PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Sections 77z 2 and 78u 5 (Supp. 1996), Congress encouraged
public companies to make "forward looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward looking statements. Acadia National Health Systems, Inc. ("Acadia"
or the "Company") intends to qualify both its written and oral forward looking
statements for protection under the Reform Act and any other similar safe
harbor provisions.
"Forward looking statements" are defined by the Reform Act. Generally, forward
looking statements include expressed expectations of future events and the
assumptions on which the expressed expectations are based. All forward
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward looking statements of Acadia. The
Company undertakes no obligation to update or revise this Safe Harbor
Compliance Statement for Forward Looking Statements (the "Safe Harbor
Statement") to reflect future developments. In addition, Acadia undertakes no
obligation to update or revise forward looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
Acadia provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward looking
statements include the disclosures contained in the Quarterly Report on Form
10-QSB to which this statement is appended as an exhibit and also include the
following:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness and, as a result, significant debt
service obligations. The Company's ability to make payments on its debt
obligations will depend on its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. If the Company is
unable to service its indebtedness, it will be required to adopt alternative
strategies, which may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms.
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or other general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations; (iii)
the Company's existing indebtedness contains, and future financings are
expected to contain, financial and other restrictive covenants, including
without limitation those restricting the incurrence of additional
indebtedness, the creation of liens, the payment of dividends, sales of
assets, capital expenditures, and prepayment of indebtedness and those
requiring maintenance of minimum net worth, minimum EBITDA and minimum
interest coverage and limiting leverage; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest which
expose the Company to the risk of increases in interest rates; and (v) the
Company may be more leveraged than certain of its competitors, which may place
the Company at a relative competitive disadvantage and make the Company more
vulnerable to changes in its industry and changing economic conditions. As a
result of the Company's level of indebtedness, its financial capacity to
respond to market conditions, extraordinary capital needs and other factors
may be limited.
LIQUIDITY
The Company expects to consummate the sale of equity in connection with a
planned secondary offering prior to September 30, 1999 and to use a portion of
the net proceeds from the sale to pay off indebtedness. There can be no
assurance that the sale will close by such date or at all.
LITIGATION AND GOVERNMENT INVESTIGATIONS
Numerous federal and state civil and criminal laws govern medical billing
activities. In general, these laws provide for various fines, penalties,
multiple damages, assessments and sanctions for violations, including possible
exclusion from Medicare, Medicaid and certain other federal and state
healthcare programs.
The Company and its clients from time to time anticipate that they will
receive in the future, official inquiries (including subpoenas, search
warrants, as well as informal requests) concerning particular billing
practices related to the Company and its many clients.
EVOLVING INDUSTRY STANDARDS; RAPID TECHNOLOGICAL CHANGES
Acadia's success in its business will depend in part upon its continued
ability to enhance its existing products and services, to introduce new
products and services quickly and cost effectively to meet evolving customer
needs, to achieve market acceptance for new product and service offerings and
to respond to emerging industry standards and other technological changes.
There can be no assurance that Acadia will be able to respond effectively to
technological changes or new industry standards. Moreover, there can be no
assurance that competitors of Acadia will not develop competitive products, or
that any such competitive products will not have an adverse effect upon
Acadia's operating results.
The Company intends further to refine, enhance and develop certain of the
Company's existing software and billing systems and to change all of the
Company's billing and accounts receivable management services operations over
to the Company's most proven software systems and technology to reduce the
number of systems and technologies that must be maintained and supported.
Moreover, management intends to continue to implement "best practices" and
other established process improvements in its operations going forward. There
can be no assurance that the Company will be successful in refining, enhancing
and developing its software and billing systems going forward, that the costs
associated with refining, enhancing and developing such software and systems
will not increase significantly in future periods, that the Company will be
able successfully to migrate the Company's billing and accounts receivable
management services operations to the Company's most proven software systems
and technology or that the Company's existing software and technology will not
become obsolete as a result of ongoing technological developments in the
marketplace.
YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the year 2000 or thereafter without error or interruption
(commonly known as the "Year 2000" problem). The Company has conducted a
review of its business systems, including its computer systems, and is
querying its customers, vendors and resellers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly interrelating and processing date information as the year 2000
approaches and is reached. Through its review, the Company has identified a
number of older legacy systems that will be abandoned in favor of a limited
number of more efficient processing systems, rather than make all the systems
Year 2000 compatible. Customers, vendors and resellers have been identified
and requests for information distributed regarding the Year 2000 readiness of
such parties.
The estimated cost of the Company's Year 2000 efforts is $25,000 to $30,000
over 1998 and 1999, the majority of which represents redirection of internal
resources. However, there can be no assurance that the Company will identify
all such Year 2000 problems in its computer systems or those of its customers,
vendors or resellers in advance of their occurrence or that the Company will
be able to successfully remedy any problems that are discovered. The expenses
of the Company's efforts to identify and address such problems, or the
expenses or liabilities to which the Company may become subject as a result
of such problems, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenue. In addition, failure of the Company to identify and remedy
Year 2000 problems could put the Company at a competitive disadvantage
relative to companies that have corrected such problems.
COMPETITION; INDUSTRY AND MARKET CHANGES
The business of providing billing and management services to physicians and
hospitals is highly competitive. Acadia competes with certain national and
regional physician and hospital reimbursement organizations and billing
businesses (including local independent operating companies), certain
national information and data processing organizations and certain physician
groups and hospitals that provide their own business management services.
Potential industry and market changes that could adversely affect the billing
aspects of Acadia's business include (i) a significant increase in managed
care providers relative to conventional fee for service providers, potentially
resulting in substantial changes in the medical reimbursement process, or the
Company's failure to respond to such changes and (ii) new alliances between
healthcare providers and third party payors in which healthcare providers are
employed by such third party payors. The business of providing application
software, information technology and consulting services is also highly
competitive and Acadia faces competition from certain national and regional
companies in connection with its technology operations. Certain of Acadia's
competitors have longer operating histories and greater financial, technical
and marketing resources than Acadia. There can be no assurance that
competition from current or future competitors will not have a material
adverse effect upon Acadia.
The Company's business is affected by, among other things, trends in the U.S.
healthcare industry. As healthcare expenditures have grown as a percentage of
the U.S. Gross National Product, public and private healthcare cost
containment measures have applied pressure to the margins of healthcare
providers.
Historically, some healthcare payors have paid the prices established by
providers while other healthcare payors, notably government agencies and
managed care companies, have paid less than established prices (in many cases
less than the average cost of providing the services). As a consequence,
prices charged to healthcare payors willing to pay established prices have
increased in order to recover the cost of services purchased by government
agencies and others but not paid for by them (i.e., "cost shifting"). The
increasing complexity in the reimbursement system and assumption of greater
payment responsibility by individuals have caused healthcare providers to
experience increase accounts receivable and bad debt levels and higher
business office costs. Healthcare providers historically have addressed these
pressures on profitability by increasing their prices, by relying on
demographic changes to support increases in the volume and intensity of
medical procedures and by cost shifting. Notwithstanding the providers'
responses to these pressures, management believes that the revenue growth
rate experienced by certain of the Company's clients continues to be adversely
affected by increased managed care and other industry factors affecting
healthcare providers in the United States. At the same time, the process of
submitting healthcare claims for reimbursement to third party payors in
accordance with applicable industry and regulatory standards continues to
grow in complexity and to become more costly. Management believes that
these trends have adversely affected and could continue to adversely affect
the revenues and profit margins of the Company's operations.
GOVERNMENTAL INVESTIGATORY RESOURCES AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on the
billing practices of healthcare providers and related entities, and
particularly on possibly fraudulent billing practices. This heightened
scrutiny has resulted in a number of high profile civil and criminal
investigations, lawsuits and settlements.
