| AMN HEALTHCARE SERVICES INC Item 1A Risk Factors The following risk factors should be read carefully in connection with evaluating us and the forward-looking statements contained in this Annual Report on Form 10-K Any of the following risks could materially adversely affect our company, operating results, financial condition and the actual outcome of matters as to which forward- looking statements are made in this Annual Report on Form 10-K Certain statements in “Risk Factors” constitute “forward-looking statements |
| ” Our actual results could differ materially from those projected in the forward-looking statements as a result of certain factors and uncertainties set forth below and elsewhere in this Annual Report on Form 10-K See “Item 7 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward-Looking Statements |
| ” If we are unable to continue to recruit and retain healthcare professionals for our healthcare staffing business at reasonable costs, it could increase our operating costs and negatively impact our business |
| We rely significantly on our ability to recruit and retain healthcare professionals who possess the skills, experience and licenses necessary to meet the requirements of our hospital, healthcare facility clients and physician practice groups |
| We compete for healthcare staffing personnel with other temporary healthcare staffing companies and with hospitals, healthcare facilities and physician practice groups based on the quantity, diversity and quality of assignments offered, compensation packages and the benefits that we provide to our healthcare professionals |
| We rely on our human capital intensive, relationship-oriented approach and national infrastructure to enable us to compete in the permanent physician staffing business |
| We must continually evaluate and expand our temporary and permanent healthcare professional network to keep pace with the needs of our hospital, healthcare facility clients and physician practice groups |
| Currently, there is a shortage of qualified nurses, physicians and certain allied healthcare professionals in the United States, significant competition exists for these personnel, and salaries and benefits have risen |
| We may be unable to continue to increase the number of temporary and permanent healthcare professionals that we recruit, decreasing the potential for growth of our business |
| Our ability to recruit and retain temporary and permanent healthcare professionals depends on several factors, including our ability to provide our healthcare professionals with assignments and placements that they view as attractive and to provide our temporary healthcare professionals with competitive wages and benefits, including health insurance and housing |
| We cannot assure you that we will be successful in any of these areas as the costs of attracting healthcare professionals and providing them with attractive benefit packages may be higher than we anticipate, or we may be unable to pass these costs on to our hospital and healthcare facility clients |
| If we are unable to increase the rates that we charge our hospital and healthcare facility clients to cover these costs, our profitability could decline |
| Moreover, if we are unable to recruit temporary and permanent healthcare professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients |
| Our operations may deteriorate if we are unable to continue to attract, develop and retain our sales and operations personnel |
| Our success is dependent upon the performance of our sales and operations personnel |
| The number of individuals who meet our qualifications for these positions is limited, and we may experience difficulty in attracting qualified candidates |
| In addition, we commit substantial resources to the training, development and support of our personnel |
| Competition for qualified sales personnel in the line of business in which we operate is strong, and there is a risk that we may not be able to retain our sales personnel after we have expended the time and expense to recruit and train them |
| 12 ______________________________________________________________________ [36]Table of Contents We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining hospital, healthcare facility and physician practice group clients and demonstrating the value of our services |
| The temporary healthcare staffing business is highly competitive |
| We compete in national, regional and local markets with full-service staffing companies, specialized temporary staffing agencies and hospital systems that have developed their own interim staffing pools |
| Some of our large competitors in the temporary nurse and locum tenens staffing sectors include Cross Country Healthcare, InteliStaf Healthcare, CHG Healthcare Services, Inc, On Assignment, and Medical Doctor Associates |
| We believe that the primary competitive factors in obtaining and retaining hospital, healthcare facility and physician practice group clients are identifying qualified healthcare professionals for specific job requirements, providing qualified employees in a timely manner, pricing services competitively and effectively monitoring employees’ job performance |
| Competition for hospital, healthcare facility and physician practice group clients and temporary and permanent healthcare professionals may increase in the future due to these factors or a shortage of qualified healthcare professionals in the marketplace and, as a result, we may not be able to remain competitive |
| To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenue or clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline |
| In addition, the development of alternative recruitment channels could lead our clients to bypass our services, which would also cause revenue and margins to decline |
| Our business depends upon our ability to secure and fill new orders from our hospital, healthcare facility and physician practice group clients because our temporary healthcare staffing business does not have long-term, exclusive or guaranteed contracts with them, and economic conditions may adversely impact the number of new orders and contracts we receive |
| We generally do not have long-term, exclusive or guaranteed order contracts for temporary healthcare staffing with our hospital, healthcare facility and physician practice group clients |
| The success of our business is dependent upon our ability to continually secure new contracts and orders from hospitals, healthcare facilities and physician practice groups and to fill those orders with our temporary healthcare professionals |
