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LHC Group, Inc – IPO: ‘S-1/A’ on 2/14/05

On:  Monday, 2/14/05, at 5:30pm ET   ·   Private-to-Public:  Document/Exhibit ¶  –  Release Delayed   ·   Accession #:  950144-5-1444   ·   File #:  333-120792

Previous ‘S-1’:  ‘S-1/A’ on 1/6/05   ·   Next:  ‘S-1/A’ on 5/9/05   ·   Latest:  ‘S-1/A’ on 6/8/05   ·   15 References:   By:  LHC Group, Inc. – ‘10-K’ on 2/22/23 for 12/31/22 By:  LHC Group, Inc. – ‘10-Q’ on 8/4/22 for 6/30/22 By:  LHC Group, Inc. – ‘10-Q’ on 5/4/22 for 3/31/22 By:  LHC Group, Inc. – ‘10-K/A’ on 4/27/22 for 12/31/21 By:  LHC Group, Inc. – ‘10-K’ on 2/24/22 for 12/31/21 By:  LHC Group, Inc. – ‘10-Q’ on 11/4/21 for 9/30/21 By:  LHC Group, Inc. – ‘10-Q’ on 8/5/21 for 6/30/21 By:  LHC Group, Inc. – ‘S-3ASR’ on 5/21/21 By:  LHC Group, Inc. – ‘10-Q’ on 5/6/21 for 3/31/21 By:  LHC Group, Inc. – ‘10-K’ on 2/26/21 for 12/31/20 By:  LHC Group, Inc. – ‘10-Q’ on 11/5/20 for 9/30/20 By:  LHC Group, Inc. – ‘10-Q’ on 8/6/20 for 6/30/20 By:  SEC – ‘UPLOAD’ on 4/27/05 By:  SEC – ‘UPLOAD’ on 4/14/05 By:  SEC – ‘UPLOAD’ on 2/25/05 

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/14/05  LHC Group, Inc                    S-1/A¶                14:2.3M                                   Bowne of Atlanta Inc/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Lhc Group, LLC                                      HTML   1.66M 
14: CORRESP   ¶ Comment-Response or Other Letter to the SEC           15     35K 
 2: EX-3.1      EX-3.1 Certificate of Incorporation of Lhc Group,      5     20K 
                          Inc.                                                   
 3: EX-3.2      EX-3.2 Bylaws of Lhc Group, LLC.                      17     80K 
 4: EX-4.1      EX-4.1 Specimen Stock Certificate for Common Stock     2     18K 
11: EX-10.10    EX-10.10 Form of Indemnity Agreement                  13     65K 
12: EX-10.11    EX-10.11 Lhc Group, Inc. 2005 Director                 9     31K 
                          Compensation Plan                                      
 5: EX-10.4     EX-10.4 Lhc Group, Inc. 2005 Long-Term Incentive      21     95K 
                          Plan                                                   
 6: EX-10.5     EX-10.5 Award Under 2005 Director Compensation         2     18K 
                          Plan                                                   
 7: EX-10.6     EX-10.6 Employment Agreement / Keith G. Myers         25    108K 
 8: EX-10.7     EX-10.7 Employment Agreement / R. Barr Brown          25    108K 
 9: EX-10.8     EX-10.8 Employment Agreement / John L. Indest         25    107K 
10: EX-10.9     EX-10.9 Employment Agreement / Daryl J. Doise         25    107K 
13: EX-23.2     EX-23.2 Consent of Ernst & Young LLP                   1      7K 

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SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 2

LHC Group, Inc.

LHC Group, Inc.

Keith G. Myers

With Copies to:

      Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

      If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

      If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

      If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

      If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

      If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.     o

      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

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SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2005

4,000,000 Shares

          LHC Group, Inc. is offering 3,100,000 shares of its common stock. The selling stockholders identified in this prospectus are selling an additional 900,000 shares. We will not receive any of the proceeds from the sale of shares being sold by the selling stockholders.

          This is our initial public offering and no public market currently exists for our shares. Our shares of common stock have been approved for quotation on the Nasdaq National Market under the symbol “LHCG.” We anticipate that the initial public offering price will be between $12.00 and $14.00 per share.

Investing in our common stock involves risks.

          Neither the Securities and Exchange Commission, any state securities commission, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          The selling stockholders have granted the underwriters an option to purchase up to an additional 600,000 shares of common stock at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.

          The underwriters expect to deliver the shares to purchasers on or before                     , 2005.

The date of this prospectus is                     , 2005.

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          You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus may be accurate only on the date of this prospectus.