In 1996, Congress enacted the Health Insurance Portability and Accounting Act
of 1996, Pub. L. No. 104 191, 1996 U.S.C.C.A.N. (110 Sat. 1936) (codified in
scattered sections of the United States Code, including 18, 26, 29 and 42
U.S.C.), which includes an expansion of provisions relating to fraud and
abuse, creates additional criminal offenses relating to healthcare benefit
programs, provides for forfeitures and asset freezing orders in connection
with such healthcare offenses and contains provisions for instituting greater
coordination of federal, state and local enforcement agency resources and
actions.
In recent years, the focus of healthcare legislation has been on budgetary and
related funding mechanism issues. Both the Congress and the Clinton
Administration have made proposals to reduce the rate of increase in projected
Medicare and Medicaid expenditures and to change funding mechanisms and other
aspects of both programs. In late 1995, Congress passed legislation that would
substantially reduce projected expenditure increases and would make
significant changes in the Medicare and Medicaid programs. Acadia cannot
predict the effect of pending legislation, if adopted, on its operations.
A number of states in which Acadia has operations either have adopted or are
considering the adoption of healthcare reform proposals at the state level.
Acadia cannot predict the effect of proposed state healthcare reform laws on
its operations. Additionally, certain reforms are occurring in the healthcare
market, including certain employer initiatives such as creating purchasing
cooperatives and contracting for healthcare services for employees through
managed care companies (including health maintenance organizations), and
certain provider initiatives such as risk sharing among healthcare providers
and managed care companies through capitated contracts and integration among
hospitals and physicians into comprehensive delivery systems. Consolidation of
management and billing services through integrated delivery systems may result
in a decrease in demand for Acadia billing services for particular physician
practices.
EXISTING GOVERNMENT REGULATION
Existing government regulation can adversely affect Acadia's business through,
among other things, its potential to reduce the amount of reimbursement
received by Acadia's clients for healthcare services. Acadia's medical
billing activities are also governed by numerous federal and state civil and
criminal laws. In general, these laws provide for various fines, penalties,
multiple damages, assessments and sanctions for violations, including possible
exclusion from Medicare, Medicaid and certain other federal and state
healthcare programs. Submission of claims for services or procedures that are
not provided as claimed, or which otherwise violate the regulations, may lead
to civil monetary penalties, criminal fines, imprisonment and/or exclusion
from participation in Medicare, Medicaid and other federally funded healthcare
programs. Specifically, the Federal False Claims Act allows a private person
to bring suit alleging false or fraudulent Medicare or Medicaid claims or
other violations of the statute and for such person to share in any amounts
paid to the government in damages and civil penalties. Successful plaintiffs
can receive up to 25 30% of the total recovery from the defendant. Such qui tam
actions or "whistle blower" lawsuits have increased significantly in recent
years and have increased the risk that a company engaged in the healthcare
industry, such as Acadia and many of its customers, may become the subject of
a federal or state investigation, may ultimately be required to defend a false
claims action, may be subjected to government investigation and possible
criminal fines, may be sued by private payors and may be excluded from
Medicare, Medicaid and/or other federally funded healthcare programs as a
result of such an action. Some state laws also provide for false claims
actions, including actions initiated by a qui tam plaintiff. Any such
proceeding or investigation could have a material adverse effect upon the
Company.
There can be no assurance that current or future government regulations or
healthcare reform measures will not have a material adverse effect upon
Acadia's business.
VOLATILITY OF STOCK PRICE
Acadia believes factors such as the Company's liquidity and financial
resources, healthcare reform measures and quarter to quarter and year to year
variations in financial results could cause the market price of Acadia Common
Stock to fluctuate substantially. Any adverse announcement with respect to
such matters or any shortfall in revenue or earnings from levels expected by
Management could have an immediate and material adverse effect on the trading
price of Acadia Common Stock in any given period. As a result, the market for
Acadia Common Stock may experience material adverse price and volume
fluctuations and an investment in the Company's Common Stock is not suitable
for any investor who is unwilling to assume the risk associated with any such
price and volume fluctuations.