatment, these therapies are often provided for multiple years, during which time Apria provides continued equipment servicing and certain supplies, such as sleep supplies, used in conjunction with the equipment. While the length of care for NPWT is normally shorter in duration, it is typically longer than one month and often extends for multiple months. In addition to providing equipment and ongoing service, Apria also bills and collects payments from the Payor source, on behalf of the patients. Starting at the patient’s initial admission and extending through the length of service, Apria collects the necessary paperwork and information needed for reimbursement from the patient’s Payor source. In order to meet any established utilization management guidelines required for ongoing reimbursement, Apria also coordinates with the patient and their Payor throughout the patient’s time as a customer.

Commercial Payors. National and regional insurers and managed care organizations continue to represent a significant portion of our business and we have long-standing relationships with most of the commercial Payors that we

8

Table of Contents

contract with. For the year ended December 31, 2021, approximately 78% of our revenue was from commercial Payors (which includes all Payors other than government Payors), including approximately 24% from Kaiser Foundation Health Plan, Inc. One additional third-party Payor accounts for more than 10% of our revenues for the year ended December 31, 2021. Most of our commercial Payor contracts have two to five year terms with an automatic extension unless it otherwise terminates. Most of our commercial Payor contracts are based on price – we generally do not have contracted volume. We believe that our long-term relationships with national and regional insurers and managed care organizations provides considerable stability to our business. We have more than 1,600 agreements in place with various commercial Payors, from large nationals to regional and local Payors. For the year ended December 31, 2021, approximately 59% of our revenues were from commercial Payors with whom we have been contracted for over 20 years.

Medicare. For the year ended December 31, 2021, approximately 21% of our revenue was from servicing patients with traditional Medicare coverage. While in previous rounds of the DMEPOS CBP we had CBP contracts in many of the competitive bidding areas (“CBAs”), in recent years, we have reduced our reliance on Medicare business in response to the expansion of the DMEPOS CBP. CMS made a number of improvements when implementing the latest round of the DMEPOS CBP, beginning on January 1, 2021 (“Round 2021”). Round 2021 was originally expected to include a number of products in our product lines. However, CMS announced on October 27, 2020 that only two out of the original 16 product categories would be included in Round 2021 of the DMEPOS CBP. Accordingly, none of our products will be subject to the DMEPOS CBP for the three-year period in which Round 2021 is in effect, and we are not restricted from supplying our products in any regions of the country during this period. Nonetheless, we have maintained critical mass with traditional Medicare to maintain flexibility and growth.

Sales and Marketing

Our sales and marketing strategy is tailored around our Payors and referral sources. In order to effectively serve our Payors and referral sources, we have a managed care sales team and a field sales team. As of December 31, 2021, we employed approximately 26 managed care sales professionals whose primary responsibilities are to build and maintain existing referral relationships with Payors and negotiate Payor pricing and contract terms. We also employed approximately 330 sales professionals whose primary responsibilities are to obtain new referrals and to maintain existing referral relationships for all of our service lines. We provide our sales professionals with the necessary clinical and technical training to represent our service offerings. Our sales structure and strategies are designed to adapt to changing market factors and will continue to adjust as further changes in the industry occur. While in most cases the ultimate referral decision is made by an individual referral source, our relationships with commercial Payors are important to ensure broad market access given that most of our patients are their members.

Marketing Initiatives. We have developed and put into practice several marketing initiatives to enhance the attractiveness of our service offerings, including:

9

Table of Contents

Organization and Operations

Organization. Our approximately 6,400 employees deliver home healthcare products and services to patients in their homes and to other care sites with the support of our approximately 280 branch locations, six regional distribution and repair centers, consolidated billing team, delivery fleet and qualified delivery professionals and clinical employees. Our home respiratory therapy, OSA treatment, NPWT and other equipment and service lines are organized into geographic divisions and markets that provide management oversight.

Corporate Compliance. As a leader in the home healthcare industry, we have a robust compliance program that is designed to further our commitment to providing quality home healthcare products and services while maintaining high standards of ethical and legal conduct. Our enterprise-wide corporate compliance program applies to all operating divisions and is grounded in existing laws, rules and regulations and guidelines for healthcare organizations issued by the U.S. Department of Health and Human Services (“HHS OIG”) and the U.S. Department of Justice (“DOJ”). We believe that it is essential to operate our business with integrity and in full compliance with applicable laws. Our corporate compliance program is headed by an experienced corporate compliance officer who reports directly to the board of directors and our Chief Executive Officer. The program also includes a written code of ethical business conduct that employees receive as part of their initial orientation process and which management reviews with employees under their supervision through a periodic review and attestation process. The program is designed to accomplish the goals described above through employee education, a confidential disclosure program, written policy guidelines, excluded parties, checks, periodic reviews, frequent reinforcement, compliance audits, a formal disciplinary component and other programs. Compliance oversight is provided by our corporate compliance committee, which meets quarterly and consists of senior and mid-level management personnel from various functional disciplines. In addition to updates provided to the board of directors during its regular meetings, a written compliance program report is submitted annually to the board of directors for review and discussion. On December 18, 2020, a federal judge approved a civil and administrative settlement we entered into with the United States and certain state Medicaid programs. As part of the settlement, we also entered into a five-year Corporate Integrity Agreement (“CIA”) with the HHS OIG, under which we agreed to undertake certain obligations designed to promote compliance with federal healthcare programs. In addition, we entered into settlements to resolve claims brought under the laws of the states of California and Illinois on behalf of private insurers.

Operating Systems and Controls. Our operating and field information operating systems, policies and procedures for proper contract administration, accurate order entry and pricing, billing and collections, and inventory and patient equipment management enable us to monitor operational performance. Our information services department works closely with all of the operating areas of our business to ensure that our information technology policies, procedures and functions are compliant with government regulations and Payor requirements and to support their business improvement initiatives with technological solutions.

We have established performance indicators which measure operating results against expected thresholds for the purpose of allowing all levels of management to identify and modify areas requiring improvement and to monitor the resulting progress. Operating models with strategic targets have been developed to move us toward more effective management of the sales, customer service, accounts receivable, clinical and distribution areas of our business.

Receivables Management. We operate in an environment with complex requirements governing billing and reimbursement for our products and services. We have ongoing initiatives focused specifically on accounts receivables management such as system enhancements, process refinements and organizational changes.

We are continuing to expand our use of technology in areas such as web portals/electronic ordering, electronic claims submission and electronic funds transfer with managed care organizations to more efficiently process business transactions. This use of technology can improve the initial patient admission process, expedite claims processing and reduce the administrative costs associated with this activity for both us and our providers and Payors. We now submit almost all of our home respiratory and other equipment and services claims electronically. We have also developed and are continuing to develop internal expertise with the unique reimbursement requirements of certain large Payors and continue to negotiate simplifications in the claims submission process in an effort to reduce subsequent denials and shorten related collection periods. Our policy is to collect co-payments from the patient or applicable secondary Payor. In the absence of a secondary Payor, we generally require the co-payment at the time the patient is initially established

10

Table of Contents

with the product/service. Subsequent months’ co-payments are billed to the patient. We are also seeking to streamline related processes in order to improve the co-payment collection and initial claim denial rates. Certain accounts receivable administrative functions continue to be administered by third-party providers while others have been incorporated into our existing customer service and billing centers. We have established policies and procedures and provide training for all contracted service providers to perform effectively on our behalf.

Suppliers. Virtually all products used in our business are purchased from third parties. We have a number of key supplier relationships.

We believe that we are not wholly dependent upon any single product supplier and that our product needs can be met by several similar suppliers if any one supplier became unable to continue our current business relationship. Our sourcing strategy leverages relationships with industry-leading suppliers but maintains competition and standardization that allows us to source from any supplier in a given category. However, a change in suppliers could cause delays in service delivery. In June 2021, one of the Company’s suppliers, Philips Respironics, announced a voluntary recall for continuous and non-continuous ventilators (certain CPAP, BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices. The Food and Drug Administration (“FDA”) has since identified this as a Class I recall, the most serious category of recall. We have since onboarded another supplier to help meet our equipment needs.

Nationwide Accreditation. All of our operations, including our branch locations, are accredited by The Joint Commission. As the home healthcare industry has grown, accreditation has become a mandatory requirement for Medicare DMEPOS providers and the need for objective quality measurements has increased. Accreditation by The Joint Commission entails a lengthy voluntary review process that is conducted every three years. Accreditation is also widely considered a prerequisite for entering into contracts with managed care organizations.

Essential Care Model. We have developed the Essential Care Model, a proprietary model that outlines Apria’s product formulary and defines the base-line levels of services, supplies and products offered in conjunction with key prescribed home healthcare equipment and therapies. The Essential Care Model is used to establish consistent and clear base-line expectations for patients, providers and Payors.

Outsourced Activities

We engage third-party providers for certain billing, collections, administrative and information systems and other services. As part of our outsourcing strategy, we seek to minimize the risk of business disruption by contracting with multiple vendors across multiple locations.

Competition

The segment of the healthcare market in which we operate is highly fragmented and highly competitive. In each of our service lines there are a limited number of national providers and numerous regional and local providers. Ultimately, our services are provided to an individual patient that is usually referred to Apria by a third-party healthcare professional. The competitive factors most important in the referral process are: reputation with referral sources, including local physicians and hospital-based professionals; accessibility and an efficient, responsive referral process; speed and quality of services; overall ease of doing business; quality of patient care and associated services; range of home healthcare products and services; and being an in-network provider for the commercial Payor(s) specific to an individual patient.

We compete with other large national providers, including Lincare Holdings, Inc., AdaptHealth, Rotech and Aerocare. Other types of healthcare providers, including individual hospitals and hospital systems, physicians and physician groups, home healthcare agencies, health maintenance organizations and managed services intermediaries have entered and may continue to enter the market to compete with our various service lines.

11

Table of Contents

Government Regulation

We are subject to extensive government regulation, including numerous federal, state and local laws directed at regulating reimbursement of our products and services under various government programs and preventing fraud and abuse, as more fully described below. We maintain certain safeguards intended to reduce the likelihood that we will engage in conduct or enter into arrangements in violation of these restrictions. Legal department personnel review and approve written contracts, such as agreements with physicians, subject to these laws. We also maintain various educational and audit programs designed to keep our managers and employees updated and informed regarding developments on these topics and to reinforce to employees our policy of strict compliance in this area. Notwithstanding these measures, violations of these laws and regulations may still occur, which could subject us to civil and criminal enforcement actions; licensure revocation, suspension, or non-renewal; severe fines and penalties; the repayment of amounts previously paid to us; and even the termination of our ability to provide services under certain government programs such as Medicare and Medicaid. See “Item 1A—Risk Factors— Risks Related to Regulation and Litigation — Reductions in Medicare, Medicaid and commercial Payor reimbursement rates and/or exclusion from markets or product lines, including due to the DMEPOS CBP, could have a material adverse effect on our results of operations and financial condition.”

Medicare and Medicaid Revenues. For the year ended December 31, 2021, approximately 21% and 1% of our net revenues were reimbursed under arrangements with Medicare and state Medicaid programs, respectively. Contracts with two national payors each represented more than 10% of the Company's total net revenues constituting 24% and 11% of total net revenues for the year ended December 31, 2021. Kaiser Foundation Health Plan, Inc. represented approximately 24% of our revenues during the period. The majority of our revenues are derived from rental income on equipment rented and related services provided to patients, and the sales of equipment, supplies and other items we sell to patients for patient care under fee-for-service arrangements.

Medicare Reimbursement. There are a number of historic and ongoing legislative and regulatory activities in Congress and at CMS that affect or may affect Medicare reimbursement policies for products and services we provide. Specifically, a number of important legislative changes that affect our business were included in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MMA”), the Deficit Reduction Act of 2005 (the “DRA”) and the Medicare Improvements for Patients & Providers Act of 2008 (the “MIPPA”). The MMA, DRA and MIPPA and their implementing regulations and guidelines contain numerous provisions that were significant to us when enacted and continue to have an impact on our operations today, as described below. In addition, more recent legislative changes that will have an ongoing effect on our business were included in the Patient Protection and Affordable Care Act of 2010 (the “PPACA”), the Medicare Access and CHIP Reauthorization Act of 2015 (the “MACRA”), the 21st Century Cures Act and the Bipartisan Budget Act of 2018 (the “BBA”).

DMEPOS Competitive Bidding. A significant regulatory activity affecting Medicare reimbursement is the DMEPOS CBP, which was mandated by Congress through the MMA. The DMEPOS CBP impacts the Medicare reimbursement amounts for suppliers of certain DMEPOS items, and in the past, included some DMEPOS items that we provide to our patients. Cumulatively, in previous competition rounds of the DMEPOS CBP in effect between 2011 and 2018, we were offered contracts for a substantial majority of the CBAs and product categories for which we submitted bids for oxygen, CPAP and NPWT.

In general, when a DMEPOS CBP competition round becomes effective in a CBA, beneficiaries under the Medicare fee-for-service program must obtain competitively bid DMEPOS items from a contract supplier. However, suppliers who are not awarded contracts through a DMEPOS CBP competition round, but who are furnishing competitively bid DMEPOS items at the time a DMEPOS CBP competition round begins, may continue furnishing certain items to beneficiaries if the supplier chooses to become a “grandfathered” supplier.

In January 2017, CMS announced plans to consolidate all rounds and areas of the DMEPOS CBP into a single round of competition that would go into effect on January 1, 2019 in 141 CBAs for 11 product categories. However, CMS subsequently rescinded the originally published guidance. In March 2019, CMS announced that it would consolidate all rounds and areas of the DMEPOS CBP into a single round of competition that would not go into effect until January 1, 2021 (“Round 2021”). From January 1, 2019 through December 31, 2020, there was a temporary gap in

12

Table of Contents

the DMEPOS CBP. During that time, any Medicare-enrolled DMEPOS supplier was able to furnish DMEPOS equipment and services in all areas of the country.

Round 2021 contracts became effective January 1, 2021 and are expected to extend through December 31, 2023. For each CBA included in Round 2021, providers submitted bids in September 2019 to CMS offering to supply certain covered items of DME in the CBA at certain prices. A number of products in our product lines originally were included on the list of products subject to Round 2021, including oxygen and oxygen equipment, CPAP devices and RADs, nebulizers and NPWT pumps. Although NIVs were originally included in the list of products subject to Round 2021, on April 9, 2020, CMS announced that the NIV product category was removed from Round 2021 due to the COVID-19 pandemic. By removing NIVs from Round 2021, any Medicare-enrolled DMEPOS supplier can furnish any of the types of ventilators covered under the Medicare program. On October 27, 2020, CMS announced further revisions to Round 2021 of the DMEPOS CBP. Namely, only two out of the original 16 product categories, off-the-shelf (“OTS”) back braces and OTS knee braces, were included in Round 2021 of the DMEPOS CBP. All other product categories were removed from Round 2021. Accordingly, there are no longer any products in our product lines included on the list of products subject to Round 2021 of the DMEPOS CBP.

Competitive bidding contracts are expected to be re-bid at least every three years. Although none of our products are subject to Round 2021 of the DMEPOS CBP, we cannot guarantee that our products will be excluded from any subsequent rounds of the DMEPOS CBP. Our exclusion from certain markets or product lines could materially adversely affect our financial condition and results of operations. Further, the competitive bidding process has historically put downward pressure on the amount we are reimbursed in the markets in which we operate, as well as in areas that are not subject to the DMEPOS CBP. The rates required to win future competitive bids could continue to depress reimbursement rates. While we cannot predict the outcome of the DMEPOS CBP on our business in the future nor the Medicare payment rates that will be in effect in future years for the items subjected to competitive bidding, the program may materially adversely affect our financial condition and results of operations.

Medicare Fee Schedule for DMEPOS and CPI Adjustments. DMEPOS items that are not subject to the CBP are paid for under the Medicare DMEPOS fee schedule. The fee schedule amounts are calculated on a statewide basis. Further, the fee schedule amounts are updated annually by the percentage increase in the Consumer Price Index for all Urban Consumers (“CPI-U”) and adjusted by the change in economy-wide productivity that is equal to the 10-year moving average of changes in the annual economy-wide private non-farm business Multi-Factor Productivity (“MFP”). For 2022, the CPI-U percentage increase is 5.4% and the MFP adjustment is 0.3%, resulting in a net increase of 5.1% for the update factor that is applied to the DMEPOS fee schedule amounts.

Effective January 1, 2016, DMEPOS items that are subject to CBP but furnished in all non-CBAs have experienced reductions in the Medicare DMEPOS fee schedule. The fee schedules for those items in the non-CBAs have been adjusted based on regional averages of the single payment amounts (“SPAs”) that apply to the DMEPOS CBP (referred to as the “Adjusted Fee Schedule”). Fee schedule amounts that are adjusted using information from the DMEPOS CBP are not subject to the annual CPI-U adjustments discussed above, but are updated when information from the DMEPOS CBP is updated.

The 21st Century Cures Act, enacted in December 2016, included a provision to roll back the full application of the Adjusted Fee Schedule amount to the non-CBAs that was in effect from July 1, 2016 through December 31, 2016. Effective from January 1, 2017, non-CBA rates were set at 100% of the Adjusted Fee Schedule amount, based on the regional competitive bidding rates. In May 2018, CMS issued an interim final rule that resumed the transition period for phasing in adjustments to the Adjusted Fee Schedule amount in rural areas and non-contiguous areas (Alaska, Hawaii and U.S. territories) not subject to the DMEPOS CBP from June 1, 2018 through December 31, 2018. For this 7-month time period, DMEPOS items furnished in rural and non-contiguous areas were paid for based on a blended rate of 50% of the non-Adjusted Fee Schedule amount and 50% of the Adjusted Fee Schedule amount. “Other non-CBAs” (i.e., those that are not defined as rural or non-contiguous) were not impacted by this interim final rule and DMEPOS items furnished in these areas were paid at 100% of the Adjusted Fee Schedule amount.

During the temporary gap in the DMEPOS CBP, from January 1, 2019 through December 31, 2020, CMS established separate fee schedule adjustment methodologies for three geographic areas: (1) other non-CBAs (those that

13

Table of Contents

are not defined as rural or non-contiguous), (2) rural/non-contiguous areas, and (3) former CBAs. In the “other non-CBAs” category, the payment amounts for DMEPOS items have been adjusted based on 100% of the Adjusted Fee Schedule amount. Because the SPAs generated from the DMEPOS CBP competitions expired on January 1, 2019, the Adjusted Fee Schedule amount has been increased each year by the percentage change in the CPI-U for the 12-month period ending June 30 of the year prior to the update going into effect. Accordingly, the Adjusted Fee Schedule was increased by 1.6% for 2020, by 0.6% for 2021, and by 5.4% for 2022. In rural/non-contiguous areas, the payment amounts for DMEPOS items are based on a blended rate of 50% of the non-Adjusted Fee Schedule amount and 50% of the Adjusted Fee Schedule amount. The Adjusted Fee Schedule amount of the blended rate also has been increased each year, by 1.6% for 2020, by 0.6% for 2021, and by 5.4% for 2022. In former CBAs, the payment amounts for DMEPOS items are based on the lower of the supplier’s charge for the item or fee schedule amounts that are based on the SPAs that were in effect in the CBA before the CBP contract ended, increased by the projected percentage change in the CPI-U for the 12-month period on the date after the contract period ended. Accordingly, for 2019, the fee schedule amounts were based on the SPAs in effect on December 31, 2018 for each specific CBA, increased by 2.5%; for 2020, the fee schedule amounts were increased by 2.4%; for 2021, the fee schedule amounts were increased by 0.6%; and for 2022, the fee schedule amounts were increased by 5%.

In addition, for items provided in CBAs that were included in Round 2021, but were not awarded contracts, the 2022 fee schedule amounts were increased by 5% (the projected percentage change in the CPI-U for the 12-month period ending January 1, 2022).

For items provided in CBAs that were included in Round 2021, but were not awarded contracts, the 2022 fee schedule amounts were increased by 5% (the projected percentage change in the CPI-U for the 12-month period ending January 1, 2022).

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act introduced a new blended rate for DMEPOS items furnished in “other non-CBAs” that is based on 25% of the non-Adjusted Fee Schedule amount and 75% of the Adjusted Fee Schedule amount, effective March 6, 2020 through the end of the COVID-19 pandemic. For rural/non-contiguous areas, the payment amount for DMEPOS items will continue to be based on a blended rate of 50% of the non-Adjusted Fee Schedule amount and 50% of the Adjusted Fee Schedule amount until December 31, 2020 or the end of the COVID-19 pandemic, whichever is later. The COVID-19 pandemic has not ended yet, and therefore the payment adjustments required by the CARES Act are still in effect.

In December 2021, CMS issued a final rule establishing methodologies for adjusting the fee schedule payment amounts for DMEPOS items furnished in non-CBAs, effective February 28, 2022 or the date immediately following the duration of the public health emergency period (which was recently extended to expire on April 16, 2022), whichever is later. CMS will continue paying suppliers the 50/50 blended rate for furnishing DMEPOS items in rural/non-contiguous areas and will pay 100% of the Adjusted Fee Schedule amount in “other non-CBAs”. For former CBAs, CMS will pay the SPAs that were in effect in the CBA before the CBP contract ended, increased by the projected percentage change in the CPI-U for the 12-month period on the date after the contract period ended. Similarly, for items that were originally included in Round 2021 but for which contracts were not awarded, CMS will continue to pay the SPAs that were in effect in the CBA before the CBP contract ended with annual CPI-U adjustments, until those items are competitively bid again in future rounds of the CBP.

We furnish DMEPOS items in both rural/non-contiguous areas, as well as “other non-CBAs”. While some relief has been provided for rural/non-contiguous areas and, recently, but only on a temporary basis, to “other non-CBAs” through the CARES Act, the overall impact has been a reduction in payments for DMEPOS items in these areas that reflect competitively bid prices. See “Item 1A—Risk Factors— Risks Related to Regulation and Litigation – Reductions in Medicare, Medicaid and commercial Payor reimbursement rates and/or exclusion from markets or product lines, including due to the DMEPOS CBP, could have a material adverse effect on our results of operations and financial condition.”

Reimbursement for Capped Rentals and Oxygen Equipment. Medicare covers certain DMEPOS items, including CPAP and RAD under its category for “capped rentals.” In general, items in this category are rented to Medicare beneficiaries, and Medicare payment is based on a monthly rental payment that covers the cost of the base device and

14

Table of Contents

any necessary maintenance and service of the device. DMEPOS suppliers may bill Medicare separately for any related accessories (e.g., masks, filters, humidifiers) that are used with the capped rental device. The rental period for these items is limited to 13 months of continuous use, after which time the Medicare monthly payment for the base equipment ceases and the Medicare beneficiary takes ownership of the device. After the capped rental period ends, Medicare continues to pay for replacement of the accessories that are used with the beneficiary-owned device. At the end of the five-year useful life of the equipment, the beneficiary may obtain replacement equipment and, if he or she can be requalified for the Medicare benefit, a new maximum 13-month payment and five-year useful life cycle would begin.