| Our hospital, healthcare facility and physician practice group clients are free to award contracts and place orders with our competitors and choose to use temporary healthcare professionals that our competitors offer them |
| Therefore, we must maintain positive relationships with our hospital, healthcare facility and physician practice group clients |
| If we fail to maintain positive relationships with our hospital, healthcare facility and physician practice group clients or are unable to provide a cost-effective staffing solution, we may be unable to generate new temporary healthcare professional orders and our business may be adversely affected |
| Some hospitals and healthcare facility clients choose to outsource this contract and order function to staffing associations owned by member healthcare facilities or companies with vendor management services that may act as intermediaries with our client facilities |
| These organizations may impact our ability to obtain new clients and maintain our existing client relationships by impeding our ability to access and contract directly with healthcare facility clients |
| Additionally, we may experience pricing pressure or incremental fees from these organizations that may negatively impact our revenue and profitability |
| Depressed economic conditions, such as increasing unemployment rates and low job growth, could also negatively influence our ability to secure new orders and contracts from clients |
| In times of economic downturn, permanent healthcare facility staff may be more inclined to work overtime and less likely to leave their positions, resulting in fewer available vacancies and less demand for our services |
| Fewer placement opportunities for our temporary healthcare professionals impairs our ability to recruit and place both temporary and permanent placement healthcare professionals and our revenues and profitability may decline as a result of this constricted demand and supply |
| 13 ______________________________________________________________________ [37]Table of Contents The demand for our services, and therefore the profitability of our business, may be adversely affected by changes in the staffing needs due to fluctuations in hospital admissions or staffing preferences of our healthcare facility clients |
| Demand for our temporary healthcare staffing services is affected by the staffing needs and preferences of our healthcare facility clients, as well as by fluctuations in patient occupancy at our client healthcare facilities due to economic factors and seasonal fluctuations that are beyond our control |
| Hospitals in certain geographical regions experience significant seasonal fluctuations in admissions, and must be able to adjust their staffing levels to accommodate the change in patient census |
| Our healthcare facility clients may choose to use temporary staff, additional overtime from their permanent staff or add new permanent staff in order to accommodate changes in their staffing needs |
| Many healthcare facilities will utilize temporary healthcare professionals to accommodate an increase in hospital admissions |
| Alternatively, if hospital admissions decrease, the demand for our temporary healthcare professionals may decline as healthcare facility clients typically will reduce their use of temporary staff before reducing the workload or undertaking layoffs of their regular employees |
| In addition, we may experience more competitive pricing pressure during periods of patient occupancy and hospital admission downturns, negatively impacting our revenue and profitability |
| The ability of our hospital, healthcare facility and physician practice group clients to retain and increase the productivity of their permanent staff may affect the demand for our services |
| If our hospital, healthcare facility and physician practice group clients retain and increase the productivity of their permanent staff, their need for our services may decline |
| Higher permanent staff retention rates and increased productivity of permanent staff members could result in increased efficiencies, thereby reducing the demand for both our temporary staffing and permanent placement services, which could negatively impact our revenue and profitability |
| We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce revenue and profitability and may impact our ability to grow and operate our business |
| The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, costs and payment for services and payment for referrals |
| Our business is generally not subject to the extensive and complex laws that apply to our hospital, healthcare facility and physician practice group clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs |
| However, these laws and regulations could indirectly affect the demand or the prices paid for our services |
| For example, our hospital, healthcare facility and physician practice group clients could suffer civil and criminal penalties and be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses |
| In addition, our hospital, healthcare facility and physician practice group clients could receive reduced reimbursements, or be excluded from coverage, because of a change in the rates or conditions set by federal or state governments |
| In turn, violations of or changes to these laws and regulations that adversely affect our hospital, healthcare facility and physician practice group clients could also adversely affect the prices and demand for our services |
| For example, legislation in Massachusetts limited the hourly rate paid to temporary nursing agencies for registered nurses, licensed practical nurses and certified nurses aides |
| While we are exempt from this regulation, in part, similar regulations may be enacted in other states in which we operate, and as a result revenue and margins could decrease |
| Furthermore, third party payers, such as health maintenance organizations, increasingly challenge the prices charged for medical care |
| Failure by hospitals, healthcare 14 ______________________________________________________________________ [38]Table of Contents facilities and physician practice groups to obtain full reimbursement from those third party payers could reduce the demand or the price paid for our services |
| We are also subject to certain laws and regulations applicable to healthcare staffing agencies and general temporary staffing services |
| Like all employers, we must also comply with various laws and regulations relating to pay practices, workers compensation and immigration |
| As we continue to grow, we believe that we are more likely to be a target of challenges to our pay practices, such as challenges to our employee classifications under the Fair Labor Standards Act |