          Until                     , 2005 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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RISK FACTORS

          You should carefully consider the risks described below, together with all the other information included in this prospectus, before making a decision to buy our common stock. If any of the following risks actually materialize, our business, financial condition or consolidated results of operations could be harmed. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Industry

More than 80% of our net service revenue is derived from Medicare. If there are changes in Medicare rates or methods governing Medicare payments for our services, or if we are unable to control our costs, our net service revenue and net income could decline materially.

          For the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2004, we received 79.3%, 82.8%, 83.1% and 85.7%, respectively, of our net service revenue from Medicare. Reductions in Medicare rates or changes in the way Medicare pays for services could cause our net service revenue and net income to decline, perhaps materially. Reductions in Medicare reimbursement could be caused by many factors, including:

          We generally receive fixed payments from Medicare for our services based on the level of care provided to our patients. Consequently, our profitability largely depends upon our ability to manage the cost of providing these services. Medicare currently provides for an annual adjustment of the various payment rates, such as the base episode rate for our home nursing services, based upon the increase or decrease of the medical care expenditure category of the Consumer Price Index, which may be less than actual inflation. This adjustment could be eliminated or reduced in any given year. Our base episode rate for home nursing services is also subject to an annual market basket adjustment. MedPAC has recommended that a recent 2% increase in the market basket adjustment be eliminated. Further, Medicare routinely reclassifies home health resource groups and long-term care diagnosis-related groups. As a result of those reclassifications, we could receive lower reimbursement rates depending on the case mix of the patients we service. If our cost of providing services increases by more than the annual Medicare price adjustment, or if these reclassifications result in lower reimbursement rates, our net income could be adversely impacted.

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We are subject to extensive government regulation. Any changes in the laws governing our business, or the interpretation and enforcement of those laws or regulations, could cause us to modify our operations and could negatively impact our operating results.

          As a provider of healthcare services, we are subject to extensive regulation on the federal, state and local levels, including with regard to:

          The laws and regulations governing our operations, along with the terms of participation in various government programs, regulate how we do business, the services we offer, and our interactions with patients and other providers. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could increase our costs of doing business and cause our net income to decline. If we fail to comply with these applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in federal and state reimbursement programs.

          We are subject to various routine and non-routine governmental reviews, audits, and investigations. In recent years federal and state civil and criminal enforcement agencies have heightened and coordinated their oversight efforts related to the healthcare industry, including with respect to referral practices, cost reporting, billing practices, joint ventures and other financial relationships among healthcare providers. A violation or change in the interpretation of the laws governing our operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties, the termination of our rights to participate in federal and state-sponsored programs, or the suspension or revocation of our licenses to operate. If we become subject to material fines or if other sanctions or other corrective actions are imposed upon us, we may suffer a substantial reduction in net income.

If any of our agencies or facilities fail to comply with the conditions of participation in the Medicare program, that agency or facility could be terminated from Medicare, which would adversely affect our net service revenue and net income.

          Our agencies and facilities must comply with the extensive conditions of participation in the Medicare program. These conditions of participation vary depending on the type of agency or facility, but in general require our agencies and facilities to meet specified standards relating to personnel, patient rights, patient care, patient records, administrative reporting and legal compliance. If an agency or facility fails to meet any of the Medicare conditions of participation, that agency or facility may receive a notice of deficiency from the applicable state surveyor. If that agency or facility then fails to institute and comply with a plan of correction to correct the deficiency within the time period provided by the state surveyor, that agency or facility could be terminated from the Medicare program. We respond in the ordinary course to deficiency notices issued by state surveyors, and none of our facilities or agencies have ever been terminated from the Medicare program for failure to comply with the conditions of participation. Any termination of one or more of our agencies or facilities from the Medicare program for failure to satisfy the Medicare conditions of participation would affect adversely our net service revenue and net income.

          In addition, if our long-term acute care hospitals fail to meet or maintain the standards for Medicare certification as long-term acute care hospitals, such as for average minimum length of patient stay, they will receive reimbursement under the prospective payment system applicable to general acute

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CMS recently adopted new regulations that could materially and adversely impact the revenue and net income of our long-term acute care hospitals.