Medicare reimbursement for oxygen and oxygen equipment is limited to a maximum of 36 months within a 60-month service period. The supplier that billed Medicare for the 36th month of service continues to be responsible for the beneficiary’s oxygen therapy needs for months 37 through 60, and generally there is no additional reimbursement for oxygen-generating portable equipment for these later months. CMS does not separately reimburse DMEPOS suppliers for any oxygen tubing, cannulas and supplies that may be required for the beneficiary. The DMEPOS supplier is required to keep the equipment provided in working order and in some cases, CMS will provide reimbursement for repair costs. At the end of the five-year useful life of the equipment, the beneficiary may obtain replacement equipment and, if he or she can be requalified for the Medicare benefit, a new maximum 36-month payment cycle would begin for the next 60 months of service. Unlike capped rental items, the oxygen equipment always remains the property of the DMEPOS supplier. Note that, for 2019, CMS added a new oxygen payment class and set the rental payment for portable liquid oxygen equivalent to the rental payment made for portable concentrators and transfilling equipment. CMS also added a new payment class for high-flow portable liquid oxygen contents when a patient’s prescribed flow rate exceeds 4 liters per minute. This new high-flow oxygen content class allows for the continuation of high-flow oxygen volume adjustment payments beyond the initial 36 months of continuous use. CMS implemented these changes in a budget neutral manner. The Consolidated Appropriations Act, 2021 eliminates the budget neutrality requirement for separate classes and separate national limited monthly payment rates established for any item of oxygen and oxygen equipment, effective April 1, 2021. Accordingly, in 2021 and 2022, CMS has adjusted the fee schedule amounts to remove the percentage reduction necessary to meet the budget neutrality requirement for certain items of oxygen and oxygen equipment for claims with dates of service on or after April 1, 2021.

Reimbursement for Inhalation and Infusion Therapy Drugs. Inhalation therapy drugs are typically paid under the Medicare Part B fee schedule. Inhalation drugs have been paid based on the Average Sales Price (“ASP”) plus 6% for the drug since January 1, 2005. Effective January 1, 2017, the payment amount for infusion therapy drugs furnished through DME also began to be based on ASP plus 6%, rather than the historical payment amount based on 95% of the manufacturers’ Average Wholesale Price (“AWP”). This change in payment for infusion therapy drugs followed reports from the HHS OIG that found that the then-current AWP methodology may have resulted in excessive reimbursement for certain drugs while underpaying for other drugs. Inhalation and infusion therapy drugs are not subject to the DMEPOS CBP. However, the durable medical equipment used to deliver the inhalation and infusion therapy drugs (e.g., nebulizers, external infusion pumps and supplies) have been subject to various competition rounds under the DMEPOS CBP.

Reimbursement for Non-Invasive Pressure Support Ventilators. For patients experiencing chronic respiratory failure, we offer NIV therapy. Medicare pays for NIV therapy under the DME benefit category for items requiring frequent and substantial servicing, and payments may continue until medical necessity ends (rather than being capped after a certain period of time). CMS and its contractors have expressed concerns about the substantial increase in Medicare billing for non-invasive pressure support ventilators. As described by the HHS OIG in a September 2016 data brief, ventilator technology has evolved so that it is possible for a single device to treat numerous respiratory conditions by operating in several different modes. According to the HHS OIG, this creates an opportunity for abuse if DMEPOS suppliers were to bill Medicare for the device as if it were being used as a ventilator, when use of a lower cost device (e.g., CPAP, RAD) is indicated based on the beneficiary’s medical condition. The HHS OIG’s data brief examined the results of prepayment reviews conducted by two of the Durable Medical Equipment Medicare Administrative Contractors (“DME MACs”) that resulted in the denial of more than 90% of claims for NIVs. The primary reason cited for many of these denials was insufficient clinical documentation. In order to address various concerns about Medicare program abuse related to ventilator claims, which were highlighted in the HHS OIG’s 2016 data brief, CMS consolidated billing codes for ventilators effective January 1, 2016 and decreased the reimbursement amount for non-invasive pressure support ventilators. The HHS OIG recommended that CMS monitor providers with the largest market shares of

15

Table of Contents

ventilator beneficiaries; both CMS and the HHS OIG have continued to review DMEPOS supplier billing for ventilators and other respiratory equipment.

On July 22, 2020, CMS conducted a virtual Medicare Evidence Development & Coverage Advisory Committee (“MEDCAC”) meeting to review the evidence specific to the home use of noninvasive positive pressure ventilation by patients with chronic respiratory failure consequent to chronic obstructive pulmonary disease (“COPD”). Devices to be considered are home mechanical ventilators, bi-level positive airway pressure (BPAP) devices, and CPAP devices. Following the MEDCAC panel, an informal Technical Expert Panel (“TEP”) led by the American College of Chest Physicians (“CHEST”) with representatives from the American Association for Respiratory Care (“AARC”), the American Thoracic Society (“ATS”), and the American Academy of Sleep Medicine (“AASM”) was convened to develop recommendations to inform CMS coverage policy regarding the use of at-home NIV devices for patients in five diagnostic categories. The five categories include: (1) Bilevel Transition from CPAP When Therapeutic Benefit Was Not Achieved; (2) Severe COPD; (3) Hypoventilation Syndrome; (4) Thoracic Restrictive Disorders; and (5) Complex/Central Sleep Apnea. The outcomes and recommendations of the TEP were published on July 30, 2021. Together, the efforts of the MEDCAC panel and the TEP are likely to be used by CMS to shape a Medicare national coverage determination (“NCD”) related to the use of at-home NIV devices in COPD patients in the future.

Claims Auditing and Monitoring and Medical Necessity Documentation Requirements. As a Medicare provider, we are subject to extensive government regulation, including laws and regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse, and otherwise regulating reimbursement under the Medicare program. The federal government has contracted with private entities to audit and recover revenue resulting from payments made in excess of those permitted by federal and state benefit program rules. These entities include but are not limited to comprehensive error rate testing program contractors that are responsible for measuring improper payments on Medicare fee-for-service claims and Unified Program Integrity Contractors (UPICs) that are responsible for the identification of suspected fraud through medical record review.

In order to ensure that Medicare beneficiaries only receive medically necessary items and services, the Medicare program has adopted a number of documentation requirements. Additionally, to ensure compliance with Medicare, the DME MACs conduct pre- and post-payment audits or other types of inquiries, and request patient records and other documentation, to support claims we submit for payment for services and products we render to Medicare beneficiaries. These audits typically involve a complex medical review, by CMS, or its designated contractors and representatives, of documentation supporting the services and products provided. In connection with a Medicare request for supporting documentation, we are obligated to procure and submit the underlying medical records retained by various clinical providers, medical facilities and prescribers. Obtaining these medical records in connection with a claims audit may be challenging and, in any event, all of these records are subject to further examination, interpretation and dispute by the auditing authority. Under standard Medicare procedures, we are entitled to demonstrate the sufficiency of documentation and the establishment of medical necessity and we have the right to appeal any adverse determinations. If a determination is made that our records or the patients’ medical records are insufficient to meet medical necessity or Medicare coverage or reimbursement requirements for the claims, we could be subject to denials or overpayment demands for claims submitted for Medicare reimbursement. In the rare event that such an audit results in major discrepancies of claims records which lacked medical necessity, CMS may be entitled to take additional corrective measures, including extrapolation of audit results across a wider population of claims, submission of recoupment demands for claims other than those examined in the audit, or placing the provider on a full pre-payment review.

Face-to-Face Provisions for DMEPOS. In November 2012, CMS issued a final rule that implemented a provision of the PPACA establishing requirements for a face-to-face encounter with a Medicare beneficiary and written orders prior to delivery for certain items of DMEPOS. As written, the final rule would have required a physician to document that the physician, or a nurse practitioner, physician assistant, or clinical nurse specialist, had a face-to-face encounter with the beneficiary prior to issuing a written order to the beneficiary for certain DMEPOS items. The MACRA eliminated this face-to-face requirement as originally written, and revised the requirement to be that a physician, nurse practitioner, physician assistant, or clinical nurse specialist must document they have written an order for a DMEPOS item pursuant to a face-to-face encounter with the beneficiary, but that encounter could have occurred anytime within the six months before the order was written for the DMEPOS item.

16

Table of Contents

In response to the COVID-19 pandemic, CMS has exercised enforcement discretion with respect to the clinical conditions and face-to-face encounter requirements established under certain national and local coverage determinations applicable to certain items and supplies, including respiratory items (oxygen, CPAP, RADs, nebulizers) and infusion pumps. Accordingly, on an interim basis, requirements related to face-to-face or in-person encounters for evaluations, assessments, certifications or other implied face-to-face services would not apply. This enforcement discretion is temporary, as it is only in effect for the duration of the COVID-19 pandemic, and it is subject to ongoing and evolving interpretation by CMS and the DME MACs. As such, we may be required to modify our policies and procedures to remain in compliance with these CMS requirements.

Prior Authorization Rules for DMEPOS. In December 2015, CMS issued a final rule to require prior authorization (“PA”) by Medicare for certain DMEPOS items that the agency characterizes as frequently subject to unnecessary utilization. The final rule specifies a master list of DMEPOS items that potentially could be subject to PA and CMS updates this master list annually. The first two DMEPOS items requiring PA are two types of power wheelchairs (single and multiple power options) and in March 2017 the DME MACs began accepting PA requests for these items. The PA final rule did not create any new clinical documentation requirements; instead, the same information necessary to support Medicare payment was required, but simply prior to the DMEPOS item being furnished to the Medicare beneficiary.

CMS has established a list of DMEPOS items frequently subject to unnecessary utilization. Items on this list could be subject to PA as a condition of Medicare payment. Since 2012, CMS also has maintained a list of categories of DMEPOS items that require face-to-face encounters with practitioners and written orders before the DMEPOS supplier may furnish the items to Medicare beneficiaries. In a final rule published in November 2019, CMS combined these two lists to create a single, unified “master list” that CMS will use to identify DMEPOS items for which face-to-face encounters, written orders prior to delivery, and/or PA will be required. This expanded master list increases the number of DMEPOS items potentially eligible to be subject to prior authorization, face-to-face encounters, and written order prior to delivery requirements as a condition of payment. In January 2022, CMS issued a notice updating the DMEPOS items included on the master list, identifying the initial list of DMEPOS items for which face-to-face encounters and written orders prior to delivery are required, and adding certain DMEPOS items to the PA list.

While the current list of DMEPOS items requiring PA does not affect any of our products other than support surfaces, CMS may include products from our product lines on the required PA list in future phases of the PA process. If any of our products are ultimately subject to PA, it could reduce the number of our patients qualified to come on service using their Medicare benefits, it could delay the start of those patients’ service while we wait for PA to be received, and/or it could decrease our sales productivity. As a result, this could adversely affect our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Reimbursement Under Medicare Part C (Medicare Advantage). We maintain contracts to provide home respiratory, home medical equipment and related services to a significant number of managed care companies that maintain Medicare Advantage plans nationwide. While Medicare Advantage plans are required to cover all benefits to which beneficiaries are entitled under the Medicare Parts A and B programs, these plans have flexibility to negotiate and set payment rates that differ from the Medicare rates. Further, the DMEPOS CBP only applies to the Medicare fee-for-service program and therefore does not apply to Medicare Advantage plans. Enrollment in Medicare Advantage plans continues to grow and these plans are likely to continue to be attractive alternatives to traditional Medicare fee-for-service for those beneficiaries who choose them and we intend to continue to contract with these plans.

We cannot estimate the combined possible impact of all legislative, regulatory, and contemplated reimbursement changes that could have a material adverse effect on our business, financial condition and results of operations. Moreover, our estimates of the impact of certain of these changes appearing in this “Government Regulation” section are based on a number of assumptions and there can be no assurance that the actual impact was not or will not be different from our estimates.

Medicaid Reimbursement. State Medicaid programs implement reimbursement policies for the products and services we provide. Such policies may or may not be similar to those of the Medicare program. Budget pressures on state Medicaid programs often result in pricing and coverage changes that may have a detrimental impact on our

17

Table of Contents

operations. States sometimes have adopted alternative pricing methods for certain drugs and home medical equipment under their Medicaid programs that reduce the level of reimbursement received by us, without a corresponding offset or increase to compensate for the service costs incurred.

The 21st Century Cures Act accelerated the implementation of the omnibus spending bill passed in December 2015 that requires state Medicaid agencies to match Medicare reimbursement rates for certain durable medical equipment items, including oxygen, to be effective beginning January 1, 2018. Through passage of the 21st Century Cures Act, Congress added section 1903(i)(27) to the SSA, which prohibits federal Medicaid reimbursement to states for certain durable medical equipment expenditures that are, in the aggregate, in excess of what Medicare would have paid for such items. As such, a state’s Medicaid expenditures for DME items that are subject to this provision will be determined in the aggregate and any expenditures in excess of what Medicare would have paid for such items in the aggregate, either on a fee schedule basis or under its competitive bidding process, are not eligible for federal financial participation. CMS issued guidance through a federal register notice published on November 28, 2017 and in a state Medicaid director letter dated December 27, 2017 regarding state implementation of this Medicaid program requirement. However, most states did not take the appropriate action before this became effective on January 1, 2018. States then worked to enact changes to their fee schedules. In addition, states considered whether to make such changes retroactive to January 1, 2018. The impact of this Medicaid program requirement has varied by state, depending on how much the state’s Medicaid fee-for-service rate differs from the applicable Medicare rate.

On January 30, 2020, CMS, on behalf of the Trump Administration, announced a new opportunity called the Healthy Adult Opportunity (“HAO”) to support states with greater flexibility to improve the health of their Medicaid populations. According to the Trump Administration, the HAO “emphasizes the concept of value-based care while granting states with extensive flexibility to administer and design their programs within a defined budget.” As a part of HAO, CMS encourages states to implement evidence-based payment and delivery system reforms, including a combination of fee-for-service and managed care delivery systems that can be altered over the course of the demonstration. On January 8, 2021, CMS approved Tennessee’s block grant waiver amendment application, which CMS stated leverages many of the flexibilities outlined in the HAO guidance released in 2020. However, this waiver approval is facing legal challenges and, consistent with President Biden’s January 28, 2021 Executive Order on Strengthening Medicaid and the Affordable Care Act, the Biden Administration is likely to significantly modify or repeal the HAO.

Historically, when states have adopted alternative pricing methodologies, we have sometimes elected to stop accepting new Medicaid patient referrals for the affected drugs and/or home medical equipment. We continuously evaluate the possibility of stopping or reducing our Medicaid business in certain states with reimbursement policies that make it difficult for us to conduct our operations profitably. We cannot currently predict the adverse impact, if any, that any such reduction in our Medicaid business might have on our business, financial condition and results of operations, but such impact could be material. In addition, we cannot predict whether states may consider adopting additional reimbursement reductions or whether any such changes could have a material adverse effect on our business, financial condition and results of operations.

HIPAA / HITECH / Federal and State Consumer Protection and Privacy and Security Requirements. HIPAA is comprised of a number of components pertaining to the privacy and security of certain protected health information (“PHI”), as well as the standard formatting of certain electronic health transactions. The Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) (enacted under the American Recovery and Reinvestment Act of 2009) further limited how covered entities, business associates and business associate subcontractors may use and disclose PHI and the security measures that must be taken in connection with protecting that information and related systems. In addition, HIPAA and the PPACA require healthcare providers, health plans, payors, and other HIPAA-covered entities to use the electronic standard transactions, operating rules, code sets and unique identifiers that have been adopted through regulation by the Secretary. Under the 21st Century Cures Act, Congress authorized the HHS Office of the National Coordinator for Health Information Technology (“ONC”) to engage in rulemaking that would drive interoperability, prohibit information blocking, and provide timely access to health information through standardized application programming interfaces (APIs) to seamlessly coordinate care, improve outcomes and reduce the cost of care. CMS also finalized regulations under their authority to regulate Medicare and Medicaid managed care plans, qualified health plans offered on the federally-facilitated Exchange, and hospitals that improve patient access to their health information and encourage provider-to-provider and payor-to-payor exchanges of health information that are

18

Table of Contents

designed to reduce the burden on payors and providers. Due to the public health emergency (which has periodically been extended and most recently was extended to expire on April 16, 2022) and in response to the healthcare industry’s need to focus on responding to COVID-19, both CMS and ONC exercised their enforcement discretion to allow for flexibility with respect to compliance and applicability of their respective Interoperability and Patient Access rules. Then, in October 2020, ONC published an Interim Final Rule that extended the applicability date for the Information Blocking provisions until April 2021. The Interim Final Rule also laid out a compliance timeline that extends through December 31. 2023. In addition, in December 2020, the HHS Office for Civil Rights (“HHS OCR”) proposed changes to the HIPAA Privacy Rule that have the potential to impact patients, covered entities, and business associates. Certain of the proposed changes are focused on the patient right of access requirements and processes, while other proposed changes would impact how covered entities may share information and would relax the requirements for providers to document how their Notice of Privacy Practices is provided to patients.

We are subject to HIPAA as a covered entity. HIPAA also applies to business associates of covered entities, which are individuals and entities that provide services for or on behalf of those covered entities. We enter into contracts with our business associates that provide services to us to require those business associates to safeguard PHI in accordance with the requirements of HIPAA and HITECH and sometimes enter into contracts as the business associate of another covered entity. In addition, we may be impacted by the ONC Interoperability and Information Blocking Rules and the CMS Interoperability and Patient Right of Access Rules (collectively “the Interoperability Rules”), or we may participate in a health information exchange or network, and will have to follow the rules for information exchange that are influenced by the Interoperability Rules. However, at this time we do not believe Apria is required to comply with these rules. Since the majority of the health care providers that we coordinate care for our patients with are required to comply with the Interoperability Rules, it is likely that we will choose to comply with this new regulatory framework in the future.

Numerous other federal and state laws that protect the confidentiality, privacy, availability, integrity and security of PHI and healthcare related data also apply to us. In many cases, these laws are more restrictive than, and not preempted by, the HIPAA and HITECH rules and requirements, and may be subject to varying interpretation by courts and government agencies, creating complex compliance issues for us and potentially exposing us to additional expenses, adverse publicity and liability.

Further, federal and state consumer laws are being applied increasingly by the Federal Trade Commission (“FTC”) and state enforcement authorities, to regulate the collection, use and disclosure of personal information or patient health information, and to ensure that appropriate data safeguards are implemented by business and organizations that are maintaining personal information about individuals. For example, the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered businesses to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. In November 2020, Californians approved the California Privacy Rights Act (the “CPRA”), which modified and expanded the CCPA and established a new California Privacy Protection Agency. The CPRA established January 1, 2023 as the new compliance date for most of the other substantive provisions of the CPRA. See “Item 1A—Risk Factors” below for additional information. Virginia and Colorado have enacted similar laws to provide for the protection of consumer privacy, while numerous other states have similar laws under consideration. In addition, courts also may adopt the standards for fair information practices promulgated by the FTC that concern consumer notice, choice, security and access.

With respect to data safeguards laws, there are a number of states that have passed legislation, most notably New York’s Stop Hacks and Improve Electronic Data Security Act (the “SHIELD Act”), signed into law in July 2019, that requires any person or business owning or licensing computerized data that includes the private information of a resident of New York to implement and maintain reasonable safeguards to protect the security, confidentiality, and integrity of the private information. While entities subject to HIPAA are deemed to be in compliance with the security provisions of the SHIELD Act, the SHIELD Act does require such entities to provide notice to the New York Attorney General in the event of a breach of personal information.

19

Table of Contents

New information standards, whether implemented pursuant to federal or state laws, could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying with such standards could be significant. We have implemented various compliance measures in connection with the HIPAA, HITECH and 21st Century Cures Act rules and requirements, and other federal and state privacy and security rules and requirements, but we may be required to take additional steps, including costly system purchases and modifications, to comply with these rules and requirements as they may evolve over time. We face potential administrative, civil and criminal sanctions if we do not comply with the existing or new laws and regulations dealing with the privacy and security of PHI and patient information. Imposition of any such sanctions could have a material adverse effect on our operations. Similarly, if we, or any of our business associates, experience a breach of PHI, the breach reporting requirements required by HITECH and state laws could result in substantial financial liability and reputational harm.

Enforcement of Healthcare Fraud and Abuse Laws. The federal government, and its various state counterparts, have made policy decisions to continue increasing the financial resources allocated to enforcing healthcare fraud and abuse laws. In fact, at the federal level, enforcement actions under the Biden Administration have increased. Commercial Payors also have increased their level of scrutiny of healthcare claims, in an effort to identify and prosecute fraudulent and abusive practices in the healthcare industry. Violation of these federal and state laws can result in the imposition of criminal and civil monetary penalties, as well as exclusion from participation in federal and state healthcare programs. Exclusion for a minimum of five years is mandatory for a conviction, and the presence of aggravating circumstances in a case can lead to an even longer period of exclusion. The federal government also has the discretion to exclude providers for certain conduct even absent a criminal conviction. Such conduct includes, but is not limited to, participation in a fraud scheme, payment or receipt of kickbacks and/or failing to provide services of a quality that meets professionally recognized standards. The HHS OIG also has authority under certain circumstances to suspend or terminate Medicare billing privileges during the course of an investigation.

We seek to structure our business operations, our financial relationships with referral sources, our billing and documentation practices and other practices to comply with the laws discussed below. However, we cannot assure you that a federal or state agency charged with enforcement of these various laws might not assert a contrary position or that new federal or state laws might not be enacted that would cause these arrangements to become illegal or result in the imposition of penalties on us or certain of our facilities and operations. If any of those allegations were successfully asserted against us or even if there is an assertion of a potential violation, there could be a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Anti-Kickback Prohibitions. As a provider of services under the Medicare and Medicaid programs, we must comply with the federal Anti-Kickback Statute (“AKS”). The AKS prohibits the offer or receipt of any bribe, kickback, or rebate in return for the referral of patients, products, or services covered by federal healthcare programs. Federal healthcare programs have been defined to include plans and programs that provide healthcare benefits funded by the United States government, including Medicare, Medicaid and TRICARE (formerly known as the Civilian Health and Medical Program of the Uniformed Services), among others. Some courts and the HHS OIG have interpreted the AKS to cover any arrangement where even one purpose of the remuneration is to influence referrals. Violations of the AKS may result in civil and criminal penalties and exclusion from participation in federal healthcare programs.

Despite the breadth of the AKS prohibitions, there are only a limited number of statutory exceptions that protect various common business transactions and arrangements from prosecution. In addition, the HHS OIG has published safe harbor regulations, with the most recent major modifications occurring in 2020, that outline other types of arrangements that also are deemed protected from prosecution under the AKS, provided all applicable criteria are met. The failure to meet all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement in question violates the AKS; rather, these arrangements could be subject to greater scrutiny by enforcement agencies. A determination that a financial arrangement violates the AKS could subject us to liability under the SSA, including civil and criminal penalties, as well as exclusion from participation in federal healthcare programs such as Medicare and Medicaid.

In order to obtain additional clarification on the AKS, a provider can obtain written interpretative advisory opinions from the HHS OIG regarding existing or contemplated transactions. Pursuant to a new HHS Final Rule effective February 10, 2022, the HHS OIG will have more flexibility to issue advisory opinions and potentially provide industry

20

Table of Contents

stakeholders with greater transparency regarding factors that the government may consider in evaluating compliance with certain federal fraud and abuse laws and distinguishing between similar arrangements. Under the revised regulations, OIG will no longer be barred from issuing an advisory opinion when an arrangement presented in an advisory opinion involves conduct that is the same or substantially the same as conduct that is under investigation or subject to a governmental proceeding. 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 DOJ) 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.

Certain states in which we operate have enacted statutes and regulations similar to the AKS that prohibit some direct or indirect payments if those payments are designed to induce or encourage the referral of patients to a particular provider. Most states have anti-kickback statutes that prohibit kickbacks relating to the state’s Medicaid program, but some state anti-kickback statutes are broader and apply not only to the federal and state healthcare programs but also to other Payor sources (e.g., national and regional insurers and managed care organizations). These state laws may contain exceptions and/or safe harbors that are different from those at the federal level and may vary widely from state to state. A number of states in which we operate also have laws that prohibit fee-splitting arrangements between healthcare providers, if such arrangements are designed to induce or encourage the referral of patients to a particular provider. Possible sanctions for violations of these laws include exclusion from state-funded healthcare programs, loss of licensure and civil and criminal penalties. These laws vary from state to state, often are vague and often have been subject to only limited court and/or regulatory agency interpretation.