| There is a risk that we could be subject to payment of additional wages, insurance and employment and payroll related taxes if certain of our corporate employees classified as exempt from overtime and minimum wage requirements are re-classified as non-exempt from overtime and minimum wage requirements |
| Because of the nature of our business, the impact of these laws and regulations may have a more pronounced effect on our business |
| These laws and regulations may also impede our ability to grow our operations |
| We primarily draw our supply of healthcare professionals from the United States, but international supply channels have represented a small but growing temporary nurse supply source |
| Our ability to recruit healthcare professionals through these foreign supply channels may be impacted by government legislation limiting the number of immigrant visas that can be issued |
| Additionally, we have incurred and will continue to incur additional legal and accounting expenses related to compliance with corporate governance and disclosure standards implemented by the Sarbanes-Oxley Act of 2002, the rules of the New York Stock Exchange and regulations of the Securities and Exchange Commission |
| Regulations promulgated in connection with Section 404 of the Sarbanes-Oxley Act of 2002 require an annual and quarterly review by management and evaluation of our internal control systems, in addition to an annual auditor attestation of the effectiveness of these systems, which commenced with our fiscal year ended on December 31, 2004 (exclusive of our recent acquisition of The MHA Group, Inc |
| In addition, as of December 31, 2006, we will need to certify the sufficiency of the internal control systems of MHA If we fail to comply with these laws and regulations, damages, civil and criminal penalties, injunctions and cease and desist orders may be imposed, which would negatively impact our business and operations |
| The increase in costs necessitated by compliance with the laws and regulations affecting our business reduces our overall profitability, and reduces the assets and resources available for utilization in the expansion of our business operations |
| Our profitability is impacted by our ability to leverage our cost structure |
| We have technology, operations and human capital infrastructures to support our existing business and contemplated growth |
| In the event that our business does not grow at the rate that we had anticipated, our inability to reduce these costs would impair our profitability |
| Additionally, if we are not able to capitalize on this infrastructure our earnings growth rate will be impacted |
| The variation in pricing of the healthcare facility contracts under which we place temporary and permanent healthcare professionals impacts our profitability |
| The pricing of our contracts with hospitals, healthcare facilities and physician practice groups may vary depending on circumstances, including geographic location, economic conditions and supply and demand factors |
| These pricing variables impact our gross margin and could result in decreased profitability if we are unable to renew existing accounts on economically favorable terms |
| 15 ______________________________________________________________________ [39]Table of Contents We may not be able to successfully implement our strategic growth, acquisition and integration strategies |
| An effective growth management strategy is necessary to organically grow our current operations, and if we do not successfully execute on this growth strategy, our profitability could decline |
| We continue to explore strategic acquisition opportunities to supplement our organic growth strategy |
| Acquisitions involve significant risks and uncertainties, including difficulties integrating acquired personnel and other corporate cultures into our business, the potential loss of key employees or customers of acquired companies, the assumption of liabilities and exposure to unforeseen liabilities of acquired companies and the diversion of management attention from existing operations |
| We may not be able to fully integrate the operations of the acquired businesses with our own in an efficient and cost-effective manner |
| Acquisitions may also require significant expenditures of cash and other resources and assumption of debt that may ultimately negatively impact our overall financial performance |
| In particular, we are still in the process of integrating our recent MHA acquisition |
| Difficulties in maintaining our management information and communications systems may result in increased costs that reduce our profitability |
| Our ability to deliver our staffing services to our hospital, healthcare facility and physician practice group clients and manage our internal systems depends to a large extent upon our access to and the performance of our management information and communications systems |
| These systems also maintain accounting and financial information, which we depend upon to fulfill our financial reporting obligations |
| If these systems do not adequately support our operations, these systems are damaged or if we are required to incur significant additional costs to repair, maintain or expand these systems, our business and financial results could be materially adversely affected |
| Although we have risk mitigation measures, these systems, and our access to these systems, are not impervious to floods, fire, storms, or other natural disasters, and the loss of systems information could result in disruption to our business |
| The challenge to the classification of certain of our healthcare professionals as independent contractors could adversely impact our profitability |
| Although there is a long-standing industry standard to treat physicians as independent contractors, there is a risk we could be subject to additional wage and insurance claims, employment and payroll-related taxes if federal or state taxing authorities re-classify our independent contractor physicians as employees, which would significantly reduce our profitability |
| In addition, many states have laws which prohibit non-physician owned companies from employing physicians which we refer to as the “corporate practice of medicine |
| ” If our independent contractor physicians are classified as employees, we would be in violation of state laws that prohibit the corporate practice of medicine, which would have a substantial negative impact on our profitability |
| The impact of medical malpractice and other claims asserted against us could subject us to substantial liabilities |