          In August 2004, the Centers for Medicare and Medicaid Services, or CMS, adopted new regulations that implement significant changes affecting our long-term acute care hospitals. Among other things, these new regulations, effective October 2004, mandate that long-term acute care hospitals operating in the hospital within a hospital model receive lower rates of reimbursement for Medicare admissions from their host hospitals that are in excess of specified percentages. For new long-term acute care hospitals located within hospitals, the Medicare admissions limitation will be 25.0% for hospitals located in a Metropolitan Statistical Area, or MSA, and 50.0% for hospitals located in a non-MSA. This means a new long-term acute care hospital located within a hospital will receive lower rates of reimbursement from Medicare if more than 25.0%, or 50.0% if located in a non-MSA, of its admissions are derived from its host hospital. For existing long-term acute care hospitals within hospitals and those under development that meet specified criteria, the Medicare admissions limitations are being phased in over a four-year period that began October 1, 2004. The Medicare admissions limitations make distinctions between facilities located in MSAs and facilities located in non-MSAs as follows:

          Of our seven long-term acute care hospital locations, five are physically located in a non-MSA. Of these five locations, two are satellite locations of a parent hospital that is located in a MSA. Based on our discussions with CMS, we believe these satellite locations will be viewed as being located in a non-MSA regardless of the location of their parent hospital and will be treated independently from their parent for purposes of calculating their compliance with the admissions limitations. For the nine months ended September 30, 2004, on an individual basis, four of our long-term acute care hospital locations admitted between 50.0% and 75.0% of their patients from their host hospitals and two of our long-term acute care hospital locations admitted more than 75.0% of their patients from their host hospitals. We have recently commenced operations at one of our long-term acute care hospital locations; therefore, we do not have sufficient data to determine the percentage of referrals that will come from its host hospital at this time.

          Our ability to quantify the potential reduction in our reimbursement rates resulting from these new regulations is contingent upon a variety of factors, such as our ability to restructure the manner in which we receive referrals and, if necessary, our ability to relocate our existing long-term acute care hospitals to freestanding locations. We may not be able to successfully restructure or relocate these operations without incurring significant expense or in a manner that avoids reimbursement reductions. If these new regulations result in lower reimbursement rates, our net service revenue and net income could decline. As a result of these new rules, we do not intend to expand the number of hospital within a hospital long-term acute care hospitals that we operate.

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          We are reimbursed by Medicare for services we provide in our long-term acute care hospitals based on the long-term care diagnosis-related group assigned to each patient. CMS establishes these long-term care diagnosis-related groups by grouping diseases by diagnosis, which group reflects the amount of resources needed to treat the diseases. These new rules reclassified certain long-term care diagnosis-related groups, which could result in a decrease in reimbursement rates. Further, the new rules kept in place the financial penalties associated with the failure to limit the total number of Medicare patients discharged to the host hospital and subsequently readmitted to a long-term acute care hospital located within the host hospital to no greater than 5.0%. If we fail to comply with these readmission rates or if our reimbursement rates decline due to the reclassification of certain long-term care diagnosis-related groups, our net service revenue and net income could decline.

Legislative initiatives could negatively impact our operations and financial results.

          In recent years, an increasing number of legislative initiatives have been introduced or proposed in Congress and in state legislatures that would result in major changes in the healthcare system, either at the national or state level. Many of these proposals have been introduced in an effort to reduce costs. For example, the Medicare Modernization Act of December 2003, or MMA, allocated significant additional funds to Medicare managed care providers in order to promote greater participation in those plans by Medicare beneficiaries. If these increased funding levels achieve their intended result, the rate of growth in the Medicare fee-for-service market could decline. For the years ended December 31, 2001, 2002 and 2003, and the nine months ended September 30, 2004, we received 79.3%, 82.8%, 83.1% and 85.7%, respectively, of our net service revenue from the Medicare fee-for-service market. Among other proposals that have been introduced are insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of a government health insurance or plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals, or any other future proposals, will be adopted. If adopted, we could be forced to expend considerable resources to comply with and implement such reforms.

More than 80% of our net service revenue is currently generated in Louisiana, making us particularly sensitive to economic and other conditions in that state.

          Our Louisiana agencies and facilities accounted for approximately 100.0%, 92.3%, 89.0% and 83.0% of our net service revenue during the years ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2004, respectively. Any material change in the current economic or competitive conditions in Louisiana, which could result from events such as the implementation of certificate of need regulations or changes in state tax laws, could have a disproportionate effect on our overall business results.

If we are unable to maintain relationships with existing referral sources or establish new referral sources, our growth and net income could be adversely affected.

          Our success depends significantly on referrals from physicians, hospitals, and other healthcare providers in the communities in which we deliver our services. Our referral sources are not obligated to refer business to us and may refer business to other healthcare providers. We believe many of our referral sources refer business to us as a result of the quality of patient service provided by our local employees in the communities in which our agencies and facilities are located. If we are unable to retain these employees, our referral sources may refer business to other healthcare providers. Our loss of, or failure to maintain, existing relationships or our failure to develop new relationships could affect adversely our ability to expand our operations and operate profitably.

Delays in reimbursement may cause liquidity problems.