Physician Self-Referral Prohibitions. The federal physician self-referral law, commonly referred to as the “Stark Law,” prohibits a physician (and certain other healthcare professionals) from making a referral of Medicare and Medicaid patients for a designated health service to an entity, such as us, if the physician or a member of the physician’s immediate family has a financial relationship with the entity, unless an exception applies. The term “designated health services” includes several services commonly performed or supplied by us, including durable medical equipment and pharmacy items and services. In addition, the term “financial relationship” is broadly defined to include any ownership or investment interest, or compensation arrangement, pursuant to which a physician receives remuneration from the provider at issue. The Stark Law prohibition applies regardless of the reasons for the financial relationship and the referral; and, therefore, unlike the AKS, an intent to violate the law is not required. Violations of the Stark Law may result in loss of Medicare and Medicaid reimbursement, civil penalties and exclusion from participation in the Medicare and Medicaid programs. The Stark Law contains a number of statutory and regulatory exceptions intended to protect certain types of transactions and business arrangements from penalty. In order to qualify an arrangement under a particular Stark Law exception, compliance with all of the exception’s requirements is necessary. Since the Stark Law was enacted in 1989, there have continued to be ongoing changes and clarifications to a number of the provisions in the legislation and regulations. In 2019, the 2020 Physician Fee Schedule final rule finalized changes to the Stark advisory opinion process, amending the process such that HHS will not pursue sanctions against any party to an arrangement that CMS determines is “indistinguishable in all material aspects” from an arrangement described in a favorable advisory opinion. The final rule allows individuals and entities to rely on advisory opinions as “non-binding guidance.” In addition, in 2020, CMS issued a final rule, “Modernizing and Clarifying the Physician Self-Referral Regulations,” which creates new permanent exceptions to the Stark Law for value-based arrangements, as well as provides additional guidance on several key requirements that must be met in order for physicians and healthcare providers to comply with the Stark Law, though the implementation of some of these changes has been delayed. For example, compensation provided to a physician by another healthcare provider generally must be at fair market value, and the final rule provides guidance on how to determine if compensation meets this requirement. The Stark Law has also been subject to varying, and sometimes contradictory, decisions by the courts.

In addition, a number of the states in which we operate have similar prohibitions against physician self-referrals, which are not limited to just the federal healthcare program. These state prohibitions may differ from the Stark Law’s prohibitions and exceptions may apply to a broader or narrower range of services, arrangements and financial relationships and may apply to other healthcare 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 and/or other healthcare professionals to disclose to patients any financial relationships the physicians and/or healthcare professionals have with healthcare providers who are recommended to

21

Table of Contents

patients. These laws vary from state to state, often are vague, and in many cases, have not been interpreted by courts or regulatory agencies.

False Claims Act. The federal False Claims Act (“FCA”) imposes civil and criminal liability on individuals or entities that submit false or fraudulent claims for payment to the government. Violations of the FCA may result in treble damages, civil monetary penalties and exclusion from the Medicare, Medicaid and other federally funded healthcare programs. If certain criteria are satisfied, the FCA allows a private individual to bring a qui tam suit on behalf of the government and, if the case is successful, to share in any recovery. FCA suits brought directly by the government or private individuals against healthcare providers, like us, are increasingly common and are expected to increase. For those individuals or entities that are presently subject to FCA qui tam suits, audits, denials of claims, or other audit or enforcement actions based exclusively on allegations of noncompliance with guidance documents, a 2020 HHS final rule, titled “Good Guidance Practices,” provides a new basis to rebut these allegations.

The federal government has used the FCA to prosecute a wide variety of alleged false claims and other frauds allegedly perpetrated against Medicare, Medicaid and other federal and state funded healthcare programs. In addition, violation of other statutes (such as the AKS) can be considered to trigger violations of the FCA. In December 2020, HHS announced the establishment of an FCA Working Group to enhance HHS’ partnership with DOJ to combat those who seek to defraud HHS programs. Based on this development, there may be an increase in enforcement coordination between HHS and DOJ in pursuing actions under the FCA. DOJ’s total Fiscal Year 2021 False Claims Act settlements and judgments was the second largest annual total in False Claims Act history, and the largest since 2014.

On December 18, 2020, a federal judge approved a civil and administrative settlement Apria entered into with the United States and certain state Medicaid programs, in a complaint filed by three relators under the qui tam provisions of the FCA, 31 U.S.C. § 3729 et seq., as well as comparable state false claims laws, in connection with the rental of NIVs. Apria also entered into separate settlements to resolve the relators’ claims brought on behalf of the states of California and Illinois related to NIV covered by private insurers. The matter had been pending since 2017.

The government had alleged that Apria violated the FCA by submitting false claims seeking reimbursement for NIVs which were not being used, or not being used sufficiently, by patients, for NIVs which were being used pursuant to physician orders on a device setting which was available from other less expensive devices, and for improperly waiving co-pays to induce beneficiaries to rent NIVs. To resolve any potential liability, Apria agreed to enter a civil settlement agreement and to pay $40 million to the federal government and the states. Apria also agreed with the California Department of Insurance to pay $500,000 to resolve claims asserted by the relators under the California Insurance Frauds Prevention Act, Cal. Ins. Code § 1871 et seq. Apria separately agreed with the relators to settle all remaining claims from their complaint, including: (1) claims for retaliation in violation of federal and state laws; (2) claims for attorneys’ fees and costs available under federal and state law; and (3) claims under the Illinois Insurance Claims Fraud Prevention Act, 740 Ill. Comp. Stat. 92/1 et seq. Apria did not admit that any of its conduct was illegal or otherwise improper.

As part of the federal and state Medicaid settlement, Apria also entered into a five-year CIA with the HHS OIG. The CIA requires Apria to maintain its ongoing corporate compliance program and obligates Apria to implement or continue, as applicable, a set of defined corporate integrity activities for a period of five years from the effective date of the CIA. Among other things, the CIA requires Apria to impose certain oversight obligations on Apria’s board of directors; provide certain management certifications; continue or implement, as applicable, certain compliance training and education; and engage an Independent Review Organization to perform certain reviews. The CIA also includes certain reporting, certification, record retention, and notification requirements. In the event of a breach of the CIA, Apria could become liable for payment of certain stipulated penalties or could be excluded from participation in federal healthcare programs.

In addition to federal enforcement of the FCA, a number of states have enacted false claims acts that are similar to the FCA. Generally, these state laws allow for 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 to assess fines and penalties. As a result of these state laws, there has been a corresponding increase in state-initiated false

22

Table of Contents

claims enforcement efforts. See “Item 3—Legal Proceedings—Civil Investigative Demand Issued by the United States Attorney’s Office for the Southern District of New York” below for more information.

Other Fraud and Abuse Laws. In addition to the laws described above, various other laws and regulations prohibit fraud and abuse in the healthcare industry and provide for significant penalties. For example, the knowing and willful defrauding of, or attempt to defraud, a healthcare benefit program, including both governmental and private healthcare programs and plans, may result in criminal penalties. Further, the payment of inducements to Medicare and Medicaid beneficiaries intended to influence those beneficiaries to order or receive services from a particular provider or practitioner may result in civil penalties. Federal enforcement officials have numerous enforcement mechanisms to combat fraud and abuse, including an incentive program under which individuals can receive up to $1,000 for providing information on Medicare fraud and abuse that leads to the recovery of at least $100 of Medicare funds. In addition, federal enforcement officials have the ability to exclude from Medicare and Medicaid any investors, officers and managing employees associated with business entities that have committed healthcare fraud.

There have also been new statutes enacted to prevent fraud and abuse in healthcare, as well as existing statutes used in new ways to target healthcare fraud. In addition, in recent years the DOJ has started using the federal Travel Act as a basis for prosecuting healthcare fraud defendants based on violations of state anti-kickback or anti-bribery laws.

Marketing and Transparency Reporting Laws. Because of the products and services that we provide to patients, we are subject to certain federal and state laws and regulations regarding our marketing activities and the nature of our interactions with physicians and other healthcare providers. For example, the federal Physician Payments Sunshine Act (“Sunshine Act”) requires manufacturers of, and distributors that hold title to, certain drugs, devices, biologics, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program, to annually report information related to (i) payments or other transfers of value made to physicians, nurse practitioners, physician assistants, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, certified nurse midwives, and teaching hospitals, and (ii) ownership and investment interests held by physicians and their immediate family members. Similar reporting requirements have also been enacted on the state level. In addition, laws may require us to comply with certain codes of conduct, limit or report certain marketing expenses and disclose certain physician and other provider arrangements. Violations of these laws and regulations, to the extent they are applicable, could subject us to civil and criminal fines and penalties, as well as possible exclusion from participation in federal healthcare programs, such as Medicare and Medicaid. From time to time, we may be the subject of investigations or audits, or be a party to litigation which alleges violations of these laws and regulations. If any of those allegations were successfully asserted against us, there could be a material adverse effect on our business, financial condition and results of operations.

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 organizations and to implement policies, procedures and processes designed to ensure that our employees act in compliance with all applicable laws, regulations and company policies. The HHS OIG has issued a series of compliance program guidance documents in which it has set out the elements of an effective compliance program. The HHS OIG has followed the model of the U.S. Sentencing Guidelines, which are used by federal judges in determining sentences in federal criminal cases. The guidelines are advisory, not mandatory, and with respect to corporations, state that having an effective ethics and compliance program may be a relevant mitigating factor in determining sentencing. To comply with the U.S. Sentencing Guidelines, a corporate compliance program must be reasonably designed, implemented and enforced such that it is generally effective in preventing and detecting criminal conduct. The U.S. Sentencing Guidelines also state that corporations should take certain steps such as periodic monitoring and responding appropriately to detected criminal conduct.

The DOJ also updated its guidance to Criminal Division prosecutors regarding how to evaluate an organization’s compliance program when making charging decisions (the “2020 DOJ Revisions”). The 2020 DOJ Revisions guidance focuses on three fundamental questions for prosecutors to consider when evaluating corporate compliance programs: (1) whether the corporation’s compliance program is well designed; (2) whether the corporation’s compliance program is being applied earnestly and in good faith (i.e., is the program adequately resourced and empowered to function effectively); and (3) whether the corporation’s compliance program works in practice. The major emphasis in the 2020 DOJ Revisions guidance is that corporations must continue to review and update their corporate compliance programs in light of changing circumstances within the organization and also within the industries in which the corporation operates.

23

Table of Contents

Our compliance program has been structured to include these elements. The primary compliance program components recommended by the HHS 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; a process for 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 corporate compliance program on a regular basis. We have attempted to customize our compliance program to our organization’s environment and we periodically refine the program to address evolving circumstances within the organization and within the industry more generally. From time to time, issues identified through our compliance program may trigger internal or external reviews related to our compliance with federal and state healthcare laws and regulations. These internal and external reviews may result in changes to our coding, billing and claims adjudication process for our claims.

While we have attempted to develop our corporate compliance program to be consistent with these guidelines, we cannot be certain that a court, the HHS OIG, the DOJ, or a state, would agree. Although we believe our compliance program reflects a reasonable and accepted approach in the healthcare industry, we cannot assure you that our program will prevent, detect and/or rectify all compliance issues in all markets we serve and in all applicable time periods. If we fail to prevent, detect and/or rectify such issues, depending on the nature and scope of such issues, we could face future claims for recoupment of overpayments, civil fines and other penalties, or other material adverse consequences.

Finally, pursuant to the December 2020 settlement agreement with the United States and state Medicaid programs, we also have entered into a five-year CIA with the HHS OIG. Under this CIA, we agreed to undertake certain obligations designed to promote compliance with federal healthcare programs. For further information, see “—Government Regulation—False Claims Act” above.

Facility and Clinician Licensure. Various federal and state authorities and clinical practice boards regulate the licensure of our facilities and clinical specialists working for us, either directly as employees or on a per diem or contractual basis. Regulations and requirements vary from state to state. We are committed to complying with all applicable licensing requirements and maintain centralized functions to manage over 2,000 facility licenses and/or permits that are required to operate our business.

Healthcare Reform. Economic, political and regulatory influences are continuously causing fundamental changes in the healthcare industry in the United States. In 2010, the U.S. Congress enacted and President Obama signed into law, significant reforms to the U.S. healthcare system. These reforms, contained primarily in the PPACA and its companion act, the Health Care Education and Reconciliation Act of 2010 (collectively, the “Health Reform Laws”), significantly altered the U.S. healthcare system by authorizing, 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; and (v) mechanisms to foster alternative payment and reimbursement methodologies focused on outcomes, quality and care coordination. In addition, certain states in which we operate are periodically considering various healthcare reform proposals.

Since their passage in 2010, the Health Reform Laws have triggered many changes to the U.S. healthcare system, some of which took effect (e.g., the subsequently eliminated individual mandate penalty) while others have continued to be delayed and subsequently repealed (e.g., the medical device tax). The Health Reform Laws also have faced several challenges and remain subject to ongoing efforts to repeal or modify the laws. For example, President Trump issued an Executive Order 13765 (Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal) on January 20, 2017 granting authority to certain executive departments and agencies to minimize the economic burden of the PPACA. However, President Biden revoked this Executive Order on January 28, 2021 (as part of President Biden’s Executive Order on Strengthening Medicaid and the Affordable Care Act) and directed heads of departments to “consider whether to suspend, revise, or rescind — and, as applicable, publish for notice and comment proposed rules suspending, revising, or rescinding” actions taken by the Trump Administration which may hinder the operation of the Health Reform Laws.

24

Table of Contents

Nevertheless, the core tenets of the Health Reform Laws remain in effect with several exceptions. The individual mandate penalty was eliminated beginning in 2019 through the Tax Cuts and Jobs Act of 2017. In addition, on December 20, 2019, the Further Consolidated Appropriations Act, 2020 was signed into law which repealed several provisions that were included in the Health Reform Laws to pay for the increased federal spending associated with the Health Reform Laws. Specifically, Congress: (i) repealed the Medical Device Excise Tax, which imposed a 2.3% excise tax on manufacturers, producers and importers of certain medical devices; (ii) repealed the health insurance tax, which applies to most fully insured plans, beginning in 2021; and (iii) repealed the so-called Cadillac Tax, which imposed an excise tax of 40% on premiums for employer-sponsored individuals and families that exceeded a certain minimum threshold. Prior to these changes Congress had passed a short-term spending bill as part of the Continuing Appropriations Act of 2018 that delayed the implementation of these provisions and eliminated the Independent Payment Advisory Board, which was a 15-member panel of healthcare experts created by the Health Reform Laws and tasked with making annual cost-cutting recommendations for Medicare if Medicare spending exceeded a specified growth rate.

The Health Reform Laws also are the subject of ongoing litigation. In particular, a collection of 20 state governors and state attorneys general (subsequently two states have dropped out) filed a lawsuit against the federal government in the Northern District of Texas seeking to enjoin the entire Health Reform Laws following the elimination of the individual mandate penalty in 2019. The District Court ruled that without the penalty the individual mandate was unconstitutional and that all other provisions of the Health Reform Laws should be overturned as well. The U.S. Court of Appeals for the 5th Circuit affirmed the trial court’s decision; however, instead of deciding whether the rest of the PPACA must be struck down, the 5th Circuit sent the case back to the trial court for additional analysis. In March of 2020 the United States Supreme Court granted cert in the case and heard oral arguments on November 10, 2020. On June 17, 2021, the Supreme Court held that the plaintiffs lacked standing and reversed the Fifth Circuit’s judgment in respect to standing, vacated the Fifth Circuit’s judgment, and remanded the case with instructions to dismiss the case. Subsequently the Fifth Circuit vacated the judgement of the District Court in its entirety and remanded the case to the District Court with instructions to dismiss. The District Court dismissed the case on July 27, 2021.

The Trump Administration made a number of changes that have affected the individual and small group exchange markets, including modifications to the open enrollment periods, funding cuts to patient support resources, including the patient navigator program, and failing to issue cost-sharing reduction payments to insurers participating in the exchanges. In June 2018, the Trump Administration published a final rule that allows small businesses and self-employed individuals to band together to create associations that are considered “employers” under the Employee Retirement Income Security Act such that these associations are eligible to access large group health plans, which are typically less expensive and are not subject to as many of the consumer protections imposed by the PPACA on small group and individual health plans. In addition, the Trump Administration published a final rule which makes short term, limited duration plans more accessible, providing individuals with another product offering that is generally less expensive but has fewer protections than under the PPACA plans. This final rule combined with the association health plan final rule, may increase instability in the healthcare exchanges by siphoning off potentially healthier people from the risk pool. However, in 2021 President Biden issued an Executive Order on Strengthening Medicaid and the Affordable Care Act, directing heads of departments to review and potentially revoke or revise these Trump-era actions.

In light of the ongoing efforts to alter the Health Reform Laws, we are unable at this time to predict the full impact that potential changes will have on our business, including provisions in the Health Reform Laws related to Medicare payments, mechanisms to foster alternative payment and reimbursement methodologies focused on outcomes, quality and care coordination, Medicare enrollment and claims submission requirements and revisions to other federal healthcare laws such as the AKS, the Stark Law and the FCA. We anticipate, however, that federal and state governments will continue to review and assess alternative healthcare delivery systems and payment methodologies, and that public debate regarding these issues will continue in the future. Changes in the law or new interpretations of existing laws can have a substantial effect on permissible activities, the relative costs associated with doing business in the healthcare industry, and the amount of reimbursement available from government and other Payors. Any repeal or modification of the Health Reform Laws may materially adversely impact our business, financial condition, results of operations, cash flow, capital resources and liquidity. In addition, the potential proposals for alternative legislation to replace the Health Reform Laws may have an adverse impact on our business.

25

Table of Contents

FDA. Apria is governed by various regulations that affect the manufacture, distribution, importation, marketing and sale of medical gases and related oxygen medical devices and supplies. Our medical gas facilities and operations are subject to extensive regulation by the FDA and other federal and state authorities. The FDA regulates medical gases, including medical oxygen, pursuant to its authority under the Federal Food, Drug, and Cosmetic Act (“ FFDCA”). Among other requirements, the FDA’s Good Manufacturing Practice (“cGMP”) regulations impose certain quality control, documentation and recordkeeping requirements on the receipt, processing and distribution of medical gas. Further, in each state where we operate medical gas facilities, we are subject to regulation under state health and safety laws, which vary from state to state. The FDA and state authorities conduct periodic, unannounced inspections at medical gas facilities to assess compliance with cGMPs and other regulations. We expend significant time, money and resources in an effort to achieve substantial compliance with cGMP regulations and other federal and state law requirements at each of our medical gas facilities. There can be no assurance, however, that these efforts will be successful and that our medical gas facilities will achieve and maintain compliance with federal and state laws and regulations. Our failure to achieve and maintain regulatory compliance at our medical gas facilities could result in enforcement action, including warning letters, fines, product recalls or seizures, temporary or permanent injunctions, or suspensions in operations at one or more locations, as well as civil or criminal penalties, all of which could have a material adverse effect on our business, financial condition and results of operations.

Our facilities must comply with applicable federal and state laws, regulations and licensing standards. For example, all of our locations that fill and distribute medical oxygen containers must register with the FDA as a medical gas manufacturer, and these registered locations must comply with all applicable Company and cGMP policies and practices. Regulations are subject to change as a result of legislative, administrative or judicial action, which may further increase our costs or reduce sales. From time to time, we may undertake field corrective actions to correct product issues that may arise. These actions are necessary to ensure the products we distribute adhere to high standards of quality and safety. Additionally, we have policies and procedures in place that address the process for taking field corrective actions should we become aware of any issue related to the medical oxygen products that we fill and distribute. We continue to operate these programs to ensure compliance with applicable regulations and actively monitor proposed changes in the FDA’s regulation of medical gases and related products, particularly those which could have a material adverse effect on the products we manufacture or distribute, or us as a whole.

We have facilities in certain states that manufacture medical gases, including medical oxygen. In the United States, medical gases, which are products that are recognized by an official pharmacopoeia or formulary, or intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, are regulated as finished pharmaceuticals (drugs). The production, distribution and sale of medical gases and medical devices are regulated by the U.S. federal government under FFDCA, as well as by various state and local laws and other regulations. Before a medical gas can be marketed in the United States, the FDA must approve a request to certify the product as a “designated medical gas.” The FDA reviews requests for certification to confirm that the gas to which the request applies is a designated medical gas and contains the information required by regulation. Certification of a designated medical gas has the effect of a drug approval under section 505 of the FFDCA (for gases intended for human use). If changes are made to the original certification request, such as information about the requestor or the formulation of a medical gas, an amendment may be submitted to the FDA explaining the change. Apria has obtained this certification, and in accordance with cGMPs, we verify the reliability of the medical gas supplier’s analytical methodology to ensure the bulk oxygen we receive has been tested in conformance with cGMP requirements. In addition, all bulk oxygen deliveries must be accompanied with a certificate of analysis that meets cGMP specifications. Each delivery of bulk oxygen provided to our bulk stand tanks must be tested by trained Apria personnel in accordance with the mandated analytical methodology defined by cGMPs. We also conduct primary source verification of the FDA registration and state licensure held by each medical gas supplier that provides bulk oxygen to any of our facilities.

The FDA requires entities that manufacture or engage in certain processing operations related to medical gases (e.g., combining gases or transfilling a gas from one container to another) to comply with all establishment and drug registration and listing requirements and to follow cGMPs regarding quality, personnel, facilities, equipment design and calibration, production, testing processes, container and closure specifications, labeling requirements and records and complaint management. The FDA periodically inspects manufacturing facilities to assess compliance with cGMPs, which impose extensive procedural and record keeping requirements. While the FDA temporarily paused on-site routine surveillance inspections starting in March 2020 due to the COVID-19 pandemic, in a guidance issued in August 2020,

26

Table of Contents

the FDA explained that it resumed prioritized domestic inspections, such as pre-approval and surveillance inspections, as of July 2020, and that, for the foreseeable future, such prioritized domestic inspections would be pre-announced. The FDA has continued, on a case-by case basis, to conduct “mission-critical” inspections based on its evaluation of a number of factors related to the public health benefit of U.S. patients having access to the product subject to inspection (e.g., whether the product may have received breakthrough therapy designation or is used to diagnose, treat, or prevent a serious disease or medical condition for which there is no other appropriate substitute). Further, the FDA released a Resiliency Roadmap in May 2021, and an update in November 2021, in which the agency explained that routine surveillance inspections would continue to be conducted based on risk, with a priority to higher-tiered needs. Although the FDA remains committed to conducting mission-critical domestic inspections, there may be future disruptions in the FDA’s ongoing inspectional activities. For example, as recently as January 2022, the FDA temporarily postponed, and subsequently resumed in February 2022, certain inspectional activities (e.g., domestic surveillance inspections) due to concerns relating to the safety of its employees and those of the firms it regulates. The FDA has stated that it will continue to reassess its inspectional plans as needed due to the evolving COVID-19 pandemic. Since January 2020, no Apria facilities have been subject to inspection by the FDA, and we are not aware of any planned FDA inspections of any Apria facility. Quality control and manufacturing procedures must continue to conform to cGMPs after certification as a designated medical gas. Additionally, under the FDA’s regulations, we are subject to ongoing post-market requirements. For example, drug manufacturers must report adverse reactions (any undesirable experience associated with the use of a drug, including serious drug side effects, product use errors, product quality problems and therapeutic failures), provide updated safety and efficacy information and comply with requirements concerning advertising and promotional materials and activities. Any post-market regulatory obligations, and the cost of complying with such obligations, could expand in the future.