| In recent years, our hospital, healthcare facility and physician practice group clients are subject to a number of legal actions alleging malpractice or related legal theories |
| Because our temporary and permanent healthcare professionals provide medical care and we provide credentialing of these healthcare professionals, claims may be brought against us and our healthcare professionals relating to the recruitment and qualification of these healthcare professionals and the quality of medical care provided by our temporary healthcare professionals while on assignment or after placement at our hospital, healthcare facility and physician practice group clients |
| We and the healthcare professional are at times named in these lawsuits regardless of our contractual obligations, the competency of the healthcare professional, the standard of care provided by the healthcare professional or the quality of service that we provided |
| In some instances, we are required to indemnify hospital, healthcare facility and physician practice group clients contractually against some or all of these potential legal actions |
| Also, because some of our temporary healthcare professionals are our employees, we may be subject to various employment claims and contractual disputes regarding the terms of a temporary healthcare professional’s employment |
| 16 ______________________________________________________________________ [40]Table of Contents Because we are in the business of placing our temporary healthcare professionals in the workplaces of other companies, we are subject to possible claims by our temporary healthcare professionals alleging discrimination, sexual harassment and other similar activities by our hospital and healthcare facility clients |
| We maintain a policy for employment practices coverage |
| However, the cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract, retain and place qualified individuals in the future |
| We maintain various types of insurance coverage, including professional liability, workers compensation and employment practices, through insurance carriers, and we also self-insure for these claims through accruals for retention reserves |
| We may experience increased insurance costs and reserve accruals and may not be able to pass on all or any portion of increased insurance costs to our hospital, healthcare facility and physician practice group clients, thereby reducing our profitability |
| Our insurance coverage and reserve accruals may not be sufficient to cover all claims against us, and we may be exposed to substantial liabilities |
| Terrorist threats or attacks may disrupt or adversely affect our business operations |
| Our business operations may be interrupted or adversely impacted in the United States and abroad in the event of a terrorist attack or heightened security alerts |
| Our temporary healthcare professionals may become reluctant to travel and may decline assignments based upon the perceived risk of terrorist activity, which would reduce our revenue and profitability |
| In addition, terrorist activity or threats may impede our access to our management and information systems resulting in loss of revenue |
| We do not maintain insurance coverage against terrorist attacks |
| If we are unable to carry out our business strategy our profitability could be negatively impacted |
| Our success is dependent on our ability to execute our business strategy, which necessarily involves the successful operation of a number of integral components and business objectives |
| Our ability to execute these business objectives is dependent upon a sufficient cash flow and capital structure to support the business |
| If we are unable to access credit on commercially reasonable terms or our cash flow is significantly impaired, our profitability could be negatively impacted |
| The loss of key officers and management personnel could adversely affect our ability to remain competitive |
| We believe that the success of our business strategy and our ability to operate profitably depends on the continued employment of our senior management team |
| We have employment agreements only with Steven C Francis, our Executive Chairman, Susan R Nowakowski, our President and Chief Executive Officer, and two non-executive officers |
| If these individuals or members of our senior management team become unable or unwilling to continue in their present positions, our business and financial results could be materially adversely affected |
| We have a substantial amount of goodwill on our balance sheet that may have the effect of decreasing our earnings or increasing our losses in the event that we are required to recognize an impairment to goodwill |
| As of December 31, 2005, we had dlra240dtta8 million of unamortized goodwill on our balance sheet, which represents the excess of the total purchase price of our acquisitions over the fair value of the net assets acquired |
| At December 31, 2005, goodwill represented 38dtta9prca of our total assets |
| SFAS Nodtta 142, Goodwill and Other Intangible Assets requires that goodwill not be amortized but rather that it be reviewed annually for impairment |
| In the event impairment is identified, a charge to earnings would be recorded |
| Although an impairment charge to earnings for goodwill would not affect our cash flow, it would 17 ______________________________________________________________________ [41]Table of Contents decrease our earnings or increase our losses, as the case may be, and our stock price could be adversely affected |
| We have reviewed our goodwill for impairment in accordance with the provisions of SFAS Nodtta 142, and have not identified any impairment to goodwill |
| We have a substantial accrual for self-insured retentions on our balance sheet, and any significant adverse adjustments in these accruals may have the effect of decreasing our earnings or increasing our losses |
| We maintain accruals for self-insured retentions for professional liability, health insurance and workers compensation on our balance sheet |
| Increases to these accruals do not immediately affect our cash flow, but a significant increase to these self-insured retention accruals may decrease our earnings or increase our losses, as the case may be |
| We determine the adequacy of our self-insured retention accruals by evaluating our historical experience and trends, related to both insurance claims and payments, information provided to us by our insurance brokers and third party administrators, as well as industry experience and trends |
| If such information indicates that our accruals are overstated or understated, we reduce or provide for additional accruals, as appropriate |