          Our business is characterized by delays in reimbursement from the time we request payment for our services to the time we receive reimbursement or payment. A portion of our estimated reimbursement (60.0% for an initial episode of care and 50.0% for subsequent episodes of care) for each Medicare episode is billed at the commencement of the episode and we typically receive payment within approximately

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Future cost containment initiatives undertaken by private third party payors may limit our future net operating revenue and net income.

          Initiatives undertaken by major insurers and managed care companies to contain healthcare costs may affect our net income. These payors attempt to control healthcare costs by contracting with hospitals and other healthcare providers to obtain services on a discounted basis. We believe that this trend may continue and may limit reimbursements for healthcare services. If insurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates.

If the structures or operations of our joint ventures or strategic relationships are found to violate the law, our financial condition and consolidated results of operations could be materially adversely impacted.

          We have entered into joint ventures with physicians and hospitals for the ownership and operation of our long-term acute care hospitals, home nursing agencies and hospices. Our relationships with physicians and hospitals are governed by the federal anti-kickback statute and similar state laws. These anti-kickback statutes prohibit the payment or receipt of anything of value in return for referrals of patients or services covered by governmental healthcare programs, such as Medicare. The Office of Inspector General of the Department of Health and Human Services has published numerous safe harbors that exempt qualifying arrangements from enforcement under the federal anti-kickback statute. We have sought to satisfy as many safe harbor requirements as possible in structuring these relationships. However, our joint ventures and other strategic relationships may not satisfy all elements of the safe harbor requirements. Our relationships with physicians are also governed by the federal Stark law and similar state laws, which restrict physicians from making referrals for particular healthcare services to entities with which the physicians or their families have a financial relationship. We also believe we have structured our physician relationships in a way that meets applicable exceptions under the federal Stark law and similar state physician referral laws. If any of our joint ventures or other strategic relationships were found to be in violation of federal or state anti-kickback or physician referral laws, we could be required to restructure them or refuse to accept referrals from the physicians or hospitals with which we have a relationship. We also could be required to repay to Medicare amounts we have received pursuant to any prohibited referrals, and we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in federal and state healthcare programs. If any of our joint ventures or other strategic relationships were subject to any of these penalties, our business could be damaged. In addition, our growth strategy is, in part, based on the continued development of new joint ventures and other strategic relationships with rural hospitals for the ownership and operation of home nursing agencies. If the structure of any of these relationships were found to violate federal or state anti-kickback statutes or physician referral laws, we may be unable to implement our growth strategy, which could have an adverse impact on our future net income and consolidated results of operations.

If we are required to either repurchase or sell a substantial portion of the equity interests in our joint ventures, our capital resources and financial condition could be materially adversely impacted.

          Upon the occurrence of fundamental changes to the laws and regulations applicable to our joint ventures, or if a substantial number of our joint venture partners were to exercise the buy/sell provisions

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Shortages in qualified nurses and other healthcare professionals could increase our operating costs significantly or constrain our ability to grow.

          We rely on our ability to attract and retain qualified nurses and other healthcare professionals. The availability of qualified nurses nationwide has declined in recent years, and competition for these and other healthcare professionals has increased. Salary and benefit costs have risen accordingly. Our ability to attract and retain these nurses and other healthcare professionals depends on several factors, including our ability to provide desirable assignments and competitive benefits and salaries. We may not be able to attract and retain qualified nurses or other healthcare professionals in the future. In addition, the cost of attracting and retaining these professionals and providing them with attractive benefit packages may be higher than anticipated, which could cause our net income to decline. Moreover, if we are unable to attract and retain qualified professionals, the quality of services offered to our patients may decline or our ability to grow may be constrained.

The loss of certain senior management could have a material adverse effect on our operations and financial performance.

          Our success depends upon the continued employment of certain members of our senior management, including our co-founder, President, Chief Executive Officer and Chairman, Keith G. Myers, our Senior Vice President, Chief Financial Officer, Treasurer and Director, R. Barr Brown, our Senior Vice President, Chief Operating Officer of Home-Based Services, Secretary and Director, John L. Indest, and our Senior Vice President and Chief Operating Officer of Facility-Based Services, Daryl J. Doise. We have entered into an employment agreement with each of these officers in an effort to further secure their employment. In addition, we have key employee life insurance policies, of which we are the beneficiary, in the amount of $2.0 million, $1.0 million and $500,000 on the lives of Messrs. Myers, Brown and Indest, respectively. The loss of service of any of these officers could have a material adverse effect on our operations and financial performance.

If we are subject to substantial malpractice or other similar claims, our net income could be materially adversely impacted.

          The services we offer have an inherent risk of professional liability and related, substantial damage awards. We and the nurses and other healthcare professionals who provide services on our behalf may be the subject of medical malpractice claims. These nurses and other healthcare professionals could be considered our agents and, as a result, we could be held liable for their medical negligence. We cannot predict the effect that any claims of this nature, regardless of their ultimate outcome, could have on our business or reputation or on our ability to attract and retain patients and employees. We maintain malpractice liability insurance that provides primary coverage on a claims-made basis of $1.0 million per incident and $3.0 million in annual aggregate amounts. In addition, we maintain multiple layers of umbrella coverage in the aggregate amount of $5.0 million that provide excess coverage for professional malpractice and other liabilities. We are responsible for deductibles and amounts in excess of the limits of our coverage. Claims that could be made in the future in excess of the limits of such insurance, if successful, could materially adversely affect our ability to conduct business or manage our assets. In

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The application of state certificate of need and permit of approval regulations and compliance with federal and state licensing requirements could substantially limit our ability to operate and grow our business.

          Our ability to expand operations in a state will depend on our ability to obtain a state license to operate. States may have a limit on the number of licenses they issue. For example, as of December 31, 2004 we operated 45 home nursing agencies in Louisiana. Louisiana currently has a moratorium on the issuance of new home nursing agency licenses through July 1, 2008. We cannot predict whether this moratorium will be extended beyond this date or whether any other states in which we currently operate, or may wish to operate in the future, may adopt a similar moratorium.

          In addition to the moratorium imposed by the State of Louisiana, nine of the states in which we currently operate, or plan to operate in the future, require healthcare providers to obtain prior approval, known as a certificate of need or a permit of approval, for the purchase, construction or expansion of healthcare facilities, to make certain capital expenditures or to make changes in services or bed capacity. Of the states in which we currently operate, or intend to operate in the future, Alabama, Arkansas, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and West Virginia have certificate of need or permit of approval laws. In granting approval, these states consider the need in the service area for additional or expanded healthcare facilities or services. The failure to obtain any requested certificate of need, permit of approval or other license could impair our ability to operate or expand our business.

We face competition, including from competitors with greater resources, which may make it difficult for us to compete effectively as a provider of post-acute healthcare services.

          We compete with local and regional home nursing and hospice companies, hospitals, and other businesses that provide post-acute healthcare services, some of which are large established companies that have significantly greater resources than we do. Our primary competition comes from local operators in each of our markets. We expect our competitors to develop new strategic relationships with providers, referral sources, and payors, which could result in increased competition. The introduction by our competitors of new and enhanced service offerings, in combination with industry consolidation and the development of strategic relationships, could cause a decline in net service revenue, loss of market acceptance of our services, or make our services less attractive. Future increases in competition from existing competitors or new entrants may limit our ability to maintain or increase our market share. We may not be able to compete successfully against current or future competitors, and competitive pressures may have a material adverse impact on our business, financial condition, or consolidated results of operations.

Our limited operating history as an owner and operator of long-term acute care hospitals could adversely affect our ability to operate them profitably.

          We opened our first long-term acute care hospital in 2001 and today operate four long-term acute care hospitals with seven locations. Due to our limited history as an operator of long-term acute care hospitals, we may be unable to profitably manage our existing long-term acute care hospitals or compete with other, more experienced providers in the markets in which we serve. If we are unable to profitably operate our long-term acute care hospitals, our net service revenue and net income may decline.

If we are unable to protect the proprietary nature of our software systems and methodologies, our business and financial condition could be harmed.

          We have developed a proprietary software system, which we refer to as our Service Value Point system, that allows us to collect assessment data, establish treatment plans, monitor patient treatment, and evaluate our clinical and financial performance. In addition, we rely on other proprietary methodologies or information to which others may obtain access or independently develop. To protect our proprietary

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Failure of, or problems with, our critical software or information systems could harm our business and operating results.

          In addition to our Service Value Point system, we also depend on other non-proprietary third-party accounting and billing software systems. We have recently converted to a third-party software information system for our long-term acute care hospitals. Additionally, we are in the process of consolidating our various home nursing agency databases into an enterprise-wide system, which we expect to fully implement by the second quarter of 2005. Problems with, or the failure of, these systems could negatively impact our clinical performance and our management and reporting capabilities. Any such problems or failure could materially and adversely affect our operations and reputation, result in significant costs to us, cause delays in our ability to bill Medicare or other payors for our services, or impair our ability to provide our services in the future. The costs incurred in correcting any errors or problems with regard to our proprietary and non-proprietary software may be substantial and could adversely affect our net income.

          Our information systems are networked via public network infrastructure and standards based encryption tools that meet regulatory requirements for transmission of protected healthcare information over such networks. However, threats from computer viruses, instability of the public network on which our data transit relies, or other instances that might render those networks unstable or disabled would create operational difficulties for us, including the ability to effectively transmit claims and maintain efficient clinical oversight of our patients as well as the disruption of revenue reporting and billing and collections management, which could adversely affect our business or operations.

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

          Our growth strategy involves the acquisition of home nursing agencies in rural markets. These acquisitions involve significant risks and uncertainties, including difficulties integrating acquired personnel and other corporate cultures into our business, the potential loss of key employees or patients of acquired agencies, and the assumption of liabilities and exposure to unforeseen liabilities of acquired agencies. We may not be able to fully integrate the operations of the acquired businesses with our current business structure in an efficient and cost-effective manner. The failure to effectively integrate any of these businesses could have a material adverse effect on our operations.

          We generally structure our acquisitions as asset purchase transactions in which we expressly state that we are not assuming any pre-existing liabilities of the seller and obtain indemnification rights from the previous owners for acts or omissions arising prior to the date of such acquisitions. However, the allocation of liability arising from such acts or omissions between the parties could involve the expenditure of a significant amount of time, manpower and capital. Further, the former owners of the agencies and facilities we acquire may not have the financial resources necessary to satisfy our indemnification claims relating to pre-existing liabilities. If we were unsuccessful in a claim for indemnification from a seller, the liability imposed could materially adversely affect our operations.

Our acquisition and internal development activity may impose strains on our existing resources.

          We have grown significantly over the past three years. As we continue to expand our markets, our growth could strain our resources, including management, information and accounting systems, regulatory compliance, logistics, and other internal controls. Our resources may not keep pace with our anticipated growth. If we do not manage our expected growth effectively, our future prospects could be affected adversely.

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We may face increased competition for attractive acquisition and joint venture candidates.

          We intend to continue growing through the acquisition of additional home nursing agencies and the formation of joint ventures and other strategic relationships with rural hospitals for the operation of home nursing agencies. We face competition for acquisition and joint venture candidates, which may limit the number of acquisition and joint venture opportunities available to us or lead to the payment of higher prices for our acquisitions and joint ventures. Recently, we have observed an increase in the acquisition prices for select home nursing agencies. We cannot assure you that we will be able to identify suitable acquisition or joint venture opportunities in the future or that any such opportunities, if identified, will be consummated on favorable terms, if at all. Without successful acquisitions or joint ventures, our future growth rate could decline. In addition, we cannot assure you that any future acquisitions or joint ventures, if consummated, will result in further growth.

We may be unable to secure the additional capital necessary to implement our growth strategy.

          As of September 30, 2004, we had cash and cash equivalents of $2.8 million. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with the proceeds of this offering and a revolving line of credit of approximately $25.0 million and a term loan of approximately $5.0 million, available under our new senior secured credit facility, will be sufficient to fund our growth strategy and to meet our currently anticipated operating expenses, capital expenditures and debt service obligations for at least the next 12 months. If our future net service revenue or cash flow from operations is less than we currently anticipate, we may not have sufficient funds to implement our growth strategy. Further, we cannot readily predict the timing, size, and success of our acquisition and internal development efforts and the associated capital commitments. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional equity or debt financing.

We are a holding company with no operations of our own.

          We are a holding company with no operations of our own. Accordingly, our ability to service our debt and pay dividends, if any, is dependent upon the earnings from the business conducted by our subsidiaries. The distributions of those earnings or advances or other distributions of funds by these subsidiaries to us are contingent upon the subsidiaries’ earnings and are subject to various business considerations. In addition, distributions by subsidiaries could be subject to statutory restrictions, including state laws requiring that the subsidiary be solvent, or contractual restrictions. If our subsidiaries are unable to make sufficient distributions or advances to us, we may not have the cash resources necessary to service our debt or pay dividends.

Risks Related to this Offering

Our executive officers and directors and their affiliates hold a substantial portion of our stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

          Our executive officers and directors, and individuals or entities affiliated with them, will beneficially own an aggregate of approximately 44.5% of our outstanding common stock immediately following this offering or 42.2% if the underwriters exercise their over-allotment option in full. The interests of these stockholders may differ from your interests. If they were to act together, these stockholders would be able to significantly influence all matters that our stockholders vote upon, including the election of directors, business combinations, the amendment of our certificate of incorporation and other significant corporate actions.

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Certain provisions of our charter, bylaws and Delaware law may delay or prevent a change in control of our company.

          Delaware law and our corporate documents contain provisions that may enable our board of directors to resist a change in control of our company. These provisions include:

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire.

If a significant number of shares of our common stock are sold into the market following the offering, the market value of our common stock could significantly decline, even if our business is doing well.

          Subject to certain exceptions and extensions described in “Underwriting,” we and all of our directors, executive officers and stockholders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock for a period of 180 days from the date of this prospectus. If our existing stockholders sell, or the market perceives that they intend to sell, substantial amounts of our common stock in the public market after the 180 day contractual lock-up period and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline below the initial public offering price.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

          The price at which our common stock will trade may be volatile. The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of healthcare companies. The market price of our common stock may be influenced by many factors, including:

In addition, the stock market, and the Nasdaq National Market, or Nasdaq, in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of healthcare provider companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In the past, securities class-action litigation has often been brought against companies following periods of volatility in the market price of their respective securities. We may become involved in this type of litigation in the

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Purchasers in this offering will experience immediate and substantial dilution.

          We expect the initial public offering price of our shares to be substantially higher than the net tangible book value per share of our outstanding common stock. Accordingly, investors purchasing shares of common stock in this offering will pay a per share price that substantially exceeds the per share value of our tangible assets minus our liabilities. Such investors will also contribute 99.8% of the total amount invested in us, but will own only 24.7% of the shares of common stock outstanding, assuming an initial public offering price of $13.00 per share. The issuance of shares of our common stock upon completion of this offering in connection with the conversion of our outstanding KEEP Units and the conversion of certain equity interests by our joint venture partners will result in further dilution to our investors.

Our senior management will have broad discretion to spend a large portion of the net proceeds of this offering and may do so in ways with which you do not agree.

          We estimate the net proceeds to us from this offering to be approximately $35.2 million, after deducting underwriting discounts and commissions and estimated offering expenses. We have not determined specific uses for a large portion of these net proceeds. Our board of directors and senior management will have broad discretion over the use and investment of the net proceeds of this offering and they may apply these proceeds to uses that you may not consider desirable. The failure of management to apply these funds effectively could harm our business.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

          We do not plan to declare dividends on shares of our common stock in the foreseeable future. Further, we expect our new senior secured credit facility to impose limits on our ability to pay dividends. Consequently, your only opportunity to achieve a return on your investment in our common stock will be if the market price of our common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market after this offering will ever exceed the price that you pay.

We will incur increased costs as a result of being a public company.

          As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements as well as costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and the rules of the Securities and Exchange Commission and Nasdaq. We expect these requirements to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, we expect to incur significant costs in connection with the assessment of our internal controls. We also expect these new rules and regulations may make it more expensive for us to obtain director and officer liability insurance. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

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If we fail to complete the evaluation of our internal control over financial reporting in a timely manner, or if we identify deficiencies in our internal control over financial reporting, our business and our stock price could be adversely affected.

          Beginning with our annual report for the year ended December 31, 2005, we will be required to report on the effectiveness of our internal control over financial reporting as required by Section 404 of Sarbanes-Oxley. Under Section 404, we will be required to assess the effectiveness of our internal control over financial reporting and report our conclusion in our annual report. Our auditor is also required to report its conclusion regarding the effectiveness of our internal control over financial reporting. The existence of one or more material weaknesses would require us and our auditor to conclude that internal control over financial reporting is not effective. We have prepared an internal plan of action for compliance, which includes a timeline and schedule of activities. Our efforts to comply with Section 404 and related regulations has required, and continues to require, the commitment of significant financial and managerial resources. If we fail to complete this evaluation in a timely manner, or if there are identified deficiencies in our internal control over financial reporting, we could be subject to regulatory scrutiny and a loss of public confidence in our financial reporting, which could have an adverse effect on our business and our stock price.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains “forward-looking statements.” Forward-looking statements relate to expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Specifically, this prospectus contains, among others, forward-looking statements about:

These forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties. Many important factors, some of which are discussed elsewhere in this prospectus, could cause actual results or achievements to differ materially from any future results or achievements expressed or implied by forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from current expectations reflected in these forward-looking statements include, among others, the factors discussed under “Risk Factors.”

          You should read this prospectus and the documents filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

          The forward-looking statements contained in this prospectus reflect our views and assumptions only as of the date of this prospectus. Except as required by law, we assume no responsibility for updating any forward-looking statements. These forward looking statements are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended, or the Securities Act.

          We qualify all of our forward-looking statements by these cautionary statements.

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USE OF PROCEEDS

          We estimate that the net proceeds to us from the sale of the 3,100,000 shares of common stock that we are offering will be approximately $35.2 million, based on an assumed initial public offering price of $13.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses. We will not receive any proceeds from the sale of shares by the selling stockholders.

          We intend to use approximately $13.7 million of the net proceeds from this offering to repay indebtedness under a new senior secured credit facility, which we expect to enter into prior to the completion of this offering. Under the terms of this new senior secured credit facility, we expect to have a revolving line of credit of approximately $25.0 million, as well as a term loan of approximately $5.0 million. The $13.7 million of indebtedness will be incurred prior to the completion of this offering when we borrow the following amounts under our new senior secured credit facility: (1) $12.0 million to repay in full our existing credit facility, bearing interest at prime plus 2.0% and due April 30, 2006, with Residential Funding Corporation; (2) $1.0 million to repay our outstanding obligations under our loan agreement, bearing interest at 12.0% and due July 1, 2006, with The Catalyst Fund, Ltd. and Southwest/Catalyst Capital, Ltd.; (3) $380,000 to repay our obligations under a subordinated promissory note bearing interest at 15.5% and due February 1, 2006, which is collateralized by shares of our common stock that were repurchased by us in consideration for the promissory note; and (4) approximately $300,000 to repay indebtedness assumed by us in connection with acquisitions completed by us in 2004. Following this offering and the application of the net proceeds, we do not expect to have any indebtedness outstanding under our new senior secured credit facility. During 2004 we borrowed funds under our credit facility with Residential Funding Corporation for acquisitions and general working capital purposes.

          We also intend to use approximately $3.0 million of the net proceeds to satisfy our cash obligations to one of our joint venture partners with respect to its right to convert its equity interests in the joint venture into shares of our common stock and cash upon the consummation of this offering.

          The remaining proceeds of approximately $18.5 million will be used for general corporate purposes, including working capital, payment of other indebtedness, sales and marketing and capital expenditures. Further, we may be required to use approximately $500,000 of the remaining proceeds to redeem joint venture interests held by minority owners in one of our joint ventures who, at their election, have a contractual right to require us to redeem their joint venture interests. We may also use a portion of the net proceeds from this offering to pursue strategic acquisitions of additional home nursing agencies or larger home nursing operations that would allow us to acquire market share in new and existing markets. We currently have no agreements or commitments for any such acquisitions or joint venture investments. The amounts that we actually expend for these specified purposes may vary significantly depending on a number of factors, including changes in our growth strategy, the amount of our future net service revenue and expenses, and our future cash flow. As a result, we will retain broad discretion in the allocation of the net proceeds of this offering and may spend such proceeds for any purpose, including purposes not presently contemplated.

          Until we use the net proceeds of this offering for the above purposes, we intend to invest the funds in short-term, investment grade, interest-bearing securities. We cannot predict whether the proceeds invested will yield a favorable return.

DIVIDEND POLICY

          For the years ended December 31, 2002, 2003 and 2004, we distributed $153,000, $184,000 and $440,000, respectively, to our stockholders in the form of cash dividends. Following this offering, we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to support the development and growth of our business. Payment of future dividends, if any, will be at the discretion of our board of directors and subject to any requirements under our then existing credit facility.

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CAPITALIZATION

          The following table sets forth our capitalization as of September 30, 2004, on an actual basis and on an as adjusted basis to reflect:

You should read this table together with the information under “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Consolidated Results of Operations” and “Description of Our Capital Stock,” and with our consolidated financial statements and related notes included elsewhere in this prospectus.

The table above excludes 1,000,000 shares of our common stock available for future issuance under our equity incentive plans, of which options to acquire 11,500 shares have been granted, and 14,000 unvested shares of restricted common stock.

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DILUTION

          If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the adjusted net tangible book value per share of our common stock after this offering.

          The net tangible book value of our common stock as of September 30, 2004 was $9.0 million, or $0.75 per share. Net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of September 30, 2004.

          Our as adjusted net tangible book value as of September 30, 2004 would have been $41.2 million, or $2.61 per share, after giving effect to the following: (1) the sale by us of 3,100,000 shares of our common stock in this offering, at an assumed initial public offering price of $13.00 per share; (2) the application of the estimated net proceeds therefrom in the manner described under “Use of Proceeds”; (3) the issuance of 518,036 aggregate shares of our common stock to two of our joint venture partners in connection with the conversion of their joint venture interests into shares of our common stock; (4) the issuance of 481,680 shares of our common stock upon conversion of outstanding KEEP Units, which will occur automatically upon the completion of this offering; and (5) the issuance of 7,000 shares of vested restricted common stock upon completion of this offering. This represents an immediate increase in net tangible book value of $1.86 per share to our existing stockholders and an immediate dilution of $10.39 per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution:

          The following table sets forth, on an as adjusted basis, as of September 30, 2004, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated expenses at an assumed initial public offering price of $13.00 per share.