​

As a medical device distributor, we must rely on device manufacturers and suppliers to comply with regulatory requirements and adhere to the FDA’s cGMP and other quality requirements. We cannot predict whether any issues may arise out of any FDA inspection of their sites or regulation of their operations.

In the United States, the FFDCA, FDA regulations and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution and post-market surveillance. Failure to comply with applicable requirements may subject a company to a variety of administrative or legal sanctions, such as warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution. Unlike manufacturers of medical devices, distributors are generally only required to comply with certain post-market requirements for medical devices, including reporting of complaints and adverse events related to device malfunctions, serious injuries or deaths associated with the medical device. In May 2020, the FDA issued guidance on temporary exceptions for post-market adverse event reporting for companies experiencing reduced workforces due to employee absenteeism as a result of COVID-19. Although continued, regular post-market adverse event reporting is encouraged during the pandemic, the FDA intends to exercise enforcement discretion if certain reports are not submitted to the FDA within the timeframes typically required by statute and regulation, provided that any delayed reports are submitted within six months of the restoration of adverse event reporting processes to their pre-pandemic state. This temporary guidance is limited to the duration of the COVID-19 pandemic, or another period of time as determined by the FDA, after which post-market adverse event reporting requirements will apply in full force and effect.

We distribute an array of “legend devices” or medical devices that are regulated by the FDA and which only can be dispensed pursuant to a valid prescription from an appropriately licensed healthcare provider or restricted to use by a prescribing healthcare provider. Examples of such legend devices include CPAPs, ventilators and concentrators. Note that, due to the COVID-19 pandemic, the FDA has issued guidance on temporary exceptions to the prescription requirement for ventilators in order to expand access to the devices. For example, the FDA is temporarily allowing NIV patient interfaces capable of prescribed breath to be used for patients requiring such ventilatory support. Under the same guidance, CPAP machines may be used to support patients with respiratory insufficiency under appropriate monitoring. These legend devices are commercially available finished medical devices and are not manufactured to our particular specifications. From time to time, for business and competitive reasons, we have entered into primary source agreements with manufacturers of these legend devices. Generally, we do not believe that such agreements pose a material risk that we will be unable to obtain needed devices in the event the manufacturer is disabled from providing a device or in the

27

Table of Contents

event we are prohibited from distributing devices in its inventory due to regulatory issues encountered by the manufacturer. However, these potential risks, and the resulting shortages of product that may occur, can interfere with our business.

Fair Debt Collection Practices Act. Some of our operations may be subject to compliance with certain provisions of the Fair Debt Collection Practices Act and comparable statutes in many states. Under the Fair Debt Collection Practices Act, a third-party collection company is restricted in the methods it uses to contact consumer debtors and elicit payments with respect to placed accounts. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act. We believe we are in substantial compliance with the Fair Debt Collection Practices Act and comparable state statutes where applicable. If our collection practices are viewed as inconsistent with these standards, we may be subject to damages and penalties.

Federal CAN-SPAM Act, Telephone Consumer Protection Act and Telemarketing Sales Rule. Some of our operations may be subject to compliance with certain provisions of the Federal CAN-SPAM Act, the Telephone Consumer Protection Act of 1991 (“TCPA”) and the Telemarketing Sales Rule and Medicare regulations. Under such regulations, companies are restricted in the methods used to contact consumers by email, telephone, and text message, for example, through the use of random or sequential “auto-dialer” type devices. Numerous class-action suits under federal and state laws have been filed in recent years against companies that conduct SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. While the Supreme Court limited the scope of the TCPA’s reach in Facebook v. Duguid, requirements under state telephone contact laws will vary, with some requiring compliance more stringent than that required under the federal TCPA in light of the Supreme Court’s holding. We believe we are in substantial compliance with the federal regulations we are subject to, as well as state equivalents where applicable. The scope and interpretation of the laws that are or may be applicable to the delivery of consumer phone calls, emails and text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations, we could face direct liability, could be required to change some portions of our business model, could face negative publicity and our business, financial condition and results of operations could be adversely affected.

Antitrust Laws. The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-competitive. These laws prohibit price fixing, market allocation, bid-rigging, concerted refusal to deal, market monopolization, price discrimination, tying arrangements, acquisitions of competitors and other practices that have, or may have, an adverse effect on competition. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. Antitrust enforcement in the healthcare sector is currently a priority of the FTC and the DOJ. In addition, the DOJ has been pursuing criminal antitrust enforcement actions for conduct of parties that the DOJ is alleging to be fixing wages or limiting worker mobility. We believe we are in compliance with such federal and state laws, but courts or regulatory authorities may reach a determination in the future that could adversely affect our operations.

Environmental Matters. We are subject to federal, state and local laws and regulations relating to hazardous materials, pollution and the protection of the environment. Such regulations include those governing emissions to air, discharges to water, storage, treatment and disposal of wastes, including medical waste, remediation of contaminated sites and protection of worker health and safety. These laws and regulations frequently change and have become increasingly stringent over time. Non-compliance with these laws and regulations may result in significant fines or penalties or limitations on our operations or claims for remediation costs, as well as alleged personal injury or property damages. We believe our current operations are in substantial compliance with all applicable environmental, health and safety requirements and that we maintain all material permits required to operate our business.

Certain environmental laws and regulations impose strict, and under certain circumstances joint and several, liability for investigation and remediation of the release of regulated substances into the environment. Such liability can be imposed on current or former owners or operators of contaminated sites, or on persons who dispose or arrange for disposal of wastes at a contaminated site. Based on available information, we do not believe that any known compliance obligations, releases or investigations under environmental laws or regulations will have a material adverse effect on our business, financial condition and results of operations. However, there can be no guarantee that these releases or newly-

28

Table of Contents

discovered information, more stringent enforcement of or changes in environmental requirements, or our inability to enforce available indemnification agreements will not result in significant costs.

Intellectual Property

Apria has registered the Apria trademark and numerous related trade names. We also hold numerous other trade names and copyrights which are not material in nature. We do not own or have a license or other rights under any patents that are material to our business.

Seasonality

Our business is sensitive to seasonal fluctuations. Our patients are generally responsible for a greater percentage of the cost of their treatment or therapy during the early months of the year due to co-insurance, co-payments and deductibles, and therefore may defer treatment and services of certain therapies until meeting their annual deductibles. In addition, changes to employer insurance coverage often go into effect at the beginning of each calendar year which may impact eligibility requirements and delay or defer treatment or recognition of revenues. These factors may lead to lower total net revenues and cash flow in the early part of the year and higher total net revenues and cash flow in the latter half of the year. Additionally, the increased incidence of respiratory infections during the winter season may result in initiation of additional respiratory services such as oxygen therapy for certain patient populations. The Company earned 24% of annual net revenues during the three months ended March 31, 2021 and 2020 and earned 26% of annual net revenues during the three months ended December 31, 2021 and 2020. Our quarterly operating results may fluctuate significantly in the future depending on these and other factors.

Human Capital Resources

As of December 31, 2021, we had approximately 6,420 employees, of which approximately 6,080 were full-time and approximately 340 were part-time and per diem. Our human capital resources objectives include attracting and retaining highly motivated, well-qualified employees. Our compensation program is designed to attract, retain and motivate highly qualified employees and executives. We use a mix of competitive salaries and other benefits to attract and retain employees and executives. We believe that our employee relations are good, and we are committed to inclusion and policies and procedures to maintain a safe work environment. The health and safety of our employees, patients and customers are of primary concern. During the COVID-19 pandemic, we have taken significant steps to protect our workforce including but not limited to, working remotely, introducing contact-free operational procedures, procuring personal protective equipment, communicating hygiene and cleaning protocols, and implementing mandatory face-covering usage, self-monitoring processes, and social distancing protocols consistent with guidelines issued by federal, state and local law.

Item 1A. Risk Factors

In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our Company and our business. Any of the following risks could materially and adversely affect our business, financial condition and results of operations.

​

Risks Related to Proposed Merger

​

The failure to complete the transaction announced on January 7, 2022 in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.

​

On January 7, 2022, we announced our entry into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which an indirect, wholly-owned subsidiary (“Merger Sub”) of Owens & Minor, Inc. (“Owens & Minor”) will merge with and into Apria, Inc. (“Apria”), with Apria surviving the merger (the “Merger”). Completion of the Merger is subject to various risks and uncertainties related to, among other things, its terms, timing, structure, benefits, costs and completion; required approvals to complete the Merger by our stockholders and the receipt of certain

29

Table of Contents

regulatory approvals, to the extent required, and the timing and conditions for such approvals; and the satisfaction of the closing conditions to the Merger. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all. Furthermore, there are additional inherent risks in the Merger, including the risks detailed below.

​

During the period prior to the closing of the Merger, our business is exposed to certain inherent risks due to the effect of the announcement or pendency of the Merger on our business relationships, financial condition, operating results and business, including:

​

​

​

​

​

​

​

​

​

The Merger may be delayed, and may ultimately not be completed, due to a number of factors, including:

​

​

​

​

​

If the Merger does not close, our business and stockholders would be exposed to additional risks, including:

​

30

Table of Contents

​

​

​

​

​

​

​

Risks Related to Our Business and Operations

The ongoing COVID-19 pandemic, including the emergence of variant strains of the virus, and the global attempt to contain it may harm our business, results of operations and ability to execute on our business plan.

​

The ongoing COVID-19 pandemic, including the emergence of variant strains of the virus, and the various efforts to contain it have created significant volatility, uncertainty, and economic disruption. The impact of the pandemic has been rapidly evolving around the globe, with several countries and states, at various times, taking drastic measures to limit the spread of the virus by instituting quarantines or lockdowns, imposing travel restrictions and limiting operations of certain non-essential businesses.

​

In response to government mandates, healthcare advisories, and in order to respond to employee, customer, and supplier concerns, we have altered certain aspects of our operations, including acquisition and distribution of personal protective equipment (PPE) to our patient-facing employees, accelerated capital expenditures of certain products and relocation of significant portions of our workforce to “work-from-home” status. Our workforce has had to spend a significant amount of time working from home, which impacts their productivity. While many of our operations can be performed remotely, there is no guarantee that we have been (or will be) as effective given that our team is dispersed, many employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family who become sick), and employees may become sick themselves and unable to work. While the impact of the COVID-19 pandemic, the National Emergency Declaration and the various state and local government imposed stay-at-home restrictions did not have a material adverse impact on our consolidated operating results for the fiscal years ended December 31 2021 and 2020, we experienced declines in net revenues in certain services associated with elective medical procedures and the disruption in physician practices (such as commencement of new CPAP services, ventilation

31

Table of Contents

therapy, negative pressure wound therapy, and other equipment and services) and such declines may continue during the duration of the COVID-19 pandemic. Offsetting these declines in net revenue, we have experienced an increase in net revenue related to increased demand for certain respiratory products (such as oxygen) and increased sales in our resupply business (primarily as a result of the increased ability to contact patients at home as a result of state and local government imposed stay-at-home orders). In response, we have instituted temporary cost mitigation measures such as reduced hours and management of variable labor and operating costs. See “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19 Pandemic.” Similarly, our suppliers and vendors have had their operations altered. COVID-19 has impacted manufacturing in the regions where some of our vendors manufacture their products.

In 2021, the global economy, with certain setbacks, began reopening, and wider distribution of vaccines will likely encourage greater economic activity. However, wide disparities in vaccination rates and continued vaccine hesitancy, combined with the emergence of COVID-19 variants and surges in COVID-19 cases, could trigger the reinstatement of restrictions, including mandatory business shut-downs, travel restrictions, reduced business operations and social distancing requirements, which could dampen or delay any economic recovery and could materially and adversely affect our results and financial condition. In addition, the COVID-19 pandemic continues to disrupt global supply chains, has caused labor shortages and has added broad inflationary pressures. Accordingly, there remains significant uncertainty about the duration and extent of the impact from the COVID-19 pandemic, including its impact on the U.S. economy and consumer confidence, the extent of which depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the acceptance and availability of effective vaccines, the scope and timeline of efforts to support the economy in various markets in which we operate, and the impact of these and other factors on our employees, customers, suppliers and commercial partners. The full extent to which the COVID-19 pandemic and the various responses to it impact our business, operations and financial results will depend on numerous other evolving factors that we are not able to predict, including:

32

Table of Contents

During the COVID-19 pandemic, we may not be able to provide the same level of service and products that our patients and physicians/facility referral sources are used to, which could negatively impact their perception of our products and/or services. Furthermore, given increased government expenditures associated with its response to the COVID-19 pandemic, we could see increased government obligations which could negatively impact reimbursement rates, and accordingly, our results of operations.

We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our patients, employees, customers, and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

The potential effects of the COVID-19 pandemic could also heighten the risks disclosed in many of our risk factors described below, including as a result of, but not limited to, the factors described above. Because the COVID-19 pandemic is unprecedented and continuously evolving, the other potential impacts to our risk factors that are further described below are uncertain.

Our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions.

From time to time, we enter into capitation arrangements with commercial Payors pursuant to which they agree to pay us a set amount (on a per member per month basis for a defined patient population) without regard to the actual services provided. Capitation revenues represented approximately 20% of our total net revenues for 2021. We negotiate the contractual rates in these arrangements with Payors based on assumptions regarding average expected utilization of services. If actual utilization rates exceed our assumptions, the profitability of such arrangements may be diminished. Moreover, we may be obligated to perform under such capitation arrangements even if the contractual reimbursement rates are insufficient to cover our costs based on actual levels of utilization.

Our Payor contracts, including those with organizations that represent a significant portion of our business, are subject to renegotiation or termination which could result in a decrease in our revenue and profits.

From time to time, our Payor contracts are amended (sometimes through unilateral action by Payors regarding payment policy), renegotiated, subjected to a bidding process with our competitors, or terminated altogether. Sometimes in the renegotiation process, certain lines of business may not be renewed or a Payor may enlarge its provider network or otherwise adversely change the way it conducts its business with us. In other cases, a Payor may reduce its provider network in exchange for lower payment rates. Our revenue from a Payor may also be adversely affected if the Payor alters its utilization management expectations and/or administrative procedures for payments and audits, changes its order of preference among the providers to which it refers business or imposes a third-party administrator, network manager or other intermediary. Any reduction in our projected revenues as a result of these or other factors could also lead to impairment of the value of our intangible assets which would result in a decrease in these assets on our balance sheet. We cannot assure you that our Payor contracts will not be terminated or altered in ways that are unfavorable to us as a result of renegotiation or such administrative changes. Terminations or alterations of contracts, particularly those that are concentrated with organizations that represent a significant portion of our business, such as Kaiser Foundation Health Plan, Inc., which represented approximately 24% of our revenues for the year ended December 31, 2021, could have a material effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. Payors may also decide to refer business to their owned provider subsidiaries. Some Payors have developed or acquired, or may in the future develop or acquire, an ownership interest in our competitors or administrative intermediaries. These activities could materially reduce our revenue from these Payors.

Possible changes in the mix of patients and products and services provided, as well as Payor mix and payment methodologies, could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Our revenues are determined by a number of factors, including our mix of patients, the rates of payment among Payors and the mix of our products and services provided. A shift towards Payors with lower prices, or from higher

33

Table of Contents

gross margin products to lower gross margin products, would reduce our gross margins. Changes in the mix of our patients, products and services provided, payment methodologies or the Payor mix among Medicare, Medicaid and commercial Payors could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

We depend on reimbursements by Payors, which could lead to delays and uncertainties in the reimbursement process.

We receive a substantial portion of our payments for our products and services from Payors, including Medicare and Medicaid, national and regional insurers and managed care organizations. For the year ended December 31, 2021, approximately 21% and 1% of our net revenues were reimbursed under arrangements with Medicare and state Medicaid programs, respectively.

The reimbursement process is complex and can involve lengthy delays. Payors continue their efforts to control expenditures for healthcare products and services, including proposals to revise reimbursement policies. While we generally recognize revenue on the date of delivery of equipment to the patient, or as a result of entering into a contract in the case of capitation revenue without regard to the actual services provided, there can be delays before we receive actual payment for these products and services. In addition, Payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that products or services provided were not medically necessary, or that additional supporting documentation is necessary, for one or more reasons, such as retroactive membership status change. Recoupments and retroactive adjustments may change amounts realized from Payors. Certain Payors have filing deadlines and will not pay claims submitted after such deadlines. We are subject to audits of our reimbursement claims under Medicare, Medicaid, 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 our financial position or results and increase the overall costs of our collection efforts.

The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, adopted federal legislation under the “No Surprises Act” (NSA) related to surprise medical billing prohibitions which went into effect on January 1, 2022. The NSA applies to group health plans or health insurance issuers offering group or individual health insurance coverage, self-funded group health plans subject to ERISA, as well as other group health plans under the Internal Revenue Code of 1986. The NSA prohibits out-of-network facilities and providers from billing patients for more than the in-network cost-sharing amounts due under the patients’ insurance for certain emergency, post-stabilization and non-emergency services. The NSA could impact our payments to the extent that we provide, as an out-of-network provider, items or services as part of the treatment of a commercial enrollee for: (1) emergency services at a hospital emergency department or freestanding emergency department for which we bill separately; or (2) non-emergency services at a hospital, hospital outpatient department, critical access hospital or ambulatory surgical center that is in-network with respect to the patient’s commercial insurance and for which we bill separately. The NSA protections do not apply to enrollees in Medicare, Medicaid, TRICARE, or other federal health programs.

Risks associated with collecting reimbursement from Payors and the inability to monitor and manage accounts receivable successfully, including estimating the collectability of certain accounts receivable, could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

If we are unable to provide consistently high quality of care, our business will be adversely impacted.

Providing quality patient care is the cornerstone of our business. We believe that hospitals, physicians and other referral sources refer patients to us in large part because of our reputation for delivering quality care. Clinical quality is becoming increasingly important within our industry. Medicare imposes a financial penalty upon hospitals that have excessive rates of patient readmissions within 30 days from hospital discharge. We believe this provides a competitive advantage to home healthcare providers who can differentiate themselves based upon quality, particularly by achieving low patient acute care hospitalization readmission rates and by implementing disease management programs designed to be responsive to the needs of patients served by referring hospitals. We are focused on improving our patient outcomes. If we should fail to attain our goals regarding patient acute care hospitalization readmission rates and other quality

34

Table of Contents

metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Further, we may need to increase costs, including for clinical labor, to provide our services at appropriate quality levels, which could lead to lower margins.

Our failure to establish and maintain relationships with hospital and physician referral sources may cause our revenue to decline.

We do not have contracts or exclusive arrangements with most hospitals or physicians. Instead, we attempt to work closely with hospitals and physicians to accept discharges and referrals of their patients who require our services. Therefore, our success is significantly dependent on referrals from hospital and physician sources. If we are unable to successfully establish new referral sources and maintain strong relationships with our current referral sources, or if efforts to increase the skill level and effectiveness of our sales force fail, our revenues may decline. In addition, our relationships with referral sources are subject to federal and state healthcare laws such as the AKS and the Stark Law, and compliance with these laws limits the scope of our relationships with our referral sources.

Our failure to successfully design, modify and implement technology and other process changes to maximize productivity and ensure compliance could ultimately have a significant negative impact on our results of operations and financial condition.

We have identified a number of areas throughout our operations where we have modified or intend to modify the current processes or systems in order to attain a higher level of productivity or ensure compliance. The ultimate cost savings expected from the successful design and implementation of such initiatives will be necessary to help offset the impact of Medicare and Medicaid reimbursement reductions and continued downward pressure on pricing. Additionally, Medicare and Medicaid often change their documentation requirements. CMS has taken steps to support electronic data interchange processes, as well as to implement electronic clinical templates and suggested clinical data elements for documenting face-to-face encounters, detailed written orders and written orders prior to delivery, and laboratory test results for certain DMEPOS items. The standards and rules for healthcare transactions, code sets and unique identifiers also continue to evolve, such as ICD-10, HIPAA 5010, and Fast Healthcare Interoperability Resources (“FHIR”), to effectively exchange orders for DMEPOS, associated supplies, medications, and supporting clinical information, and other data security requirements. Moreover, government programs and/or commercial Payors may have difficulty administering new standards and rules for healthcare transactions and this may adversely affect timelines of payment or payment error rates. Our failure to successfully design and implement system or process modifications could have a significant impact on our business, results of operations and financial condition. The implementation of new standards and rules may require us to make substantial investments. Further, the implementation of these system or process changes could have a disruptive effect on related transaction processing and operations. If our implementation efforts related to systems development are unsuccessful, we may need to write-off amounts that we have capitalized related to systems development projects. Additionally, if systems development implementations do not occur, we may need to incur additional costs to support our existing systems.

Our failure to maintain controls and processes over billing and collections, including impacts from the outsourcing or offshoring of parts of our billing and collections activities, estimating the collectability of our accounts receivable or the deterioration of the financial condition of our Payors, could have a significant negative impact on our results of operations and financial condition.

The collection of accounts receivable is one of our most significant challenges and requires constant focus and involvement by management and ongoing enhancements to information systems and billing center operating procedures. Further, some of our patients and Payors may experience financial difficulties, or may otherwise not pay accounts receivable when due, resulting in increased write-offs. The COVID-19 pandemic may exacerbate many of these conditions. See “—The recent coronavirus (COVID-19) pandemic and the global attempt to contain it may harm our business, results of operations and ability to execute on our business plan.” There can be no assurance that we will be able to maintain our current levels of collectability in future periods or accurately estimate the collectability of accounts receivable. If we are unable to properly bill and collect our accounts receivable, our results will be adversely affected.

35

Table of Contents

From time to time, we are involved in disputes with various parties, including Payors and their intermediaries regarding their performance of various contractual or regulatory obligations. These disputes may lead to legal and other proceedings and may cause us to incur costs or experience delays in collections, increases in accounts receivable or loss of revenue. In addition, in the event such disputes are not resolved in our favor and/or result in the termination of our relationships with such parties, there may be an adverse impact on our financial condition and results of operations.

In addition, we have an outsourcing strategy in place with respect to certain billing, collection, administrative and information systems and other services. When permitted, we currently have several offshore and domestic business process outsourcing and services firms to assist with implementing this strategy. There is intense competition around the world for skilled technical professionals and we expect that competition to increase, which could result in our outsourcing strategy not achieving its intended benefits. Operations in other parts of the world involve certain regional geopolitical risks that are different as compared to operating in the United States, including the possibility of civil unrest, terrorism, and substantial regulation by the individual governments. These factors may cause disruptions in our business processes, which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. We also may experience negative reactions from some patients, providers and Payors, as a result of the actual or perceived disruption caused by the outsourcing of portions of our business operations.

Our reliance on relatively few vendors for the majority of our patient equipment and supplies and which are to be imposed on certain manufacturers of such items could adversely affect our ability to operate.

We currently rely on a relatively small number of vendors to provide us with the majority of our patient equipment and supplies, with five of our vendors providing approximately 76% of our total service equipment and supply purchases in the year ended December 31, 2021. From time to time, we also enter into certain exclusive arrangements with a given vendor for the provision of patient equipment and supplies. Further, some of our supply agreements contain pricing scales that depend on meeting certain order volumes. Our inability to procure certain equipment and supplies, including as a result of failure to maintain and renew certain agreements and access arrangements, could have a materially adverse effect on our results of operations. We often use vendors selectively for quality and cost reasons. Significant price increases, or disruptions in the ability to obtain such equipment and supplies from existing vendors, may force us to increase our prices (which we may be unable to do) or reduce our margins and could force us to use alternative vendors. In response to the declaration of a public health emergency due to the COVID-19 pandemic (which has periodically been extended and most recently was extended to expire on April 16, 2022), CMS temporarily suspended all accreditation and reaccreditation activities for DMEPOS suppliers. However, as of July 6, 2020, CMS resumed all accreditation and reaccreditation activities, including surveys, which may be conducted on-site, virtually or a combination of both depending on each state’s reopening plan. Similarly, CMS-approved accreditation organizations, such as The Joint Commission, temporarily suspended survey and review activities, but resumed such activities in June 2020.

