UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20132016

OR

¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-34504

ADDUS HOMECARE CORPORATION

(Exact name of registrant as specified in its charter)

2401 South Plum Grove2300 Warrenville Road

Palatine, Illinois 60067Downers Grove, IL 60515

(Address of principal executive offices)

(847) 303-5300630-296-3400

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b)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  x.☒.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨☐    No  x.☒.

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   x☒     No   ¨.☐.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x☒     No   ¨☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the last sale price on The NASDAQ Global Market on June 28, 201330, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was $112,336,629.$129,127,802.

As of March 10, 2014,1, 2017, there were 10,912,97311,529,535 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s Definitive Proxy Statement for its 20142017 Annual Meeting of Stockholders (which is expected to be filed with the Commission within 120 days after the end of the registrant’s 20132016 fiscal year) are incorporated by reference into Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

SPECIAL CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

When included in this Annual Report on Form 10-K, or in other documents that we file with the Securities and Exchange Commission (“SEC”) or in statements made by or on behalf of the Company, words like “believes,” “belief,” “expects,” “plans,” “anticipates,” “intends,” “projects,” “estimates,” “may,” “might,” “would,” “should” and similar expressions are intended to identify forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a variety of risks and uncertainties that could cause actual results to differ materially from those described therein. These risks and uncertainties include, but are not limited to the following: changes in operational and reimbursement processes at the state level, changes in Medicaid, Medicare and other medical payment levels, changes in or our failure to comply with existing Federalfederal and Statestate laws or regulations or the inability to comply with new government regulations on a timely basis, competition in the home and community basedpersonal care service industry, the geographical concentration of our affiliated operations, changes in the case mix of consumers and payment methodologies, operational changes resulting from the assumption by managed care organizations of responsibility for managing and paying for home and community basedpersonal care services to consumers, changes in estimates and judgments associated with critical accounting policies, our ability to maintain or establish new referral sources, our ability to renew significant agreements or groups of agreements, our ability to attract and retain qualified personnel, city and state minimum wage pressure, changes in payments and covered services due to the overall economic downturnconditions and deficit spending by Federalfederal and Statestate governments, future cost containment initiatives undertaken by third party payors, our ability to access to financing due to the volatility and disruption ofthrough the capital and credit markets, our ability to meet debt service requirements and comply with covenants in debt agreements, business disruptions due to natural disasters or acts of terrorism, our ability to integrate and manage our information systems, our expectations regarding the size and growth of the market for our services, the acceptance of privatized social services, our expectations regarding changes in reimbursement rates, authorized hours and eligibility standards ofand limits on services imposed by state governmental agencies, the potential to settlefor litigation, and the effect of those changes on our results of operations in 2013 or for periods thereafter, our ability to successfully implement our coordinatedpersonal care model to grow our business, our ability to attract referrals, our ability to continue identifying, pursuing and pursuingintegrating acquisition opportunities and expand into new geographic markets, the impact of acquisitions on our business, the effectiveness, quality and cost of our services and various other matters, many of which are beyond our control.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on any forward-looking statement as a prediction of future events. We expressly disclaim any obligation or undertaking and we do not intend to release publicly any updates or changes in our expectations concerning the forward-looking statements or any changes in events, conditions or circumstances upon which any forward-looking statement may be based, except as required by law. For a discussion of some of the factors discussed above as well as additional factors, see Part I, Item 1A—“Risk Factors” and Part II, Item 7—“Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Unless otherwise provided, “Addus,” “we,” “us,” “our,” and the “Company” refer to Addus HomeCare Corporation and our consolidated subsidiaries and “Holdings” refers to Addus HomeCare Corporation. When we refer to 2013, 20122016, 2015 and 2011,2014, we mean the twelve month period then ended December 31, unless otherwise provided.

A copy of this Annual Report on Form 10-K for the year ended December 31, 20132016 as filed with the SEC, including all exhibits, is available on our internet website at http://www.addus.com on the “Investor Relations”“Investor” page link. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into, this Annual Report on Form 10-K.

PART I

Overview

We operate as one business segment and are a comprehensive provider of home and community basedcomprehensive personal care services, which are primarily social in nature and areprincipally provided in the home, and focused on the dual eligible population.home. Our services include personal care andservices provide assistance with activities of daily living, and adult day care.living. Our consumers are individuals with special needsprimarily persons who are at risk of hospitalization or institutionalization, such as the elderly, chronically ill and disabled. Our payor clients include federal, state and local governmental agencies, managed care organizations, commercial insurers and private individuals. As of December 31, 2016, we provided personal care services to over 33,000 consumers through 114 locations across 24 states, including three adult day services centers in Illinois. For the years ended December 31, 2016, 2015 and 2014, we served approximately 50,000, 48,000, and 43,000 discrete consumers, respectively.

A summary of our financial results for 2016, 2015 and 2014 is provided in the table below:

Our services are predominantly provided in the home under agreements with state and local government agencies. Our consumers are predominately “dual eligible,” meaning they are eligible to receive both Medicare and Medicaid benefits. The federal government permits states to initiate dual eligible demonstration programs and other managed Medicaid initiatives designed to coordinate the services provided through Medicare and Medicaid, with the overall objective of improving care quality and reducing costs. States are increasingly implementing managed care programs to deliver care for Medicaid enrollees. Managed care organizations have an economic incentive to better manage the healthcare expenditures of their membership, and therefore seek to provide care in a more cost-effective setting, such as a patient’s home. Managed care revenues account for 26.1%, 18.3% and 9.1% of our revenue mix for 2016, 2015 and 2014, respectively.

The personal care services we provide include assistance with bathing, grooming, oral care, skincare, assistance with feeding and dressing, medication reminders, meal planning and preparation, housekeeping and transportation services and other activities of daily living. We provide these non-medical services on a long-term, continuous basis, with an average duration of approximately 26 months per consumer.

Our model is designed to improve consumer outcomes and satisfaction, as well as lower the cost of acute care treatment and reduce service duplication. We believe our model to be especially valuable to managed care organizations that have economic responsibility for both personal care services as well as acute care expenditures. Over the long term, we believe our model will be a differentiator and as a result we expect to receive increased referrals from managed care organizations.

We utilize home care aides to observe and community basedreport changes in the condition of our consumers for the purpose of early intervention in the disease process, with the goal of reducing the cost of medical services by preventing unnecessary emergency room visits and/or hospital admissions and re-admissions. We coordinate the services provided by our team with those of other healthcare agencies as appropriate. Changes in consumers’ conditions are evaluated by appropriately trained managers and may result in the condition being reported to the consumers’ case manager at the managed care organization or other payor, in some cases to the consumers’ primary care

physicians for treatment or other follow-up. We believe this approach to the care of our consumers and the integration of our services into the broader healthcare continuum are attractive to managed care organizations and other payors who are ultimately responsible for the healthcare needs and costs of our consumers.

We utilize Interactive Voice Response (“IVR”) systems and smart phone applications to communicate with our home care aides. Through these technologies, we are able to identify changes in health conditions with automated alerts forwarded to an appropriate manager for triage and evaluation. In addition, we use technology to record basic transaction information about each visit, record start and end times for a scheduled shift, track mileage reimbursement, send text messages to the home care aide and communicate basic payroll information.

In addition to our focus on organic growth, we have grown through over 121 locations across 21 statesselective acquisitions which have expanded our presence in current markets or which have facilitated our entry into new markets where the personal care business has been moving to over 26,000 consumers.managed care organizations. We completed seven acquisitions during the period from December 2013 through December 2016.

Effective March 1, 2013, we sold substantially all of the assets used in our home health business (the “Home Health Business”) in Arkansas, Nevada and South Carolina, and 90% of the Home Health Business in California and Illinois, to subsidiaries of LHC Group, Inc. (the “Purchasers”(“the Purchasers”) for a cash purchase price of approximately $20$20.0 million. We retained a 10% ownership interest in the Home Health Business in California and Illinois. The assets sold included 19 home health agencies and two hospice agencies in five states. EffectiveOn December 30, 2013, we sold one home health agency in Pennsylvania for approximately $0.2 million. Through home health agencies, we previously provided physical, occupational and speech therapy, as well as skilled nursing services, to pediatric, adult infirm and elderly patients. The results of the Home Health Business sold and one additional agency in Idaho which was closed in November 2012, are reflected as discontinued operations for all periods presented herein. Continuing operations include the results of operations previously included in our home & community segment and three agencies previously included in our home health segment. Following the sale of the Home Health Business, we managehave managed and internally reportreported our business in one segment.

We believemaintain licensure as a home health agency in Delaware and, in order to provide personal care services in the salestate, provide limited home health services reimbursable by Medicare. Until ceasing business in the State of theIndiana on August of 2015, we also provided limited home health services reimbursable by Medicare in order to comply with regulatory requirements that personal care services be provided by a licensed home health agency. Priority Home Health Business substantially positions us for future growth. The sale allows us to focus both management and financial resources to address changesCare, located in the home and community based services industry and to address the needs of managed care organizations as they become responsible for the state sponsored programs. We completed two acquisitionsOhio, also maintains enrollment in, 2013 and January 2014 which expand our presence in two existing markets and provide us with a base of operations in two new targeted managed care states. We have improved our financial performance by lowering our administrative costs and concentrating our efforts on the business that is growing and providing all of our profitability and disposing of the business that was unprofitable. We have improved our overall financial position by eliminating our debt and adding substantial amounts in cash reserves to our balance sheet. A summary of our results for 2013, 2012 and 2011, expressed in thousands, are provided in the table below:

The home and community based services we provide are primarily social in nature and include assistance with bathing, grooming, dressing, personal hygiene and medication reminders, and other activities of daily living. We provide these services on a long-term, continuous basis, with an average duration of approximately 17 months per consumer. Our adult day centers provide a comprehensive program of skilled and support services and designated medical services for adults in a community-based group setting. Services provided by our adult day centers include social activities, transportation services to andbut does not derive significant revenues from the centers, the provision of meals and snacks, personal care and therapeutic activities such as exercise and cognitive interaction.

We utilize a coordinated care model that is designed to enhance consumer outcomes and satisfaction as well as lower the cost of acute care treatment and reduce service duplication. Through our coordinated care model, we utilize our home care aides to observe and report changes in the condition of our consumers for the purpose of early intervention in the disease process, thereby preventing or reducing the cost of medical services by avoiding emergency room visits, and/or reducing the need for hospitalization. These changes in condition are evaluated by appropriately trained managers and referred to appropriate medical personnel including the primary care physicians and managed care plans for treatment and follow-up. We will coordinate the services provided by our team with those of selected health care agencies as appropriate. We believe this approach to the provision of care to our consumers and the integration of our services into the broader healthcare industry is particularly attractive to managed care providers and others who are ultimately responsible for the healthcare needs of our consumers and over time will increase our business with them.Medicare.

Addus HomeCare Corporation was incorporated in Delaware in 2006 under the name Addus Holding Corporation for the purpose of acquiring Addus HealthCare, Inc. (“Addus HealthCare”). Addus HealthCare was founded in 1979. Our principal executive offices are located at 2401 South Plum2300 Warrenville Road, Downers Grove, Road, Palatine, Illinois 60067.60615. Our telephone number is (847) 303-5300.630-296-3400. Our internet address is www.addus.com. Through our website, we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish such information to the SEC.

Our Market and Opportunity

We provide home and community basedpersonal care services to the elderly and other adult infirm adults who needrequire long-term care and assistance with essential, routine tasksactivities of life.daily living. In recent years, home and community-based services (“HCBS”), including personal care services, have grown in significance and demand. This trend is expected to continue as a result of the aging of the U.S. population, increased life expectancy, and increased opportunities for individuals to receive home-based care as an alternative to institutionalization. The Kaiser Commission report onPatient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “ACA”), made available financial incentives through 2015 for state Medicaid programs that expanded HCBS as an alternative to nursing homes and the uninsured dated December 2012 estimated totalother institutional long-term care alternatives.

In calendar year 2015, reported federal and state Medicaid expenditures for home and community basedfee-for-service personal care services in 2009amounted to be over $50.0$15 billion, annually, up from $19.4 billion in 2000, with an average annual increase of 11%$2.3 billion from 2012. Federal and state governments spent approximately $152 billion on Medicaid long-term services and supports (“LTSS”) in federal fiscal year 2014, a 4% increase over 2013, with growth primarily attributable to HCBS.

Many states use both fee-for-service and managed care delivery models for personal care services, but the number of beneficiaries served through managed care has grown. Between federal fiscal years 2013 and 2014, LTSS spending within Medicaid managed care programs grew at a rate of 55%. OverAs of July 2016, 39 states contracted with risk-based managed care organizations to serve their Medicaid enrollees, with 13 of those states enrolling at least 75% of all elderly beneficiaries or those with disabilities in managed care organizations. In 23 states, some or all LTSS was provided through a managed care arrangement, and several states anticipate expanding these models geographically or to new populations in 2017. As of federal fiscal year 2016, the same period, participants inCenters for Medicare & Medicaid homeServices (“CMS”) requires states to identify and community based services increased from 2.1 million to 3.3 million.estimate their institutional and HCBS expenditures within Medicaid managed care.

In addition to the projected growth of government-sponsored home and community basedpersonal care services, the private dutypay market for our services is growing rapidly.continuing to expand. We provide our private dutypay consumers with all of the same services we provide to our government-sponsored home and community basedpersonal care consumers.

Historically, there were limited barriers to entry in the home and community basedpersonal care services industry. As a result, the home and community basedpersonal care services industry developed in a highly fragmented manner, with many small local providers. Few companies have a significant market share across multiple regions or states. AccordingThe lack of licensure or certification requirements in some states makes it difficult to the National Association for Home Care & Hospice, or NAHC, as of 2013, there were over 33,000 homecare and hospice agencies in the United States. Approximately 15,000 were Medicare-certified homecare and hospice agencies, while the remaining 18,000 representestimate the number of licensedpersonal care services agencies. However, projections published by the Centers for Disease Control and Prevention in 2016 indicate that social workers and home health and community basedpersonal care aides are among the long-term care services agencies inoccupations that will grow the United States providing services similar to those we provide. In addition, while difficult to estimate, there are many non-licensed, non-certified home and community based services agencies.most by 2030.

More recently, the home and community basedThe personal care services industry has beenbecome subject to increased regulation. At the federal level, recent efforts have focused on improved coordination of regulation across the various types of Medicaid programs through which personal care services are offered. In several states, providers are now required to obtain state licenses or registrations and must comply with laws and regulations governing standards of practice. Providers must dedicate substantial resources to ensure continuing compliance with all applicable regulations and significant expenditures may be necessary to offer new services or to expand into new markets. Any failure to comply with this growing and changingthe regulatory regime could lead to the termination of rights to participate in federal and state-sponsored programs and the suspension or revocation of licenses. We believe limitationscompliance with new licensing requirements or regulations, the increasing focus on the availability of new licenses,improving health outcomes, the rising cost and complexity of operations and pressure on reimbursement rates due to constrained government resources may create barriersdiscourage for new providers and may encourage industry consolidation.