Any change in the existing vendors we use could cause delays in the delivery of products and possible losses in revenue, which could adversely affect our results of operations. In addition, alternative vendors may not be available, or may not provide their products and services at similar or favorable prices. If we cannot obtain the patient equipment and supplies we currently use, or alternatives at similar or favorable prices, our ability to provide such products may be severely impacted, which could have an adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

We rely on third parties for certain technology, software, information systems and products.

For certain of our technology, software, information systems and product needs, we rely upon third-party contractors to assist us. If we are unable to utilize such technology, software, information systems or products, we could incur unanticipated expenses, suffer disruptions in service, experience regulatory issues and lose revenue from the operation of such business. Further, some of our technology, software, information systems and products contain components that are developed by third parties. We may not be able to replace the functions provided by these third-party components or products if they become obsolete, defective or incompatible with future versions of our products or with our services and solutions, or if they are not adequately maintained or updated.

36

Table of Contents

We believe we have all the necessary licenses from third parties to use technology, software and intellectual property assets that we do not own. A third party could, however, allege that we are infringing its rights, which may deter our ability to obtain licenses on commercially reasonable terms from the third party, if at all, or cause the third party to commence litigation against us. In addition, we may find it necessary to initiate litigation against a third party to protect our trade secrets, to enforce our intellectual property rights and to determine the scope and validity of any proprietary rights of others. Any such litigation, or the failure to obtain any necessary licenses or other rights, could materially and adversely affect our business. Alternate sources for the technology, software, information systems and products currently provided by third parties to us may not be available to us in a timely manner, and may not provide us with the same functions as currently provided to us or may be more expensive than products we currently use or sell.

Further, the risk of intellectual property infringement claims against us may increase as we expand our business to include more third-party systems and products and continue to incorporate third-party components, software and/or other intellectual property into the products we sell. Also, individuals and firms have purchased intellectual property assets in order to assert claims of infringement against technology providers and customers that use such technology. Any infringement action brought against us or our providers could be costly to defend or lead to an expensive settlement or judgment against us.

Changes or disruption in supplies provided by third parties could adversely affect our business.

As a medical device distributor, we rely on device manufacturers and suppliers to maintain compliance with all applicable regulatory requirements and to deliver products on schedule or in accordance with our expectations. There is a risk that a supplier or manufacturer fails to comply with applicable regulations, including the FDA pre- or post-approval inspections and current cGMP requirements (e.g., violations that could render a product adulterated or misbranded), which could result in the FDA taking administrative or other legal action, as described above. An unfavorable resolution or outcome of any administrative or legal action against a manufacturer or supplier or any other matter that may arise out of any FDA inspection of their facilities could significantly and adversely affect our business. In March 2020, the FDA temporarily paused on-site routine surveillance inspections due to the COVID-19 pandemic. In a guidance issued in August 2020, the FDA explained that it resumed prioritized domestic inspections, such as pre-approval and surveillance inspections and that, for the foreseeable future, such prioritized domestic inspections would be pre-announced. The FDA has continued, on a case-by case basis, to conduct “mission-critical” inspections based on its evaluation of a number of factors related to the public health benefit of U.S. patients having access to the product subject to inspection (e.g., whether the product may have received breakthrough therapy designation or is used to diagnose, treat, or prevent a serious disease or medical condition for which there is no other appropriate substitute). Further, The FDA released a Resiliency Roadmap in May 2021, and an update in November 2021, in which the agency explained that routine surveillance inspections would continue to be conducted based on risk, with a priority to higher-tiered needs. Although the FDA remains committed to conducting mission-critical domestic inspections, there may be future disruptions in the FDA’s ongoing inspectional activities. For example, as recently as January 2022, the FDA temporarily postponed, and subsequently resumed in February 2022, certain inspectional activities (e.g., domestic surveillance inspections) due to concerns relating to the safety of its employees and those of the firms it regulates. The FDA has stated that it will continue to reassess its inspectional plans as needed due to the evolving COVID-19 pandemic. Failure by any such supplier to meet its contractual obligations or to comply with applicable laws or regulations could delay or prevent the manufacture, commercialization, or distribution of our products, and could also result in non-compliance or reputational harm.

As a medical device distributor, we rely on device manufacturers and suppliers to comply with regulatory requirements and adhere to the FDA’s cGMP and other quality requirements. Failure of any our medical device manufacturers or suppliers to comply with applicable requirements may subject the manufacturer or supplier to a variety of administrative or legal sanctions, including, among others, product recalls, product seizures, and total or partial suspension of production or distribution. Any such product recall, product seizure, or suspension of production or distribution enforced against a manufacturer or supplier could result in disruptions in our supply chain or delays in service delivery, as described below. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Philips Respironics Recall.” Further, our reliance on outside manufacturers and suppliers subjects us to risks that could harm our business, including: a risk that we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms; rising cost and constraints in the supply of materials

37

Table of Contents

and/or equipment; a risk that we may have difficulty timely locating and qualifying alternative suppliers or manufacturers; a risk that there may be fluctuations in demand for products that affect our manufacturers’ or suppliers’ ability to deliver products in a timely manner; a risk that the manufacturers or suppliers with which we contract may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing products or components that could negatively impact our product; and a risk that the manufacturers or suppliers with which we contract may encounter financial hardships unrelated to our demand for products or components, which could inhibit their ability to fulfill our orders and meet our requirements. In addition, given the rapid and evolving nature of the pandemic, COVID-19 could negatively affect our suppliers or manufacturers by interrupting, slowing, or rendering our supply chains inoperable. The COVID-19 pandemic also could result in a requirement to utilize alternative, and potentially more expensive, sources of materials or products, or an inability to find such alternative sources of materials or products. It is uncertain how the COVID-19 pandemic will affect our operations generally if these impacts persist or exacerbate over an extended period of time. These impacts could have a material adverse effect on our business and operations.

Identifying and qualifying additional or replacement suppliers, if required, may not be accomplished quickly and could involve significant additional costs. Any interruption or delay in the supply of products, or our inability to obtain products from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demands of our customers and cause providers to refer patients to our competitors and could therefore have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Our operations involve the storage, transportation and provision of compressed and liquid oxygen, which carries an inherent risk of rupture or other accidents with the potential to cause substantial loss.

Our operations are subject to the many hazards inherent in the storage, transportation and provision of medical gas products and compressed and liquid oxygen, including ruptures, leaks and fires. These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage and may result in curtailment or suspension of our related operations. If a significant accident or event occurs, it could adversely affect our business, financial position and results of operations. Additionally, corrective action plans, fines or other sanctions may be levied by government regulators who oversee the storage, transportation and provision of hazardous materials such as compressed or liquid oxygen.

Our business operations are labor intensive. Difficulty in hiring enough additional management and other employees, increasing costs of compensation or employee benefits, and the potential impact of unionization and organizing activities could have an adverse effect on our costs and results of operations.

The success of our business depends upon our ability to attract and retain highly motivated, well-qualified management and other employees. The payment of salaries and benefits to our approximately 6,400 employees is one of our most significant expenses. In addition, we face significant competition in the recruitment of qualified employees, which has in the past resulted in salary and wage increases for certain employee groups. If we are unable to recruit or retain a sufficient number of qualified employees, or if the costs of compensation or employee benefits increase substantially, our ability to deliver services effectively could suffer and our profitability would likely be adversely affected. In addition, union organizing activities have occurred in the past and may occur in the future, and the adverse impact of unionization and organizing activities on our costs and operating results could be substantial.

We are highly dependent upon senior management; our failure to attract and retain key members of senior management could have a material adverse effect on us.

We are highly dependent on the performance and continued efforts of our senior management team. Our future success is dependent on our ability to continue to attract and retain qualified executive officers and senior management. Any inability to manage our operations effectively could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

38

Table of Contents

We may be required to take significant write downs in connection with impairment of our intangible or other long-lived assets.

Intangible and other long-lived assets comprise a significant portion of our total assets. Intangible assets include trade names, capitated relationships, Payor relationships and accreditations with commissions. An impairment review of indefinite-lived intangible assets is conducted at least once a year in connection with the annual audit and if events or changes in circumstances indicate that their carrying value may not be recoverable. Intangible assets with a finite life and other long-lived assets are tested for recoverability whenever changes in circumstances indicate that their carrying value may not be fully recoverable.

Depending on the future business performance of our reporting unit and other events, we may be required to recognize increased levels of future intangible amortization, or incur further charges to recognize the impairment of our assets. Such charges may be significant and may be further adversely impacted by the COVID-19 pandemic. See “—The recent coronavirus (COVID-19) pandemic and the global attempt to contain it may harm our business, results of operations and ability to execute on our business plan.”

Limitations on the availability of capital or other financing sources on reasonable terms, as well as losses due to existing bad or uncollectible debts, could have an adverse impact on our operations, financial condition, or prospects.

Our business requires significant liquidity to fund labor costs, including salaries, bonuses, benefits and travel-related expenses, product and supply costs, third-party customer service, billing and collections and logistics costs and patient equipment capital expenditures. Limitations on the availability of capital or other financing sources, including deferred payment arrangements with key suppliers, could have an adverse impact on our business. In addition, we may be required to seek new or additional equity or debt financing sources. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Furthermore, as we shift our Payor mix toward commercial Payor plans that tend to have higher deductibles, there is a subsequent increase in patient co-pay responsibility and deductible volume which may cause us to be unable to collect on certain debts that individual patients incur. If we are unable to collect on these debts, raise additional capital or access other financing sources on reasonable terms, our operations, financial condition or prospects may be materially and adversely affected.

We are subject to risks associated with our incurrence of debt.

On June 21, 2019, we entered into a credit agreement with Citizens Bank and a syndicate of lenders for both a Term Loan A Facility (the “TLA”) of $150.0 million and a Revolving Credit Facility (the “Revolver” and together with the TLA and the Credit Facility Amendment (as defined below), the “Credit Facility”). Net proceeds from the TLA, together with cash on hand, were used to fund the $175.0 million dividend payment to our common stockholders and holders of stock appreciation rights (“SARs”) declared and paid in June 2019. Accordingly, we did not retain any of the proceeds from the TLA. The TLA matures on June 21, 2024 and we were required to make quarterly principal payments on the TLA beginning June 30, 2020. On December 11, 2020, we entered into an amendment (the “Credit Facility Amendment”) to incur $260.0 million of incremental term loans (the “Incremental Term Loans”). Net proceeds from the Incremental Term Loans were used to fund the $200.3 million dividend payment to our common stockholders and $9.7 million distribution to SARs holders declared and paid in December 2020, with the remaining proceeds used to pay fees and expenses in connection with the Credit Facility Amendment and for general corporate purposes. We expect to refinance, renew or replace the Credit Facility prior to its maturity in June 2024 or to repay it with cash from operations. An inability to refinance our Credit Facility prior to its maturity could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. See “Item 7—Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources—Long-Term Debt” for more information on our Credit Facility.

Further, an increase to our level of indebtedness could:

39

Table of Contents

In the event we incur additional indebtedness, the risks described above could increase. In addition, certain of our variable rate indebtedness uses London Inter-bank Offered Rate (“LIBOR”) as a benchmark for establishing the rate of interest. On March 5, 2021, the United Kingdom's Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that all LIBOR settings will either cease to be provided or no longer be representative (i) immediately after December 31, 2021, in the case of the one-week and two-month US dollar settings, and (ii) immediately after June 30, 2023, in the case of all remaining US dollar settings. Additionally, the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of Currency, and other interagency regulatory bodies advised U.S. banks to stop entering into new USD LIBOR based contracts by December 31, 2021. The Federal Reserve, in conjunction with the Alternative Reference Rate Committee (the “ARRC”), a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us.

Risks Related to Our Industry and Competition

The home healthcare industry is highly competitive and fragmented, with limited barriers to entry which may make it susceptible to vertical integration by manufacturers, Payors, providers (such as hospital systems) or disruptive new entrants.

The home healthcare industry is intensely competitive and highly fragmented, as are each of the service line markets in which we compete. There are a large number of providers, some of which are national providers, but most of which are either regional or local providers, including hospital systems, physician specialists and sleep labs. Furthermore, other types of healthcare providers, including industrial gas manufacturers, home healthcare agencies and health maintenance organizations, have entered and may continue to enter the market to compete with our various service lines. Some of our competitors may now or in the future have greater financial or marketing resources than we do, which may increase pricing pressure and limit our ability to maintain or increase our market share. In addition, in certain markets, competitors may have more effective sales and marketing activities or other products and services that are or perceived to be superior to our own. For example, in the NPWT market, the leading provider who directly competes with our services, we believe, maintains the majority of the market share in the United States. There are relatively few barriers to entry in local home healthcare markets. Hospitals and health systems are routinely looking to provide coverage and better control of post-acute healthcare services, including home healthcare services of the types we provide. Hospitals and/or physician groups who accept capitation amounts that include payment for our services could seek reduced payment arrangements as compared to Payors.

These trends may continue as new payment models evolve, including bundled payment models, shared savings programs, value-based reimbursement and other payment systems.

Further, certain manufacturers or Payors may choose to compete with us in the future, including by integrating vertically with companies in our industry, which could generate new synergies and put us at a competitive disadvantage. A number of manufacturers of home respiratory equipment currently provide equipment directly to patients on a limited basis. Such manufacturers have the ability to provide their equipment at prices below those charged by us, and there can

40

Table of Contents

be no assurance that such direct-to-patient sales efforts will not increase in the future or that such manufacturers will not seek reimbursement contracts directly with our commercial Payors, who could seek to provide equipment directly to patients from the manufacturer. In addition, pharmacy benefit managers, such as CVS Health Corporation, are beginning to compete with us in the home healthcare market. Large technology companies, such as Amazon.com, Inc. and Alphabet Inc., have disrupted other supply businesses and entered the healthcare market, in the case of Amazon.com, Inc. and their new pharmacy offerings, or publicly stated their interest in doing so. In the event such companies enter the home healthcare market, we may experience a loss of referrals or revenue. Similarly, disruptive entrants may adopt a more efficient business model and cause further price reduction, or significant e-commerce competitors could limit our ability to expand our e-commerce business.

We cannot assure you that these and other industry changes and the competitive nature of the home healthcare environment will not adversely affect our business, financial condition, results of operations, cash flow, capital resources, liquidity, or prospects.

We may be adversely affected by consolidation among health insurers and other industry participants.

In recent years, a number of health insurers have merged or increased efforts to consolidate with other non-governmental Payors. Insurers are also increasingly pursuing alignment initiatives with healthcare providers. Consolidation within the health insurance industry may result in insurers having increased negotiating leverage and competitive advantages, such as greater access to performance and pricing data. Our ability to negotiate prices and favorable terms with health insurers in certain markets could be affected negatively as a result of this consolidation. In addition, the shift toward value-based payment models could be accelerated if larger insurers, including those engaging in consolidation activities, find these models to be financially beneficial. There can be no assurance that we will be able to negotiate favorable terms with Payors and otherwise respond effectively to the impact of increased consolidation in the Payor industry or vertical integration efforts.

There is an inherent risk of liability in the provision of healthcare services; damage to our reputation or our failure to adequately insure against losses, including from substantial claims and litigation, could have an adverse impact on our operations, financial condition, or prospects.

There is an inherent risk of liability in the provision of healthcare services. As participants in the healthcare industry, we are and expect to be periodically subject to lawsuits, some of which may involve large claims and significant costs to defend, such as mass tort or other class actions. In that case, the coverage under our insurance programs may not be adequate to protect us. Our insurance policies are subject to annual renewal and our insurance premiums could be subject to material increases in the future. We cannot be assured that we will be able to maintain this insurance on acceptable terms in the future, or at all. A successful claim in excess of, or not covered by, our insurance policies could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. Even where our insurance is adequate to cover claims against us, damage to our reputation in the event of a judgment against us, or continued increases in our insurance costs, could have an adverse effect on our business, financial condition, results of operations, cash flow, capital resources, liquidity, or prospects.

Any economic uncertainty, deepening of any economic downturn, continued deficit spending by the federal government or state budget pressures may result in a reduction in payments and covered services.

Adverse economic or political developments in the United States, including a slowdown of economic growth, disruptions in financial markets, economic downturns, inflation, elevated unemployment levels, sluggish or uneven economic recovery, government deficit reduction, natural and other disasters and public health crises, could lead to a reduction in federal government expenditures, including governmentally funded programs in which we participate, such as Medicare and Medicaid. In addition, if at any time the federal government is not able to meet its debt payments unless the federal debt ceiling is raised, and legislation increasing the debt ceiling is not enacted, the federal government may stop or delay making payments on its obligations, including funding for government programs in which we participate, such as Medicare and Medicaid. Failure of the government to make payments under these programs could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. The COVID-19 pandemic may exacerbate many of these conditions. See “—The recent coronavirus

41

Table of Contents

(COVID-19) pandemic and the global attempt to contain it may harm our business, results of operations and ability to execute on our business plan.” Further, any failure by Congress to complete the federal budget process and fund government operations may result in a federal government shutdown, potentially causing us to incur substantial costs without reimbursement under the Medicare program, which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. For example, the failure of the 2011 Joint Select Committee to meet its deficit reduction goal resulted in an automatic across-the-board reduction in Medicare payments of 2% beginning April 1, 2013. The 2% reduction in Medicare payments has been extended several times by Congress, although in response to COVID-19 the reduction was suspended through December 31, 2021. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law on December 10, 2021, extended the payment reduction suspension at rates of 0% through March 31, 2022, and reinstated Medicare sequestration at 1% from April 1, 2022 through June 30, 2022 and 2% thereafter. The Act also contains a delay of scheduled Medicare payment reductions required by the “Pay As You Go” (or “PAYGO”) provision of the Budget Enforcement Act of 1990, which was intended to offset spending under the American Rescue Plan Act of 2021. This 4% across the board reduction in Medicare payments has been delayed from January 1, 2022 until January 1, 2023.

In addition, sustained unfavorable economic conditions may affect the number of patients enrolled in managed care programs and the profitability of managed care companies, which could result in reduced payment rates and could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Turmoil in the financial markets, including in the capital and credit markets, and any uncertainty over its breadth, depth and duration may put pressure on the global economy and could have a negative effect on our business. Further, historical worldwide financial and credit turmoil could reduce the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide. The shortage of liquidity and credit combined with substantial losses in worldwide equity markets could cause an economic recession in the United States or worldwide. If financial markets in the United States, Europe and Asia experience extreme disruption, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others, governments may take unprecedented actions intended to address extreme market conditions that may include severely restricted credit and declines in real estate values.

Changes in home healthcare technology and/or product and therapy innovations may make the equipment and services we currently provide obsolete or less competitive.

We evaluate changes in home healthcare technology and product innovation on an ongoing basis, for purposes of determining the feasibility of replacing or supplementing items currently included in the equipment and services that we offer to our patients. We consider a variety of factors, including overall quality, functional reliability, availability of supply, Payor reimbursement policies, product features, labor costs associated with the technology, acquisition, repair and ownership costs and overall patient and referral source demand, as well as patient therapeutic and lifestyle benefits. Manufacturers continue to invest in research and development to introduce new products to the marketplace. It is possible that major changes in available technology, Payor benefit or coverage policies related to those changes, or the preferences of patients and referral sources, may cause our current product offerings to become less competitive or obsolete, and it will be necessary for us to adapt to those changes. It is also possible that product innovation may reduce clinical support requirements, thereby reducing our clinical value for some portion of the patient population. Furthermore, if the reimbursement model for certain of our therapies should change, certain products may be offered in alternative channels such as pharmacy, retail, or e-commerce, increasing competitive pressures. Such unanticipated changes could cause us to incur increased capital expenditures and accelerated write-offs, and could force us to alter our sales, operations, and marketing strategies.

Expansion of group purchasing organizations (“GPO”) or provider networks and the multi-tiered costing structure may place us at a competitive disadvantage.

The medical products industry is subject to a multi-tiered costing structure, which can vary by manufacturer and/or product. Under this structure, certain institutions can obtain more favorable prices for medical products than we are able to obtain. The multi-tiered costing structure continues to expand as many large integrated healthcare providers and others

42

Table of Contents

with significant purchasing power, such as GPOs, demand more favorable pricing terms. Additionally, the formation of provider networks and GPOs may shift purchasing decisions to entities or persons with whom we do not have a historical relationship. This may threaten our ability to compete effectively, which could in turn negatively impact our financial results. Although we are seeking to obtain similar terms from manufacturers to obtain access to lower prices demanded by GPO contracts or other contracts, and to develop relationships with provider networks and new GPOs, we cannot assure you that such terms will be obtained or contracts will be executed.

Risks Related to Regulation and Litigation

Our failure to comply with regulatory requirements or receive regulatory clearances or approvals for the Company’s products or operations in the United States could adversely affect our business.

The medical gas products we manufacture and distribute and certain other products we distribute are subject to extensive regulation by the FDA and other federal and state governing authorities. Compliance with FDA, state, and other requirements regarding production, safety, quality, manufacturing, distribution and marketing is costly and time-consuming, and while we seek to be in full compliance, instances of non-compliance could arise from time to time. We cannot be assured that any of our medical gases will be certified by the FDA. We have applied for, and received, designated gas certifications for our medical gas products. We may not be successful in receiving certification in the future. Other potential product manufacturing-related risks include difficulties or delays in product manufacturing, sales, or marketing, which could affect future results through regulatory actions, shutdowns, approval delays, withdrawals, recalls, penalties, supply disruptions or shortages, reputational harm, product liability, and/or unanticipated costs.

Failure to comply with applicable regulatory requirements could result in administrative enforcement action by the FDA or state agencies, which may include any of the following: adverse publicity; warning or untitled letters; fines; injunctions; consent decrees; civil money penalties; recalls; termination of distribution or seizure of our products; operating restrictions or partial suspension or total shutdown of production; delays in the introduction of products into the market; withdrawals or suspensions of current medical gas certifications or drug approvals, resulting in prohibitions on sales of our products; and criminal prosecution. There is also a risk that we may not adequately implement sustainable processes and procedures to maintain regulatory compliance and to address future regulatory agency findings, should they occur. The FDA may change its policies, adopt additional regulations or revise existing regulations, each of which could prevent or delay certification of our medical gases, or could impact our ability to market a device that was previously certified or cleared by the FDA. Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Reductions in Medicare, Medicaid and commercial Payor reimbursement rates and/or exclusion from markets or product lines, including due to the DMEPOS CBP, could have a material adverse effect on our results of operations and financial condition.

We have faced, and expect to continue to face, pricing pressures due to reductions in provider reimbursement for our products and services. For the year ended December 31, 2021, approximately 22% of our net revenues were reimbursed under arrangements with Medicare and state Medicaid programs. There are increasing pressures on Medicare, and state Medicaid programs, to control healthcare costs and to reduce or limit reimbursement rates for home medical equipment and other products. Consistently, legislation enacted by Congress has included provisions that directly impact reimbursement for the products and services we provide, as well as the cost of providing those services, including legislation that requires the DMEPOS CBP to award contracts based on price and capacity to fulfill service requirements. These legislative provisions have had and may continue to have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity. See “Item 1— Business—Government Regulation.”

The competitive bidding process has historically put downward pressure on the amounts we are reimbursed in the markets in which we operate, as well as in areas that are not subject to the DMEPOS CBP. We continue to monitor developments regarding the DMEPOS CBP. In March 2019, CMS announced plans to consolidate the CBAs included in the Round 1 2017 and Round 2 Recompete DMEPOS CBPs into a single round of competition, referred to by CMS as

43

Table of Contents

“Round 2021.” Round 2021 contracts became effective on January 1, 2021 and are expected to extend through December 31, 2023.

On April 9, 2020, CMS announced that, due to the COVID-19 pandemic, CMS removed the NIV product category from Round 2021 of the DMEPOS CBP. CMS noted that the reasons for this change included not only the agency’s ongoing concerns regarding the COVID-19 pandemic, but also the President’s exercise of the Defense Production Act for the production of ventilators, public concern regarding access to ventilators, and the fact that the NIV product category would be new to the DMEPOS CBP. A NIV is a ventilator used with a non-invasive interface (e.g., mask) in contrast to an invasive interface (e.g., tracheostomy tube). Because NIVs have been removed from Round 2021 of the DMEPOS CBP, any Medicare-enrolled DMEPOS supplier can furnish NIVs under the Medicare program.

On October 27, 2020, CMS announced further revisions to Round 2021 of the DMEPOS CBP. Namely, only two out of the original 16 product categories, OTS back braces and OTS knee braces, were included in Round 2021 of the DMEPOS CBP. All other product categories were removed from Round 2021, at least in part because “the payment amounts did not achieve expected savings.” Accordingly, there are no longer any products in our product lines included on the list of products subject to Round 2021 of the DMEPOS CBP.

Following the expiration of all previous DMEPOS CBP contracts on December 31, 2018, CMS implemented new DMEPOS payment policies during the temporary gap in the DMEPOS CBP for DMEPOS items that are paid based on information from the DMEPOS CBP. From January 1, 2019 through December 31, 2020, CMS established separate fee schedule adjustment methodologies for such DMEPOS items for three geographic areas: (1) other non-CBAs (those that are not defined as rural or non-contiguous), (2) rural/non-contiguous areas, and (3) former CBAs. In the “other non-CBAs” category, the payment amounts for DMEPOS items have been adjusted based on 100% of the Adjusted Fee Schedule amount. Because the SPAs generated from the DMEPOS CBP competitions expired on January 1, 2019, the Adjusted Fee Schedule amount has been increased each year by the percentage change in the CPI-U for the 12-month period ending June 30of the year prior to the update going into effect. Accordingly, the Adjusted Fee Schedule was increased by 1.6% for 2020, by 0.6% for 2021, and by 5.4% for 2022. In rural/non-contiguous areas, the payment amounts for DMEPOS items are based on a blended rate of 50% of the non-Adjusted Fee Schedule amount and 50% of the Adjusted Fee Schedule amount. The Adjusted Fee Schedule amount of the blended rate also has been increased each year, by 1.6% for 2020, by 0.6% for 2021, and by 5.4% for 2022. In former CBAs, the payment amounts for DMEPOS items are based on the lower of the supplier’s charge for the item or fee schedule amounts that are based on the SPAs that were in effect in the CBA before the CBP contract ended, increased by the projected percentage change in the CPI-U for the 12-month period on the date after the contract period ended. Accordingly, for 2019, the fee schedule amounts were based on the SPAs in effect on December 31, 2018 for each specific CBA, increased by 2.5%; for 2020, the fee schedule amounts were increased by 2.4%; for 2021, the fee schedule amounts were increased by 0.6%; and for 2022, the fee schedule amounts were increased by 5%. In addition, for items provided in CBAs that were included in Round 2021, but were not awarded contracts, the 2022 fee schedule amounts were increased by 5% (the projected percentage change in the CPI-U for the 12-month period ending January 1, 2022).

The CARES Act introduced a new blended rate for DMEPOS items furnished in “other non-CBAs” that is based on 25% of the non-Adjusted Fee Schedule amount and 75% of the Adjusted Fee Schedule amount, effective March 6, 2020 through the end of the COVID-19 pandemic. For rural/non-contiguous areas, the payment amount for such DMEPOS items will continue to be based on a blended rate of 50% of the non-Adjusted Fee Schedule amount and 50% of the Adjusted Fee Schedule amount until December 31, 2020 or the end of the COVID-19 pandemic, whichever is later. The COVID-19 pandemic has not ended yet, and therefore the payment adjustments required by the CARES Act are still in effect.

In December 2021, CMS issued a final rule establishing methodologies for adjusting the fee schedule payment amounts for such DMEPOS items furnished in non-CBAs, effective February 28, 2022 or the date immediately following the duration of the public health emergency period (which has periodically been extended and most recently was extended to expire on April 16, 2022), whichever is later. CMS will pay 100% of the Adjusted Fee Schedule amount in “other non-CBAs”. CMS will continue paying suppliers higher rates (e.g., at the 50/50 blended rate) for furnishing DMEPOS items in rural/non-contiguous areas. For former CBAs, CMS will pay the SPAs that were in effect in the CBA before the CBP contract ended, increased by the projected percentage change in the CPI-U for the 12-month period on

44

Table of Contents

the date after the contract period ended. Similarly, for items that originally were included in Round 2021 but for which contracts were not awarded, CMS will continue to pay the SPAs that were in effect in the CBA the current fee schedule adjustment rules for non-CBAs, CBAs, and former CBAs until new SPAs are calculated for the items in a future round of the DMEPOS CBP. We believe that this not include NIVs, since they were not included in previous rounds of the DMEPOS CBP and therefore would continue to be paid based on the Medicare DMEPOS fee schedule.

National and regional insurers and managed care organizations also regularly attempt to seek reductions in the prices at which we provide products and services to them and their members, including through direct contracts with healthcare providers, increased oversight and greater enrollment of patients in managed care programs and preferred provider organizations. These commercial Payors are increasingly demanding discounted fee structures, including setting reimbursement rates based on Medicare fee schedules or requiring healthcare providers or suppliers to assume a greater degree of financial risk related to patient care. We have a large number of contractual arrangements with commercial Payors (which includes all Payors other than government Payors) through various national and regional insurers and managed care organizations, which represented approximately 78% of our net revenue in 2021. Most of our commercial Payor contracts have two to five-year terms with an automatic extension unless it otherwise terminates. Most of our contracts are based on price–we generally do not have contracted volume guarantees. We expect that we will continue to maintain our contracts with commercial Payors and enter into more of these contractual arrangements as market conditions evolve. However, there can be no assurance that we will retain or obtain these contracts, or that such plans will not attempt to further reduce the rates they pay to providers. Reimbursement rates under such contracts may not remain at current levels and may not be sufficient to cover the costs of caring for patients enrolled in such programs, which would have a negative impact on our pricing flexibility, changes in Payor mix and growth in operating expenses. Contracts with commercial Payors that generated approximately 1% of our net revenue in 2021 are scheduled to expire in 2022. Increased pricing pressure from commercial Payors could result in us lowering our prices, which could adversely impact our financial condition and results of operations.

We cannot predict the full extent to which reimbursement for our products and cost of operations may be affected by federal and/or state legislative efforts or by initiatives, including future rounds of the CBP, to reduce costs for national and regional insurers and managed care organizations. If we are unable to successfully reduce our costs or increase our volumes, our results would be adversely affected. For example, we may be unable to continue to provide services directly to patients of certain Payors or through contractual arrangements with Payors. This would have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

For further information, see “Item 1—Business—Government Regulation—Medicare and Medicaid Revenues” and “Item 1—Business—Government Regulation—Medicare Reimbursement.”

If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations.

The healthcare sector is heavily regulated, and we are required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:

45

Table of Contents

These federal, state and local laws and regulations are stringent and frequently changing, requiring compliance with burdensome and complex billing and payment, substantiation, and record-keeping requirements. For example, the DME MAC Supplier Manuals provide that clinical information from the “patient’s medical record” is required to justify the medical necessity for the provision of Medicare DMEPOS items. Although we have implemented policies and procedures that are designed to meet Medicare’s documentation requirements, some DME MACs and government auditors have taken the position that, among other things, the “patient’s medical record” refers not to documentation maintained by the DMEPOS supplier but instead to documentation maintained by the patient’s physician, healthcare facility or other clinician, and that clinical information created by the DMEPOS supplier’s personnel and confirmed by the patient’s physician is not sufficient to establish medical necessity. It may be difficult, and sometimes impossible, for us to obtain documentation from other healthcare providers. While we have taken this position into account in refining our policies and procedures, if these or related positions adopted by auditors or regulatory authorities are broadly adopted in administering the Medicare program, it could result in our making refunds and other payments to Medicare and our future revenues from Medicare may be reduced.

Also, with regard to federal and state transparency reporting compliance, we are in the process of conducting a review of our reporting obligations under the Sunshine Act and other corollary state laws. If we have failed to comply in the past, or fail to comply in the future, with the Sunshine Act provisions or similar requirements of state or local regulators, we may be subject to penalties.

More broadly, if we fail to comply with other applicable laws and regulations, we could suffer civil or criminal penalties, including fines, damages, recoupment of overpayments, loss of licenses needed to operate, loss of enrollment and approvals necessary to participate in Medicare, Medicaid and other government and third-party healthcare programs, and exclusion from participation in Medicare, Medicaid and other government healthcare programs. Investors, officers, and managing employees associated with entities found to have committed healthcare fraud also may be excluded from participation in government healthcare programs. Enforcement officials have numerous mechanisms to combat fraud and abuse. Many of these laws and regulations are complex, broad in scope, and have few or narrowly structured exceptions and safe harbors. Further, these laws and regulations are subject to continuing and evolving interpretation by regulatory agencies and courts. New interpretations of existing requirements, new laws or regulations or the enforcement of existing or new laws and regulations, could subject our current practices to allegations of impropriety or illegality or require us to make changes in our operations, facilities, equipment, personnel, services, capital expenditure programs, or operating expenses to comply with evolving requirements. We cannot assure you that we will make any such changes quickly enough or in a cost-efficient manner. Furthermore, suits filed under the FCA, some of which are known as qui tam actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts ultimately paid by the entity to the government in the form of fines or settlements. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of medical device, pharmaceutical and healthcare companies to have to defend FCA actions. When an entity is determined to have violated the federal FCA, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal FCA, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, that apply regardless of Payor.

Any enforcement action against us, even if we successfully defend against it, could cause our reputation to suffer, or cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. To

46

Table of Contents

avoid sanctions and resolve expensive enforcement actions, we may be required to enter into settlement agreements with the government. Typically, such settlement agreements require substantial payments to the government in exchange for the government’s release of its claims and can also include compliance program obligations pursuant to the terms of a Corporate Integrity Agreement with the HHS OIG.

We cannot assure you that current or future legislative initiatives, government regulation or judicial or regulatory interpretations thereof will not have a material adverse effect on us. We cannot assure you that a review of our business by judicial, regulatory or accreditation authorities will not subject us to fines or penalties, require us to expend significant amounts, reduce the demand for our services or otherwise adversely affect our operations.

For further information, see “—We have been, are and could become the subject of federal and state investigations and compliance reviews” below. In addition, see “Item 1— Business—Government Regulation” for a description of the extensive government regulation to which we are subject, including numerous laws directed at regulating reimbursement of our products and services under various government programs and preventing fraud and abuse.

We have been, are and could become the subject of federal and state investigations and compliance reviews.

Our operations, including our billing practices and our arrangements with healthcare providers, are subject to extensive federal and state laws and audits, inquiries, and investigations from government agencies. For example, in connection with the settlement agreements resolving the investigation conducted by the SDNY Office regarding CIDs, we were required to enter into a five-year Corporate Integrity Agreement with the HHS OIG. The CIA provides that Apria will, among other things, impose certain oversight obligations on its board of directors, provide certain management certifications, and continue or implement, as applicable certain compliance training and education. The CIA also requires Apria to engage independent third parties to review compliance with the CIA, as well as certain reporting, certification, record retention and notification requirements. Failure to comply with the obligations under the CIA could have material consequences for Apria including monetary penalties or exclusion from participation in federal healthcare programs. Applicable laws may be directed at payments for the products and services we provide, conduct of our operations, preventing fraud and abuse, and billing and reimbursement from government programs such as Medicare and Medicaid and from commercial Payors. These 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 other healthcare providers.

Federal and state governments have contracted with private entities to audit and recover revenue resulting from payments made in excess of those permitted by federal and state benefit program rules. These entities include, but are not limited to, Recovery Audit Contractors that are responsible for auditing Medicare claims, Unified Program Integrity Contractors that are responsible for the identification of suspected fraud through medical record review and Medicaid Integrity Contractors, that are responsible for auditing Medicaid claims. We believe audits, inquiries, and investigations from these contractors and others will occur from time to time in the ordinary course of our business. We also may be subject to increased audits from commercial Payors and pursuant to federal, civil, and criminal statutes that relate to our billings to commercial Payors. Our efforts to be responsive to these audits, inquiries, and investigations may result in substantial costs and divert management’s time and attention away from the operation of our business. Moreover, an adverse outcome with respect to any audit, inquiry or investigation may result in damage to our reputation, or in fines, penalties or other sanctions imposed on us. Such pending or future audits, inquiries, or investigations, or the public disclosure of such matters, could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

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. Additionally, in many instances, there are only limited publicly available guidelines and methodologies for determining errors with certain audits. As a result, there can be a significant lack of clarity regarding required documentation and audit methodology. The clarity and completeness of each patient medical file, some of which is the work product of physicians not employed by us, is essential to successfully challenging any payment denials. For example, certain provisions under CMS guidance manuals, local coverage determinations, and the DME MAC Supplier Manuals provide that clinical information from the “patient’s medical record” is required to justify the initial and ongoing medical necessity for the provision of DMEPOS. Some DME MACs, CMS staff and other

47

Table of Contents

government contractors have taken the position that the “patient’s medical record” refers not to documentation maintained by the DMEPOS supplier but instead to documentation maintained by the patient’s physician, healthcare facility or other clinician, and that clinical information created by the DMEPOS supplier’s personnel and confirmed by the patient’s physician is not sufficient to establish medical necessity. If treating physicians do not adequately document, among other things, their diagnoses and plans of care, the risks that the Company will be subject to audits and payment denials are likely to increase. Moreover, auditors’ interpretations of these policies are inconsistent and subject to individual interpretation, which could lead to significant increases in individual supplier and industry-wide perceived error rates. High error rates could lead to further audit activity and regulatory burdens, and could result in our making significant refunds and other payments to Medicare and other government programs. Accordingly, our future revenues and cash flows from government healthcare programs may be reduced. Commercial Payors also may conduct audits and may take legal action to recover alleged overpayments. We could be adversely affected in some of the markets in which we operate if the auditing Payor alleges substantial overpayments were made to us due to coding errors or lack of documentation to support medical necessity determinations. We cannot currently predict the adverse impact these measures might have on our financial condition and results of operations, but such impact could be material.

Moreover, provisions of the PPACA implemented by CMS require that overpayments be reported and returned within 60 days of the date on which the overpayment is “identified.” Any overpayment retained after this deadline may be considered an “obligation” for purposes of the False Claims Act, liability for which can result in the imposition of substantial fines and penalties. CMS currently requires a six-year “lookback period,” for reporting and returning overpayments.

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, such a 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. If the government or third parties successfully challenge our interpretation, such a challenge may have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Ongoing federal and state health reform initiatives could adversely affect our operations and business condition.

Economic, political, and regulatory influences at both the federal and state level are continuously causing fundamental changes in the U.S. healthcare industry. In 2010, Congress enacted significant reforms to the U.S. healthcare system. These reforms, primarily contained in the Health Reform Laws, significantly altered the U.S. healthcare system. Since their passage in 2010, the Health Reform Laws have faced various and ongoing legal challenges to repeal or modify those laws or delay the implementation of certain aspects of those laws.

Nevertheless, the core tenets of the Health Reform Laws currently remain in effect, but with several exceptions. The individual mandate penalty was reduced to zero through the Tax Cuts and Jobs Act of 2017, signed into law in December 2017 and effective January 1, 2019. In addition, the Bipartisan Budget Act of 2018, enacted in February 2018, eliminated the Independent Payment Advisory Board, which was a 15-member panel of healthcare experts created by the Health Reform Laws and tasked with making annual cost-cutting recommendations for the Medicare program if Medicare spending exceeded a specified growth rate. In December of 2019, Congress passed the Further Consolidated Appropriations Act, 2020 that repealed several provisions included in the Health Reforms Laws to pay for increased federal spending associated with those laws. Specifically, Congress: (i) repealed the Medical Device Excise Tax, which imposed a 2.3% excise tax on manufacturers, producers and importers of certain medical devices, effective in 2020; (ii) repealed the so-called “Cadillac Tax,” which imposed an excise tax of 40% on premiums of employer-sponsored insurance for individuals and families that exceeded a certain minimum threshold, effective in 2020; and (iii) repealed the health insurance tax, which applies to most fully insured plans, effective in 2021.

The Health Reform Laws also are the subject of ongoing litigation. In particular, a collection of 20 state governors and state attorneys general (subsequently two states have dropped out) filed a lawsuit against the federal government in the Northern District of Texas seeking to enjoin the entire Health Reform Laws following the elimination of the individual mandate penalty in 2019. The District Court ruled that without the penalty the individual mandate was

48

Table of Contents

unconstitutional and that all other provisions of the Health Reform Laws should be overturned as well. The U.S. Court of Appeals for the 5th Circuit affirmed the trial court’s decision; however, instead of deciding whether the rest of the PPACA must be struck down, the 5th Circuit sent the case back to the trial court for additional analysis. In March of 2020, the United States Supreme Court granted cert in the case, and on November 10, 2020 heard oral arguments. On June 17, 2021, the Supreme Court held that the plaintiffs lacked standing and reversed the Fifth Circuit’s judgment in respect to standing, vacated the Fifth Circuit’s judgment, and remanded the case with instructions to dismiss the case. Subsequently the Fifth Circuit vacated the judgement of the District Court in its entirety and remanded the case to the District Court with instructions to dismiss the case. The District Court dismissed the case on July 27, 2021.

We anticipate that federal and state governments will continue to review and assess alternative healthcare delivery systems and payment methodologies, and that public debate regarding these issues will continue in the future. Changes in the law or new interpretations of existing laws can have a substantial effect on permissible activities, the relative costs associated with doing business in the healthcare industry, and the amount of reimbursement available from government and other Payors. Any repeal or modification of the Health Reform Laws may have a material and adverse impact on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

We may be adversely affected by Congress’ elimination of the PPACA’s individual mandate penalty.

The provisions of the PPACA that penalized Americans if they failed to maintain a basic level of health insurance coverage, commonly referred to as the law’s “individual mandate penalty,” were effectively repealed through the Tax Cuts and Jobs Act of 2017, when Congress reduced the penalty to zero dollars. The elimination of the individual mandate penalty may have the ongoing effect of increasing instability and financial disruption in the market for health insurance in 2021 and beyond, as a population of patients who may previously have obtained coverage because they were required to under the PPACA may choose now to enroll in less expensive and less robust insurance products or to drop their coverage altogether. The repeal became effective January 1, 2019 but such choices may continue to materialize as more patients are made aware of the elimination of the individual mandate penalty. At the same time as a result of a changing administration and changes in Congress, it is possible that the individual mandate could be reinstated. These and other risks and uncertainties resulting from the elimination of the individual mandate penalty may have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

If we fail to maintain required licenses, certifications, or accreditation, or if we do not fully comply with requirements to provide notice to or obtain approval from regulatory authorities due to changes in our ownership structure or operation, it could adversely impact our operations.

We are required to maintain state and/or federal licenses and certifications for our operations and facilities. In addition, certain employees, primarily those with clinical expertise in pharmacy, respiratory therapy, and nutrition, are required to maintain licenses in the states in which they practice. From time to time, we may become subject to new or different licensing requirements due to legislative or regulatory requirements or the development of or changes to our business. Accurate licensure is also a critical threshold issue for Medicare enrollment and for participation in the Medicare DMEPOS CBP. We are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and certifications, some of which are complex and may be unclear or subject to varying interpretation. In response to the declaration of a public health emergency due to the COVID-19 pandemic (which has periodically been extended and most recently was extended to expire on April 16, 2022), CMS instituted flexibilities related to the DMEPOS supplier standards and temporarily suspended all DMEPOS supplier enrollment site visits in order to ease provider burden during the COVID-19 pandemic. However, as of July 6, 2020, CMS has resumed all DMEPOS supplier enrollment site visits, and is no longer waiving certain DMEPOS supplier standards. Although we believe we have the right systems in place to monitor licensure and certification, our failure, or the failure of one or more of our clinicians, to maintain appropriate licensure or certification for our operations, facilities, and clinicians could result in interruptions in our operations and our ability to service patients, refunds to state and/or federal Payors, and the imposition of sanctions or fines, which could have an adverse and material impact on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

49

Table of Contents

Accreditation is required by most major commercial Payors and is a mandatory requirement for all Medicare DMEPOS suppliers. In response to the declaration of a public health emergency due to the COVID-19 pandemic (which has periodically been extended and most recently was extended to expire on April 16, 2022), CMS temporarily suspended all accreditation and reaccreditation activities for DMEPOS suppliers. However, as of July 6, 2020, CMS resumed all accreditation and reaccreditation activities, including surveys, which may be conducted on-site, virtually or a combination of both depending on each state’s reopening plan. We and all of our branch locations are currently accredited by The Joint Commission. If we or any of our branch locations should lose accreditation, or if any of our new branch locations are unable to become accredited, our failure to maintain our accreditation or become accredited could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

The requirements for licensure and certification may include notification or approval in the event of a transfer or change of ownership or certain other changes. Agencies or commercial Payors with which we have contracts may have similar requirements and some of those processes may be complex. Failure to provide required notifications or obtain the requisite approvals could result in the delay or inability to complete an acquisition or transfer, loss of licensure, lapses in reimbursement or other penalties. While we make reasonable efforts to substantially comply with these requirements, if we are found to have failed to comply in some material respect, it could have an adverse or material impact on our business and our financial conditions.

Recalls of any of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products could have a significant adverse impact on our business.

The FDA has authority to request the recall of medical gas products or medical devices in the event a product presents a risk of illness or injury or gross consumer deception, such as due to a material deficiency or defect in design, labeling or manufacture of a product, and a cessation of distribution and/or recall is necessary to protect the public health and welfare. If after providing the Company or the manufacturer with an opportunity to consult with the agency, the FDA finds that there is a reasonable probability that a device intended for human use would cause serious, adverse health consequences or death, the FDA has the power to mandate a recall of medical devices. Manufacturers may also, under their own initiative, recall a product if any material deficiency in a drug is identified or withdraw a product for other reasons. Any major recall would divert management attention and financial resources from the operation of our business, could cause the price of our stock to decline and expose us to product liability or other claims and harm our reputation with customers. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Philips Respironics Recall.” If we do not adequately address problems associated with our drugs or devices, we may face additional regulatory enforcement action, FDA warning letters, product seizure, injunctions, administrative penalties, civil money penalties or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales, or significant adverse publicity of regulatory consequences, which could harm our business.

We may be subject to fines, penalties, or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and our business.

Our promotional materials and training methods must comply with the FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical gas or medical device for a use that has not been cleared or approved by the FDA. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use that is either false or misleading, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Corporate officers may be subject to a misdemeanor penalty (and possible subsequent felony) under the FFDCA for alleged violations of the FFDCA.