The Federal Coordinated Health CareMedicare-Medicaid Coordination Office was established pursuant to the ACA to effectively integrate benefitsimprove services for consumers who are enrolled ineligible for both Medicare and Medicaid, also known as dual eligibles, and improve coordination between the federal and state governments to ensure that dual eligibles have full access toin the delivery of items and services to which they are entitled. Stated goals ofThe Medicare-Medicaid Coordination Office within the Federal Coordinated Health Care Office are to ensure that the dual eligible population has full access to seamless high quality health care and to make the system as cost-effective as possible. The Federal Coordinated Health Care OfficeCMS, works with the Centers for Medicare & Medicaid Services (“CMS”), state Medicaid agencies, and other federal and state agencies, as well as physicians and others, to providemake available technical assistance and educational tools to improve care coordination between Medicare and Medicaid, and to reduce costs and improve beneficiary experience while reducing administrative and educate dual eligibles regardingregulatory barriers between the programs. For example, the Financial Alignment Initiative is a demonstration project that tests capitated models and managed fee-for-service models of integrated care coverage. It also performs policy and program analysis and develops policy and program recommendations regardingpayment for benefits provided to dual eligibles.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, both laws Nationally, 13 states are referred to herein as the “Health Reform Act”), encourages states to integrate the state managed Medicaid home and community based programs with managed Medicare programs. The objective of these initiatives is to enhance the coordination of benefits between the two programs and to lower overall costs. The integrated programs are being structured as three year pilots. Nationally, 34 states have initiated, or plan to initiate, efforts to pursue these programs,currently participating in this initiative, including 157 of the 2124 states in which we provide services.

We believe that our coordinatedpersonal care program makesand our technology make us well-suited to partner with managed care providersorganizations to address the needs of the dual eligible population. These programs will eliminatereduce service duplication between home and community basedpersonal care programs and traditional Medicare home health. We believe that our ability to identify changes in medicalour consumers’ health and condition before the medical need requires acute intervention is required will lower the overall cost of care and will be recognized as an added benefit of our services.care. We believe this approach to the provision of care to our consumersdelivery and the integration of our services into the broader healthcare industry iscontinuum are particularly attractive to managed care providersorganizations and others who are ultimately responsible for the healthcare needs of our consumers and over time will increase our business with them.

Our Growth Strategy

Our ability to grow our net service revenues growth is closely correlated with the number of consumers to whom we provide our services. Our continued growth depends on our ability to provide consistently high quality care, maintain our existing payor client relationships, establish relationships with new payors enter into new contracts and increase our referral sources. Our continued growth is also dependent upon the authorization by state agencies of new consumers to receive our services. We believe there are several market opportunities for growth. The U.S. population of persons aged 65 and older is growing, and the U.S. Census Bureau estimates that this population will more than double by 2050. Additionally, we believe the overwhelming majority of individuals in need of care generally prefer to receive care in their homes or community-based settings.homes. Finally, we believe the provision of home and community basedpersonal care services is more cost-effective than the provision of similar services in an institutional setting for long-term care. The following are the key elements of our growth strategy:

markets. We are also seekingseek to partner with managed care providersorganizations to address the needs of the dual eligible population in light of governmental incentives for consumers to enroll in managed care plans. OurWe believe that our approach to the provision of care to our consumers and the integration of our services into the broader healthcare industry isare particularly attractive to managed care providersorganizations and others who are ultimately responsible for both the healthcare needs and related costs of our consumers and over time we believe will increase our business with them.consumers.

Our Services

We deliverAs of December 31, 2016, we delivered services to our consumers through 121114 individual agencies located in 2124 states and 5three adult day services centers in Illinois. Our home and community based services, assist consumers, who would otherwise be at risk of placement in a long-termwhich include non-medical care institution, with activities of daily living.

Services are primarily provided in consumers’ homes on an as-needed, hourly basis, mostly to older adults and younger disabled persons. These services, generally provided by home and community based service aides, are of a social rather than medical nature and includesuch as personal care home support services and adult day care.

Personal care and home support services, are provided to consumers who are unable to independently perform some or all of their activities of daily living. OurWithout our services, many of our consumers would be at risk of placement in a long-term care institution.

Personal care services are primarily provided to older adults and younger disabled persons in their homes on an as-needed, hourly basis. Typically provided by home care aides, our services are needed when assistance from family or community members is insufficient or wherewhen caregivers respite is needed.need respite. Personal care services include assistance with bathing, grooming, oral care, skincare, assistance with feeding and dressing, and medication reminders. Home support services includereminders, meal planning and preparation, housekeeping and transportation services.services and other activities of daily living. Many consumers need such services on a long-term basis to address chronic or acute conditions. Each payor client establishes its own eligibility standards, determines the type, amount, duration and scope of services,

and establishes the applicable reimbursement rate. Therate in accordance with applicable law, regulations or contracts. We provide personal care services for an average duration of our provision of home and community based services is approximately 1726 months per consumer.

WeAs of December 31, 2016, we also operate 5operated three adult day services centers in Illinois which providethat each provides a comprehensive program of skilled and support services and designatedcertain health services for adults in a community-based group setting. Services provided by our adult day centersThese services include social activities, transportation services to and from the centers, the provision of meals and snacks, personal care and therapeutic activities, such as exercise and cognitive interaction. In order to focus on providing services to consumers in their homes, effective March 1, 2017, Addus ceased the adult day services businesses and sold substantially all of the assets used in our adult day services centers.

Our payor clients are principally federal, state and local governmental agencies and managed care organizations. The federal, state and local programs under which these organizations operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. Managed care organizations that operate as an extension of our state payors are subject to similar economic pressures. Our commercial insurance carrier payor clients are typically for profit companies and are continuously seeking opportunities to control costs.

Most of our services are provided pursuant to agreements with state and local governmental social and aging service agencies. These agreements generally have a statedan initial term of one to two years and may be terminated by the counterparty uponwith 60 days’ notice. They are typically renewed for one to five-year terms, provided that we have complied with licensing, certification and program standards, and other regulatory requirements. Reimbursement rates and methods vary by state and service type, but are typically based on an hourly or unit-of-service basis. Managed care organizations are becoming an increasing portion of our payor mix as states shift from the management of their programs to managed care organizations. In 2013,2016, approximately 94.1%70.4% of our net service revenues from continuing operations were derived from state and local government programs, with 26.1% derived from managed care organizations, while approximately 5.9%3.5% of net service revenues from continuing operations were derived from insurance programs and private dutypay consumers.

The following table presents our locations, setting forth acquisitions, start-ups, divestitures and closures for the period December 31, 2011 to December 31, 2013. The table excludes locations associated with discontinued operations.

Our payor clients are principally federal, state and local governmental agencies. The federal, state and local programs under which they operate are subject to legislative, budgetary and other risks that can influence reimbursement rates. Our commercial insurance carrier payor clients are typically for profit companies and are continuously seeking opportunities to control costs. We are seeking to grow our private duty business.

For 2013, 20122016, 2015 and 2011,2014, our revenue mix by payor type for continuing operations was as follows:

We derive a significant amount of our net service revenues from our operations in Illinois, New York, New Mexico and California, which represented 66%Washington. The percentages of total revenue for each of these significant states for 2016, 2015 and 6%; 64% and 7% and 58% and 8% of our total net service revenues for the years ended December 31, 2013, 2012 and 2011, respectively.2014 were as follows:

A significant amount of our net service revenues from continuing operations are derived from one specific payor client, the Illinois Department on Aging, which accounted for 59%42.1%, 57%48.8%, and 51%53.2% of our total net service revenues from continuing operations for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively.

We also measure the performance of our business through review of our billable hours per client, billable hours per business day, revenues per billable hour and the number of consumers served, or census.

Competition

The home and community basedpersonal care services industry is highly competitive, fragmented and market specific. Each local market has its own competitive profile and no single competitor has significant market share across all of our markets. Our competition consists of home and community basedpersonal care service providers, home health providers, private caregivers, larger publicly held companies, privately held companies, privately held single-site agencies, hospital-based agencies, not-for-profit organizations, community-based organizations, managed care organizations and self-directed care programs. In addition, certain governmental payors contract for services with independent providers such that our relationships with these payors are not exclusive. This is particularly true in California.California where individuals act as independent providers, meaning individuals provide services for a consumer and are paid directly by the county where services are delivered. We have experienced, and expect to continue to experience, competition from new entrants into our markets. Increased competition may result in pricing pressures, loss of or failure to gain market share or loss of consumers or payors, any of which could harm our business. In addition, some of our competitors may have greater financial, technical, political and marketing resources and name recognition on a larger number ofwith consumers and payors than we do.payors.

Sales and Marketing

We focus on initiating and maintaining working relationships with state and local governmental agencies responsible for the provision of the services we offer. We target these agencies in our current markets and in geographical areas that we have identified as potential markets for expansion. We also seek to identify service needs or changes in the service delivery or reimbursement system of governmental entities and attempt to work with and provide input to the responsible government personnel, provider associations and consumer advocacy groups.

In many states there is a need toWe establish new referral relationships with various managed care plansorganizations who are contractingcontract with the states for the management of the state Medicaid programs under dual eligible demonstration and similar Medicaid managed care programs. We have met with allmany contracted managed care plansorganizations in markets where we serve our clients and believe we are beginning to build thosebuilding the relationships necessary to insureensure continued referrals of new clients.

We receive substantially all of our consumers fromthrough third-party referrals. Generally, family members of potential consumers are made aware of available in-home or alternative living arrangements through a state or local case management system. These systems are operated by governmental or private agencies. We receive referrals from state departments on aging, rehabilitation, mental health and children’s services, county departments of social services, the Veterans Health Administration and city departments on aging.

We provide ongoing education and outreach to our target communities bothin order to inform residentsthe community about state and locally-subsidized care options and to communicate our role in providing quality home and community basedpersonal care services. We also utilize consumer-direct sales, marketing and advertising programs designed to attract consumers.

Payment for Services

We are compensated for substantially all of our services by federal, state and local government programs, such as Medicaid funded programs and Medicaid waiver programs, other state agencies, the Veterans Health

Administration, managed care organizations, commercial insurersinsurance and private dutypay consumers. Depending on the type of service, coverage for services may be predicated on a case manager, physician or nurse determination that the care is necessary or on the development of a plan for care in the home.

The following table sets forth net service revenues from continuing operations derived from each of our major payors during the indicated periods as a percentage of total net service revenues from continuing operations.

Illinois Department on Aging

We provide home and community basedpersonal care services pursuant to agreements with the Illinois Department on Aging, which is funded by Medicaid and general revenue funds of the State of Illinois. Consumers are identified by case managers contracted independently with the Illinois Department on Aging. Once a consumer has been evaluated and determined to be eligible for the program, the case manager refers the consumer to a list of authorized providers, from which the consumer selects the provider. We provide our services in accordance with a care plan developed by the case manager and under administrative directives from the Illinois Department on Aging. We are reimbursed on an hourly fee for servicefee-for-service basis.

Due to its revenue deficiencies, and financing issues and delay in finalizing budgets, the State of Illinois is currently reimbursing usproviders on a delayed basis with respect to these agreements.basis. These payment delays have adversely impacted, and may furthercould adversely impact our liquidity and may result in the need to increase borrowings under our credit facility. Other delayedDelayed payor reimbursements from the State of Illinois have also contributedcould contribute to thean increase in our receivables balances.

Washington Department The State of SocialIllinois did not adopt a comprehensive budget for fiscal year 2016, which ended on June 30, 2016, and Health Services

We provide home and community based services pursuantit has not yet adopted a comprehensive budget for fiscal year 2017, which began on July 1, 2016. Stopgap budget legislation was enacted on June 30, 2016, which appropriated funds through December 31, 2016. Without a budget, the State is not authorized to agreements with the Washington Departmentpay for non-Medicaid consumers we serve. Non-Medicaid consumers from Illinois represent approximately 15% of Social and Health Services, which is funded by Medicaid and general revenue fundsour current total annual revenues. Our accounts receivable, net of allowance for doubtful accounts at December 31, 2016, increased 37.7% compared to 2015, due in part to delays from the State of Washington. Consumers are identified by area AgencyIllinois in the second half of 2016. Accounts receivable attributable to delayed payments from the Illinois Department on Aging case managers contracted independently with the Washington Department of Social and Health Services. Once a consumer has been evaluated and determined to be eligible for the program, the case manager refers the consumer to a list of authorized providers, from which the consumer selects the provider. We provide our services in accordance with a care plan developed by the case manager and under administrative directives from the Washington Department of Social and Health Services. We are reimbursed on an hourly fee for service basis.

Riverside County Department of Public Social Services

We provide services pursuant to an agreement with the County of Riverside, California under its In-Home Support Services Program. Under this agreement, we serve consumers referred to us by county-employed social workers in accordance with the term and conditions of a Quality Assurance Work Plan. We provide personal care and other assistance with activities of daily living under this program. All services are reimbursed on an hourly fee for service basis. The current agreement has a one year term beginning July 1, 2013. The County has offered a one year extension beginning July 1, 2014, which is subject to approval by the County department that oversees our agreement.

Our contract relationship with the County of Riverside, California may change beforetotaled $53.0 million at the end of the term of our agreement, including any renewal terms, as2016, approximately $36.8 million related to Non-Medicaid consumers and approximately $16.2 million related to Medicaid consumers. Reimbursements from the State of CaliforniaIllinois could be further delayed due to the lack of a budget for fiscal year 2017 and Riverside County are planning to enter into managed care demonstration plans whereby the services we provide to consumersbecause current forecasts indicate higher state deficits in the county would become the responsibility of the contracted managed care plans. The transition of consumers to managed care is expected to take place while our agreement with the County of Riverside is in place. We cannot provide assurance that we will be able to contract with managed care plans at rates comparable to our current contract with the County or that all of our consumers would move to managed care or that the managed care plans would continue to utilize our services at the same rate that they are provided today.

Our arrangements with all of our California county payors are not exclusive in nature. Rather, each county is permitted to contract for services from independent providers with a registry of independent providers managed by the county authority. The independent provider programs represent a competitive threat to us but we believe independent providers do not provide the level of management or supervision that the counties, or the individuals receiving services would have if the contract were with us.

Nevada Medicaid

We provide services pursuant to an agreement with the State of Nevada Division of Health Care Financing and Policy under Nevada Medicaid’s Personal Care Options program. Under this agreement, we identify consumers through community outreach efforts, who are then qualified by the State of Nevada to receive services. We provide personal care and other in-home support services under this program. All services are reimbursed on an hourly fee for service basis.

Private Duty

Our private duty services are provided on an hourly basis. Our rates are established to achieve a pre-determined gross profit margin, and are competitive with those of other local providers. We bill our private duty consumers for services rendered either bi-monthly or monthly, and in certain circumstances we obtain a two-

week deposit from the consumer. Other private duty payors include workers’ compensation programs/insurance, preferred provider organizations and other managed care companies and employers.

Commercial Insurance

Many states are moving the administration of their Medicaid home and community based programs to commercial managed care insurance companies. This transition is in response to federal and state initiatives to address the needs of the dual eligible population and in an overall desire to better manage the costs of the Medicaid long term care programs. Reimbursement from the managed care companies is generally on an hourly, fee for service basis with rates consistent with the individual state funded rates.

Most long-term care insurance policies contain benefits for in-home services and adult day care. Policies are generally subject to dollar limitations on the amount of daily, weekly or monthly coverage provided. Depending on the type of service, coverage for services may be predicated on a physician or nurse determination that the care is necessary or on the development of a plan for care in the home.near future.

Other Federal, State and Local Payors

Medicaid Funded Programs and Medicaid Waiver Programs

Medicaid is a state-administered program that provides certain social and medical services to qualified low-income individuals and is jointly funded by the federal government and individual states. Reimbursement rates and methods vary by state and service type, but are typically based on an hourly or unit-of-service basis. Rates are subject to adjustment based on statutory and regulatory changes, administrative rulings, government funding limitations and interpretations of policy by individual state agencies. Within guidelines established by federal

statutes and regulations, and subject to federal oversight, each state establishes its own eligibility standards, determines the type, amount, duration and scope of services, sets the rate of payment for services and administers its own program, subject to federal oversight.program. Most states cover Medicaid beneficiaries for intermittent home health services as well as continuous services for children and young adults with complicated medical conditions, and certain states cover home and community-based services.

Currently, personal care services and other HCBS are largely reimbursed on a fee-for-service basis. However, states may seek permission from CMS to provide personal care services under waivers of traditional Medicaid requirements. In an effort to control escalating Medicaid costs, states are increasingly requiring Medicaid beneficiaries to enroll in managed care plans. Under a health reform bill signed into law in January 2012, Illinois set a goal to increase the percentage of Medicaid beneficiaries in Medicaid managed care plans from the then current 8% to 50% by 2015. Under these programs, States are increasingly requiring Medicaidthat require beneficiaries to work with case managers. In 2012, Illinois enacted Medicaid legislation requiring that 50% of Medicaid beneficiaries be enrolled in some type of care coordination program by 2015. A report issued by the Illinois Department on Aging in 2016 indicates that over 60% of the state’s Medicaid population is enrolled in a care coordination program, many provided through various managed care entities including managed care organizations.

Veterans Health Administration

The Veterans Health Administration operates the nation’s largest integrated health carehealthcare system, with more than 1,8001,700 sites of care, and provides health carehealthcare benefits, including home and community basedpersonal care services, to eligible military veterans. The Veterans Health Administration provides funding to regional and local offices and facilities that support the in-home care needs of eligible aged and disabled veterans by contracting directly with local in-home care providers, and to the aid and attendance pension, which pays veterans for their otherwise unreimbursed health and long-term care expenses. We currently have relationships and agreements with the Veterans Health Administration to provide home and community basedpersonal care services in several states, with the most Veterans Health Administration services being provided to eligible consumers in Illinois, Arkansas and California.

Other

Other sources of funding are available to support home and community basedpersonal care services in different states and localities. In addition, many states appropriate general funds or special use funds through targeted taxes or lotteries to finance home and community basedpersonal care services for senior citizens and peopleindividuals with disabilities.

Depending on the state, these funds may be used to supplement existing Medicaid waiver programs or for distinct programs that serve non-Medicaid eligible consumers.

Managed Care Organizations

Many states are moving the administration of their Medicaid personal care programs to commercially managed care insurance companies. This transition is due to an overall desire to better manage the costs of the Medicaid long term care programs. Reimbursement from the managed care organizations is generally on an hourly, fee-for-service basis with rates consistent with the individual state funded rates.

Commercial Insurance

Most long-term care insurance policies contain benefits for in-home services and adult day services. Policies are generally subject to dollar limitations on the amount of daily, weekly or monthly coverage provided.

Private Pay

Our private pay services are provided on an hourly basis. Our rates are established to achieve a pre-determined gross profit margin, and are competitive with those of other local providers. We bill our private pay consumers for services rendered either bi-monthly or monthly, and in certain circumstances we obtain a two- week deposit from the consumer. Other private payors include workers’ compensation programs/insurance, preferred provider organizations and employers.

Exposure for Payments Previously Received

As described above under the caption “Business—Overview,” we sold our Home Health Business effective March 1, 2013, pursuant to an Asset Purchase Agreement, dated as of February 7, 2013 (the “Home Health Purchase Agreement”), with LHC Group, Inc. and the Purchasers identified therein. Pursuant to the Home Health Purchase Agreement, we retained a 10% ownership interest in the Home Health Business in California and Illinois. In addition, not included in the sale were four home health agencies in Delaware, Idaho, Indiana and Pennsylvania. The home health agency in Pennsylvania was sold on December 30, 2013, and the agency in Idaho was closed in November 2012, the agency in Indiana was closed August 2015 and efforts to sell the Idaho agency were abandoned in December 2013. Because regulatory requirements in Delaware and Indiana require the provision of home and community based services to be provided by a licensed home health agency, we will continue to provide limited home health services reimbursable by Medicare in these agencies in order to maintain these licenses.

While we no longer receive substantial payments from Medicare for home health services, pursuant to the Home Health Purchase Agreement, we are obligated to indemnify the Purchasers for, among other things, (i) penalties, fines, judgments and settlement amounts arising from a violation of certain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or any state law equivalent in connection with the operation of the Home Health Business prior to the consummation of the sale (the “Closing”), and (ii) any liability related to the failure of any reimbursement claim submitted to certain government programs for services rendered by the Home Health Business prior to the Closing to meet the requirements of such government programs, or any violation prior to the Closing of any health carehealthcare laws. Such liabilities include amounts to be recouped by, or repaid to, such government programs as a result of improperly submitted claims for reimbursement or those discovered as a result of audits by investigative agencies. All services that we have provided that have been or may be reimbursed by Medicare are subject to retroactive adjustments and/or total denial of payments received from Medicare under various review and audit provisions included in the program regulations. The review period is generally described as six years from the date the services are provided but could be expanded to ten years under certain circumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to the Closing, we may be required to reimburse the Purchasers for the amount of such adjustments.

Medicare is the U.S. government’s health insurance program funded by the Social Security Administration for individuals aged 65 or older, individuals under the age of 65 with certain disabilities and individuals of all ages with end-stage renal disease. Eligibility for Medicare does not depend on income, and coverage is restricted to reasonable and medically-necessary treatment.

Medicare home health rates are based on a Medicare episodic rate set annually through federal legislation.regulation. The rate covers a 60-day episode of care. Payment for each patient’s episode of care is based on the severity of the consumer’s condition, his or her service needs and other factors relating to the cost of providing services and supplies.

In addition, Medicare payments can be adjusted through changes in the payment rate and recoveries of overpayments for, among other things, unusually costly care for a particular consumer, low utilization, transfers to another provider, the level of therapy services required, the number of episodes of care provided, and if the consumer is discharged but readmitted within the same 60-day episodic period. In addition, Medicare can also reduce levels of reimbursement if a provider is unable to produce appropriate billing documentation or acceptable medical authorizations.

Insurance Programs and Costs

We maintain workers’ compensation, general and professional liability, automobile, directors’ and officers’ liability, fiduciary liability and excess liability insurance. We offer various health insurance plans to eligible full-time and part-time employees. We believe our insurance coverage and self-insurance reserves are adequate for our current operations. However, we cannot assure you that any potential losses or asserted claims will not exceed such insurance coverage and self-insurance reserves.

Employees

The following is a breakdown of our part- and full-time employees, as well as the employees in our National Support Center, as of December 31, 2013:2016:

Our home and community based servicecare aides provide substantially all of our services and comprise approximately 95%97.9% of our total workforce. In most cases, our home and community based services aidesThey undergo a criminal background check, and are provided with pre-service training and orientation and an evaluation of their skills. In many cases, home and community based servicescare aides are also required to attend ongoing in-services education. In certain states, our home and community based servicescare aides are required to complete certified training programs and maintain a state certification; however, no state in which we operate requires home and community based services aides to maintain a license similar to that of a nurse or therapist.certification. Approximately 70%66.1% of our total employees are represented by labor unions. We maintain strong working relationships with these labor unions. We have a national agreement with the Service Employees International Union (the “SEIU”). Wages and benefits which is currently under negotiation, as well as numerous agreements with local SEIU affiliates which are negotiated at the local level at various times throughout the year.renegotiated from time to time.

Our Technology

We have licensed the Horizon Homecare software solution (“Horizon Homecare”) from McKesson Information Solutions, LLC or McKesson,(“McKesson”), to address our administrative, office, clinical and operating information system needs, including assisting with the compliance of our operating systems with the Health Insurance Portability and Accountability Act of 1996, or HIPAA, requirements. Horizon Homecare assists our staff in gathering information to improve the quality of consumer care, optimize financial performance, adjust consumer mix, promote regulatory compliance and enhance staff efficiency. Horizon Homecare supports intake, personnel scheduling, office, clinical and reimbursement management in an integrated database. The Horizon Homecare software is hosted by McKesson in a secure data center, which provides multiple redundancies for storage, power, bandwidth and security. Using this technology, we are ableworking to standardize the care delivered across our network of locations and effectively monitor our performance and consumer outcomes. We have also leveraged this technology to implement a centralized billing and collections function at our national support center.

We have developed internally a customized payroll management system.licensed the QlikView Business Intelligence software to provide historical, current, and forward-looking operational performance to identify and create or improve our current business strategies. This systemsoftware has been utilizedintegrated with our Horizon platform to calculateprovide high level historical and producecurrent analytical views to measure performance and better understand the factors that are driving our payroll. Thiskey metrics in a real-time manner. We are also disseminating detailed visit information to line level management to identify clients where scheduling or visit activities are not on track to meet their servicing needs.

We currently use the Ultipro system by Ultimate Software to address our human resources and payroll processing needs. Ultimate is a web based provider of integrated human resource and payroll software, iswhich supports our management with the systems and reporting necessary to manage our employees. Both software systems are integrated with Horizon Homecare and other clinical data-management systems, and includes a featureinclude features for general ledger population, tax reporting, managing wage assignments and garnishments, on-site check printing, general ledger population and direct-deposit paychecks. Secure management reports are made available centrally and through our internal reporting module.

We have contractedmade the decision to replace this internalconvert our payroll system with an external vendorfrom Ultimate to ADP and we expect this conversion to be complete in 2017. ADP will reduce the current cost of a comprehensive HRIS/Payroll system.processing payroll while reducing issues and errors. We will be adding significant electronic support systems to our recruiting, human resources, payroll and accounting support functions. This conversion will solidify our ability to easily migrate acquired entities, improve compliance to state and regulatory requirements and supply needed self-service capabilities to various levels within the Company.

We

In some states, we utilize commercial vendors for electronic visit verification pursuant to which our home and community basedpersonal care service aidsaides record their beginning and ending times for services provided through either an interactive

voice recognition (IVR)IVR system or cell phone based system. We have supplemented these commercial systems withIn the fall of 2016, we transitioned all company developed smart phone applications that allow our homecare aides the abilityprovided mobile devices to communicate with our support center,CellTrak for all mobile and IVR traffic unless otherwise mandated by a state to request additional work if available, to monitor or change their schedules and to inquire about payroll information.utilize a specific technology.

Government Regulation

Overview

Our business is subject to extensive and increasing federal, state and local regulation. Changes in the lawlaws and regulations or new interpretations of existing laws and regulations may have a dramatic effectmaterial impact on the definition of permissible activities, the relative cost of doing business, and the methods and amounts of payment for care by both governmental and other payors. Departments of the federal government are currently considering how to implement programs and policy changes and mandated demonstration projects in the Health Reform Act. As a result of the Health Reform Act, it is expected that the number of Medicaid beneficiaries will increase (although several states in which we operate have declined to expand Medicaid eligibility) and in addition, there may be additional increases if employers terminate their employee health plans. It is impossible to know at this time what effect, if any, this will have on budgetary allocations for our services. The health care industry has experienced, and is expected to continue to experience, extensive and dynamic change. In addition, differences among state laws may impede our ability to expand into certain markets. If we fail to comply with 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 or state programs. In addition the healthcare industry has experienced, and is expected to continue to experience, extensive and dynamic change. It is difficult to predict the effect of these changes on budgetary allocations for our services. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”

Medicaid Participation

To participate in and qualify for reimbursement under Medicaid programs, we are subject to various requirements imposed by federal and state authorities. If we were to violate the applicable federal and state regulations, we could be excluded from participation in federal and state healthcare programs and be subject to substantial civil and criminal penalties. Federal regulations set forth eligibility requirements for personal care services provided under Medicaid waiver programs. These regulations specify that home based settings must be integrated in and support full access to the greater community, be selected by individuals from among different setting options, ensure privacy rights of individuals, optimize autonomy and independence in making life choices, and facilitate individual choice regarding services and supports. We may face additional costs associated with compliance with these regulations, but these costs will vary from state to state, depending on how the requirements are implemented.

Health ReformAffordable Care Act

The Health Reform ActU.S. Congress and certain state legislatures have passed many laws and regulations in recent years intended to effect major change within the national healthcare system, the most prominent of which is the ACA. However, the future of the ACA is unclear following the 2016 federal elections. The new presidential administration and certain members of Congress have stated their intent to repeal or make significant changes to the ACA, its implementation or interpretation, but have not yet agreed upon specific proposals for replacement reforms. As currently structured, the ACA affects how healthcare services are delivered and reimbursed through the expansion of health insurance coverage, reduction of growth in Medicare program spending, and the establishment and expansion of programs that tie reimbursement to quality and integration. It includes several provisions that may affect reimbursement for our services. The Health Reform Act is broad, sweeping reform, and is subjectIt allows states to change, including through the adoption of related regulations, the way in which its provisions are interpreted and the manner in which it is enforced. Although the Health Reform Act provides for expansion ofexpand eligibility for Medicaid enrollment, 21enrollment. A number of states, including some in which we do business,operate, have opted not to participateparticipated in Medicaid expansion. Some of the states that did not expand Medicaid are evaluating or participating in an alternative waiver plan.

The Health Reform Act also createsACA established within CMS athe Center for Medicare and Medicaid Innovation, or CMMI, to test innovative payment and service delivery systems to reduce program expenditures while maintaining or enhancing quality. AmongFor example, the issues that are to be addressed by CMMI are: allowing the states to testhas supported testing of new models of care for individuals dually eligible for Medicare and Medicaid, supporting “continuing care hospitals” that offer post acute care during the 30 days following discharge,dual eligibles, funding of home health providers that offer chronic care management services, and establishingestablishment of pilot programs that bundle acute care hospital services with physician services and post-acute care services, includingwhich may include home health services for patients with certain selected conditions. We maypatients. These systems could have difficulty negotiating for a fair share of the bundled payment. In addition, we may be unfairly penalized if a consumer is readmitted to the hospital within 30 days of discharge for reasons beyondmaterial impact on our control.

We cannot assure you that the provisions described above, or that any other provisions of the Health Reform Act, will not adversely impact our business, results of operations or financial position.business.

Permits and Licensure

Our home and community basedpersonal care services are authorized and / and/or licensed under various state and county requirements. OurAlthough our home and community basedcare aides are generally have nonot subject to licensure requirements, although in certain states they are requiredrequire them to complete training programs and maintain state certification. We believe we are currently licensed appropriately whereas required by the laws of the states in which we operate, but additional licensing requirements may be imposed upon us in existing markets or markets that we enter in the future. For example, California’s Home Care Services Consumer Protection Act was enacted in 2013. This statute establishes a licensing program for home care organizations and requires background checks, basic training, and tuberculosis screening for the aides that are employed by home care organizations. Compliance by home care organizations and aides was expected by January 2016. Although we sold the bulk of our home health business in California in March 2013, we continue to operate in California and are subject to ongoing costs under the statute.

Applicable FederalFraud and StateAbuse Laws

Anti-Kickback Laws: The federal government enforces the federal Anti-Kickback Law thatStatute prohibits the offer,offering, payment, solicitation or receipt of any remuneration to induce referrals or from any personorders for items or entity to induce or in exchange for the referral of patientsservices covered by federal health carehealthcare programs such as Medicare and Medicaid. TheCourts have interpreted this statute broadly and held that there is a violation if just one purpose of the remuneration is to generate referrals. Knowledge of the law or intent to violate the law is not required. Violations of the federal Anti-Kickback Law also prohibitsStatute may be punished by criminal fines, imprisonment, significant civil monetary penalties and exclusion from participation in federal healthcare programs. In addition, the purchasing, leasing, orderingsubmission of a claim for services or arranging for any item, facility or service covered byitems generated in violation of the government payment programs (orfederal Anti-Kickback Statute may be subject to additional penalties under the recommendation thereof) in exchange for such referrals.federal False Claims Act. Many states, including Illinois, Nevada and California also have similar laws proscribing kickbacks, some of which are not limited to servicesapply regardless of the source of payment for which government-funded payment may be made. Violations of these provisions are punishable by criminal fines, civil penalties, imprisonmentitems or exclusion from participation in reimbursement programs.services.

The Stark Law and other Prohibitions on Physician Self-Referral: We may also be affected by theThe federal law commonly known as the “Stark Law,” thatLaw” prohibits physicians from making a referral forreferring Medicare and Medicaid beneficiaries to an entity that provides certain “designated health care items or services,” including home health services, if they, or their family members, have a financial relationship with the entity receiving the referral, unless certain conditions are met.an exception applies. The Stark Law also prohibits entities that provide designated health services reimbursable by Medicare or Medicaid from billing these programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to a prohibited referral. Violations of the Stark Law may result in denial of payment, and are punishable by civil monetary penalties onand exclusion from federal healthcare programs of both the person making the referral and the provider rendering the service. Such personsFailure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or entities are also subjectfraudulent claim, which may result in additional penalties imposed under the federal False Claims Act. We attempt to exclusion from federal and state healthcare programs. We believestructure our relationships, including compensation agreements with physicians who served as medical directors in our home health agencies, to meet the requirements for the personal servicesan exception and that our operations comply withto the Stark Law.

Law, but we cannot provide assurance that every relationship is fully compliant. Many states, including Illinois, Nevada and California have also enacted statutes similar in scope and purpose to the Stark Law.

Beneficiary Inducement Prohibition: The federal Civil Monetary Penalties Law (“CMPL”) imposes substantial penalties for offering remuneration or other inducements to influence federal health care beneficiaries’ decisions to seek specific governmentally reimbursable items or services, or to choose particular providers. The CMPL also can be used for civil prosecution of the Anti-Kickback Law. Sanctions under the CMPL include substantial financial penalties as well as exclusion from participation in all federal and state health care programs.

The False Claims Act: Numerous state and federal laws govern the submission of claims for reimbursement and prohibit false claims or statements. Under the federal False Claims Act, for example, the government may fine any person, company or corporation that knowingly submits, or participates in submitting, claims for payment to the federal government whichthat are false or fraudulent, or which contain false or misleading information. Any“Knowingly” is defined broadly, and includes submission of a claim with reckless disregard to its truth or falsity. The federal False Claims Act can be used to prosecute fraud involving issues such person or entity that knowingly makes or uses a false record or statement to avoid payingas coding errors and billing for services not provided. Violations of other statutes, such as the federal government mayAnti-Kickback Statute, can also serve as a basis for liability under the federal False Claims Act. Among other potential bases for liability is the knowing and improper failure to report and return overpayments received from Medicare or Medicaid in a timely manner following identification of the overpayment. An overpayment is deemed to be subject“identified” when a person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment.

A provider determined to finesbe liable under the False Claims Act.Act may be required to pay three times the amount of actual damages sustained by the federal government, in addition to mandatory civil monetary penalties that range from $10,957 to $21,916 for each false or fraudulent claim, after taking 2017 updates into account. These penalties will be updated annually based on changes to the consumer price index. Private parties may initiate whistleblower lawsuits againstalleging the defrauding of the federal government by a provider and may receive a share of any personsettlement or entityjudgment. When a private individual brings an action under the False Claims Act in the name of the government and may share in the proceeds of a successful suit. The penalty for violation of the False Claims Act is a minimum of $5,500 and a maximum of $11,000 for each fraudulent claim plus three times the amount of damages caused to the government as a result of each fraudulent claim. A False Claims Act violation may provide the basis for the imposition of administrative penalties as well as exclusion from participation in governmental health care programs, including Medicare and Medicaid. In addition to thefederal False Claims Act, the defendant generally is not made aware of the lawsuit under the federal government may use several criminal statutes to prosecute the submission of falsecommences its own investigation or fraudulent claimsdetermines whether it will intervene.

Every entity that receives at least $5 million in Medicaid payments annually must have written policies regarding certain federal and state laws for payment to the federal government.

Amendments to the False Claims Act in the Health Reform Actall employees, contractors and agents. These polices must provide that a provider must report and return overpayments within 60 days of identifying the overpayment or the claims for the services that generated the overpayments becomedetailed information about false claims, subject to the False Claims Act. Overpayments include payments for services for which the provider does not have proper documentation.false statements and whistleblower protections.

Many states, including Illinois, Nevada and California have similar false claims statutes that impose additional liability for the types of acts prohibited by the False Claims Act.

Other Fraud Alerts:and Abuse ProvisionsFrom time to time,: Criminal and civil penalties may be imposed under various other federal and state agencies, such asstatutes that prohibit various forms of fraud and abuse. For example, the U.S. Departmentfederal Civil Monetary Penalties Law (“CMPL”) imposes substantial penalties for offering remuneration or other inducements to influence federal healthcare beneficiaries’ decisions to seek specific governmentally reimbursable items or services or to choose particular providers. It also imposes penalties for contracting with an individual or entity known to be excluded from a federal healthcare program. The CMPL requires a lower burden of Health and Human Services (“DHHS”), issue pronouncements that identify practices that may be subject to heightened scrutiny, as well as practices that may violateproof than some other fraud and abuse laws. We believe, but cannot assure you, that our operations comply withlaws, including the principles expressed byfederal Anti-Kickback Statute. Civil monetary penalties increased significantly in 2016, were further adjusted in 2017, and will be updated annually based on changes to the Office of the Inspector General (the “OIG”) in these reports and special fraud alerts.

HIPAA and the HITECH Act: HIPAA privacy regulations contain detailed requirements concerning the use and disclosure of individually identifiable health information by “HIPAA covered entities,” which includes our company.consumer price index. In addition to the privacy requirements, HIPAA coveredfinancial penalties, federal enforcement officials are able to exclude from Medicare or Medicaid any individuals or entities must implement certain security standardsconvicted of Medicare or Medicaid fraud or other offenses related to protect the integrity, confidentiality and availabilitydelivery of certain electronic health information. The Health Information Technology for Economic and Clinical Health Act (“HITECH Act”) imposes additional privacy and security requirements on health care providers and on their business associates. Failure to comply with HIPAA or the HITECH Act could result in fines and penalties that could have a material adverse effect on us.

Most states, including Illinois, Nevada and California also have laws that protect the privacy and security of confidential personal information.

Civil Monetary Penalties:The DHHS may impose civil monetary penalties upon any person or entity that presents, or causes to be presented, certain ineligible claims for medical items or services. The amount of penalties varies, depending on the offense, from $2,000 to $50,000 per violation plus treble damages for the amount at issue and exclusion from federal health care programs, including Medicare and Medicaid. In addition, personsservices under those programs. Persons who have been excluded from the Medicare or Medicaid program may not retain ownership in a participating entity. Participating entities that permit continued ownership by excluded individuals, that contract with excluded individuals, and the excluded individuals themselves, may be penalized. Penalties are also applicable in certain other cases, including violations of the federal Anti-Kickback Law, payments to limit certain patient services and improper execution of statements of medical necessity.

Surveys and AuditsPayment Integrity

We are subject to routine and periodic surveys and audits by various governmental agencies and other payors. From time to time, we receive and respond to survey reports containing statements of deficiencies. Periodic and random audits conducted or directed by these agencies could result in a delay in receipt or an adjustment to the amount of reimbursements due or received under federal or state programs. Violation of

Under the applicable federal and state health care regulations can result in excluding a health care provider from participating in the Medicare and/or Medicaid and other federal and state healthcare programs and can subject the provider to substantial civil and/or criminal penalties.

Pursuant to the Tax Relief and Health Care Act of 2006, the DHHS created a permanent and national recovery auditRecovery Audit Contractor (“RAC”) program, CMS contracts with third parties to identify improper Medicare payments made on claims of health care services provided to Medicare beneficiaries. The program uses recovery audit contractors, or RACs, to identify the improper Medicare payments and protect the Medicare Trust Fund from fraud, waste and abuse. Since the start of the program, RACs have identified more then $4.8 billion in improper payments. RACs are paid a contingent fee based on the improper payments identified.identified and corrected. CMS has also instituted Zone Program Integrity Contracts (“ZPICs”) for additional audit of Medicare providers, including home health agencies. By statute, states are required to enter into contracts with RACs to audit payments to Medicaid providers. Further, under the Medicaid Integrity Program, CMS employs private contractors, referred to as Medicaid Integrity Contractors (“MICs”), to perform post-payment audits of Medicaid claims and identify overpayments.

From time to time, various federal and state agencies, such as the U.S. Department of Health and Human Services (“HHS”), issue pronouncements that identify practices that may be subject to heightened scrutiny, as well as practices that may violate fraud and abuse laws. For example, the Office of the Inspector General (the “OIG”) issued an Investigative Advisory in 2012 that identified a number of program integrity vulnerabilities in the delivery of personal care services and recommending corrective actions by CMS. In December 2016, CMS issued a bulletin highlighting safeguards that state Medicaid agencies can put in place around personal care services. It has also issued guidance to personal care services agencies and attendants on avoiding improper payments. We believe, but cannot assure you, that our operations comply with the principles expressed by HHS in these reports, advisories and guidance.

HIPAA and Other Privacy and Security Requirements

The HIPAA Administrative Simplification provisions and implementing regulations require the use of uniform electronic data transmission standards and code sets for certain healthcare claims and reimbursement payment transactions submitted or received electronically. These provisions are intended to encourage electronic commerce in the U.S. healthcare industry.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations extensively regulate the use, disclosure, confidentiality, availability and integrity of individually identifiable health information, known as “protected health information,” and provide for a number of individual rights with respect to such information. These requirements apply to most healthcare providers, which are known as “covered entities,” including our company. Vendors, known as “business associates,” that handle protected health information, on behalf of covered entities must also comply with most HIPAA requirements. A covered entity may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity.

Covered entities must, among other things, maintain privacy and security policies, train workforce members, maintain physical, administrative, and technical safeguards, enter into confidentiality agreements with business associates, and permit individuals to access and amend their protected health information. In addition, covered entities must report breaches of unsecured (unencrypted) protected health information to affected individuals without unreasonable delay, but not to exceed 60 calendar days from the discovery date of the breach. Notification must also be made to HHS and, in certain cases involving large breaches, to the media.

HIPAA violations may result in criminal penalties and significant civil penalties. Our company is also subject to other applicable federal or state laws that are more restrictive than HIPAA, which could result in additional penalties. For example, the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions against entities whose inadequate data security programs may expose consumers to fraud, identity theft and privacy intrusions. Various state laws and regulations require entities that maintain individually identifiable information (even if not health-related) to report data breaches to affected individuals and, in some cases, state regulators. We expect compliance with HIPAA and other privacy and security standards to continue to impose significant costs on our business lines.

Environmental, Health and Safety Laws

We are subject to federal, state and local regulations governing the storage, transport, use and disposal of hazardous materials and waste products. In the event of an accident involving such hazardous materials, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all.

The risks described below, and the risks described elsewhere in this Form 10-K, could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows, cause the trading price of our common stock to decline and cause the actual outcome of matters to differ materially from our current expectations as to whichreflected in forward-looking statements are made in this Form 10-K. The risk factors described below and elsewhere in this Form 10-K are not the only risks we face. Our business and consolidated financial condition, results of operations and cash flows may also be materially adversely affected by factors that are not currently known to us, by factors that we currently consider immaterial or by factors that are not specific to us, such as general economic conditions.

If any of the following risks are actually realized, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline.

You should refer to the explanation of the qualifications and limitations on forward-looking statements under “Special Caution Concerning Forward-Looking Statements.” All forward-looking statements made by us are qualified by the risk factors described below.

Risks Related to Our Business and Industry

ChangesReductions in reimbursement and other changes to Medicaid, Medicaid waiver, or other state and local medical and social programs could adversely affect our client caseload, units of service, net service revenues, gross profit and profitability.

For the year ended December 31, 2013,2016, we derived approximately 94%70.4% of our net service revenues from continuing operations from agreements that are directly or indirectly paid for by state and local governmental agencies, such asprimarily through Medicaid funded programs and Medicaid waiver programs. Governmental agencies generally condition their agreements with us upon a sufficient budgetary appropriation. If a governmental agency does not receive an appropriation sufficient to cover its contractual obligations with us, it may terminate an agreement or defer or reduce the amount of the reimbursement we receive. Almost all of the states in which we operate are facinghave experienced periodic financial pressures and budgetary shortfalls due to the currentchallenging economic downturnconditions and the rising costs of health care,healthcare, and asthe Medicaid program is often a state’s largest program. As a result, many states have made, are considering or may consider making changes in their Medicaid, Medicaid waiver or other state and local medical and social programs, including enacting legislation designed to reduce Medicaid expenditures.

Changes at the federal level also affect Medicaid policy and funding and the healthcare industry more broadly. The ACA, for example, made significant changes to Medicaid eligibility requirements. Future health reform efforts or efforts to repeal or significantly change the ACA will likely impact state programs. The Deficit Reduction ActIn addition, the federal government oversees various demonstration projects and Medicaid waiver programs under which states may apply to test new or existing approaches to payment and delivery of 2005 permits states to make benefit cuts to their Medicaid programs, which could affectbenefits.

If changes in Medicaid policy result in a reduction in available funds for the services we offer or a reduction in the number of beneficiaries eligible for which states contract with us. our services, our net service revenues could be negatively impacted. Our profitability depends principally on the levels of government-mandated payment rates and our ability to manage the cost of providing services.

Changes that states have mademay occur at the federal or may consider makingstate level to address their budget deficits or otherwise contain costs include:

Certain of these measures have been implemented by, or are proposed in, states in which we operate. For example, California has considered a number of proposals, including potential changes in eligibility standards or hours utilization and Illinois has delayed payments to providers. In 2013,2016, we derived approximately 66%53.6% of our total net service revenues from continuing operations from services provided in Illinois, 6%12.9% of our total net service revenues from continuing operations in New York, 7.5% of our total net service revenues from services providedcontinuing operations in CaliforniaNew Mexico and 7%4.5% of our total net service revenues from continuing operations from services provided in Washington. Because a substantial portion of our business is concentrated in these states, any significant reduction in expenditures that pay for our services in these states and other states in which we do business may have a disproportionately negative impact on our future operating results. ProvisionsIllinois, in particular, is experiencing budgetary issues. The Governor of Illinois proposed a budget for fiscal year 2017 (which started July 1, 2016) that contains several measures aimed at reducing costs associated with the Health Reform Act increase eligibility for Medicaid, which may cause a reallocation of Medicaid funding. It is difficult to predict at this time what the effect ofIllinois Department on Aging. If enacted, these changes would be on our business. If changes in Medicaid policy result in a reduction in available funds for the services we offer, our net service revenuesmeasures could be negatively impacted.

Under the Health Reform Act, the federal medical assistance percentage (the “FMAP”) paid by the federal government to states that elect to provide Medicaid coverage to low income adults who were previously ineligible for Medicaid is 100% for calendar years 2014-2016 and gradually decreases to 90% in 2020 and thereafter. Not all states in which we do business may elect to provide coverage to newly eligible individuals. We are not able at this time to determine the impact that these changes will have on our business.

In March 2013, the federal government implemented certain budgetary restrictions, commonly known as sequestration. Although Medicaid is exempt from these automatic cuts, sequestration remains in place and could negatively impact reimbursement or authorizations for services under our federal or state contracts.

A number of states have initiated efforts to combat Medicaid fraud and overpayments. Ifaffect the number of Medicaid applicants or recipients is significantly reduced asclients we serve and our growth in Illinois.

In some cases, commercial insurance companies and other private payors rely on government payment systems to determine payment rates. As a result, changes to government healthcare programs that reduce Medicaid payments may negatively impact payments from private payors, as well. Any reduction in reimbursements or imposition of these efforts,copayments that dissuade the numberuse of consumers we serveour services, or any reduction in reimbursement from private payors, could be reduced, which could negativelymaterially adversely affect our business and results of operations.profitability.

State effortsThe implementation of alternative payment models and the transition of Medicaid beneficiaries to transition their home and community based programs to being administered by managed care plansorganizations may limit our market share and could adversely affect our net service revenues and our profitability.revenues.

Under the Health Reform Act, statesMany government and commercial payors are encouragedtransitioning providers to integrate the state managed Medicaid homealternative payment models that are designed to promote cost-efficiency, quality and community based programs with managed Medicare programs. The objective of these initiatives is to enhance the coordination of benefits between the two programscare. For example, accountable care organizations (“ACOs”) incentivize hospitals, physician groups, and other providers to lower overallorganize and coordinate patient care while reducing unnecessary costs.

Nationally, 34 Several states have initiated,implemented, or plan to initiate,implement, accountable care models for their Medicaid populations. If we are not included in these programs, or if ACOs establish programs that overlap with our services, we are at risk for losing market share and for a loss of our current business.

We may be similarly impacted by state efforts to pursue thesetransition Medicaid beneficiaries to managed care organizations. States are increasingly relying on managed care to deliver services within their Medicaid programs including 15 of the 21 states in which we provide services. However, the timing for implementation of these demonstration projects are unknown at this time. In addition, the final regulations implementing these programs modify the requirements and definitions around home and community-based settings.as a strategy to control costs. We cannot assure you that:that we will be able to secure favorable contracts with all or some of the managed care organizations;organizations, that our reimbursement under these programs will remain at current levels;levels, that the authorizations for services will remain at current levels or that our profitability will remain at levels consistent with past performance. If states in which we provide services transition their home and community based programsIn addition, operational processes may not be well defined as a state transitions beneficiaries to managed care plans and we are not ablecare. For example, communication of changes to participate through contracts witheither the managed care organization or otherwise, we could lose revenue generatedthe consumers may be unclear. Membership, new referrals and the related authorization for services to be provided may be delayed, which may result in those states, evendelays in statesservice delivery to consumers or in which we currently have contracts to provide home and community based services.

The implementation of Accountable Care Organizations (ACOs)payment for services rendered. Difficulties with operational processes may limit our ability to increase our market share and could adverselynegatively affect our revenues.revenue growth rates, cash flow and profitability for services provided.

CMS published final ACO regulations in October 2011, which established a shared savings program to facilitate coordination and cooperation among providers to improve the quality of care for Medicare fee-for-service beneficiaries and reduce unnecessary costs. These programs are focused on efforts by hospitals and physician groups to organize the medical providers and are not directed toward home and community based

service providers. If we are not included in development of these programs, or if the ACOs establish similar services to include home and community based programs for their participants, we are at risk for losing market share and for a loss of our current business. Other cost savingscost-saving initiatives may be presented by the government and commercial payors to control costs and reduce hospital admissions / readmissions in which we could be financially atthat subject our company to financial risk. We cannot predict at this time what effect ACOs or like organizationsalternative payment models may have on our company.

Our revenues are concentrated in a small number of states which will make us particularly sensitive to regulatory and economic changes in those states.

Our revenues are particularly sensitive to regulatory and economic changes in states in which we generate a significant portion of our revenues, including Illinois, New York, New Mexico and Washington. Accordingly, any change in the current demographic, economic, competitive or regulatory conditions in these states could have an adverse effect on our business, financial condition or results of operations. Changes to the Medicaid programs in these states could also have a disproportionately adverse effect on our business, financial condition, results of operations or cash flows.

Efforts to reduce the costs of the Illinois Department on Aging program could adversely affect our service revenues and profitability.

In 2013,2016, we derived approximately 58.8%42.1% of our revenue from continuing operations from the Illinois Department on Aging programs. Since 2011In his fiscal year 2016 budget proposal, the StateGovernor of Illinois has undertaken a number of initiatives to reduce the costs ofproposed changes aimed at reducing expenditures by the Illinois Department on Aging, program, such as an income cap and higher threshold of need for eligibility in the mandated utilizationCommunity Care Program, as well as elimination of an electronic visit verification (EVV) system by all providers. Itthe add-on rate the Illinois Department on Aging had been paying Community Care Program service providers to help those providers pay for employee healthcare. Illinois did not enact a budget for fiscal year 2016 and therefore none of

the Governor of Illinois’s proposals were enacted. The Governor of Illinois also issued a proposed budget for fiscal year 2017, which began July 1, 2016. In his proposed 2017 budget, the Governor again offered several measures intended to reduce costs associated with the Illinois Department on Aging, such as shifting non-Medicaid eligible seniors from the Community Care Program to a new program known as the Community Reinvestment Program, a move that the Governor estimated will save approximately $197 million in fiscal year 2017. At this time, it is difficult to ascertain whathow significant an impact if any, these initiatives will have on our business. If they impact the eligibility of our consumers, the number of hours authorized or services provided to existing consumers, they would adversely affect our service revenues and profitability.growth.

Delays in reimbursement due to state budget deficits or otherwise have decreased, and may increase in the future, further decrease,adversely affecting our liquidity.

There is generally a delay between the time that we provide services and the time that we receive reimbursement or payment for these services. The majorityMany of the 21 states in which we operate are operating with budget deficits for their current fiscal year. These and other states may in the future delay reimbursement, which would adversely affect our liquidity. Specifically, the State of Illinois is currently reimbursing us on a delayed basis, including with respect to our agreements with the Illinois Department on Aging, our largest payor. Our reimbursements from the State of Illinois could be further delayed. In addition, from time to time, procedural issues require us to resubmit claims before payment is remitted, which contributes to our aged receivables. Additionally, unanticipated delays in receiving reimbursement from state programs due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital. Because weWe fund our operations primarily through the collection of accounts receivable.

Specifically, the State of Illinois is currently reimbursing us on a delayed basis. The State of Illinois did not adopt a comprehensive budget for fiscal year 2016, which ended on June 30, 2016, and it has not yet adopted a comprehensive budget for fiscal year 2017, which began on July 1, 2016. Stopgap budget legislation was enacted on June 30, 2016, which appropriated funds through December 31, 2016. Without a budget, the State is not authorized to pay for non-Medicaid consumers we serve. Non-Medicaid consumers from Illinois represent approximately 15% of our current total annual revenues. Our accounts receivable, anynet of allowance for doubtful accounts at December 31, 2016 increased 37.7% compared to 2015, due in part to delays in reimbursement would resultfrom the State of Illinois in the needsecond half of 2016. Accounts receivable attributable to increase borrowings under our credit facility.

Our revenue maydelayed payments from the Illinois Department on Aging totaled $53.0 million at the end of 2016, approximately $36.8 related to Non-Medicaid consumers and approximately $16.2 related to Medicaid consumers. Reimbursements from the State of Illinois could be negatively impacted by a failure to appropriately document services, resulting delays in reimbursement and related indemnification obligations.

Reimbursement to us is conditioned upon providing the correct administrative and billing codes and properly documenting the services themselves, including the level of service provided, and the necessity for the services. If incorrect or incomplete documentation is provided or inaccurate reimbursement codes are utilized, this could result in nonpayment for services rendered and could lead to allegations of billing fraud. This could subsequently lead to civil and criminal penalties, including exclusion from government healthcare programs, such as Medicare and Medicaid. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain amounts are not covered, services provided were not medically necessary, or supporting documentation was not adequate. Pursuantfurther delayed due to the Home Health Purchase Agreement, we are obligated to indemnify the Purchaserslack of a budget for among other things, (i) penalties, fines, judgmentsfiscal year 2017 and settlement amounts arising from a violation of certain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or anybecause current forecasts indicate higher state law equivalent in connection with the operation of the Home Health Business prior to the Closing, and (ii) any liability related to the failure of any reimbursement claim submitted to certain government programs for services rendered by the Home Health Business prior to the Closing to meet the requirements of such government programs, or any violation prior to the Closing of any health care laws. Such liabilities include amounts to be recouped by, or repaid to, such government programs as a result of improperly submitted claims for reimbursement or those discovered as a result of audits by investigative agencies. All services that we have provided that have been or

may be reimbursed by Medicare are subject to retroactive adjustments and/or total denial of payments received from Medicare under various review and audit provisions includeddeficits in the program regulations. The review period is generally described as six years from the date the services are provided but could be expanded to ten years under certain circumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to the Closing, we may be required to reimburse the Purchasers or the government for the amount of such adjustments, which could adversely affect our business and financial condition. In addition, timing delays may cause working capital shortages. Working capital management, including prompt and diligent billing and collection, is an important factor in achieving our financial results and maintaining liquidity. It is possible that documentation support, system problems, provider issues or industry trends may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.near future.

The implementation or expansion of self-directed care programs in states in which we operate may limit our ability to increase our market share and could adversely affect our revenue.

Self-directed care programs are funded by Medicaid and state and local agencies and allow the consumer to exercise discretion in selecting home and community basedpersonal care service providers. Consumers may hire family members, friends or neighbors to provide services that might otherwise be provided by a home and community basedpersonal care service agency provider, such as our company. Most states and the District of Columbia have implemented self-directed care programs, to varying degrees and for different types of consumers. States are under pressure from the federal government and certain advocacy groups to expand these programs. CMS has provided states with specific Medicaid waiver options for programs that offer person-centered planning, individual budgeting or self-directed services and support as part of the CMS Independence Plus initiative introduced in 2002 under an Executive Order of the President. Certain private foundations have also granted resources to states to develop and study programs that provide financial accounts to consumers for their long-term care needs, and counseling services to help prepare a plan of care that will help meet those needs. Expansion of these self-directed programs may erode our Medicaid consumer base and could adversely affect our net service revenues.

Failure to renew a significant agreement or group of related agreements may materially impact our revenue.

In 2013,2016, we derived approximately 58.8%42.1% of our net service revenues from continuing operations under agreements with the Illinois Department on Aging, 6.6% of our net service revenues from continuing operations under an agreement with Washington, 3.4% of our net service revenues from continuing operations under an agreement with Nevada Medicaid and 3.8% of our net service revenues from continuing operations under an agreement with the Riverside County (California) Department of Public Social Services.Aging. Each of our agreements is generally in effect for a specific term. For example, the services we provide to the Illinois Department on Aging are provided under a number of agreements that expire at various times through 2015, while our agreement with the Riverside County Department of Public Social Services is reevaluated and subject to renewal annually. In addition, our relationship with Riverside County may change before the end of the term of our agreement, including any renewal terms, as the State of California and Riverside County are planning to enter into managed care demonstration plans whereby the services we provide to consumers in the county would become the responsibility of the contracted managed care plans.

Even though our agreements are stated to be for a specific term, they are generally terminable by the counterparty uponwith 60 days’ notice. Our ability to renew or retain our agreements depends on our quality of service and reputation, as well as other factors over which we have little or no control, such as state appropriations and changes in provider eligibility requirements. Additionally, failure to satisfy any of the numerous technical renewal requirements in connection with our proposals for agreements could result in a proposal being rejected even if it contains favorable pricing terms. Failure to obtain, renew or retain agreements with major payors may negatively impact our results of operations and revenue. We can give no assurance these agreements will be renewed on commercially reasonable terms or at all.

Our industry is highly competitive, fragmented and market-specific, with limited barriers to entry.

We compete with home and community basedpersonal care service providers, home health providers, private caregivers, larger publicly held companies, privately held companies, privately held single-site agencies, hospital-based agencies, not-for-profit organizations, community-based organizations and self-directed care programs. In addition, certain governmental payors contract for services with independentmultiple personal care service providers and other provider types such that our relationships with these payors are not exclusive, particularly in California. Our competition consists of home and community based service providers, home health providers, private caregivers, larger publicly traded companies, privately held companies, privately held single-site agencies, hospital-based agencies, non-for-profit organizations, community-based organizations, managed care organizations and self-directed care programs.exclusive. Some of our competitors may have greater financial, technical, political and marketing resources, name recognition or a larger number of consumers and payors than we do. In addition, some of these organizations offer more services than we do in the markets in which we operate. Consumers or referral sources may perceive that local service providers and not-for-profit agencies deliver higher quality services or are more responsive. These competitive advantages may limit our ability to attract and retain referrals in local markets and to increase our overall market share.

ThereIn most states, there are limited barriers to entry in providing home-based social and medical services, and thepersonal care services. The trend has beenregarding these barriers is mixed; for states to eliminate many of the barriers that historically existed. For example, Illinois changed the way in which it procures home and community basedpersonal care service providers in 2009, allowing, per federal Medicaid regulation, all providers that are willing and capable to obtain state approval and provide services. ThisHowever, more states have added a licensing requirement for home care services and economic changes such as increases in minimum wage, the employer mandate under ACA, and changes in Department of Labor rules can also impact the ease of entry into a market. These factors may increaseaffect competition in that state, and because we derived approximately 66% of our net service revenues from continuing operations from services provided in Illinois in 2013, this increased competition could negatively impact our business.states.

Local competitors may develop strategic relationships with referral sources and payors. This could result in pricing pressures, loss of or failure to gain market share or loss of consumers or payors, any of which could harm our business. In addition, existing competitors may offer new or enhanced services that we do not provide, or be viewed by consumers as a more desirable local alternative. The introduction of new and enhanced service offerings, in combination with the development of strategic relationships by our competitors, could cause a decline in revenue, a loss of market acceptance of our services and a negative impact on our results of operations.

Our profitability could be negatively affected by a reduction in reimbursement from payors.

States such as Illinois and California are experiencing large budget deficits, which may result in lower Medicaid payments. In addition, private payors, including commercial insurance companies, could also reduce reimbursement. Any reduction in Medicaid reimbursements or imposition of copayments that dissuade the use of our services, or any reduction in reimbursement from private payors, would materially adversely affect our profitability.

We are subjectIf we fail to extensive government regulation. Changes tocomply with the laws and extensive regulations governing our business, we could be subject to penalties or be required to make changes to our operations, which could negatively impact our profitability and any failure to comply with these regulations could adversely affect our business.profitability.

The federal government and the states in which we operate regulate our industry extensively. The laws and regulations governing our operations, along with the terms of participation in various government programs, impose certain requirements on the way in which we do business, the services we offer, and our interactions with consumersproviders and the public.consumers. These requirements include matters related to:

These laws include, but are not limited to, HIPAA, HITECH, the Stark Law, the federal Anti-Kickback Statute, the federal False Claims Act and similar state laws. While we endeavor to comply with applicable laws and regulations, includingwe cannot assure you that our practices are fully compliant, or that courts or regulatory agencies will not interpret those laws and regulations in ways that will adversely affect our practices. Also, the Health Reform Act,laws and their interpretations,regulations governing our business are subject to frequent change.change, interpretations may evolve or enforcement focus may shift. These changes could reduce our profitability by increasing our liability, increasing our administrative and other costs, increasing or decreasing mandated services, forcingsubject us to restructure ourallegations of impropriety or illegality, require restructuring of relationships with referral sources and providers or requiring usotherwise require changes to implement additional or different programs and systems.our operations. Failure to comply with applicable laws and regulations could lead to civil sanctions and criminal penalties, the termination of rights to participate in federal and state-sponsored programs, exclusion from federal healthcare programs, the suspension or revocation of licenses and other civil and criminal penalties and a delaynonpayment or delays in our ability to bill and collect for services provided. We cannot assure you that the provisions described above will notprovided, any of which could adversely impactaffect our business, results of operations, or financial results. Further,Federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts throughout the healthcare industry.

In addition, as a result of our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs and other state and local governmental programs, and pursuant to certain of our contractual relationships, we may be unable to mitigate any adverse effects resulting from the Health Reform Act.

The Health Reform Act amended the False Claims Act to provide that a provider must report and return overpayments within 60 days of identifying the overpayment or the claims for the services that generated the overpayments become false claimsare subject to the False Claims Act. Overpayments include payments for services for which the provider does not have proper documentation. If we werevarious reviews, compliance audits and investigations by governmental authorities and other third parties to identify documentation failures that could not be corrected we could be required to return payments received for those claims within the mandated 60-day time period.verify our compliance with these programs and agreements as well as applicable laws, regulations and conditions of participation. If we fail to identifymeet any of the conditions of participation or coverage with respect to state licensure or our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs and return overpaymentsother state and local governmental programs, we may receive a notice of deficiency from the applicable surveyor or authority. Failure to institute a plan of action to correct the deficiency within the required 60-day period we could be subject to suits under the False Claims Actprovided by the governmentsurveyor or relators (whistleblowers). Anyauthority could result in civil or criminal penalties, the imposition of these could have a material adverse impact onfines or other sanctions, damage to our business and operations. During an internal evaluation of billing processes, we discovered documentation errors in a number of claims that we had submitted to Medicare and consistent with applicable law, in March 2014, we voluntarily remitted approximately $1.8 million to the government. See Note 7 to the Consolidated Financial Statements, Details of Certain Balance Sheet Accounts, included elsewhere herein for more information.

In October 2013, California enacted the Home Care Services Consumer Protection Act. The act establishes a licensing program for home care organizations, and requires background checks, basic training, and tuberculosis screening for the aides that are employed by home care organizations. Home care organizations and aides will have until January 1, 2015 to comply with the new licensing and background check requirements. Although we sold the bulkreputation, cancellation of our home health business in California in March 2013, we continue to operate in California. The requirementsagreements, suspension or revocation of the act are expected to impose additional costs on us.

We are subject to variousour licenses or disqualification from federal and state regulationsreimbursement programs. These actions may adversely affect our ability to provide certain services, to receive payments from other payors and laws, including Anti-kickback laws, the Stark Law, the False Claims Act, Fraud Alerts, HIPPAto continue to operate. Further, actions taken against one of our locations may subject our other locations to adverse consequences. We may also fail to discover all instances of noncompliance by our acquisition targets, which could subject us to adverse remedies once those acquisitions are complete. Any termination of one or more of our locations from any federal, state or local program for failure to satisfy such program’s conditions of participation could adversely affect our net service revenues and the HITECH Act as described in the Section “Government Regulation” discussed elsewhere in this document. Failure to comply to these regulations or violations to these laws could lead to fines and exclusions or other sanctions that could have a material effect on our business.profitability.

We are subject to federal and state laws that govern our employment practices.practices, including minimum wage and local living wage ordinances. Failure to comply with these laws, or changes to these laws that increase our employment-related expenses, could adversely impact our operations.

We are required to comply with all applicable federal and state laws and regulations relating to employment, including occupational safety and health requirements, wage and hour requirements, employment insurance and equal employment opportunity laws. These laws can vary significantly among states and can be highly technical. Costs and expenses related to these requirements are a significant operating expense and may increase as a result of, among other things, changes in federal or state laws or regulations requiring employers to provide specified

benefits to employees, increases in the minimum wage and local living wage ordinances, increases in the level of existing benefits or the lengthening of periods for which unemployment benefits are available. We may not be able to offset any increased costs and expenses. Furthermore, any failure to comply with these laws, including even a seemingly minor infraction, can result in significant penalties which could harm our reputation and have a material adverse effect on our business.

In addition, certain individuals and entities, known as excluded persons, are prohibited from receiving payment for their services rendered to Medicaid, Medicare and other federal and state healthcare program beneficiaries. If we inadvertently hire or contract with an excluded person, or if any of our current employees or contractors becomes an excluded person in the future without our knowledge, we may be subject to substantial civil penalties, including up to $10,000$11,052 for each item or service furnished by the excluded individual to a federal or state healthcare program beneficiary, an assessment of up to three times the amount claimed and exclusion from the program.

Under the Health Reform Act, beginning in 2015, if we continue to provide a medical plan, we will beACA, each of our subsidiaries that employ employees (“EIN’s”) were required to provideoffer a minimum level of health coverage for 70 percent95% of our full-time employees in 2016 or be subject to an annual penalty. ManyFive of our employeesEIN’s met this requirement and four did not. We are not provided any medical coverage. If we determine that we will provideevaluating our options to minimize our exposure going forward. We could be assessed fines or penalties as a result of this matter if an employee obtains medical coverage for these employees, the costs could be materialthrough federal and have a significant effect on our profitability.state health exchanges.

In September 2013, the United States Department of Labor (the “Department of Labor”) announced the adoption of a rule that extended the minimum wage and overtime pay requirements of federal law to most direct care workers, such as home health aides, personalhome care aides and certified nursing assistants. These employees have been exempt from federal wage laws since 1974. The new rule willwas slated to take effect on January 1, 2015, (though the Department of Labor announced on October 7, 2014 that it would delay enforcement of the rule until June 30, 2015). Two decisions from the United States Court for the District of Columbia, handed down on December 22, 2014 and January 14, 2015, invalidated key provisions in the rule, effectively restoring the status quo in which home care agencies and other third party employers were able to utilize the “companionship services” exemption to the minimum wage and overtime requirements of the Fair Labor Standards Act. However, on August 21, 2015, the United States District Court of Appeals for the District of Columbia reversed the lower court’s previous ruling and reinstated the Department of Labor’s rule to extend federal minimum wage and overtime pay protections to most direct care workers. The rule became effective on October 13, 2015, and the Department of Labor began enforcement of the rule in November 2015. The National Association for Home Care and Hospice has appealed the Court of Appeals decision to the Supreme Court of the United States. The Supreme Court refused to grant certiorari and review the appeal. As a result the Department of Labor’s rule has become final. Historically, we did not rely on the exemption to minimum wage and overtime regulations that were eliminated by the Department of Labor. Certain acquired entities did rely on the exemption, however, beginning in November of 2015 all Addus HomeCare operations were in compliance with the new rules.

A number of states alreadyalso require that direct care workers receive state-mandated minimum wage and/or overtime pay. Opponents say that the new protections will make in-home care more expensive for government programs such as Medicaid that pay for such services, and that the new rule could result in a reduction in covered services. We are currently evaluatingwill continue to evaluate the effect of the new rule on our operations.

We are subject to reviews, compliance audits and investigations that could result in adverse findings that negatively affect our net service revenues and profitability.

As

The Department of Labor also issued a result of our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs and other state and local governmental programs, and pursuant to certain of our contractual relationships, we are subject to various reviews, audits and investigations by governmental authorities and other third parties to verify our compliance with these programs and agreements as well as applicable laws, regulations and conditions of participation. Pursuant to the Home Health Purchase Agreement, we are obligated to indemnify the Purchasers for,proposed rule that, among other things, (i) penalties, fines, judgmentswould increase the minimum annual salary required for certain employees to be classified as “exempt” from entitlement to overtime compensation under the Fair Labor Standards Act (“FLSA”) from $23,660 to $47,476. Under the proposed rule which was scheduled to go into effect on December 1, 2016, this salary level would be increased every three years and settlement amounts arising from a violation of certain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or any state law equivalent in connection with the operation of the Home Health Business priorindexed to the Closing, and (ii) any liability related to the failure of any reimbursement claim submitted to certain government programsaverage salary levels for services renderedfull time employees as reported by the Home Health Business priorBureau of Labor Statistics. If finalized in its current form, this proposed rule could increase our costs by requiring us to pay overtime to additional employees. A number of states filed litigation against the ClosingDepartment of Labor seeking to meetblock this new overtime rule. The federal district court judge for the requirementsEastern District of such government programs,Texas in which the case was filed issued a preliminary injunction on November 22, 2016, enjoining the Department of Labor from implementing and enforcing the overtime final rule. The Department of Labor has appealed that ruling and, in the meantime, the case before the district court is continuing to move forward.

Our business may be adversely impacted if the ACA is repealed entirely or any violation prior to the Closing of any health care laws. Such liabilities include amounts to be recouped by, or repaid to, such government programsif provisions benefitting our operations are significantly modified as a result of improperly submitted claims for reimbursementthe 2016 federal elections.

The 2016 federal elections have increased the likelihood that the ACA will be repealed, replaced, or those discoveredsignificantly changed. The new presidential administration and certain members of Congress have stated their intent to repeal or make significant changes to the ACA, its implementation and its interpretation. In addition, the president signed an executive order that directs agencies to minimize “economic and regulatory burdens” of the ACA, but it is not clear how this will be implemented. There is uncertainty regarding whether, when, and how the ACA will be changed, what alternative provisions, if any, will be enacted, and the impact of alternative provisions on providers and other healthcare industry participants. Certain provisions of the ACA, as a result of audits by investigative agencies. All services that we have provided thatcurrently structured, have been or may be reimbursed by Medicare are subjectbeneficial to retroactive adjustments and/or total denial of payments received from Medicare under various review and audit provisions included in the program regulations. The review period is generally described as six years from the date the services are provided but could be expanded to ten years under certain circumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to the Closing, we may be required to reimburse the Purchasers for the amount of such adjustments, which could adversely affect our business and financial condition. Payments we

receive in respectresults of operations, including the Medicaid and Medicare can be retroactively adjusted after a new examination duringexpansion. Government efforts to repeal or change the claims settlement processACA or as a result of pre- or post-payment audits. Federal, state and local government payors may disallow our requests for reimbursement based on determinations that certain costs are not reimbursable because proper documentation was not provided or because certain services were not covered or deemed necessary. In addition, other third-party payors may reserve rights to conduct audits and make reimbursement adjustments in connection with or exclusive of audit activities. Significant adjustments as a result of these auditsimplement alternative reform measures could adversely affect our revenues and profitability.

If we fail to meet any of the conditions of participation or coverage with respect to state licensure or our participation in Medicaid, Medicaid waiver, Medicare programs, Veterans Health Administration programs and other state and local governmental programs, we may receive a notice of deficiency from the applicable surveyor or authority. Failure to institute a plan of action to correct the deficiency within the period provided by the surveyor or authority could result in civil or criminal penalties, the imposition of fines or other sanctions, damage to our reputation, cancellation of our agreements, suspension or revocation of our licenses or disqualification from federal and state reimbursement programs. These actions may adversely affect our ability to provide certain services, to receive payments from other payors and to continue to operate. Additionally, actions taken against one of our locations may subject our other locations to adverse consequences. We may also fail to discover all instances of noncompliance by our acquisition targets, which could subject us to adverse remedies once those acquisitions are complete. Any termination of one or more of our locations from any federal, state or local program for failure to satisfy such program’s conditions of participation could adversely affectcause our net service revenues to decrease and profitability.our provision for bad debt to increase.

Negative publicity or changes in public perception of our services may adversely affect our ability to receive referrals, obtain new agreements and renew existing agreements.

Our success in receiving referrals, obtaining new agreements and renewing our existing agreements depends upon maintaining our reputation as a quality service provider among governmental authorities, physicians, hospitals, discharge planning departments, case managers, nursing homes, rehabilitation centers, advocacy groups, consumers and their families, other referral sources and the public. While we believe that the services that we provide are of high quality, if studies mandated by Congress in the Health Reform ActACA to make public quality measures are implemented and if our quality measures are deemed to be not of the highest value, our reputation could be negatively affected. Negative publicity, changes in public perceptions of our services or government investigations of our operations could damage our reputation and hinder our ability to receive referrals, retain agreements or obtain new agreements. Increased government scrutiny may also contribute to an increase in compliance costs and could discourage consumers from using our services. Any of these events could have a negative effect on our business, financial condition and operating results.

In addition, in connection with the sale of our Home Health Business, we granted a license to the Purchasers that allows them to use certain of our intellectual property, including the Addus name, for the provision of skilled nursing and related physical therapy healthcare services to individuals in their homes and hospice services in California Illinois, Arkansas, South Carolina and Nevada.Illinois. Although the use of the intellectual property is required to be consistent and at least equal to the level of quality and brand perception prior to the sale, we do not have operational control over the Purchasers. As a result, home health agencies operated by the Purchasers may not be operated in a manner consistent with the standards we uphold at our agencies. If such agencies do not maintain operational standards consistent with the standards we demand of our agencies, the image and brand reputation of Addus may suffer and our business may be materially affected.

Our growth strategy depends on our ability to manage growing and changing operations and we may not be successful in managing this growth.

Our business plan calls for significant growth in business over the next several years through the expansion of our services in existing markets and the establishment of a presence in new markets. This growth willwould place significant demands on our management team, systems, internal controls and financial and professional

resources. In addition, we will need to further develop our financial controls and reporting systems to accommodate any such future growth. This could require us to incur expenses for hiring additional qualified personnel, retaining professionals to assist in developing the appropriate control systems and expanding our information technology infrastructure. Our inability to effectively manage growth could have a material adverse effect on our financial results.

Future acquisitions or start-upsgrowth initiatives may be unsuccessful and could expose us to unforeseen liabilities.

Our growth strategy includes geographical expansion into new markets and the addition of new services in existing markets through the acquisition of local service providers. These acquisitions involve significant risks and uncertainties, including difficulties assimilating acquired personnel and other corporate cultures into our business, the potential loss of key employees or consumers of acquired providers, and the assumption of liabilities and exposure to unforeseen liabilities of acquired providers. In the past, we have made acquisitions that have not performed as expected or that we have been unable to successfully integrate with our existing operations. In addition, our due diligence review of acquired businesses may not successfully identify all potential issues. For example, we were unable to fully integrate one acquired business because we were unable to procure a necessary government endorsement. The failure to effectively integrate future acquisitions could have an adverse impact on our operations.

We have grown our business through start-up, or de novo locations and we may in the future start upselectively open new locations in existing and new markets. Start-upsstates. De novo locations involve significant risks, including those relating to licensure, accreditation, hiring new personnel, establishing relationships with referral sources and delayeddelays or difficulty in installing our operating and information systems. We may not be successful in establishing start-upde novo locations in a timely manner due to generating insufficient business activity and incurring higher than projected operating cost that could have a material adverse effect on our financial condition, results of operations and cash flows.

We may be unable to pursue acquisitions or expand into new geographic regions without obtaining additional capital or consent from our lenders.

At December 31, 20132016 and December 31, 2012,2015, we had cash balances of $15.6$8.0 million and $1.7$4.1 million, respectively. As of December 31, 2013,2016, we had $24.1 million outstanding debt on our credit facility. As of December 31, 2015, we had no outstanding debt on our credit facility. After giving effect to the amount drawn on our credit facility, approximately $12.4$16.7 million of outstanding letters of credit at December 31, 2016 and 2015 and borrowing limits based on an advanced multiple of adjusted EBITDA, we had $42.6$79.7 million and $58.2 million available for borrowing under the credit facility as of December 31, 2013.2016 and 2015, respectively. Since our credit facility provides for borrowings based on a multiple of an EBITDA ratio, any declines experienced in our EBITDA would result in a decrease in our available borrowings under our credit facility.

We cannot predict the timing, size and success of our acquisition efforts, our efforts to expand into new geographic regions or the associated capital commitments. If we do not have sufficient cash resources or availability under our credit facility, our growth could be limited unless we obtain additional equity or debt financing. In the future, we may elect to issue additional equity securities in conjunction with raising capital, completing an acquisition or expanding into a new geographic region. Such issuances would be dilutive to existing shareholders. In addition, our credit facility prohibits us from consummating more than three acquisitions in any calendar year, and, inconsummating any event, does not permit theindividual acquisition with a purchase price for any one acquisition to exceed $500,000, in each caseexcess of $25.0 million and consummating acquisitions with a total purchase price in excess of $40.0 million in the

aggregate over the term of the credit facility, without the consent of the lenders. The consideration we paid in connection with 11 of the 14 acquisitions we completed exceeded $500,000. In addition, our credit facility requires, among other things, that we are in pro forma compliance with the financial covenants set forth therein and that no event of default exists before and after giving effect to any proposed acquisition. Our ability to expand in a manner consistent with historic practices may be limited if we are unable to obtain such consent from our lenders.

Access to additional capital and credit markets, at a reasonable cost, may be necessary for us to fund our operations, including potential acquisitions and working capital requirements. We currently rely on one financial

institution for funding under our credit facility and any instability in the financial markets or the negative impact of local, national and worldwide economic conditions on that financial institution could impact our short and long-term liquidity needs to meet our business requirements.

As a result of the indemnification provisions of the Home Health Purchase Agreement pursuant to which we sold Home Health Business, we may incur expenses and liabilities related to periods up to the date of sale or pursuant to our other indemnification obligations thereunder.

As a result of the indemnification provisions of the Home Health Purchase Agreement pursuant to which we sold the Home Health Business, we have agreed to indemnify the Purchasers for, among other things, (i) penalties, fines, judgments and settlement amounts arising from a violation of certain specified statutes, including the False Claims Act, the Civil Monetary Penalties Law, the federal Anti-Kickback Statute, the Stark Law or any state law equivalent in connection with the operation of the Home Health Business prior to the Closing, and (ii) any liability related to the failure of any reimbursement claim submitted to certain government programs for services rendered by the Home Health Business prior to the Closing to meet the requirements of such government programs, or any violation prior to the Closing of any health carehealthcare laws. Such liabilities include amounts to be recouped by, or repaid to, such government programs as a result of improperly submitted claims for reimbursement or those discovered as a result of audits by investigative agencies. All services that we have provided that have been or may be reimbursed by Medicare are subject to retroactive adjustments and/or total denial of payments received from Medicare under various review and audit provisions included in the program regulations. The review period is generally described as six years from the date the services are provided but could be expanded to ten years under certain circumstances if fraud is found to have existed at the time of original billing. In the event that there are adjustments relating to the period prior to the Closing, we may be required to reimburse the Purchasers for the amount of such adjustments, which could adversely affect our business and financial condition.

In addition, pursuant to the Home Health Purchase Agreement, we are obligated to indemnify the Purchasers for breaches of representations, warranties and covenants, certain taxes and liabilities related to the pre-Closing period (other than specifically identified assumed liabilities). Any liability we have to the Purchasers under the Home Health Purchase Agreement could adversely affect our results of operations.

Our business may be harmed by labor relations matters.

We are subject to a risk of work stoppages and other labor relations matters because our hourly workforce is highly unionized. As of December 31, 2013,2016, approximately 70%66.1% of our hourly workforce was represented by twoa national unions, including the Service Employees International Union,union, SEIU, which is our largest union. We have a national agreement with the SEIU. Wages and benefitsSEIU which is currently under negotiation, as well as numerous agreements with local SEIU affiliates which are negotiated at the local level at various times throughout the year.renegotiated from time to time. These negotiations are often initiated when we receive increases in our hourly rates from various state agencies. Upon expiration of these collective bargaining agreements, we may not be able to negotiate labor agreements on satisfactory terms with these labor unions. A strike, work stoppage or other slowdown could result in a disruption of our operations and/or higher ongoing labor costs, which could adversely affect our business. Labor costs are the most significant component of our total expenditures and, therefore, an increase in the cost of labor could significantly harm our business.

Our operations subject us to risk of litigation.

Operating in the home and community basedpersonal care services industry exposes us to an inherent risk of wrongful death, personal injury, professional malpractice and other potential claims or litigation brought by our consumers and employees. Because we operate in this industry, from time to time, we are subject to claims alleging that we did not properly treat or care for a consumer that we failed to follow internal or external procedures that resulted in death or harm

to a consumer or that our employees mistreated our consumers, resulting in death or harm. We are also subject to claims arising out of accidents involving vehicle collisions brought by consumers whom we

are transporting or from employees driving to or from home visits. We operate fiveAs of December 31, 2016, we operated three adult day services centers which provide transportation for our elderly and disabled consumers. Each of our vehicles transports 7seven to 14fourteen passengers to and from our locations. The concentration of consumers in one vehicle increases the risk of larger claims being brought against us in the event of an accident. In order to focus on providing services to consumers in their homes, effective March 1, 2017, Addus ceased the adult day services businesses and sold substantially all of the assets used in our adult day services centers.

In addition, regulatory agencies may initiate administrative proceedings alleging violations of statutes and regulations arising from our services and seek to impose monetary penalties on us. We could be required to pay substantial amounts to respond to regulatory investigations or, if we do not prevail, damages or penalties arising from these legal proceedings. We also are subject to potential lawsuits under the federal False Claims Act or other federal and state whistleblower statutes designed to combat fraud and abuse in our industry. Theseindustry including the federal False Claims Act litigation discussed in Part I, Item 3 hereof “Legal Proceedings.” This and other similar lawsuits can involve significant monetary awards or penalties which may not be covered by our insurance. If our third-party insurance coverage and self-insurance coverage reserves are not adequate to cover these claims, it could have a material adverse effect on our business, results of operations and financial condition. Even if we are successful in our defense, civil lawsuits or regulatory proceedings could distract us from running our business or irreparably damage our reputation.

Our insurance liability coverage may not be sufficient for our business needs.

Although we maintain insurance consistent with industry practice, the insurance we maintain may not be sufficient to satisfy all claims made against us. For example, we have a $350,000 deductible per person/per occurrence under our workers’ compensation insurance program. We cannot assure you that claims will not be made in the future in excess of the limits of our insurance, and any such claims, if successful and in excess of such limits, may have a material adverse effect on our business or assets. We utilize historical data to estimate our reserves for our insurance programs. If losses on asserted claims exceed the current insurance coverage and accrued reserves, our business, results of operations and financial condition could be adversely affected. Changes in our annual insurance costs and self-insured retention limits depend in large part on the insurance market, and insurance coverage may not continue to be available to us at commercially reasonable rates, in adequate amounts or on satisfactory terms.

Inclement weather or natural disasters may impact our ability to provide services.

Inclement weather may prevent our employees from providing authorized services. We are not paid for authorized services that are not delivered due to these weather events. Furthermore, prolonged inclement weather or the occurrence of natural disasters in the markets in which we operate could disrupt our relationships with consumers, employees and referral sources located in affected areas and, in the case of our corporate office, our ability to provide administrative support services, including billing and collection services. For example, our corporate headquarters and a number of our agencies are located in the Midwestern United States, New York and California, increasing our exposure to blizzards and other major snowstorms, ice storms, tornados,tornadoes, flooding and earthquakes. Severe weather experienced during JanuaryThe impact of disasters and February of 2014 may negatively impact revenues in the first quarter of 2014.similar events is inherently uncertain. Future inclement weather or natural disasters may adversely affect our reputation, business and consolidated financial condition, results of operations and cash flows.

Our business depends on our information systems. Our operations may be disrupted if we are unable to effectively integrate, manage and maintain the security of our information systems.

Our business depends on effective and secure information systems that assist us in, among other things, gathering information to improve the quality of consumer care, optimizing financial performance, adjusting consumer mix, monitoring regulatory compliance and enhancing staff efficiency. We rely on an external service

provider, McKesson, to provide continual maintenance, upgrading and enhancement of our primary information systems used for our operational needs. The software we license from McKesson supports intake, personnel scheduling, office clinical and centralized billing and receivables management in an integrated database, enabling us to standardize the care delivered across our network of locations and monitor our performance and consumer outcomes. To the extent that McKesson becomes insolvent or fails to support the software or systems, or if we lose our license with McKesson, our operations could be negatively affected.

WeOur business also depend upondepends on a proprietarycomprehensive payroll managementand human resources system that includes a feature for general ledger population,basic payroll functions and reporting, payroll tax reporting, managing wage assignments and garnishments, on-site check printing,garnishments. We rely on an external service provider, Ultimate Software, to provide continual maintenance, upgrading and direct-deposit paychecks. If we experience a reduction or interruption in the performance, reliability or availabilityenhancement of our informationprimary human resource and payroll systems. To the extent that Ultimate Software fails to support the software or systems, or fail to restoreany of the related support services provided by them, our information systems after such a reduction or interruption, ourinternal operations and ability to produce timely and accurate reports could be adverselynegatively affected. The operation of this system is dependent on the knowledge and talents of a limited number of company employees. Should these individuals terminate their employment, our ability to adequately support or maintain the system could be materially affected. We expect to replace our proprietary payroll system with a new system provided by an outside vendor during 2014. If we experience any disruptions in service during the transition to the outside vendor, our ability to produce timely and accurate reports could be adversely affected.

Because of the confidential health information and consumer records we store and transmit, loss of electronically-stored information for any reason could expose us to a risk of regulatory action, litigation and liability.

If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to process transactions and produce timely and accurate reports could be adversely affected. If we experience difficulties with the transition and integration of information systems or are unable to implement, maintain, or expand our systems properly, we could suffer from, among other things, operational disruptions, regulatory problems, and increases in administrative expenses.

We do not have full redundancybackup of all of our key information systems. Should our support centermain datacenter become inoperable as a resultbecause of a natural disaster or terrorist acts, itour operations would take substantial amountfailover to our geographically separate disaster recovery datacenter with a quick return to operations for all sites and systems. All of timeour sites and resourcesbranch offices have redundant connections to restore our primary and backup datacenters using data lines and cellular connections through VPN or MPLS.

The key business functions for our main sites also have redundancies with key functions geographically split between our two main facilities, should one not be available due to the currentabove mentioned scenarios.

While we believe these measures are reasonable, no system of information security is able to eliminate the risk of business disruptions.

A cyber-attack or security breach could cause a loss of confidential consumer data, give rise to remediation and other expenses, expose us to liability under HIPAA, consumer protection laws, common law or other legal theories, subject us to litigation and federal and state of operation. This risk is becoming even more critical as we are centralizing moregovernmental inquiries, damage our reputation, and otherwise be disruptive to our business.

We rely extensively on our computer systems 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. In spite of our business operations. The disruptionpolicies, procedures and other security measures used to the business would be material and would affectprotect our operational and financial performance.

Our business requires the secure transmission of confidential information over public networks. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems and consumer data, stored in our information systems. Anyone who circumvents our security measures could misappropriate our confidential information or cause interruptions in our services or operations. The Internet is a public network, and data is sent over this network from many sources. In the past, computer viruses or software programs that disable or impair computers have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems which could disrupt our operations or make our systems inaccessible. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. Our security measures may be inadequate to prevent security breaches, and our business operations would be negatively impacted by cancellation of contracts and loss of consumers if security breaches are not prevented.

The agreements that govern our credit facility contain various covenants that limit our discretion in the operation of our business and we have agreed to negotiate new terms.

Our credit facility agreement requires us to comply with customary financial and non-financial covenants. The financial covenants require us to maintain a maximum fixed charge ratio and a maximum leverage ratio, and limit our capital expenditures. Our credit facility also includes non-financial covenants including restrictions on our ability to:

We agreed, as a condition to receiving our lender’s consent to the sale of the Home Health Business, to renegotiate the terms of our current credit facility, including a potential reduction in the amount of the maximum revolving loan limit and commitment. We are in the process of renegotiating our credit facility and there can be no assurancesassurance that we will not be ablesubject to obtain financing on terms that are as favorable as our current credit facility. Thiscyber-attacks or security breaches in the future. Such attacks or breaches could result in a reductionloss of protected patient medical data or other information subject to privacy laws or disrupt our available creditinformation technology systems or increasesbusiness, potentially exposing us to regulatory action, litigation and liability. We continue to prioritize cyber-security and the development of practices and controls to protect our costs. These changes alongsystems and data. We utilize sophisticated firewalls to mitigate external threats and attacks through daily security content updates and intrusion prevention policies. In addition, all email is scanned for threats and viruses as well as Domain Keys Identified Mail (DKIM) keys authentication and Sender Policy Framework (SPF) records are utilized to mitigate spoofing and phishing attempts. Outgoing email is encrypted based on content and HIPAA regulations. In addition,

we are required to comply with the restrictionsprivacy and security laws and regulations of HIPAA as amended by HITECH. If our privacy and security practices are not in our current credit facilitycompliance with HIPAA and/or if we fail to satisfy applicable breach notification requirements in the event of a security breach, we could imposebe subject to significant operatingfines and financial restrictionspenalties. Penalties under HIPAA can be as high as $55,910 per violation (with an annual maximum of $1,677,299 per provision violated) depending on our ability to take actions that may be in our best interests.the degree of culpability.

Our current principal stockholders could have significant influence over us, and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which you might not agree.

Eos Capital Partners III, L.P. and Eos Partners SBIC III, L.P.L.P (the “Eos Funds”), or the Eos Funds, together beneficially own approximately 36.9%34.0% of our outstanding common stock as of December 31, 2013.2016. As a result, the Eos Funds have the ability to significantly influence all matters submitted to our stockholders for approval, including:

In addition, Mark First, one of our directors is affiliated with the Eos Funds.

This concentration of ownership of shares of our common stock could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of shares of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock. The interests of the Eos Funds may not always coincide with the interests of the other holders of our common stock. This concentration of ownership may also adversely affect our stock price.

We may not be able to attract, train and retain qualified personnel.

We must attract and retain qualified personnel in the markets in which we operate in order to provide our services. We compete for personnel with other providers of social and medical services as well as companies in other service-based industries. Competition may be greater for skilled personnel, such as regional and agency directors. Our ability to attract and retain personnel depends on several factors, including our ability to provide employees with attractive assignments and competitive benefits and salaries.

The loss of one or more of the members of the executive management team or the inability of a new management team to successfully execute our strategies may adversely affect our business. If we are unable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline, and we could lose consumers and referral sources.

We may be more vulnerable to the effects of a public health catastrophe than other businesses due to the nature of our consumers.

The majority of our consumers are older individuals with complex medical challenges, many of whom may be more vulnerable than the general public during a pandemic or in a public health catastrophe. Our employees are also at greater risk of contracting contagious diseases due to their increased exposure to vulnerable consumers. For example, if a flu pandemic were to occur, we could suffer significant losses to our consumer population or a reduction in the availability of our employees and, at a high cost, be required to hire replacements for affected workers. Accordingly, certain public health catastrophes could have a material adverse effect on our financial condition and results of operations.

We depend on the services of our executive officers and other key employees.

Our success depends upon the continued employment of certain members of our senior management team. We also depend upon the continued employment of the individuals that manage several of our key functional areas, including operations, business development, accounting, finance, human resources, marketing, information systems, contracting and compliance. We have recently changed a majority of the members of senior management, beginning with our CEO. The departure of any member of our senior management team may materially adversely affect our operations.

If we were required to write down all or part of our goodwill and/or our intangible assets, our net earnings and net worth could be materially adversely affected.

Goodwill and intangible assets with finite lives represent a significant portion of our assets. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. IfFor example, if our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. If as part of our annual review of goodwill and intangibles, we were required to write down all or a significant part of our goodwill and/or intangible assets, our net earnings and net worth could be materially adversely affected, which could affect our flexibility to obtain additional financing. In addition, if our assumptions used in preparing our valuations of our reporting units for purposes of impairment testing differ materially from actual future results, we may record impairment charges in the future and our financial results may be materially adversely affected. We had $60.0$73.9 million and $68.8 million of goodwill and $8.8$15.4 million and $10.4 million of intangible assets recorded on our consolidated balance sheetConsolidated Balance Sheets at December 31, 2013.2016 and 2015, respectively.

It is not possible at this time to determine if there will be any future impairment charge, or if there is, whether such charges would be material. We will continue to review our goodwill and other intangible assets for possible impairment. We cannot be certain that a downturn in our business or changes in market conditions will not result in an impairment of goodwill or other intangible assets and the recognition of resulting expenses in future periods, which could adversely affect our results of operations for those periods.

Compliance with changing regulations including specific program compliance, corporate governance and public disclosure will result in additional expenses and pose challenges for our management team.

The state agencies that contract for our services require our compliance with various rules and regulations affecting the services we provide. We have a compliance officer who monitors and reports on our efforts for achieving the desired results. State agencies are recommending increased rules and regulations in an effort to control the growth of these programs and their overall costs. The implementation of these changes may require the Company to increase their efforts to remain compliant, may reduce the authorizations for services to be provided, may result in certain consumers no longer being eligible for our services all of which may result in lower revenues and increased costs, reducing our operating performance and profitability. If we continue to serve our consumers without addressing these increased regulations we are at risk for non-compliance with program requirements and potential penalties.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. We are committed to maintaining high standards of internal controls over financial reporting, corporate governance and public disclosure. As a result, we intend to continue to invest appropriate resources to comply with evolving standards, and this investment has resulted and will likely continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Restrictive covenants in the agreements governing our indebtedness may adversely affect us.

Our credit facility and the indentures governing our outstanding notes contain various covenants that limit our ability to take certain actions, including our ability to:

In addition, our credit facility contains restrictive covenants and requires us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet these restrictive covenants and financial ratios and tests may be affected by events beyond our control, and we cannot assure you that we will meet those tests.

A breach of any of these covenants could result in a default under our credit facility and the indentures governing our outstanding notes. Upon the occurrence of an event of default under our credit facility or the indentures governing our outstanding notes, all amounts outstanding under our credit facility and our outstanding notes may become immediately due and payable and all commitments under the credit facility to extend further credit may be terminated. The acceleration of any such indebtedness will result in an event of default under all of our other long-term indebtedness.

Risks Related to Our Common Stock

The market price of our common stock may be volatile and this may adversely affect our stockholders.

The price at which our common stock trades may be volatile. The stock market has recently experienced significant price and volume fluctuations that have affected the market prices of all securities, including securities of health carehealthcare companies. The market price of our common stock may be influenced by many factors, including:

In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of homecare 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 have been and may become involved in this type of litigation in the future. Litigation of this type is often expensive to defend and may divert our management team’s attention as well as resources from the operation of our business.

We do not anticipate paying dividends on our common stock in the foreseeable future and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.

We do not pay dividends on our shares of common stock and intend to retain all future earnings to finance the continued growth and development of our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future payment of cash dividends will depend upon our financial condition, capital requirements, credit facility limitations, earnings and other factors deemed relevant by our board of directors. Our credit facility restricts our ability to declare or pay any dividend or other distribution unless no default then exists or would occur as a result thereof, we are in pro forma compliance with the financial covenants contained in the credit facility after giving effect thereto, we have an excess availability of at least 40% of the revolving credit commitment under the credit facility and the aggregate amount of dividends and distributions paid in any fiscal year does not exceed $5.0 million.

If securities or industry analysts fail to publish research or reports about our business or publish negative research or reports, or our results are below analysts’ estimates, our stock price and trading volume could decline.

The trading market for our common stock may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If analysts fail to publish reports on us regularly or at all, we could fail to gain visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts do cover us and downgrade their evaluations of our stock or our results are below analysts’ estimates, our stock price would likely decline. In addition, due to the small number of analysts covering us, a single comment or report from one of the analysts whether positive or negative, could result in a significant increase or decrease in our stock price.

Provisions in our organizational documents and Delaware lawor certain other state laws could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws and anti-takeover provisions of the Delaware General Corporation Law, could discourage, delay or prevent an unsolicited change in control of our company, which could adversely affect the price of our common stock. These provisions may also have the effect of making it more difficult for third parties to replace our current management without the consent of the board of directors. Provisions in our amended and restated certificate of incorporation and bylaws that could delay or prevent an unsolicited change in control include:

As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, or with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner. However, because the Eos Funds acquired their shares prior to our IPO, Section 203 is currently inapplicable to any business combination with the Eos Funds or their affiliates. In addition, our amended and restated bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations.

If Certain states in which we fail to achieve and maintain effective internal control over financial reporting, our business and stock price could be adversely impacted.

Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires our management to report on, and requires our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. Compliance with SEC regulations adopted pursuant to Section 404 of the Sarbanes Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. Compliance with Section 404 of the Sarbanes-Oxley Act has increased our legal and financial compliance costs making some activities more difficult, time-consuming or costly and may also place strain on our personnel, systems and resources.

Compliance with public reporting and Sarbanes-Oxley Act requirements requires us to continually evaluate the adequacy of, and in some cases expand our compliance, accounting and finance staff. As a result of our increased stock price and overall market valueoperate, such as of the end of the second quarter of 2013, we became subject to the requirements of Section 404 of Sarbanes Oxley. Accordingly, we are now required to have an audit of our internal controls over financial reporting. We believe that material weaknesses in internal controls over financial reporting existed as of December 31, 2013, principally related to general controls over our information technology, including user access and change management activities and to overall controls related to our payroll system and related processes. We will engage an expert consultant to assist in enhancing the controls over our information technology; in addition, we have selected the vendor for a new payroll system that will address the control issues in that area and will engage an expert consultant to assist in the implementation. Implementing any appropriate changes to our internal controlsNew York, may require specific compliance trainingregulatory approval of our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant periodpersons meeting such states’ definition of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy,“controlling persons” or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, if we fail to satisfy the requirements of Section 404 on a timely basis, we could be subject to regulatory scrutiny and sanctions, our ability to raise capital could be impaired, investors may lose confidence in the accuracy and completeness of our financial reports and our stock price could be adversely affected.

Compliance with changing regulations including specific program compliance, corporate governance and public disclosure will result in additional expenses and pose challenges for our management team.

The state agencies that contract for our services require our compliance with various rules and regulations affecting the services we provide. We have a compliance officer who monitors and reports on our efforts for achieving the desired results. State agencies are recommending increased rules and regulations in an effort to control the growth of these programs and their overall costs. The implementation of these changes may require the Company to increase their efforts to remain compliant, may reduce the authorizations for services to be provided, may result in certain consumers no longer being eligible for our services all of which may result in lower revenues and increased costs, reducing our operating performance and profitability. If we continue to serve our consumers without addressing these increased regulations we are at risk for non-compliance with program requirements and potential penalties.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated there-under, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. We are committed to maintaining high standards of internal controls over financial reporting, corporate governance and public disclosure. As a result, we intend to continue to invest appropriate resources to comply with evolving standards, and this investment has resulted and will likely continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Declines in earnings could create future liquidity problems.

The availability of funds under the revolving credit portion of our credit facility is based on the lesser of (i) the product of adjusted EBITDA, as defined, for the most recent 12-month period multiplied by the specified advance multiple, up to 3.25, less the outstanding senior indebtedness and letters of credit or (ii) $55.0 million less the outstanding revolving loans and letters of credit. As of December 31, 2013 our total availability under our credit facility was $42.4 million.

The current Federal and state economic and reimbursement environments and state budgetary pressures to decrease or eliminate services we provide could negatively affect our future earnings. This decrease in earnings would reduce the availability of funds under our credit facilitysimilar concepts, which could havedelay or deter a negative impact on our future operating results.change of control or other business combination with us.

None.

We do not own any real property. As of December 31, 2013,2016, we operated at 122120 leased properties including our National Support Center. Homesupport centers. Personal care and community basedadult day services are operated out of 121114 of these facilities. As part of the sale of the Home Health Business, a portion of 135 of the facilities wereare currently subleased to the Purchasers. We lease approximately 27,00059,000 and 12,000 square feet of an office buildingspace in Palatine,Downers Grove, Illinois and Frisco, Texas which servestogether serve as our corporate headquarters. In 2016, the contact center contained within the Downers Grove corporate headquarters fromclosed. As a former member of our board of directors and the former Chairman of Addus HealthCare. We have entered into a new lease forresult, approximately 59,00021,000 square feet of anthe office building locatedspace in Downers Grove IL to become our new corporate headquarters. We will assume occupancyis unused and related lease payments are included in May of 2014 at which time our arrangement with the former board memberrestructuring and Chairman of Addus HealthCare will terminate.other expenses.

From time to time, we are subject to claimslegal and/or administrative proceedings incidental to our business. It is the opinion of management that the outcome of pending legal and/or administrative proceedings will not have a material effect on our financial position and suits arisingresults of operations.

On January 20, 2016, we were served with a lawsuit that was filed in the ordinary courseUnited States District Court for the Northern District of Illinois against the Company and Cigna Corporation by Stop Illinois Marketing Fraud, LLC, a qui tam relator formed for the purpose of bringing this action. In the action, the plaintiff alleges, inter alia, violations of the federal False Claims Act relating primarily to allegations of violations of the federal Anti-Kickback Statute and allegedly improper referrals of patients from our home care division to our home health business, substantially all of which was sold in 2013. The plaintiff seeks to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and its attorneys’ fees. The U.S. government has declined to intervene at this time. Plaintiff amended its complaint on April 4, 2016 to include additional allegations in support of its False Claims Act claims, including alleged violations of the federal Anti-Kickback Statute. We and Cigna Corporation filed a motion to dismiss the amended complaint on June 6, 2016. Plaintiff filed its opposition to our motion on July 22, 2016. Our reply in further support of the motion to dismiss was filed on August 23, 2016. On February 3, 2017, the Court granted Cigna Corporation’s motion to dismiss in full, and granted our motion to dismiss in part allowing Plaintiff another chance to amend its complaint. Plaintiff timely filed a second amended complaint on March 10, 2017, withdrawing its conspiracy claim under the Federal False Claims Act and adding an explicit claim under the Illinois False Claims Act for damages for personal injuries. In our management’s opinion, the ultimate resolution of any of these pending claimssame underlying kickback allegations. We intend to continue to defend the litigation vigorously and legal proceedingsbelieve the case will not have a material adverse effect on our business, financial positioncondition or results of operations.

On May 4, 2016, Addus HealthCare, together with 59 other social service and healthcare providers in the State of Illinois, filed an action in the Circuit Court of Cook County, Illinois against certain individuals in their official capacities as agents of the Illinois Department of Human Services, the Illinois Department on Aging, the

Illinois Department of Public Health, the Illinois Department of HealthCare and Family Services, the Illinois Criminal Justice Information Authority, the Illinois Department of Corrections and the Illinois Department of Central Management Services, including the Governor of Illinois. On July 20, 2016, a third amended complaint was filed by the plaintiffs, who now comprise 97 similarly situated providers and provider organizations. In the action, the plaintiffs, including Addus HealthCare, allege to have entered into contracts with the various defendants based in part on the Governor’s proposed budget, which provided for funding for the services to be provided by plaintiffs thereunder. The Governor subsequently vetoed all of the relevant appropriations bills on June 25, 2015, and again vetoed an appropriations bill that included funding for the contracts on June 10, 2016. While the defendant officer and agency heads have continued to enforce such contracts, since August 1, 2016, we received an aggregate of approximately $65.4 million in payments from the State of Illinois from the stopgap budget enacted on June 30, 2016. In those actions, plaintiffs alleged the defendant officers and agency heads acted beyond the scope of their legal authority in entering into and enforcing contracts with no intent to perform under such contracts by failing to pay amounts due thereunder when due. The action also alleged that the

Governor of Illinois’ veto of appropriations for such contracts violated the Illinois Constitution. Plaintiffs sought injunctive relief to require payment of overdue bills to prevent irreparable harm, including imperiling the State’s infrastructure for delivery of human services. On August 31, 2016, the Court denied plaintiffs’ petitions for declaratory and injunctive relief and dismissed the actions with prejudice. Plaintiffs timely filed a notice of appeal on September 30, 2016.

Not applicable.

PART II

Market Information

Our common stock has been trading on The NASDAQ Global Market under the symbol “ADUS” since our IPO on October 27, 2009. Prior to that time, there was no public market for our common stock. The holders of our common stock are entitled to one vote per share on any matter to be voted upon by stockholders. All shares of common stock rank equally as to voting and all other matters. The table below sets forth the high and low sales prices for our common stock, as reported by The NASDAQ Global Market, for each of the periods indicated.

Holders

As of December 31, 2013, 46.4%2016, 37.6% of our shares were held by Company insiders. An additional 23.9%60.5% of the stock was held by 10172 institutional investors. We cannot estimate the total numberAs of holdersFebruary 17, 2017, Addus HomeCare Corporation had approximately 2,400 shareholders, including 18 shareholders of the shares of our company.record.

Dividends

Historically, weWe have notnever paid dividends on our common stock, including in the two most recent fiscal years, and we currently do not intend to pay any dividends on our common stock.stock in the foreseeable future. We currently plan to retain any earnings to support the operation, and to finance the growth, of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, credit facility limitations, earnings, as well as other factors deemed relevant by our board of directors. Our credit facility restricts our ability to declare or pay any dividend or other distribution unless no default then exists or would occur as a result thereof, and we are in pro forma compliance with the financial covenants contained in ourthe credit facility after giving effect thereto.thereto, we have an excess availability of at least 40% of the revolving credit commitment under the credit facility and the aggregate amount of dividends and distributions paid in any fiscal year does not exceed $5.0 million.

Equity Compensation Plan

The following table presents securities authorized for issuance under our equity compensation plans at December 31, 2013.2016.

ITEM 6.

SELECTED FINANCIAL DATA

The following table sets forth selected financial information derived from our consolidated financial statementsConsolidated Financial Statements for the periods and at the dates indicated. The information is qualified in its entirety by and should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.