The Park Doctrine, as established by the U.S. Supreme Court, provides that a responsible corporate official can be held liable for a first-time misdemeanor (and possible subsequent felony) for a company’s alleged violations of the

50

Table of Contents

FFDCA without proof that the corporate official participated in, had intent or negligence, or was even aware of the violations. In pursuing such a charge, the government need only demonstrate that the official was in a position of authority to prevent or correct the alleged violation. Under Section 303(f)(1) of the FFDCA (21 U.S.C. § 333), a person who violates a requirement relating to a device can be liable for a civil penalty for all violations adjudicated in a single proceeding, except for those relating to cGMPs and medical device reporting violations that do not constitute a significant or knowing departure from requirements or a risk to public health; filth violations in devices that are not otherwise defective; and minor violations relating to device tracking and correction and removal reporting requirements if the person shows substantial compliance with such provisions. The FDA may use misdemeanor prosecution as an enforcement tool and will refer the prosecutions to the DOJ. Once a person has been convicted of a misdemeanor under the FFDCA, any subsequent violation is a felony, even without proof that the responsible corporate official acted with the intent to defraud or mislead. In some cases, a misdemeanor conviction of an individual may serve as the basis for debarment by the FDA. The maximum civil money penalty amounts are periodically adjusted for inflation. If the DOJ were to pursue such a misdemeanor or felony prosecution against a responsible corporate official of the Company, it could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Our medical gas facilities and operations are subject to extensive regulation by federal and state authorities and there can be no assurance that our medical gas facilities will achieve and maintain compliance with such regulations.

We have a number of medical gas facilities in several states. These facilities are subject to federal and state regulatory requirements. Our medical gas facilities and operations are subject to extensive regulation by the FDA and other federal and state authorities. The FDA regulates medical gases, including medical oxygen, pursuant to its authority under the FFDCA. Among other requirements, the FDA’s cGMP regulations impose certain quality control, documentation, and recordkeeping requirements on the receipt, processing, and distribution of medical gas. Further, in each state where we operate medical gas facilities, we are subject to regulation under state health and safety laws, which vary from state to state. The FDA and state authorities conduct periodic, unannounced inspections at medical gas facilities to assess compliance with the cGMP and other regulations. For further information, see “—Risks Related to Our Business and Operation—Changes or disruption in supplies provided by third parties could adversely affect our business” above.

We expend significant time, money, and resources in an effort to achieve substantial compliance with the cGMP regulations and other federal and state law requirements at each of our medical gas facilities. There can be no assurance, however, that these efforts will be successful and that our medical gas facilities will achieve and maintain compliance with federal and state laws and regulations. Our failure to achieve and maintain regulatory compliance at our medical gas facilities could result in enforcement action, including warning letters, fines, product recalls or seizures, temporary or permanent injunctions, or suspensions in operations at one or more locations, as well as civil or criminal penalties, all of which could materially harm our business, financial condition, results of operations, cash flow, capital resources, and liquidity.

A cyber-attack, a security breach or the improper disclosure of PHI could cause a loss of confidential data, give rise to remediation and other expenses, expose us to liability under HIPAA and HITECH, consumer protection, common law or other legal theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.

We rely extensively on our information technology (“IT”) systems to bill patients and Payors, to manage clinical and financial data, to communicate with our consumers, Payors, vendors and other third parties, and to summarize and analyze our operating results. Although we have implemented various policies, procedures and other security measures to protect our IT systems and data and face ongoing cyber-attacks and threats, there can be no assurance that we will not be subject to a cyber-attack, a security breach or the improper disclosure or use of PHI in the future. Such attacks or breaches could result in loss of protected patient medical data or other information subject to privacy laws or disrupt our information technology systems or business, potentially exposing us to regulatory action, litigation and liability.

The healthcare industry has been and continues to be a target for cyber-attacks and the number of threats has only increased during the COVID-19 pandemic. Numerous federal agencies that monitor and regulate internet and cyber-

51

Table of Contents

crime have issued guidance, alerts and directives warning of software vulnerabilities that require immediate patching, malicious actors targeting healthcare related systems and nation state sponsored hacking designed to steal valuable information, including COVID-19 vaccine and treatment research.

As required by HIPAA, the U.S. Department of Health and Human Services (“HHS”) has issued privacy and security regulations that extensively regulate the disclosure and use of PHI and require covered entities, including healthcare providers and health plans, and vendors known as “business associates,” to implement administrative, physical and technical safeguards to protect the security of PHI. Covered entities and/or their business associates must report breaches of unsecured PHI without unreasonable delay to the HHS Office for Civil Rights (“OCR”), under certain circumstances to affected individuals and, in the case of larger breaches, the media. Violations of the HIPAA privacy and security regulations may result in significant criminal and civil penalties. The HIPAA privacy, security, and breach notification regulations have imposed, and will continue to impose, significant compliance costs on our operations.

HHS’ goal, as directed by HITECH, was to improve the nation’s healthcare system by enabling health information to follow the patient wherever and whenever it is needed. ONC and OCR worked together on a number of projects to ensure that this electronic exchange of health information was built on a foundation of privacy and security. OCR introduced revised HIPAA regulations to expand individuals’ rights to access their information and restrict certain disclosures of PHI to health plans, extend the applicability of certain of the Privacy and Security Rules’ requirements to the business associates of covered entities, establish new limitations on the use and disclosure of PHI for marketing and fundraising purposes, and prohibit the sale of PHI without patient authorization. In addition, the rules were designed to strengthen and expand OCR’s ability to enforce HIPAA’s Privacy and Security provisions and to strengthen the privacy and security of health information, and were integral in broadening the use of health IT in healthcare today.

Furthermore, under the administrative simplification provisions in HIPAA and the PPACA, CMS set national standards that require the use of uniform electronic transactions, establish code sets, and define unique identifiers to standardize business practices to simplify communications with insurers for healthcare claims and simplify payment transactions submitted or received electronically. CMS administers the Compliance Review Program to ensure compliance among covered entities with HIPAA Administrative Simplification rules for electronic healthcare transactions that include imposing civil money penalties on covered entities that violate any HIPAA Administrative Simplification requirements.

The 21st Century Cures Act gave broad authority to the ONC to require that all electronic health information be accessible without special effort by the user. The regulations that were finalized in June 2020 require the use of open or standardized Application Programming Interfaces (“APIs”) so that individuals can access their health information securely and easily through apps on their phones and other devices. The ONC Rules also prohibit “information blocking,” defined as a practice that is likely to interfere with access, exchange, or use of electronic health information. The ONC rules apply to healthcare providers and may impact our operations and IT interfaces and systems as interoperability continues to evolve and as the definition of information blocking is more clearly defined through HHS OIG rulemaking, oversight, and enforcement. In December 2020, the ONC issued Proposed Modifications to the HIPAA Privacy Rule to Support, and Remove Barriers to, Coordinated Care and Individual Engagement (this proposed rule was published in the Federal Register on January 21, 2021). These proposed HIPAA modifications are meant to streamline patient access and improve information sharing through standardized APIs and the use of third-party mobile applications. In order to do so, OCR has proposed modifications to the individuals’ right of access to their protected health information, putting patients in charge of their health records and giving patients and their families more control over their healthcare choices. On March 9, 2021, HHS re-opened the comment period in anticipation of a high degree of interest in the HIPAA Privacy Rule modifications and to give the public ample opportunity to provide input on the proposals because the HIPAA Privacy Rule affects nearly anyone who interacts with the healthcare system. While these HIPAA Privacy Rule modifications are still in the proposed phase of rulemaking, in order to remain HIPAA compliant when the new rules are finalized and implemented, healthcare providers may need to modernize their information technology capabilities and update internal policies and procedures, as well as business associate agreements.

In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection. For instance, the CCPA became effective on January 1, 2020 and gives California

52

Table of Contents

residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered businesses to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Despite its broad scope, the CCPA does create certain exemptions designed around HIPAA. For example, the CCPA does not apply to medical information as defined in the California Confidentiality of Medical Information Act (“CCMIA”) or PHI as defined by HIPAA, which is collected by a covered entity or business associate. In addition, in November 2020, Californians approved the CPRA, which modifies and expands the CCPA and established a new California Privacy Protection Agency. The CPRA established January 1, 2023 as the new compliance date for most of the other substantive provisions of the CPRA. In addition to applying to businesses that buy and sell personal information the CPRA applies to businesses that buy, sell or share personal information and sets forth a new category of “sensitive personal information” that includes, genetic data; biometric or health information; and sex life or sexual orientation information. In addition to the modifications that enhance individuals’ rights under the CCPA, the CPRA added five more rights, including the authority for the State to regulate the requirement for businesses to conduct risk assessments and cybersecurity audits. There is still a significant amount of uncertainty with respect to the CPRA’s three-year compliance roll-out that may increase our compliance costs and potential liability. Virginia and Colorado have enacted similar laws to provide for the protection of consumer privacy, while numerous other states have similar laws under consideration.

With respect to data safeguards laws, there are a number of states that have passed legislation, most notably New York’s Stop Hacks and Improve Electronic Data Security Act (the “SHIELD Act”), signed into law in July 2019, that requires any person or business owning or licensing computerized data that includes the private information of a resident of New York to implement and maintain reasonable safeguards to protect the security, confidentiality, and integrity of the private information. While entities subject to HIPAA are deemed to be in compliance with the security provisions of the SHIELD Act, the SHIELD Act does require such entities to provide notice to the New York Attorney General in the event of a breach of personal information.

There are other similar state privacy laws and data safeguards laws and there have been many efforts to propose similar comprehensive privacy laws at the federal level. Despite the increased interest in data protection, the legal paradigms governing the security and privacy of personal data are complex and technical, and lack uniformity at the federal level. There remains no single federal law that comprehensively regulates the collection and use of personal data.

In the absence of comprehensive federal legislation, there remains a patchwork of numerous laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. These laws vary and may impose additional obligations or penalties. For example, various state laws and regulations may require us to notify affected individuals in the event of a data breach involving individually identifiable information (even if no health-related information is involved). The FTC and many state attorneys general are interpreting existing federal and state consumer protection laws to impose evolving standards for the online collection, use, dissemination and security of health-related and other personal information. Courts may also adopt the standards for fair information practices promulgated by the FTC, which concern consumer notice, choice, security and access. Consumer protection laws require us to publish statements that describe how we handle personal information and choices individuals may have about the way we handle their personal information. If such information that we publish is considered untrue, it may be subject to government claims of unfair or deceptive trade practices, which could lead to significant liabilities and consequences. Furthermore, according to the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5 of the FTC Act.

Under the Federal CAN-SPAM Act, the TCPA and the Telemarketing Sales Rule and Medicare regulations, we are limited in the ways in which we can market our products and services by use of email, text or telephone marketing. The CAN-SPAM Act also prohibits and protects consumers against all auto-dialed or pre-recorded calls or text messages to an individual’s cell phone. The actual or perceived improper making of telephone calls or sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws. Numerous class-action suits under federal and state laws have been filed in recent years against companies that conduct SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such litigation against us could be

53

Table of Contents

costly and time-consuming to defend. For example, the TCPA, a federal statute that protects consumers from certain unwanted telephone calls, faxes and text messages, restricts telemarketing and the use of automated SMS text messages without proper consent. Additionally, state regulators may determine that telephone calls to our patients are subject to state telemarketing regulations. If we do not comply with existing or new laws and regulations related to telephone contacts or patient health information, we could be subject to criminal or civil sanctions. New health information standards, whether implemented pursuant to HIPAA, HITECH, the PPACA, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare-related data and communications with Payors, and the cost of complying with these standards could be significant. The scope and interpretation of the laws that are or may be applicable to the delivery of consumer phone calls, emails and text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations, we could face direct liability, could be required to change some portions of our business model, and could face negative publicity and our business, financial condition and results of operations could be adversely affected. Even an unsuccessful challenge of our phone, email or SMS text practices by consumers, regulatory authorities or other third parties could result in negative publicity and could require a costly response from and defense by us.

Compliance with changes in privacy and information security laws and with rapidly evolving industry standards may result in our incurring significant expense due to increased investment in technology and the development of new operational processes. Further, to the extent we fail to comply with one or more federal and/or state privacy and security requirements or if we are found to be responsible for the non-compliance of our vendors, we could be subject to substantial fines or penalties, damage to our reputation, as well as third-party claims which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Risks Related Ownership of our Common Stock

The interests of our Sponsor may conflict with ours or yours in the future.

As of February 18, 2022, our Sponsor and its affiliates beneficially own approximately 39.8% of our common stock Under our amended and restated bylaws and the stockholders agreement with our Sponsor and its affiliates, for so long as our pre-IPO owners and their affiliates retain significant ownership of us, we will agree to nominate to our board individuals designated by our Sponsor, whom we refer to as the “Sponsor Directors.” For so long as our Sponsor continues to own a significant percentage of our stock, our Sponsor will still be able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval through their voting power. Accordingly, for such period of time, our Sponsor will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as our Sponsor continues to own a significant percentage of our stock, our Sponsor will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of our company and ultimately might affect the market price of our common stock. Additionally, our Sponsor may assign its rights under the stockholders agreement to a third party without our consent, for example, in connection with a privately negotiated sale of all or a portion of our Sponsor’s holdings of our common stock to a third party. Such third party would then have the right to designate individuals to be nominated to our board, as well as other rights under the stockholders agreement. The interests of our Sponsor or any such third party with respect to such rights may conflict with our interests or your interests in the future.

Our Sponsor and its affiliates engage in a broad spectrum of activities, including investments in the healthcare services industry. In the ordinary course of their business activities, our Sponsor and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. Our amended and restated certificate of incorporation provides that none of our Sponsor, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or his or her affiliates, has any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Our Sponsor also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, our Sponsor may have an interest in our pursuing acquisitions, divestitures and other

54

Table of Contents

transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to us and our stockholders.

We are a holding company with no operations of our own and we are accordingly dependent upon distributions from our subsidiaries to pay taxes and pay dividends.

We are a holding company and our operations are conducted entirely through our subsidiaries. Our ability to generate cash to pay applicable taxes at assumed tax rates and pay cash dividends we declare, if any, is dependent on the earnings and the receipt of funds from Apria Healthcare Group and its subsidiaries via dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of Apria Healthcare Group and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

Because we have no current plans to pay dividends on our common stock, you may not receive any return on your investment unless you sell your common stock for a price greater than that which you paid for it.

We have no current plans to pay dividends. The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends is limited by our existing indebtedness and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future. As a result, you may not receive any return on an investment in our common stock unless you sell your shares of our common stock for a price greater than that which you paid for them.

You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise.

As of February 18, 2022, we had approximately 964.4 million shares of common stock authorized but unissued. Our amended and restated certificate of incorporation authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. Additionally:

Any common stock that we issue, including under our Omnibus Incentive Plan, the 2015 Plan, the 2019 LTIP or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by investors in our common stock.

55

Table of Contents

Future issuances of common stock by us, and the availability for resale of shares held by certain investors, may cause the market price of our common stock to decline.

​

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could substantially decrease the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for you to sell your common stock in the future at a time and at a price that you deem appropriate, if at all.

​

Pursuant to a registration rights agreements, Blackstone has the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act covering resales of our common stock held by them. These shares represented approximately 39.9% of our outstanding common stock as of December 31, 2021. These shares also may be sold pursuant to Rule 144 under the Securities Act, subject to certain restrictions. As restrictions on resale end or if stockholders exercise their registration rights, the market price of our stock could decline if the holders of restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities or to use our shares of common stock as consideration for acquisitions of other businesses, investments or other corporate purposes.

Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things, these provisions:

56

Table of Contents

We have opted out of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”); however, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless the transaction fits within an enumerated exception, such as board approval of the business combination or the transaction that resulted in a person becoming an interested stockholder prior to the time such person became an interested stockholder. Our amended and restated certificate of incorporation provides that our Sponsor and its affiliates, and any of their respective direct or indirect transferees, and any group as to which such persons are a party, do not constitute “interested stockholders” for purposes of this provision. These anti-takeover provisions and other provisions under our amended and restated certificate of incorporation, amended and restated by laws or Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or the Company’s directors, officers or other employees.

Our amended and restated certificate of incorporation provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (1) derivative action or proceeding brought on behalf of our Company, (2) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee or stockholder of our Company to the Company or the Company’s stockholders, (3) action asserting a claim against the Company or any current or former director or officer of the Company arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) action asserting a claim against us or any director or officer of the Company governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States of

57

Table of Contents

America. Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have provided consent to the forum provisions in our amended and restated certificate of incorporation. These choice-of-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable or convenient for disputes with the Company or the Company’s directors, officers, other employees or stockholders, which may discourage such lawsuits. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

General Risk Factors

Natural disasters or other catastrophic events could materially disrupt and have a negative effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Natural disasters, such as hurricanes or earthquakes, could disrupt our ability to do business. For example, such events could result in physical damage to one or more of our properties, the temporary closure of one or more of our locations, the temporary inability to process payroll or process claims, a negative effect in our ability to comply with certain licensing requirements, and/or a delay in the delivery of products and the provision of our service offerings. These events could also reduce demand for our products and service offerings, or make it difficult or impossible to receive products from suppliers. We may be required to suspend operations in some of our branch locations, which could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Future acquisitions or growth initiatives may be unsuccessful and could expose us to unforeseen liabilities.

Our strategic growth plan may involve acquisition of other companies. Any such acquisitions would involve a number of risks and uncertainties, including: difficulties related to combining previously separate businesses into a single unit, including patient transitions, product and service offerings, distribution and operational capabilities and business cultures; loss of patients, providers and Payors and other general business disruption; assumption of liabilities of an acquired business, including unforeseen or contingent liabilities or liabilities in excess of the amounts estimated; and obtaining necessary regulatory licenses and Payor-specific approvals, which may impact the timing of when we are able to bill and collect for services rendered.

The failure to effectively integrate an acquired business in a cost-effective manner could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources, liquidity or prospects. In addition, we may not be able to realize the potential cost savings, synergies and revenue enhancements that we anticipate from any acquisitions, either in the amount or within the time frame that we expect, and the costs of achieving these benefits may be higher than, and the timing may differ from, what we expect. If we fail to realize anticipated cost savings, synergies or revenue enhancements, our financial results will be adversely affected.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits, make it more difficult to run our business or divert management’s attention from our business.

As a public company, we will be required to commit significant resources and management time and attention to the requirements of being a public company, which will cause us to incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also will incur costs associated with the Sarbanes-Oxley Act and related rules implemented by the SEC and Nasdaq, and compliance with these requirements will place significant demands on our legal, accounting and finance staff and on our accounting, financial and information systems. In addition, we might not be successful in implementing these requirements. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to

58

Table of Contents

make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

The market price of shares of our common stock may be volatile or may decline regardless of our operating performance, which could cause the value of your investment to decline.

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our common stock could decrease significantly.

Stock markets have recently experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease our headquarters, located in Indianapolis, Indiana, which consists of approximately 83,000 square feet of office space, a distribution facility and a branch location. The lease expires on March 31, 2026.

We have approximately 280 branch locations that are capable of reaching over 90% of the U.S. population, as well as regional distribution and repair centers, customer service and billing centers, a national pharmacy and a biomedical center for the repair, maintenance and distribution of patient equipment. The regional distribution facilities are typically located in light industrial areas and generally range from 48,000 to 88,000 square feet. The typical branch location

59

Table of Contents

facility is a combination warehouse and office and can range from 1,000 to 23,000 square feet. We lease substantially all of our facilities with lease terms of five years or less.

Item 3. Legal Proceedings

Civil Investigative Demand Issued by the United States Attorney’s Office for the Southern District of New York. In December 2020, a federal judge approved a civil and administrative settlement Apria recently entered into with the United States and state Medicaid programs, in a complaint filed by three relators under the qui tam provisions of the FCA, 31 U.S.C. § 3729 et seq., as well as comparable state false claims laws, in connection with the rental of NIVs. Apria also entered into separate settlements to resolve the relators’ claims brought on behalf of the states of California and Illinois related to NIV covered by private insurers. The matter had been pending since 2017.

The government had alleged that Apria violated the FCA by submitting false claims seeking reimbursement for NIVs which were not being used, or not being used sufficiently, by patients, for NIVs which were being used pursuant to physician orders on a device setting which was available from other less expensive devices, and for improperly waiving co-pays to induce beneficiaries to rent NIVs. To resolve any potential liability, Apria agreed to enter a civil settlement agreement and to pay $40 million to the federal government and the states. Apria also agreed with the California Department of Insurance to pay $500,000 to resolve claims asserted by the relators under the California Insurance Frauds Prevention Act, Cal. Ins. Code § 1871 et seq. Apria separately agreed with the relators to pay approximately $3.6 million to settle all remaining claims from their complaint, including: (1) claims for retaliation in violation of federal and state laws; (2) claims for attorneys’ fees and costs available under federal and state law; and (3) claims under the Illinois Insurance Claims Fraud Prevention Act, 740 Ill. Comp. Stat. 92/1 et seq. Apria did not admit that any of its conduct was illegal or otherwise improper.

As part of the federal and state Medicaid settlement, Apria also entered into a five-year CIA with the HHS OIG. The CIA requires Apria to maintain its ongoing corporate compliance program and obligates Apria to implement or continue, as applicable, a set of defined corporate integrity activities for a period of five years from the effective date of the CIA. Among other things, the CIA requires Apria to impose certain oversight obligations on Apria’s board of directors; provide certain management certifications; continue or implement, as applicable, certain compliance training and education; and engage an Independent Review Organization to perform certain reviews. The CIA also includes certain reporting, certification, record retention, and notification requirements. In the event of a breach of the CIA, Apria could become liable for payment of certain stipulated penalties or could be excluded from participation in federal healthcare programs.

Other Litigation. We are engaged in the defense of certain other claims and lawsuits arising out of the ordinary course and conduct of our business, the outcomes of which are not determinable at this time. Insurance policies covering such potential losses, where such coverage is cost effective, are maintained. In the opinion of management, any liability that might be incurred upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

Our common stock began trading on the Nasdaq Global Select Market under the symbol “APR” on February 11, 2021. Prior to that date, there was no public trading market for our common stock. As of February 18, 2022, there were approximately 22 holders of record of our common stock. Because many of our shares of common stock are held by

60

Table of Contents

brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividend Policy

We have no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries. In addition, our ability to pay dividends will be limited by covenants in our existing indebtedness and may be limited by the agreements governing any indebtedness we or our subsidiaries may incur in the future.

Issuer Purchases of Equity Securities

None

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of Apria, Inc. (the “Company,” “our,” or “we”) and its subsidiaries financial condition and results of operations should be read in conjunction with our audited financial statements and related notes thereto included elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Certain factors that could cause such differences are discussed in “Forward-Looking Information; Risk Factor Summary” and “Part I, Item 1A. Risk Factors” in this report.

Our Company

We are a leading provider of integrated home healthcare equipment and related services in the United States. We offer a comprehensive range of products and services for in-home care and delivery across three core service lines: (1) home respiratory therapy (including home oxygen and NIV services); (2) OSA treatment (including CPAP and bi-level positive airway pressure devices, and patient support services); and (3) NPWT. Additionally, we supply a wide range of home medical equipment and other products and services to help improve the quality of life for patients with home care needs. Our revenues are generated through fee-for-service and capitation arrangements with Payors for equipment, supplies, services and other items we rent or sell to patients. Through our offerings, we also provide patients with a variety of clinical and administrative support services and related products and supplies, most of which are prescribed by a physician as part of a care plan. We are focused on being the industry’s highest-quality provider of home healthcare equipment and related services, while maintaining our commitment to being a low-cost operator. We offer a compelling value proposition to patients, providers and Payors by allowing patients to receive necessary care and services in the comfort of their own home, while, at the same time, reducing the costs of treatment. We generated over $1.1 billion of net revenue in 2021, of which approximately 83% was from home respiratory therapy and OSA treatment, service categories in which we believe we have a leading market position.

We believe our integrated product and service offerings, combined with our national scale and strong reputation, provide us with a strategic advantage in being a preferred home healthcare provider for patients, providers and Payors. Our Payors include substantially all of the national and regional insurers, managed care organizations and government Payors in the United States. We benefit from long-standing relationships with a community of providers and referral sources for post-acute services across the acuity spectrum because of the consistency and reliability of our high quality clinical support, our national distribution footprint and our breadth of Payor relationships.

Our product and service offerings are distinguished by the complexity and sophistication required in their clinical delivery, logistical coordination and payment arrangements. We offer patients and providers differentiated clinical

61

Table of Contents

service, leveraging our protocols and expertise to improve outcomes across our service lines. With an expansive network of delivery technicians and therapists that is not readily replicated, we are able to provide home healthcare therapies that require high-touch service, providing a bridge from the acute care setting to the home. In 2021, we served over 2 million patients, made over 2.4 million deliveries, and conducted approximately 736,000 clinician interactions with our patients.

The healthcare sector is heavily regulated, and our business is accordingly subject to extensive government regulation, including numerous laws directed at regulating reimbursement of our products and services under various government programs and preventing fraud and abuse. For additional information, see “Item 1—Business—Government Regulation.”

​

62

Table of Contents

Pending Merger with Owens & Minor Inc.

On January 7, 2022, we entered into the Merger Agreement with Owens & Minor under which Owens & Minor will acquire Apria for $37.50 in cash per share of common stock, representing an equity value of approximately $1.45 billion, as well as the assumption of debt and cash for a total transaction value of approximately $1.6 billion. The transaction is subject to customary closing conditions and other regulatory approvals and the approval of our stockholders and is expected to close during the first half of 2022. See further discussion at Note 13 – Subsequent Event in our audited financial statements and “Item 1A. Risk Factors – Risks Related to Proposed Merger – The failure to complete the transaction announced on January 7, 2022 in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.”

Trends and Factors Affecting our Future Performance

Significant trends and factors that we believe may affect our future performance include:

63

Table of Contents

Certain additional items may impact the comparability of the historical results presented below with our future performance, such as:

Impact of COVID-19 Pandemic

Our priorities during the COVID-19 pandemic are protecting the health and safety of our employees (including patient-facing employees providing respiratory and other services), maximizing the availability of our services and products to support patient health needs, and the operational and financial stability of our business.

In response to the COVID-19 pandemic and the National Emergency Declaration, dated March 13, 2020, we activated certain business interruption protocols, including acquisition and distribution of personal protective equipment (“PPE”) to our patient-facing employees, accelerated capital expenditures of certain products and relocation of significant portions of our workforce to “work-from-home” status.

While the impact of the COVID-19 pandemic, the National Emergency Declaration and the various state and local government imposed stay-at-home restrictions did not have a material adverse impact on our consolidated operating results for the fiscal years ended December 31, 2021 and 2020, we experienced declines in net revenues in certain services associated with elective medical procedures and the disruption in physician practices (such as commencement of new CPAP services, ventilation therapy, negative pressure wound therapy, and other equipment and services) and such declines may continue during the duration of the COVID-19 pandemic. Offsetting these declines in net revenue, we have experienced an increase in net revenue related to increased demand for certain respiratory products (such as oxygen) and increased sales in our resupply business (primarily as a result of the increased ability to contact patients at home as a result of state and local government imposed stay-at-home orders). In response, we instituted temporary cost mitigation measures such as reduced hours and management of variable labor and operating costs. In addition, as part of the CARES Act (discussed in more detail in the Medicare Reimbursement section below), we experienced an increase in Medicare reimbursement rates from March 6, 2020 to the end of the public health emergency and a suspension of

64

Table of Contents

Medicare sequestration from May 1, 2020 through December 31, 2021 (resulting in a 2% increase in Medicare payments to all providers) resulting in a temporary increase in net revenues for certain products and services. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law on December 10, 2021, extended the payment reduction suspension at rates of 0% through March 31, 2022, and reinstated Medicare sequestration at 1% from April 1, 2022 through June 30, 2022 and 2% thereafter. Recent regulatory guidance from the Centers for Medicare and Medicaid Services expanding telemedicine and reducing documentation requirements during the emergency period resulted in increased net revenues for certain products and services. We have not experienced a significant slowdown in cash collections, and as a result our cash flow from operations has not been materially adversely impacted to date.

​

In 2021, the global economy has, with certain setbacks, begun reopening, and wider distribution of vaccines will likely encourage greater economic activity. Nevertheless, wide disparities in vaccination rates and continued vaccine hesitancy, combined with the emergence of COVID-19 variants and surges in COVID-19 cases, could trigger the reinstatement of restrictions, including mandatory business shut-downs, travel restrictions, reduced business operations and social distancing requirements, which could dampen or delay any economic recovery. We are closely monitoring the impact of the COVID-19 pandemic, including the emergence of variant strains of the virus, on our business. While economic conditions have improved significantly from the initial outbreak of the virus, given the ongoing nature of the pandemic it is difficult to predict the future impact COVID-19 may have on our business, results of operations, financial position and cash flows. For additional information on risk factors that could impact our results, please refer to “Risk Factors” in this report.

Impact of Philips Respironics Recall

In June 2021, one of our suppliers, Philips Respironics, announced a voluntary recall (“Recall”) for continuous and non-continuous ventilators (certain CPAP, BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices. The FDA has since identified this as a Class I recall, the most serious category of recall. Because we distribute these products and provide related home respiratory services and, in part, due to the substantial number of impacted devices, our management team has devoted, and will likely continue to devote, substantial time and resources to coordinating recall-related activity and to supporting our home healthcare patients’ needs. This Recall may cause us to incur significant costs, some or all of which may not be recoverable from the product manufacturer. The Recall may also materially negatively affect our revenues and results of operations as a result of patients not using their impacted devices, current shortages in the availability of both replacement devices for impacted patients and new devices for new patients, patient hesitancy to use respiratory devices generally or other reasons.

​

We are closely monitoring the impact of the Recall on our business and the uncertainty surrounding the availability and supply of CPAP and ventilators due to the Recall. There is an equipment shortage in our industry and the Recall or other supply chain disruptions may continue to have a material adverse effect on our financial condition or results of operations, cash flows and liquidity. See “Forward-Looking Information; Risk Factor Summary” and “Part I, Item 1A. Risk Factors” in this report.

Components of Operating Results

Net Revenues. Revenues are recognized under fee-for-service and capitation arrangements for equipment, supplies, services and other items we rent or sell to patients. Fee-for-service is a payment model where we are paid for our service to provide equipment, supplies and other items. Capitation is a payment arrangement where a set amount is paid per member per month for a defined patient population, based on a negotiated contractual rate derived using average expected utilization of services.

Revenue generated from equipment that we rent to patients is recognized over the noncancelable rental period and commences on delivery of the equipment to the patients. Revenue related to sales of equipment and supplies is recognized on the date of delivery to the patients. Capitation revenue is recognized as a result of entering into a contract with a third party to stand ready to provide its members certain services without regard to the actual services provided; therefore, revenue is recognized over the period that the beneficiaries are entitled to healthcare services. Due to the nature of our industry and the reimbursement environment in which we operate, certain estimates are required to record total net revenues.

65

Table of Contents

Cost of Net Revenues and Gross Margin.

Cost of Net Revenues. We incur product and supply costs, depreciation of patient equipment, home respiratory therapists costs and other costs in connection with providing our services:

Gross Margin. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin is impacted by Payor and product mix, fluctuations in pricing of supplies, equipment and accessories, as well as reimbursement levels.

Selling, Distribution and Administrative. Selling, distribution and administrative (“SD&A”) expenses are comprised of expenses incurred in support of our operations and administrative functions and includes labor costs, such as salaries, bonuses, commissions, benefits and travel-related expenses for our employees, facilities rental costs, third-party revenue cycle management costs and corporate support costs including finance, information technology, legal, human resources, procurement, and other administrative costs. Distribution expenses represents the cost incurred to coordinate and deliver products and services to the patients. Included in distribution expenses are leasing, maintenance, licensing and fuel costs for the vehicle fleet; salaries, benefits and other costs related to drivers and dispatch personnel; and amounts paid to couriers and other third-party logistics and shipping vendors.

Interest Expense and Other. Interest expense and other are comprised of expenses incurred for interest payments made on our outstanding debt and the amortization and write-off of deferred debt issuance costs.

Gain from Derecognition of Nonfinancial Asset. The gain from the derecognition of nonfinancial asset resulted from a contribution of software and other intellectual property to a joint venture in exchange for a 40% membership interest. See Note 1 – Summary of Significant Accounting Policies for a discussion of the equity method investment.

Income Tax Expense. Our provision for income taxes is based on expected income, permanent book/tax differences and statutory tax rates in the various jurisdictions in which we operate. Management estimates and judgments are required in determining the provision for income taxes.

Key Performance Metrics

We regularly review key performance metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex. We use the non-GAAP financial information of earnings, before interest, taxes, depreciation, and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex as key profitability measures to evaluate the business. Refer to the “Non-GAAP financial information” section below for further detail, including a table reconciling each of such measures

66

Table of Contents

to net income, the most directly comparable GAAP measure. The below table sets forth net income, EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex for the years ended December 31, 2021, 2020 and 2019:

​

​

Results of Operations

Comparison of Years Ended December 31, 2021 and December 31, 2020.

The following table summarizes our consolidated results of operations:

​

​

Net Revenues.

Net revenues for the year ended December 31, 2021 were $1,145.3 million compared to $1,108.7 million for the year ended December 31, 2020, an increase of $36.6 million or 3.3%. The increase in net revenues for the year ended December 31, 2021 was primarily due to growth in OSA treatment and oxygen therapy. The increase was partially offset by reduced demand for certain products and services associated with elective medical procedures and the disruption in physician practices (such as commencement of new ventilation therapy, negative pressure wound therapy, and other equipment and services) during the COVID-19 pandemic as well as equipment shortages due to the Recall or other supply chain disruptions. The increase in net revenues was also due to higher reimbursement levels, volume from the acquisitions, and increased Medicare reimbursement rates from the CARES Act, the temporary suspension of Medicare sequestration, and oxygen budget neutrality, partially offset by reductions in commercial Payor reimbursement rates. Our core services comprise total net revenues as follows:

​

​

67

Table of Contents

Net revenues for the year ended December 31, 2021 increased primarily due to the following:

Revenues reimbursed under arrangements with Medicare and Medicaid were approximately 21% and 1%, respectively, of total net revenues for the year ended December 31, 2021 and 2020.

Cost of Net Revenues and Gross Margin.

Cost of Net Revenues. Cost of net revenues for the year ended December 31, 2021 were $341.3 million compared to $328.3 million for the year ended December 31, 2020, an increase of $13.0 million or 4.0%. The increase in cost of net revenues for the year ended December 31, 2021 was primarily due to increased product and supply costs. Our cost of net revenues was as follows:

​

Product and supply costs increased primarily to support increased volume in OSA treatment supplies and due to a $3 million one-time legal recovery benefit in the prior year.

Gross margin. Gross margin for the year ended December 31, 2021 was 70.2% compared to 70.4% for the year ended December 31, 2020, a decrease of 0.2%. The gross margin decrease was driven by a $3 million one-time legal recovery in the prior year and a decrease in commercial Payor reimbursement rates. The decrease was partially offset by higher reimbursement levels and increased Medicare reimbursement rates from the CARES Act, the temporary suspension of Medicare sequestration, and oxygen budget neutrality.

Selling, Distribution and Administrative. SD&A expenses for the year ended December 31, 2021 were $706.6 million compared to $709.3 million for the year ended December 31, 2020, a decrease of $2.7 million or 0.4%. SD&A expenses for the year ended December 31, 2021 were 61.7% of total net revenues compared to 64.0% of total net revenues for the year ended December 31, 2020. The decrease was primarily due to a $30.1 million reduction in a one-time legal settlement expense primarily due to the settlement of a series of civil investigative demands in the prior year and lower current year incentive compensation. See further discussion at Note 10 - Commitments and Contingencies in our unaudited condensed consolidated financial statements for more information. The decrease was partially offset by

68

Table of Contents

increased costs associated with being a public company, higher distribution expense, higher information technology costs in part due to outsourcing our datacenters, and increased variable costs associated with volume growth.

Interest Expense and Other. Interest expense and other for the year ended December 31, 2021 was $11.8 million compared to $6.3 million for the year ended December 31, 2020, an increase of $5.5 million or 86.8% primarily due to higher outstanding debt.

Gain From Derecognition of Nonfinancial Asset. Gain from derecognition of nonfinancial asset for the year ended December 31, 2021 was $4.0 million resulting from a contribution of software and other intellectual property to a joint venture in exchange for a 40% membership interest. See Note 1 – Summary of Significant Accounting Policies for a discussion of the equity method investment.

Income Tax Expense. Income tax expense for the year ended December 31, 2021 was $24.2 million compared to $19.2 million for the year ended December 31, 2020, an increase of $5.0 million or 25.8%. Our effective tax rate was 26.9% and 29.4% for the year ended December 31, 2021 and 2020, respectively. The change in income tax expense is primarily a result of increased taxable operating income. For the year ended December 31, 2021, the effective tax rate differed from federal and state statutory rates primarily due to non-deductible executive compensation, and non-deductible public offering costs offset by excess tax benefits related to equity compensation. For the year ended December 31, 2020 the effective tax rate differed from federal and state statutory rates primarily due to non-deductible government settlements, offset by excess tax benefits related to stock-based compensation.

Loss From Equity Method Investment. Loss from equity method investment for the year ended December 31, 2021 was $0.8 million. For the year ended December 31, 2021, our loss from equity method investment is attributable to our ownership interest in DMEscripts LLC, (“Joint Venture”). We accounted for our equity method investment in accordance with the equity method of accounting. See further discussion at Note 1 – Summary of Significant Accounting Policies in our consolidated financial statements for more information.

Comparison of Years Ended December 31, 2020 and December 31, 2019.

A detailed discussion of the year-over-year results of operations for 2020 compared to 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC.

Impact of Inflation and Changing Prices

We experience pricing pressures in the form of continued reductions in reimbursement rates, particularly from managed care organizations and from governmental Payors such as Medicare and Medicaid. We are also impacted by rising costs for certain inflation-sensitive operating expenses and cost of net revenues such as labor and employee benefits, facility and equipment leases, patient equipment and supplies, and vehicle fuel.

Liquidity and Capital Resources

Our principal source of liquidity is our operating cash flow, which is supplemented by extended payment terms from our suppliers and our Revolver, which provides for revolving credit of up to $100.0 million, subject to availability. Our principal liquidity requirements are labor costs, including salaries, bonuses, benefits and travel-related expenses, product and supply costs, third-party customer service, billing and collections and logistics costs, leases, patient equipment capital expenditures, and long-term debt. Our future capital expenditure requirements will depend on many factors, including our revenue growth rates. Our capital expenditures are made in advance of patients beginning service. Certain operating costs are incurred at the beginning of the equipment rental period and during initial patient set up. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected. We believe that our operating cash flow, together with our existing cash, cash equivalents, and Revolver, will continue to be sufficient to fund our operations and growth strategies for at least the next 12 months.

69

Table of Contents

Apria, Inc. is a holding company and our operations will be conducted entirely through our subsidiaries. Our ability to generate cash to pay applicable taxes at assumed tax rates and pay cash dividends we declare, if any, is dependent on the earnings and the receipt of funds from Apria Healthcare Group and its subsidiaries via dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of Apria Healthcare Group and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, the terms of our financing arrangements, including the TLA and the Revolver, contain covenants that may restrict Apria Healthcare Group and its subsidiaries from paying such distributions, subject to certain exceptions. See “Item 1A—Risk Factors—We are a holding company with no operations of our own and we are accordingly dependent upon distributions from our subsidiaries to pay taxes and pay dividends.”

On December 11, 2020, we entered into the credit facility amendment to incur $260.0 million of Incremental Term Loans. Net proceeds from the Incremental Term Loans were used to fund a $200.3 million dividend payment to our common stockholders and a $9.7 million distribution to SARs holders declared and paid in December 2020, with the remaining proceeds used to pay fees and expenses in connection with the credit facility amendment and for general corporate purposes. We also declared and paid a $175.0 million dividend to common stockholders and SARs holders payable in June 2019 and a $75.0 million dividend to common stockholders in July 2018. We have no current plans to pay dividends on our common stock.

As permitted under the CARES Act, we have elected to defer certain portions of employer-paid FICA taxes otherwise payable from March 27, 2020 to January 1, 2021, which will be paid in two equal installments on December 31, 2021 and December 31, 2022. The first installment of $7.4 million was paid during the year ended December 31, 2021. The remaining amount deferred as of December 31, 2021 was $7.4 million.

Cash Flow. The following table presents selected data from our consolidated statement of cash flows:

​

​

Comparison of Years Ended December 31, 2021 and December 31, 2020. Net cash provided by operating activities for the year ended December 31, 2021 was $212.0 million compared to $196.7 million for the year ended December 31, 2020, an increase of 15.3 million. The increase in net cash provided by operating activities was primarily the result of the following:

Included in operating activities for the year ended December 31, 2020, was cash paid for a legal settlement of $43.6 million, of which $31.9 million resulted in a reduction in net income and $11.7 million resulted in cash used for legal reserve. See further discussion in “Item 3—Legal Proceedings—Civil Investigative Demand Issued by the United States Attorney’s Office for the Southern District of New York” and Note 10 – Commitments and Contingencies in our audited financial statements.

70

Table of Contents

Net cash used in investing activities for the year ended December 31, 2021 was $144.2 million compared to $91.7 million for the year ended December 31, 2020, an increase of $52.5 million. The primary use of funds in the year ended December 31, 2021 was $119.1 million to purchase patient equipment and property, equipment and improvements, $43.4 million for acquisitions and $2.1 million for issuance of related party note receivable, which was partially offset by proceeds from the sale of patient equipment and other of $17.4 million and preferred distribution from equity method investment of $3.0 million. The primary use of funds in the year ended December 31, 2020 was $109.1 million to purchase patient equipment and property, equipment and improvements, which was partially offset by proceeds from the sale of patient equipment and other of $17.4 million.

Net cash used in financing activities for the year ended December 31, 2021 was $42.9 million compared to net cash provided by financing activities of $15.5 million for the year ended December 31, 2020. Net cash used in financing activities for the year ended December 31, 2021 was primarily related to payments on long-term debt of $20.8 million, payments on asset financing of $15.2 million and payment for tax withholdings from equity-based compensation activity of $6.3 million. Net cash used in financing activities for the year ended December 31, 2020 primarily related to incremental borrowings on debt of $260.0 million offset by cash dividends paid to common stockholders and SARs holders of $210.0 million, payments on asset financing of $22.6 million, payments on long-term debt of $9.0 million and payments of deferred financing costs related to the TLA amendment of $3.0 million.

Comparison of Years Ended December 31, 2020 and December 31, 2019. A detailed discussion of the year-over-year cash flows for 2020 compared to 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC.

Non-GAAP Financial Information.

EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex. EBITDA is a non-GAAP measure that represents net income for the period before the impact of interest income, interest expense, other income and expense, income taxes, loss from equity method investment, and depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures, tax positions, the cost and age of tangible assets and the extent to which intangible assets are identifiable. Adjusted EBITDA is a non-GAAP measure that represents EBITDA before certain items that impact comparison of the performance of our business either period-over-period or with other businesses. We use Adjusted EBITDA as a key profitability measure to assess the performance of our business. We believe that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our business.

Adjusted EBITDA less Patient Equipment Capex is a non-GAAP measure that represents Adjusted EBITDA less purchases of patient equipment net of dispositions (“Patient Equipment Capex”). For purposes of this metric, Patient Equipment Capex is measured as the value of the patient equipment received less the net book value of dispositions of patient equipment during the accounting period. We use Adjusted EBITDA less Patient Equipment Capex as a key profitability measure to assess the performance of our business because our business requires significant capital expenditures to maintain its patient equipment fleet. Some equipment transfers title to patients’ ownership after a prescribed number of fixed monthly rental periods due to contractual commitments. Equipment that does not transfer title wears out or oftentimes is not recovered after a patient’s use of the equipment terminates. We believe that Adjusted EBITDA less Patient Equipment Capex should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our business.

Below, we have provided a reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex should not be considered alternatives to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex may not be comparable to similarly titled measures of other organizations because other organizations may not calculate

71

Table of Contents

EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex in the same manner as we calculate these measures.

Our uses of EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period. We compensate for these limitations by separately monitoring net income from continuing operations for the period.

The following table reconciles net income, the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA and Adjusted EBITDA less Patient Equipment Capex:

​

​

72

Table of Contents

In June 2019, all outstanding performance Class B units were modified to accelerate vesting resulting in $7.0 million stock compensation expense.

​

Accounts Receivable. Accounts receivable increased to $81.7 million as of December 31, 2021 from $74.8 million as of December 31, 2020, an increase of $6.9 million. Days sales outstanding (calculated as of each period-end by dividing accounts receivable, net by the rolling average of total net revenues) were 31 days as of December 31, 2021 compared to 29 days as of December 31, 2020. The increase in 2021 accounts receivable was primarily due to unbilled receivables from an acquisition.

Comparison of Years Ended December 31, 2020 and December 31, 2019. A detailed discussion of the year-over-year accounts receivable for 2020 compared to 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC.

Unbilled Receivables. Included in accounts receivable are earned but unbilled receivables of $19.9 million and $13.1 million as of December 31, 2021 and December 31, 2020, respectively. Delays, ranging from a single day to several weeks, between the date of service and billing can occur due to delays in obtaining certain required Payor-specific documentation from internal and external sources. Earned but unbilled receivables are aged from date of service and are considered in our analysis of historical performance and collectability. The increase in unbilled receivables was primarily due to billing delays associated with an acquisition.

Comparison of Years Ended December 31, 2020 and December 31, 2019. A detailed discussion of the year-over-year unbilled receivables for 2020 compared to 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC.

Inventories and Patient Equipment. Inventories consist primarily of respiratory supplies and items used in conjunction with patient equipment. Patient equipment consists of respiratory and home medical equipment that is provided to in-home patients for the course of their care plan, normally on a rental basis, and subsequently returned to us for redistribution after cleaning and maintenance is performed. We maintain inventory and patient equipment at levels we believe will provide for the needs of our patients.

73

Table of Contents

Long-Term Debt. On June 21, 2019, we entered into a credit agreement with Citizens Bank and a syndicate of lenders for both a TLA Facility of $150.0 million and a Revolver of $100.0 million. The Revolver replaced the prior senior secured asset-based revolving credit facility (the “ABL Facility”), Facility which provided for revolving credit financing of up to $125.0 million. Proceeds from the TLA were used to fund a $175.0 million dividend payment to common stockholders and distribution to SARs holders. On December 11, 2020, we entered into the credit facility amendment to obtain $260.0 million of Incremental Term Loans. Net proceeds from the Incremental Term Loans were used to fund a $200.3 million dividend payment to our common stockholders and a $9.7 million distribution to SARs holders declared and paid in December 2020, with the remaining proceeds used to pay fees and expenses in connection with the credit facility amendment and for general corporate purposes.

The credit agreement permits the interest rate to be selected at our option at either Adjusted LIBOR or alternative base rate plus their respective applicable margin. Adjusted LIBOR is the rate for Eurodollar deposits for the applicable interest period while the alternate base rate is the highest of (i) the Administrative Agent’s “Prime Rate”, (ii) the Federal Funds Effective Rate plus 0.50%, and (iii) one-month Adjusted LIBOR plus 1.00%. Furthermore, Adjusted LIBOR is subject to a 0.50% per annum floor and the alternative base rate is subject to a 1.50% per annum floor. Additionally, the margin applied to both the TLA and Revolver is determined based on total net leverage ratio. Total net leverage ratio is defined as net debt, which represents indebtedness minus up to $25.0 million in cash and cash equivalents over consolidated EBITDA as defined under the credit agreement. The following is a summary of the additional margin and commitment fees payable on both the TLA and available Revolver: