Form 8-K
8-K — Astrana Health, Inc.
Accession: 0001104659-26-036862
Filed: 2026-03-30
Period: 2026-03-30
CIK: 0001083446
SIC: 8742 (SERVICES-MANAGEMENT CONSULTING SERVICES)
Item: Other Events
Item: Financial Statements and Exhibits
Documents
8-K — tm269272d1_8k.htm (Primary)
EX-99.1 — EXHIBIT 99.1 (tm269272d1_ex99-1.htm)
EX-99.2 — EXHIBIT 99.2 (tm269272d1_ex99-2.htm)
GRAPHIC (tm269272d1_ex99-1img001.jpg)
XML — IDEA: XBRL DOCUMENT (R1.htm)
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2026-03-30
2026-03-30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
Date of report (Date of earliest event
reported): March 30, 2026
ASTRANA HEALTH, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
001-37392
95-4472349
(State or Other Jurisdiction
(Commission
(I.R.S. Employer
of Incorporation)
File Number)
Identification No.)
1668 S. Garfield Avenue, 2nd Floor, Alhambra, California 91801
(Address of Principal Executive Offices) (Zip Code)
(626) 282-0288
Registrant’s Telephone Number, Including
Area Code
(Former Name or Former Address, if Changed Since
Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading
symbol(s)
Name
of each exchange on which registered
Common
Stock, $0.001 par value per share
ASTH
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 8.01 Other Events.
On July 2, 2025, Astrana Health, Inc. (the “Company”)
filed a Current Report on Form
8-K, as amended by a Form
8-K/A filed on September 11, 2025, to report that it had completed the acquisition of all of the outstanding equity interests of Prospect
Health Plan, Inc. and Alta Newport Hospital, LLC (d/b/a Foothill Regional Medical Center), and substantially all the assets of certain
direct and indirect subsidiaries of PHP Holdings, LLC (“PHPH”), pursuant to the Asset and Equity Purchase Agreement, dated
November 8, 2024, by and among the Company and certain direct and indirect subsidiaries party thereto, PHPH, PHS Holdings, LLC, Prospect
Intermediate Holdings, LLC, Prospect Provider Group RI, LLC, certain other related entities party thereto and Prospect Medical Holdings,
Inc., as Seller Representative (such acquisition, the “Transaction” and such acquired entities and assets, the “Acquired
Business”).
This Current Report on Form 8-K provides interim
unaudited financial statements of the Acquired Business and a pro forma statement of operations of the Company, giving effect to the Transaction
as if it had been consummated on January 1, 2025, as described in Item 9.01 below and which are incorporated into this Item 8.01 by reference.
This Current Report on Form 8-K should be read in conjunction with the Company’s July 2, 2025 and September 11, 2025 Form 8-K filings
referenced above, which together provide a more complete description of the Transaction.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The unaudited financial statements of the Acquired
Business as of and for the nine months ended June 30, 2025 and for the nine months ended June 30, 2024, including the accompanying notes,
are filed as Exhibit 99.1 to this Current Report on Form 8-K and are incorporated herein
by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined statement
of operations of the Company for the fiscal year ended December 31, 2025 (the “Unaudited Pro Forma Statement of Operations”)
is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein
by reference. The Unaudited Pro Forma Statement of Operations gives effect to the Transaction and related transactions.
The Unaudited Pro Forma Statement of Operations
is presented for illustrative purposes only and is not intended to represent or be indicative of the Company’s consolidated results
of operations that would have been reported had the Transaction and related transactions been completed as of the date presented in the
Unaudited Pro Forma Statement of Operations. The Unaudited Pro Forma Statement of Operations should not be taken as a representation of
the Company’s future consolidated results of operations. The pro forma adjustments in the Unaudited Pro Forma Statement of Operations
are based on available information and certain assumptions that management believes are reasonable under the circumstances.
(d) Exhibits.
Exhibit
No.
Description
99.1
Unaudited financial statements of the Acquired Business as of and for the nine months ended June 30, 2025 and for the nine months ended June 30, 2024, including the notes thereto.
99.2
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2025.
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the inline XBRL document).
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ASTRANA HEALTH, INC.
Date: March 30, 2026
By:
/s/ Brandon K. Sim
Name:
Brandon K. Sim
Title:
Chief Executive Officer and President
EX-99.1 — EXHIBIT 99.1
EX-99.1
Filename: tm269272d1_ex99-1.htm · Sequence: 2
Exhibit 99.1
PHP
Holdings, LLC &
Rhode
Island Market
Condensed
Combined and Consolidated
Financial
Statements (Unaudited)
As
of June 30, 2025 and
September 30, 2024 and for the
Nine Months Ended
June 30, 2025 and 2024
PHP
Holdings, LLC & Rhode Island Market
Contents
Page
Condensed
Combined and Consolidated Financial Statements (Unaudited)
Condensed
Combined and Consolidated Balance Sheets
2
- 3
Condensed
Combined and Consolidated Statements of Operations
4
Condensed
Combined and Consolidated Statements of Members’ Deficit and
Mezzanine Equity
5
Condensed
Combined and Consolidated Statements of Cash Flows
6 -
7
Notes
to Condensed Combined and Consolidated Financial Statements
8
- 37
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Balance Sheets
(In
thousands)
(Unaudited)
June 30,
2025
September 30,
2024
Assets
Current
assets:
Cash
and cash equivalents
$ 147,729
$ 151,255
Hospital
fee program receivable
19,923
18,385
Patient
accounts receivable, net of allowance for credit losses of $59,513 and $39,468
13,671
16,043
Due
from government payers
271
228
Risk
pool and other receivables, net
40,830
39,934
Prepaid
expenses and other current assets
10,455
9,244
Note
receivable
1,458
1,375
Total
current assets
234,337
236,464
Property,
improvements and equipment, net
21,140
22,720
Operating
lease right-of use assets
3,444
5,577
Deferred
income taxes, net
41,754
-
Deposits
and other assets
4,595
374
Goodwill
29,666
29,587
Restricted
cash
1,300
1,385
Note
receivable, net of current portion
278
500
Total
assets*
$ 336,514
$ 296,607
Liabilities
and members’ equity
Current
liabilities:
Accrued
medical claims and other healthcare costs payable
$ 131,864
$ 131,182
Accounts
payable and other accrued liabilities
87,954
106,666
Accrued
salaries, wages and benefits
25,287
24,960
Hospital
fee program liability
9,524
7,330
Due
to government payers
2,983
5,073
Income
taxes payable
31,193
18,468
Current
portion of long-term debt
489,039
47,579
Current
portion of finance lease liabilities
712
702
Current
portion of operating lease liabilities
2,247
2,461
Other
current liabilities
254
194
Total
current liabilities
781,057
344,615
Long-term
debt, net of current portion
777,848
1,129,595
Finance
lease liabilities, net of current portion
1,269
1,723
Operating
lease liabilities, net of current portion
1,728
3,933
Malpractice
reserves
2,371
2,269
Other
long-term liabilities
5,665
6,764
Total
liabilities*
1,569,938
1,488,899
2
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Balance Sheets (Continued)
(In
thousands)
(Unaudited)
June 30,
2025
September 30,
2024
Commitments and Contingencies (Note 6)
Mezzanine equity:
Redeemable convertible preferred stock
75,295
75,295
Members’ deficit:
Additional paid-in capital
151,496
151,433
Accumulated deficit
(1,439,250
)
(1,400,560
)
Due from related parties
(21,110
)
(18,605
)
Total PHP Holdings, LLC’s & RI Market members’ deficit
(1,308,864
)
(1,267,732
)
Non-controlling interests
145
145
Total members’ deficit
(1,308,719
)
(1,267,587
)
Total liabilities, mezzanine equity and members’ deficit
$
336,514
$
296,607
See
accompanying notes to the unaudited condensed combined and consolidated financial statements.
*
The Company’s combined consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The combined consolidated
balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling approximately
$103,458 and $131,505 as of June 30, 2025 and September 30, 2024, respectively, and total liabilities of the Company’s
consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of approximately $85,816
and $98,009 as of June 30, 2025 and September 30, 2024, respectively.
3
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Statements of Operations
(In
thousands)
(Unaudited)
Nine
Months Ended June 30,
2025
2024
Operating
revenues:
Capitation
$ 830,370
$ 756,686
Patient
services, net
81,797
82,620
Management
fees
29,061
18,292
Other
operating revenues
20,528
19,897
Total
net revenue
961,756
877,495
Cost
of revenues:
Claims
expense
488,946
396,453
Capitation
expense
189,794
177,130
Other
cost of revenues
44,112
54,966
Total
cost of revenues
722,852
628,549
Gross
margin
238,904
248,946
Operating
expenses:
Salary
and benefits
109,633
103,179
Outside
services
31,663
16,091
Management
fees
11,654
8,244
Professional
fees
4,846
3,972
Marketing
2,122
2,718
Lease
and rental expense
2,316
2,627
Repair,
maintenance and utilities
4,635
3,203
Software
licensing
7,022
5,663
Taxes,
licenses and fees
5,365
5,039
Insurance
4,110
1,855
Depreciation
and amortization
2,748
3,204
Other
operating expenses
4,314
4,762
Total
operating expenses
190,428
160,557
Operating
income
48,476
88,389
Operating
gain from unconsolidated joint venture
-
45
Interest
expense, net
(121,832 )
(95,087 )
Other
expense
-
(2,500 )
Loss
before income tax provision
(73,356 )
(9,153 )
Income
tax (benefit) provision
(34,666 )
34,556
Net
loss attributable to PHP Holdings, LLC & RI Market
$ (38,690 )
$ (43,709 )
4
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Statements of Members’ and Mezzanine Equity
(In
thousands)
(Unaudited)
Mezzanine
Equity
Additional
Paid-in
Capital
Accumulated
Deficit
Due
from
related
parties
Members’
Deficit
Non-
controlling
Interests
Total
Members’
Deficit
Balance
at October 1, 2024
$ 75,295
$ 151,433
$ (1,400,560 )
$ (18,605 )
$ (1,267,732 )
$ 145
$ (1,267,587 )
Contribution
of net assets due to restructuring transactions
-
63
-
-
63
-
63
Due
from related parties
-
-
-
(2,505 )
(2,505 )
-
(2,505 )
Net
loss
-
-
(38,690 )
-
(38,690 )
-
(38,690 )
Balance
at June 30, 2025
$ 75,295
$ 151,496
$ (1,439,250 )
$ (21,110 )
$ (1,308,864 )
$ 145
$ (1,308,719 )
Mezzanine
Equity
Additional
Paid-in
Capital
Accumulated
Deficit
Due
from
related
parties
Members’
Deficit
Non-
controlling
Interests
Total
Members’
Deficit
Balance
at October 1, 2023
$ 75,295
$ 151,370
$ (1,321,871 )
$ (12,902 )
$ (1,183,403 )
$ 145
$ (1,183,258 )
Contribution
of net assets due to restructuring transactions
-
214
-
-
214
-
214
Due
to related parties
-
-
-
2,384
2,384
-
2,384
Net
loss
-
-
(43,709 )
-
(43,709 )
-
(43,709 )
Balance
at June 30, 2024
$ 75,295
$ 151,584
$ (1,365,580 )
$ (10,518 )
$ (1,224,514 )
$ 145
$ (1,224,369 )
See
accompanying notes to the unaudited condensed combined and consolidated financial statements.
5
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
Nine
Months Ended June 30,
2025
2024
Operating
activities:
Net
loss
$ (38,690 )
$ (43,709 )
Adjustments
to reconcile net loss to net cash, cash equivalents and restricted cash (used in) provided by operating activities:
Depreciation
and amortization
2,748
3,204
Amortization
of deferred financing costs, net
711
(2,543 )
Loan
interest on Physician Co Term Loan PIK option and Phase I Convertible Note
54,129
47,966
Loan
interest on Bridge Loan PIK option
1,038
-
Loan
interest on Mako Robot
22
28
Deferred
income taxes, net
(41,754 )
(22,120 )
Accrued
interest on capital leases
69
53
Changes
in operating assets and liabilities:
Patient
accounts receivable
2,372
1,356
Due
from government payers
(43 )
751
Hospital
fee program receivable
(1,538 )
4,388
Risk
pool and other receivables
(896 )
11,656
Prepaid
expenses and other current assets
(5,432 )
(1,082 )
Accrued
medical claims and other healthcare costs payable
682
339
Accounts
payable and other accrued liabilities
(20,014 )
771
Accrued
salaries, wages and benefits
327
1,519
Hospital
fee program liability
2,194
2,118
Due
from government payers
(2,090 )
(1,946 )
Income
taxes payable, net
12,725
7,983
Net
cash, cash equivalents and restricted cash (used in) provided by operating activities
(33,440 )
10,732
Investing
activities:
Purchases
of property, improvements and equipment
(1,149 )
(1,252 )
Due
from related parties
(2,505 )
-
Proceeds
from (issuance) of short-term notes receivable
83
(500 )
Proceeds
from long-term note receivable
55
-
Net
cash, cash equivalents and restricted cash used in investing activities
(3,516 )
(1,752 )
Financing
activities:
Due
from related parties
-
2,386
Proceeds
from incremental borrowings
34,000
-
Proceeds
from short term debt
-
48,311
Payment
of debt issuance costs
-
(3,108 )
Repayment
of debt
(185 )
(119 )
Repayment
of finance leases
(533 )
(442 )
Capital
contribution by physician
63
-
Net
cash, cash equivalents and restricted cash provided by financing activities
33,345
47,028
6
PHP
Holdings, LLC & Rhode Island Market
Condensed
Combined and Consolidated Statements of Cash Flows (Continued)
(In
thousands)
(Unaudited)
Nine
Months Ended June 30,
2025
2024
(Decrease)
increase in cash, cash equivalents and restricted cash
$ (3,611 )
$ 56,008
Cash,
cash equivalents and restricted cash, beginning of the period
152,640
90,669
Cash,
cash equivalents and restricted cash, end of the period
$ 149,029
$ 146,677
Supplemental
disclosure of cash flow information:
Interest
paid
$ 59,430
$ 49,200
Taxes
paid
764
-
Supplemental
disclosure of non-cash financing activities:
Contribution
of net assets due to restructuring transactions
$ -
$ 214
See
accompanying notes to the unaudited condensed combined and consolidated financial statements.
7
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements
(Unaudited)
1. Organization
Business
PHP Holdings, LLC
(the “Company” or “PHPH”) is a Delaware company formed on March 25, 2013. The Company was originally formed
as a Delaware corporation and converted to a limited liability company on October 12, 2022. As of June 30, 2025 (the “Report
Date”), the Company was owned by Prospect Medical Holdings, Inc.(“PMH”), a Delaware corporation, and MPT Picasso
Investors TRS, LLC, a Delaware limited liability company (“MPT”). PHPH’s subsidiaries consisted of the following four
primary reportable segments as of the Report Date: Medical Group, Global Risk, Hospital Services and Holding companies’ segments.
As of the Report Date, Prospect Provider Group RI, LLC (“PPGRI”) was a wholly owned subsidiary of Prospect Provider
Groups, LLC, which was a wholly owned subsidiary of Prospect Medical Holdings, Inc. (“PMH” or “Holdings”).
Prior to June 24, 2025, Prospect Health Services RI, Inc. (“PHSRI”) was a wholly owned subsidiary of PHS Holdings, Inc.
(“PHSH”). PHSH was a wholly owned subsidiary of Coordinated Regional Care Group, Inc. (“CRCG”), which
in turn was a wholly owned subsidiary of PMH. Effective June 24, 2025, PHSRI was merged with and into PPGRI, with PPGRI as the surviving
entity. PHSRI and PPGRI, which are collectively referred to herein as the "Rhode Island Market” are the combined portion within
these condensed combined and consolidated financial statements.
The condensed combined
and consolidated balance sheet as of September 30, 2024 was derived from the audited financial statements at that date, but does
not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”).
These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended September 30,
2024. The condensed combined and consolidated financial statements for the nine months ended June 30, 2025 and 2024, in the opinion
of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s
financial condition and results of operations. The results of operations for the nine months ended June 30, 2025 and 2024, are not
necessarily indicative of the results to be expected for any other interim period or for the entire year.
Medical Group
Certain of the
Company’s subsidiaries (collectively, the “Prospect Network”) contract with licensed physicians and other health care
providers, and contract with managed care payers. PHPH’s subsidiaries include management services organizations that provide medical
management systems and services to the Prospect Network and other third-party clients.
A. California
Prospect Medical
Group, Inc. (“PMG”) is a California professional medical corporation and was an affiliated physician organization of
PHPH as of the Report Date. Pursuant to the restructuring described under “Holding Companies” below, PMG became an indirect
subsidiary (through the nominee physician shareholder arrangement discussed below) effective March 30, 2023. As of the Report Date,
PHPH controlled PMG through means other than direct ownership of PMG’s voting common stock. As discussed below, control was effectuated
through a nominee physician shareholder.
8
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
i. Organizational
Structure
In addition to PMG itself, the California
part of the Prospect Network as of the Report Date consisted of the following (each, an “Affiliate”):
Nuestra Familia Medical Group, Inc.
Prospect Health Source Medical
Group, Inc.
AMVI/Prospect Medical Group
(“AMVI/Prospect”)
Prospect Professional Care
Medical Group, Inc.
Prospect NWOC Medical Group, Inc.
StarCare Medical Group, Inc.
Genesis HealthCare of Southern
California, Inc., a Medical Group
Pomona Valley Medical Group, Inc.
(“PVMG”)
Upland Medical Group, a Professional
Medical Corporation (“UMG”)
As of the Report
Date, the Affiliates were managed by Prospect Medical Systems, LLC (“PMS”) and, prior to March 31, 2023, ProMed Healthcare
Administrators (“PHCA”), which were indirect wholly-owned subsidiaries of PHPH. All of the Affiliates were wholly owned by
PMG as of the Report Date, with the exception of AMVI/Prospect (“AMVI” or “JV”), which was a 50/50 Joint Venture
between AMVI Care Health Network, Inc. and PMG that was terminated and dissolved effective September 30, 2024 as noted in Note
8. As of the Report Date, PMG was owned by Prospect Intermediate Physician Holdings, Inc. (“PIPH”), a California professional
medical corporation that was owned by Prospect Physician Holdings, Inc., another California professional medical corporation (“PPH”).
PPH was owned by a nominee physician shareholder pursuant to an assignable option agreement described below. The results of the entire
Prospect Network, with the exception of AMVI/Prospect, are consolidated in the accompanying condensed combined and consolidated financial
statements.
PMS has entered
into an assignable option agreement with PPH and a nominee physician shareholder. Under the assignable option agreement, PMS acquired
an assignable option for a nominal amount from PPH and the nominee shareholder to designate the purchaser (successor physician) for all
or part of PPH's issued and outstanding stock held by the nominee physician shareholder (the “Stock Option”) in its sole
discretion. PMS may also assign the assignable option agreement to any California licensed physician. The assignable option agreement
has a term of 30 years. The Stock Option may be exercised for a purchase price of $1,000. PMS has the unilateral right to establish or
effect a change of the nominee, at will, and without the consent of the nominee, on an unlimited basis and at nominal cost.
As of the Report
Date, PMG’s Affiliates have each entered into a MSA and each Affiliate has agreed to pay a management fee to PMS or previously
to PHCA, as applicable (each of which was a wholly-owned subsidiary of PHPH), which was based in part on the costs to the management
company and on a percentage of revenues the Affiliate receives for (i) arranging for the provision of medical services by the Affiliate’s
independent contractor physicians and other licensed healthcare providers, and (ii) other services requested by its contracted health
plans. The revenue from which this fee is determined includes medical capitation, sums earned from participation in risk pools, and other
performance fees paid by the health plans. In return for payment of the management fee, PMS, and previously PHCA have agreed to provide
financial management, information systems, marketing, advertising, public relations, risk management, utilization review, quality of
care, and administrative support. The Company and its subsidiaries underwent a restructuring described under “Holding Companies”
below. For tax consolidation purposes, effective March 31, 2023, the rights and obligations of PMS and PHCA under each MSA with
PMG and its Affiliates were assigned to their new parent company, Prospect Intermediate Physician Holdings, Inc. (“PIPH”),
and then subcontracted first to PIPH’s parent company, Prospect Physician Holdings, Inc. (“PPH”), and then back
to PMS. Pursuant to such assignments, PCA assigned to PMS its management for PVMG and UMG and PHCA no longer has any operations.
9
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
ii. Global
Risk
Prospect
Health Plan, Inc. (“PHP”) is a Delaware corporation and is licensed by the California Department of Managed Health Care
(“DMHC”) under the provisions of the Knox-Keene Health Care Service Plan Act of 1975 (the “Act”) to operate as
a health care service plan in California. PHP was initially restricted to providing and arranging for health care services to Medicare
Advantage members through plan-to-plan contracts with fully-licensed health care service plans licensed under the Act. Later, PHP began
providing services to Medicare Advantage (“MA”) enrollees. PHP has entered into global capitation arrangements with certain
third-party health plans (the “Global Capitation Agreements”) and manages the provision of care for MA enrollees of those
plans (“Capitated MA Enrollees”) in coordination with certain subsidiaries and affiliates of PMH. PHP also received notice
from the DMHC approving a material modification of its Knox-Keene application to expand the scope of its license to serve Medi-Cal and
Cal MediConnect members. DMHC further granted additional modification to the Knox-Keene license to include Commercial enrollees effective
November 30, 2020. PHP began accepting Commercial enrollees effective January 1, 2021.
Under
the terms of the Global Capitation Agreements, PHP furnishes global risk services to the third-party health plans, including the assumption
of responsibility for arranging medically necessary covered services by hospitals, physicians and other providers to capitated enrollees
in a specific geographic area and the payment for such services. PHP receives global capitation payments from each health plan as payment
for all such medically necessary covered services. PHP enters into agreements with healthcare providers to arrange for such services.
The global capitation payments received by PHP are utilized to pay such providers in accordance with their respective agreements.
iii. Other
Operations
As of
the Report Date, Primary & Multi-Specialty Clinics of Anaheim Inc. (“PMCA”), dba Gateway Medical Center, was an
indirect Company subsidiary owned under the nominee physician shareholder arrangement discussed above. PMCA owned and operated three
primary care physician offices located in Anaheim and Santa Ana, California.
On December 1,
2023, Gateway Medicor – Rancho Cucamonga, Inc. (“GMRC”), a California professional medical corporation, purchased
substantially all of the assets of the primary care medical practice of Abraham Chen, D.O. located in Rancho Cucamonga, California for
an aggregate purchase price of $300,000. As of the Report Date, GMRC was owned 51% by PIPH and the remaining 49% by Medicor Medical Group, Inc.,
a California professional medical corporation wholly-owned by Mark Shiu, D.O., the lead primary care physician providing care for the
acquired practice. Goodwill in the amount of $292,000 and $214,000 was recorded as of June 30, 2025 and 2024, respectively, in connection
with this acquisition.
As of
the Report Date, the Company also owned and operated RightRX, a mail order specialty pharmacy dedicated to providing personalized care
to patients with complex, chronic health conditions.
The
Company’s Residential Care Program (“RCP”) was operated through New Genesis Medical Associates, Inc., an indirect
Company subsidiary owned under the nominee physician shareholder arrangement. The RCP improves patient access through a care-at-home
option and management of patients with chronic conditions.
10
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
B. Rhode
Island
Prospect Health
Services RI, Inc. (“PHSRI”) was a Delaware corporation and Prospect Provider Group RI, LLC (“PPGRI”) was
a Delaware limited liability company. As of the Report Date, both entities were duly qualified to do business in Rhode Island where they
entered into global capitation arrangements with certain third-party health plans and manage the provision of care for enrollees in coordination
with PMS. PMS provided management services to both PHSRI and PPGRI under an administrative services agreement with a term extending until
July 2028 and with 1-year auto-renewals thereafter.
Effective February 16,
2024, PHSRI acquired a 10% membership interest in a newly formed primary care group in Rhode Island called HealthAdvisors, LLC, dba Breakwater
Primary Care (“HealthAdvisors”). The interest is held through a nominee physician member pursuant to an assignable option
agreement under which PHSRI acquired an assignable option for a nominal amount from HealthAdvisors and the nominee member to designate
the purchaser (successor physician) for all or part of PHSRI's 10% membership interest. As of the Report Date, PHSRI could also assign
the assignable option agreement to any Rhode Island licensed physician. The assignable option agreement has an initial term of 30 years.
The remaining 90% membership interests in HealthAdvisors are owned equally by four other Rhode Island primary care physicians.
On January 11,
2025, PMH and certain of its wholly-owned subsidiaries, including both PHSRI and PPGRI (“Rhode Island Market”), filed
for Chapter 11 bankruptcy reorganization under the United States Bankruptcy Code. None of PHPH or its direct or indirect subsidiaries
were included in the reorganization filing as PHPH was only 51% owned by PMH as of the Report Date. As of the Report Date, both PHSRI
and PPGRI remain subject to the jurisdiction of the bankruptcy court. PMH obtained a court order, dated May 22, 2025, that provided
the court’s approval for the sale of PHSRI and the assets of PPGRI to Astrana pursuant to the Sale Agreement (as set forth under
“Acquisition by Astrana Health, Inc.” below.
C. Texas
Prospect Health
Services TX, Inc. (“PHSTX”) and Prospect Provider Group TX, Inc. (“PPGTX”) are both Texas 501(a) non-profit
health organizations. Pursuant to the restructuring described under “Holding Companies” below, beginning on March 30,
2023, both PHSTX and PPGTX became wholly-owned direct subsidiaries of the Company. Effective on May 23, 2023, with the inclusion
of PIH (defined below) which became their direct parent company, PHSTX and PPGTX became wholly-owned indirect subsidiaries of the Company.
PHSTX entered into
global capitation arrangements with certain third-party health plans and manages the provision of care for enrollees in coordination
with PMS as described above. As of the Report Date, PMS provided management services to both PHSTX and PPGTX under management services
agreements with current terms extending into 2029 with 5-year auto-renewals thereafter.
11
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed Combined and Consolidated
Statements (Continued)
(Unaudited)
D. Arizona
Prospect Medical
Group AZ, Inc. (“PMGAZ”) is an Arizona limited liability company. As with the Texas entities described above, PMGAZ
initially became a wholly-owned direct subsidiary of the Company effective March 30, 2023 and a wholly-owned indirect subsidiary
effective May 23, 2023 (after the inclusion of PIH). By amendment effective January 1, 2022, PMGAZ was added as a managed entity
under the MSA between PMG and certain of its Affiliates and PMS described above.
Hospital
Services
Alta Newport Hospital,
LLC, dba Foothill Regional Medical Center (“Alta Newport”) operates an acute care hospital facility in Tustin, California.
Holding Companies
Prior to fiscal
year 2023, PHP was the only direct or indirect subsidiary of the Company. During fiscal year 2023, PMH completed an internal restructuring
that moved all of the Company’s other direct and indirect subsidiaries under a new direct subsidiary of the Company, Prospect Intermediate
Holdings, LLC (“PIH”). At the time of the restructuring, the Company was wholly owned by PMH. PMG, which was wholly owned
by a physician nominee, was moved under Prospect Intermediate Physician Holdings, Inc. (“PIPH”). As of the Report Date,
PIPH was wholly owned by Prospect Physician Holdings, Inc. (“PPHI”), which was wholly owned by PMG’s prior physician
nominee shareholder subject to the nominee physician shareholder arrangement described above.
Acquisition
by Astrana Health, Inc.
On November 8,
2024, PHPH, PMH and certain of their affiliates entered into an Asset and Equity Purchase Agreement (the “Sale Agreement”)
with Astrana Health, Inc. and certain of its affiliates (collectively, “Astrana”). Pursuant to the Sale Agreement, Astrana
acquired all of the outstanding equity of Alta Newport and PHP, the sellers’ 51% equity ownership interest in Gateway Medicor,
and substantially all of the assets of the other entities included within these condensed combined and consolidated financial statements
(the “Astrana Sale”). The transaction closed on July 1, 2025. The total purchase consideration was $674.9 million.
On July 7,
2025, following the consummation of the Astrana Sale, the remaining assets and entities of the Company that had not been transferred
as part of the Astrana Sale (i.e. the residual assets of the Asset Selling Entities) were added to the PMH bankruptcy proceedings.
2. Significant
Accounting Policies
Principles
of Combination and Consolidation and Basis of Presentation
The condensed combined
and consolidated financial statements herein have been prepared in accordance with GAAP. The condensed combined and consolidated financial
statements include all the accounts of PHPH and Rhode Island Market Affiliates in which it has a controlling financial interest. The
results of the entire Prospect Network, with the exception of AMVI/Prospect, are combined in the accompanying condensed combined and
consolidated financial statements. Operating results for acquisitions are combined and consolidated with the Company’s condensed
combined and consolidated financial statements from their acquisition dates. All significant intercompany transactions have been eliminated
in consolidation.
12
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Use of Estimates
The preparation
of condensed combined and consolidated financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the condensed combined and consolidated financial statements and
accompanying notes. Actual results could differ from those estimates. Principal areas requiring the use of estimates include settlements
under risk-sharing programs, valuation of patient receivables, assets under operating and finance leases, medical claims and other healthcare
costs payable, professional and general liability claims, reserves for potential absorption of claims unpaid by insolvent providers,
impairment of goodwill, lease liabilities, debt, reserves for the outcome of litigation and valuation allowances against deferred tax
assets.
Revenues
The Company recognizes
net revenues in the period in which performance obligations to customers are satisfied under contracts by transferring our services.
Net revenues are recognized in the amounts to which the Company expects to be entitled, which are the transaction prices allocated to
the distinct services.
Revenues by reportable
segment are comprised of the following amounts (in thousands):
For the nine months ended June 30,
2025
2024
Medical Group
Capitation
$ 282,650
$ 279,953
Management fees
27,156
16,410
Patient Services, net
1,158
1,013
Other
12,799
8,203
Total Medical Group revenues
323,763
305,579
Global Risk
Capitation
547,720
476,733
Management fees
1,905
1,882
Other
7,505
11,535
Total Global Risk revenues
557,130
490,150
Net Hospital Services
Patient Services, net
80,639
81,607
Other
224
159
Total Hospital Services revenues
80,863
81,766
Total net revenues, net
$ 961,756
$ 877,495
Medical Group
and Global Risk Revenues
Managed care revenues
consist primarily of payments for medical services procured by the Affiliates under capitated contracts with various managed care providers
including health maintenance organizations (“HMOs”). Capitation revenue is paid monthly to the Company based on the number
of enrollees under the capitated contracts on a per member per month (“PMPM”) basis.
13
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Capitation Revenues
Capitation revenue
is recognized in the month in which the providers are obligated to provide services (stand-ready obligation). Minor ongoing adjustments
to prior months’ capitation, primarily arising from contracted HMOs’ finalizing of monthly patient eligibility data for additions
or subtractions of enrollees, are recognized in the month they are communicated to the Company. Additionally, Medicare pays capitation
using a “Risk Adjustment” model, which compensates managed care organizations and providers based on the health status (acuity)
of each enrollee. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter data. Capitation
is paid on an interim basis based on data submitted for the enrollee for the preceding year and is adjusted in subsequent periods the
final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees with conditions requiring more or
less healthcare services than assumed in the interim payments. Since the Company cannot reliably predict these adjustments, periodic
changes in capitation amounts earned as a result of Risk Adjustment are recognized generally in the fourth quarter when those changes
are communicated by the health plans to the Company. The Company received and recorded as additional Risk Adjustment revenue of approximately
$17,420,000 and $11,682,000 in positive capitation risk adjustments during the nine months ended June 30, 2025 and 2024, respectively.
Per Member Per
Month (“PMPM”) managed care contracts generally have a term of one year or longer. All managed care contracts have a single
performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members
for the duration of the contract. The transaction price for PMPM contracts is variable as it primarily includes PMPM fees associated
with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include additional awards such
as performance incentives, performance guarantees and risk sharing. The Company generally estimates the transaction price using the most
likely amount methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant
reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction
price relates specifically to the Company’s efforts to transfer the service for a distinct increment of the series (e.g. month)
and is recognized as revenue in the month in which members are entitled to service.
Risk Pool Revenues
HMO contracts also
include provisions to share in the risk for hospitalization (the “Risk Pool”), whereby the physician organization can earn
additional incentive revenue or incur penalties based upon the utilization of hospital services. Typically, Risk Pool deficits are not
payable until and unless the Company generates future surpluses. At the termination of the HMO contract, any accumulated deficit is typically
extinguished. Due to the lack of access to information necessary to estimate the related costs, Risk Pool amounts receivable from the
HMOs are only recognized, using the most likely methodology, and only included in revenue to the extent that it is probable that a significant
reversal of cumulative revenue will not occur. The Risk Pool for prior contract years are generally final settled in the third or fourth
quarter of the following fiscal year. For the nine months ended June 30, 2025 and 2024, an amount of $7,317,000 and $6,760,000,
respectively, in Risk Pool profit was included in other revenues. At June 30, 2025, contingent liabilities for carry-forward risk-pool
deficits expected to be forgiven, or offset against future surpluses, were approximately $44,373,000 based on the available information
from the health plans.
14
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
The Company also
receives incentives under “pay-for-performance” programs for quality medical care, based on various criteria. The incentive
programs track specific performance measures and calculate payments to the Company based on the performance measures. The Company’s
incentives under “pay-for-performance” programs are recognized using the most likely methodology. However, as the Company
does not have sufficient insight from the health plans on the amount and timing of the shared risk pool and incentive payments these
amounts are considered to be fully constrained and only recorded when such payments are known and/or received. Performance and incentive
revenues recorded during the nine months ended June 30, 2025 and 2024 were approximately $11,530,000 and $10,206,000, respectively,
included in other revenues.
Medical Group
Management Fees
The Company enters
into distinct explicit contracts with affiliated and unaffiliated customers to provide management services. The management fee is charged
in exchange for the management, administrative, and non-medical services provided by the Company to its customers. The Company’s
customers benefit from all of these services together and they are not separable under the various contracts. For the unaffiliated customers
the Company recognizes management fee revenues for the period in which the performance obligations under the contracts are satisfied
using the as invoiced practical expedient. For affiliated customers the Company recognizes management fee revenues for the period in
which the performance obligations under the contracts are satisfied over time. Since the period over time represents a single month of
service and is of such short duration, this approximates to a point in time.
Management fee
arrangements with affiliated and unaffiliated entities are variable in nature because the majority of the fees are generally based on
revenue, which can vary from period to period. The Company has control over pricing. Contractual fees are invoiced to the Company’s
clients generally monthly and payment terms are typically due within 30 days. The variable consideration in the Company’s management
contracts meets the criteria to be allocated to the distinct period of time to which it relates because (i) it is due to the activities
performed to satisfy the performance obligation during that period and (ii) it represents the consideration to which the Company
expects to be entitled. The Company uses the expected value method to determine the variable consideration. The Company received approximately
$23,918,000 or 82% and $13,074,000 or 71% during the nine months ended June 30, 2025 and 2024, respectively, of its management services
revenue from unaffiliated entities. See Note 5 for the management fees earned from related parties.
Contract assets
represent rights to payment for performance contingent on something other than the passage of time, and accounts receivable are rights
to payment for performance without contingencies. Contract liabilities represent cash that has been received for contracts, but for which
performance is still unsatisfied. As of June 30, 2025 and September 30, 2024, the Company did not have any contract assets
or contract liabilities.
Out of state networks
earn infrastructure revenues, a fixed fee arrangement based on per member per month (“PMPM”), is prepaid monthly to the Company
based on the number of enrollees under contracts. The transaction price for PMPM contracts is variable as it primarily includes PMPM
fees associated with unspecified membership that fluctuates throughout the contract. The Company earned $1,906,000 and $1,824,000 during
the nine months ended June 30, 2025 and 2024, respectively, which is reported as part of management fee revenues. In certain contracts,
PMPM fees also include additional awards such as performance incentives, performance guarantees and risk sharing. The Company generally
estimates the transaction price using the most likely amount methodology and amounts are only included in the net transaction price to
the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The
majority of the Company’s net PMPM transaction price relates specifically to the Company’s efforts to transfer the service
for a distinct increment of the series (e.g. month) and is recognized as revenue in the month in which members are entitled to service.
15
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Global Risk
Management Fees
The revenues consist
primarily of payments for medical services procured under global capitation arrangements from third-party health plans. Capitation revenue
under these global capitation contracts is prepaid monthly to the Global Risk Management segment based on the number of enrollees.
Management fee
arrangements with unaffiliated entities provide for compensation ranging from 6.5% to 10% of revenues. Consideration from management
contracts is variable in nature because the majority of the fees are generally based on revenue or collections, which can vary from period
to period. The Company has control over pricing. Contractual fees are invoiced to the Company’s clients generally monthly and payment
terms are typically due within 30 days. The variable consideration in the Company’s management contracts meets the criteria to
be allocated to the distinct period of time to which it relates because (i) it is due to the activities performed to satisfy the
performance obligation during that period and (ii) it represents the consideration to which the Company expects to be entitled.
Hospital Services
Revenues
The Company reports
Fee-For-Service (“FFS”) net patient service revenues at the amounts that reflect the consideration it expects to be entitled
to in exchange for providing patient care. These amounts are due from patients, third-party payers (including managed care payers and
government programs) and others, and they include variable consideration for retroactive revenue adjustments due to settlement of audits,
reviews and investigations. Generally, the Company bills patients and third-party payers several days after the services are performed
or shortly after discharge. Revenues are recognized as performance obligations are satisfied.
Performance obligations
are determined based on the nature of the services provided and revenues are recognized when performance obligations are satisfied over
time based on actual charges incurred in relation to total expected charges. This method provides a faithful depiction of the transfer
of services over the term of performance obligations based on the inputs needed to satisfy the obligations. Generally, performance obligations
satisfied over time relate to patients in the Company’s hospitals receiving inpatient acute care services. The Company measures
the performance obligation from admission into the hospital, or the commencement of an outpatient service, to the point when it is no
longer required to provide services to that patient, which is generally at the time of discharge or completion of the outpatient services.
Patient encounters and related episodes of care and procedures qualify as distinct goods and services, provided simultaneously together
with other readily available resources, in a single instance of service, and thereby constitute a single performance obligation for each
patient encounter and, in most instances, occur at readily determinable transaction prices. All services provided are expected to result
in cash flows and are therefore reflected as net revenue in the condensed combined and consolidated financial statements.
The transaction
price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payers,
discounts provided to uninsured patients, and implicit price concessions provided primarily to uninsured patients. The estimates of contractual
adjustments and discounts are based on contractual agreements, discount policies and historical cash collection experience. As a practical
expedient, the Company adopted a portfolio approach for the FFS revenue stream to group together contracts with similar characteristics
and analyze historical cash collections trends. The contracts within the portfolio share the characteristics conducive to ensuring that
the results do not materially differ if it were to be applied to individual patient contracts related to each patient encounter.
16
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Gross charges are
retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and, therefore,
are not displayed in our condensed combined and consolidated statements of operations. Hospitals are typically paid amounts that are
negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to
determine certain elements of payment under managed care contracts (such as stop-loss payments). Because Medicare requires that a hospital’s
gross charges be the same for all patients (regardless of payer category), gross charges are what hospitals charge all patients prior
to the application of discounts and allowances.
The Company is
responsible for confirming member eligibility, performing program utilization review, potentially directing payment to the provider and
accepting the financial risk of loss associated with services rendered, as specified within the Company’s patient contracts. The
Company has the ability to adjust contractual fees with patients and possess the financial risk of loss in certain contractual obligations.
These factors indicate the Company is the principal and, as such, the Company records gross fees contracted with patient in revenues.
Revenues under
the traditional FFS service Medicare and Medicaid programs are based primarily on prospective payment systems. Retrospectively determined
cost-based revenues under these programs, which were more prevalent in earlier periods, and certain other payments, such as disproportionate
share hospital and bad debt expense reimbursement, which are based on our hospitals’ cost reports, are estimated using historical
trends and current factors. Cost report settlements under these programs are subject to audit by Medicare and Medicaid auditors and administrative
and judicial review, and it can take several years until final settlement of such matters is determined and completely resolved. The
Company records accruals to reflect the expected final settlements on cost reports. For filed cost reports, the accrual is recorded based
on those cost reports and subsequent activity. The accrual for periods for which a cost report is yet to be filed is recorded based on
estimates of what the Company expects to report on the filed cost reports. After the cost report is filed, the accrual may need to be
adjusted in future periods as they become known.
Hospital Services
revenues primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and
other health plans, as well as certain uninsured patients and other uninsured discount and charity programs. Additionally, Hospital Services
revenues include revenues from capitation arrangements that are made directly made with various managed care providers.
Patients
who are covered by third-party payers are responsible for related co-pays, co-insurance and deductibles, which vary in amount. The Company
estimates the transaction price for patients with co-pays, co-insurance and deductibles and for those who are uninsured based on historical
collection experience and current market conditions. The discount offered to certain uninsured patients is recognized as a contractual
allowance, which reduces net revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual
allowances recorded, are further reduced to their net realizable value at the time they are recorded through implicit price concessions
based on historical collection trends for self-pay accounts and other factors that affect the estimation process. Although outcomes vary,
the Company’s policy is to attempt to collect amounts due from patients, including co-pays, co-insurance and deductibles due from
patients with insurance, at the time of service while complying with all federal and state statutes and regulations. All of the Company’s
hospital facilities are subject to Emergency Medical Treatment and Active Labor Act (“EMTALA”). This federal law and accompanying
regulations require any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of
every person who comes to the hospital’s emergency department for treatment and, if the patient is suffering from an emergency
medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can treat the
condition. The obligation to screen and stabilize emergency medical conditions exists regardless of a patient’s ability to pay
for treatment. There are severe penalties under EMTALA for violations of the law and regulations, including if a hospital fails to screen
or appropriately stabilize or transfer a patient, or if the hospital delays appropriate treatment in order to first inquire about the
patient’s ability to pay. Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation
in the Medicare program.
17
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
The
Company provides charity care to patients who lack financial resources and are deemed to be medically indigent based on criteria established
under the Company’s charity care policy. This care is provided without charge or at amounts less than the Company’s established
rates. Because the Company does not pursue collection of amounts determined to qualify as charity care, such amounts are not reported
as net revenues. Direct and indirect costs for providing charity care are estimated by calculating a ratio of cost to gross charges and
then multiplying that ratio by the gross uncompensated charges associated with providing care to charity patients.
The Company recognizes
revenues related to supplemental Medi-Cal payments under California provider fee programs (applicable to medical facilities serving a
disproportionate number of low-income patients) using the most likely outcome method, which is based on formulas contained in the legislation
as well as modeling performed by the California Hospital Association (“CHA”). The estimates also consider whether it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur. These programs are funded by quality assurance
fees paid by participating hospitals and matching federal funds.
Cost of Revenues
The cost of healthcare
services consists primarily of capitation and claims payments, pharmacy costs and incentive payments to contracted providers. These costs
are recognized in the period incurred, or when the services are provided. Claims costs also include an estimate of the cost of services
which have been incurred but not yet reported to the Company. The estimate for accrued medical costs is based on projections of costs
using historical studies of claims paid and adjusted for seasonality, utilization and cost trends. These estimates are subject to trends
in loss severity and frequency. Although considerable variability is inherent in such estimates, management records its best estimate
of the amount of medical claims incurred at each reporting period. Estimates are continually monitored and reviewed and, as settlements
are made or estimates adjusted, differences are reflected in the current period. See Note 7 for changes in accrued medical claims
payable estimates during the nine months ended June 30, 2025 and 2024.
The Company has
contractual reimbursement obligations to providers and discretionary incentive payment obligations to physicians. These incentive payments
are in large part predicated on the pay-for-performance, shared risk revenues, and favorable senior capitation risk adjustment payments
received by the Company from the health plans. The Company records these revenues generally in the third or fourth quarter of each fiscal
year when the incentives and capitation adjustments due from the health plans are known. During this period, the Company also finalizes
the physician discretionary incentive.
During the nine
months ended June 30, 2025 and 2024, the Company recorded physician incentive bonus expenses totaling approximately $11,530,000
and $10,206,000, respectively, and is included in cost of revenues in the condensed combined and consolidated statements of operations.
As of June 30, 2025 and September 30, 2024, physician incentive bonus accruals were approximately $12,655,000 and $36,156,000,
and were included in accounts payable and other accrued liabilities in the accompanying condensed combined and consolidated balance sheets.
18
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
The Company also
periodically evaluates the need to establish premium deficiency reserves for the probability that anticipated future health care costs
could exceed future capitation payments from HMOs under capitated contracts and, where appropriate, records a premium deficiency reserve.
There were no such premium deficiencies recorded at June 30, 2025 and September 30, 2024, respectively.
Cash and
Cash Equivalents
Cash is primarily
comprised of deposits with banks. The Company maintains its cash and cash equivalents at banks with high credit-quality ratings.
Restricted
Cash
The Company is
required by certain health plans to maintain a restricted cash balance in the form of a letter of credit restricted by the bank. Restricted
cash was $1,000,000 and $1,085,000 as of June 30, 2025 and September 30, 2024, respectively. The Company is also required to
keep $300,000 restricted deposits by the DMHC for the payment of claims. Such restricted deposits, consisting of certificates of deposits
with maturity dates of more than 90 days when purchased, are classified as a non-current asset in the accompanying condensed combined
and consolidated balance sheets as they are required by the DMHC in order to continue to operate under the Act. Restricted cash totaled
$1,300,000 and $1,385,000 as of June 30, 2025 and September 30, 2024, respectively.
The following table
provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the
same amount shown in the statements of cash flows (in thousands):
June 30,
2025
September 30, 2024
Cash
$ 147,729
$ 151,255
Restricted cash
1,300
1,385
$ 149,029
$ 152,640
Patient Accounts
Receivable, Net
Patient accounts
receivable include billed accounts and unbilled accounts for which there is the unconditional right to payment. Estimated amounts due
from third-party payers for retroactive adjustments are receivables if the right to consideration is unconditional and only the passage
of time is required before payment of that consideration is due.
Receivables from
government agencies are significant to our operations, but are not a significant credit risk. We do not believe there are any other significant
concentrations of revenues from any particular payer that would subject us to any significant credit risks in the collection of our accounts
receivable.
Changes in general
economic conditions, patient accounting service center operations, payer mix, or federal or state governmental health care coverage could
affect our collection of accounts receivable, cash flows and results of operations.
19
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Estimated uncollectable
amounts are generally considered implicit price concessions that are a direct reduction to patient accounts receivable. Such implicit
price concessions may be caused by denials for payments for services due to issues over patient eligibility for medical coverage, the
Company’s ability to demonstrate medical necessity for services rendered and payer authorization of hospitalization.
Risk Pool
Receivable
Risk pool receivable
consist of risk revenues due from non-related parties. The Company continuously monitors its collections of receivables, and its policy
is to write off receivables when they are determined to be uncollectible. As of June 30, 2025 and September 30, 2024,
the Company does not have an allowance for doubtful accounts for risk pool receivable.
Contract
Assets and Contract Liabilities
The receivables
and payables related to California Hospital Fee Program are the significant contract assets and liabilities in the Company’s financial
statements. As of June 30, 2025 and September 30, 2024, the Company had receivables related to the California Hospital Fee
Program of approximately $19,923,000 and $18,385,000, respectively, and had liabilities related to the California Hospital Fee Program
of approximately $9,524,000 and $7,330,000, respectively, in the accompanying balance sheets.
Property, Improvements
and Equipment
Property, improvements
and equipment are stated on the basis of cost or, in the case of acquisitions, at their acquisition date fair values. Depreciation is
provided using the straight-line method over the estimated useful lives of the assets, and amortization of leasehold improvements is
provided using the straight-line basis over the shorter of the remaining lease period or the estimated useful lives of the leasehold
improvements. Leasehold improvements are generally depreciated over 5 to 40 years, buildings and improvements are depreciated over 5
to 40 years, equipment is depreciated over 2 to 15 years and furniture and fixtures are depreciated over 2 to 20 years. Equipment capitalized
under finance lease obligations is amortized over the lesser of the life of the lease or the useful life of the asset.
Leases
Leases with an
initial term of greater than one month and less than 12 months (short-term leases) are not recorded on the Combined balance sheet and
are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment
and real estate. See Note 6 – “Commitments and Contingencies” for further information.
Income Taxes
In accordance with
ASC Topic 740, "Income Taxes" ("ASC 740"), each interim reporting period is considered integral to the annual period,
and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter
based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current
year-to-date basis, adjusted for discrete taxable events that occur during the interim period.
Management assesses
the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of
the existing deferred tax assets. A significant piece of objective positive evidence evaluated was the current year loss and forecasted
income over the next five-year period ending September 30, 2029. Such objective evidence limits the ability to consider other subjective
evidence.
20
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Based on this evaluation,
as of June 30, 2025, a full valuation allowance of $41,754,000 was released to bring the net deferred tax assets to its realizable
value. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income
increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective
evidence.
Our income tax
returns are based on calculations and assumptions subject to audit by various tax authorities. In addition, the calculation of our tax
liabilities involves dealing with uncertainties in the application of tax laws. We regularly assess the potential outcomes of examinations
by tax authorities in determining the adequacy of our provision for income taxes. We are currently not under audit by any taxing authority.
As of June 30, 2025 and September 30, 2024, the Company did not have any unrecognized tax benefits related to various federal
and state income tax matters.
Our effective income
tax rate for the nine months ended June 30, 2025, was 47.26% as compared to negative 377.54% for the nine months ended June 30,
2024. Our effective rate differs from the statutory rate of 21.0% primarily due to non-deductible permanent items. The decrease in our
effective tax rate for the nine months ended June 30, 2025, was primarily due to the release of a full valuation allowance as June 30,
2025.
As of June 30,
2025 and September 30, 2024, the Company had an income tax payable of approximately $31,193,000 and $18,468,000, respectively, which
was recognized in current liabilities. However, the actual cash taxes expected to be paid by the members of the consolidated group will
be lower than the amounts accrued. This is primarily due to the utilization of tax attributes, including net operating losses from certain
entities, and the impact of changes in the valuation allowance. The recorded payable is largely driven by these valuation allowance adjustments
rather than actual taxable income.
Goodwill
Goodwill is measured
as the excess of consideration transferred over the net amount of the acquisition date fair value of assets acquired, and liabilities
assumed in a business acquisition.
The Company evaluates
goodwill annually or whenever triggering events or circumstances at the entity level indicate that the fair value of the entity may be
below its carrying amount. The Company first assesses qualitative factors to determine whether the quantitative impairment test is necessary.
If that qualitative assessment indicates that it is more likely than not that goodwill is impaired, the Company performs the quantitative
test to compare the entity’s fair value with its carrying amount, including goodwill.
The goodwill impairment
loss, if any, represents the excess of the carrying amount of the entity over its fair value. There was no goodwill impairment recorded
during the nine months ended June 30, 2025 and 2024.
21
PHP
Holdings, LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Medical Malpractice
Reserves
The individual
physicians who contract with the physician organizations carry their own medical malpractice insurance. In the Hospital Services segment,
Alta Newport carries professional and general liability insurance to cover medical malpractice claims under claims-made policies. Under
the policies, insurance premiums cover only those claims actually reported during the policy term. Should the claims-made policy not
be renewed or replaced with equivalent insurance, claims related to occurrences during the policy term and not reported prior to the
termination may be uninsured. Alta Newport has a policy for professional and general liability insurance with a retention that applies
per claim.
Concentrations
of Credit Risk
Cash is maintained
at financial institutions and, at times, balances may exceed federally insured limits of $250,000 per depositor of each financial institution.
The Company has not experienced any losses to date related to these balances.
The Company’s
credit risk with respect to health plan receivables is limited since amounts are generally due from large HMOs. Amounts due from affiliated
companies and the Company are unsecured and non-interest bearing but are settled periodically. The Company periodically reviews the stand-alone
financial performance and financial condition of the affiliated companies (see Note 5).
For the nine months
ended June 30, 2025 and 2024, the Company received a total of approximately 70% and 67%, respectively, of its capitation revenue
from its five largest Health Plan partners, as follows (in thousands):
Nine months ended June 30,
2025
(Unaudited)
% of
Capitation
Revenue
2024
(Unaudited)
% of
Capitation
Revenue
Health Plan A
$ 198,647
24 %
Health Plan A
$ 179,220
24 %
Health Plan B
114,654
14 %
Health Plan B
103,328
14 %
Health Plan C
114,507
14 %
Health Plan C
98,373
13 %
Health Plan D
72,835
9 %
Health Plan D
63,791
8 %
Health Plan E
70,937
9 %
Health Plan E
59,140
8 %
Total
$ 571,580
70 %
$ 503,852
67 %
Reserve Methodology
The claims reserve
is based on the best data available to the Company. The estimate, however, is subject to a significant degree of inherent variability.
The estimate is continually monitored and reviewed, and as the reserve is adjusted, the difference is reflected in current operations.
While the ultimate amount of the medical malpractice and workers’ compensation claims liability is dependent on future developments,
management is of the opinion that the associated liabilities recognized in the accompanying condensed combined and consolidated financial
statements are adequate to cover such claims. Management is not aware of any potential claims whose settlement, if any, would have a
material adverse effect on the Company’s combined and consolidated financial position, results of operations or cash flows.
22
PHP
Holdings, LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Mezzanine Equity
On May 23,
2023, the Company entered into the Third Amended and Restated Limited Liability Company Agreement (the “Agreement”). As a
result, the Company issued 69,494 Series A-1 Preferred Units to MPT.
As of the Report
Date, the Series A-1 Preferred Units holders were entitled to an annual preferred return of 8.00%, compounded annually, on the average
daily balance of their unrecovered capital. This preferred return will accrue from the Agreement date until the holder's unrecovered
capital is fully repaid. In the event of the Company’s dissolution or liquidation, holders of Series A-1 Preferred Units are
entitled to receive distributions before any distributions are made to common equity holders. After the payment of the preferred return
and full recovery of unrecovered capital, holders of Series A-1 Preferred Units were entitled to participate in further distributions.
This participation was, however, subject to the approval of the requisite Series A-1 Holders. The value of a membership interest
in such a transaction is determined by the amount the holder would receive if the Company sold all its assets at fair market value, less
liabilities. As of the Report Date, this price cannot be determined and will be calculated in a future period when the necessary information
becomes available. Holders of the Series A-1 Preferred Units do not have voting rights, except as required by the Delaware Limited
Liability Company Act (the "Delaware Act") or the LLC Agreement. However, the holder of the Phase I Convertible Note is treated
as a holder of Series A-1 Preferred Units for purposes of exercising consent or approval rights tied to these units.
As of the Report
Date, no additional Series A-1 Preferred Units have been issued upon conversion, exercise, or satisfaction of required conditions.
Additionally, no changes were made to the conversion or exercise prices during the reporting period.
The Company’s
preferred stock is classified as mezzanine equity due to the buy/sell provision in the Company’s LLC agreement. Under this provision,
the holder has the right to initiate a buy/sell process, where the Company may either purchase the preferred stock or sell its units
to the holder.
3. Property, Improvements
and Equipment
Property, improvements and equipment,
consisted of the following (in thousands):
June 30,
2025
September 30, 2024
Land
$ 5,800
$ 5,800
Land improvements
23
5
Buildings and improvements
11,004
10,430
Leasehold improvements
3,457
3,457
Equipment and software
30,807
30,135
Furniture and fixtures
1,616
1,616
52,707
51,443
Less: accumulated depreciation
(34,081 )
(31,363 )
18,626
20,080
Construction in Progress
2,514
2,640
Property, improvements and equipment, net
$ 21,140
$ 22,720
23
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Depreciation expense
was approximately $2,748,000 and $3,204,000 for the nine months ended June 30, 2025 and 2024, respectively.
4. Goodwill
The changes in
the carrying amount of goodwill for the nine months ended June 30, 2025 are as follows (in thousands):
Nine months ended
June 30,
2025
Balance, October 1
$ 29,587
Addition of goodwill
79
Balance, June 30
$ 29,666
5. Related Party
Transactions
As discussed further
under Note 6 below, as of the Report Date, PMH, the Company and another PMH subsidiary, Prospect Healthcare Facilities Management, LLC,
were parties to an Amended and Restated Master Restructuring Agreement pursuant to which various financial obligations owed to MPT were
restructured.
PMG is a party
to a risk pool sharing agreement with Southern California Healthcare System, Inc., dba Southern California Hospital at Culver City
(“SCHS”), an affiliated entity wholly owned by PMH. Under the agreement, PMG and SCHS agreed to establish a Hospital Control
Program (as defined) to serve HMO enrollees and earn incentive revenue or incur penalties by sharing in the risk for hospitalization
based on inpatient services utilized. Risk pools are generally settled in the following year.
Alta Hospitals
System, LLC (a wholly owned subsidiary of PMH) and/or its subsidiaries (collectively, “Alta”) has entered into agreements
with several HMOs, pursuant to which, Alta’s hospitals provide hospital, medical, and other healthcare services to senior and Medi-Cal
HMO enrollees under a fixed capitation arrangement ("Capitation Arrangement"). Alta has also entered into a risk pool sharing
agreement with PMG and a management services agreement with PMS. Under the risk pool sharing agreement, Alta, PMG and PMS agreed to establish
a Hospital Control Program (as defined) to serve the HMO enrollees, pursuant to which, PMG is allocated a 90% residual interest in the
profit or loss, after deductions for costs to Alta’s hospitals. In August 2013, Alta entered into a similar arrangement with
a new medical group pursuant to which, Alta, PMG and the medical group are allocated 10%, 30% and 60% residual interest, respectively,
in the profit or loss, after deductions for costs to Alta’s hospitals. Under the management services agreement, PMS provides non-hospital
and non-physician support activities that are required under the agreement with the HMO, in return for a monthly management fee of 10%
of earned revenue (as defined). As of June 30, 2025 and September 30, 2024, approximately 3,600 and 5,600 HMO enrollees were
covered under such Capitation Arrangements, respectively.
PMG has a Participating
Physician Group Services Agreement (“PPGSA”) with Prospect Health Plan, Inc. (“PHP”). Effective March 31,
2023, PHP became a wholly-owned subsidiary of PHPH. Under the terms of the PPGSA, PHP retains a percentage of gross capitation received
from health plans for members assigned to a Prospect Network provider and transfers a pre-determined percentage of remaining gross capitation
to PMG for all professional and outpatient ancillary services, subject to the terms of the PPGSA. Approximately 95,700 and 111,300 enrollees
were covered under the PPGSA as of June 30, 2025 and September 30, 2024 respectively.
24
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
PMG is also party
to a Hospital Control Agreement (“HCA”) with PHP. Under the HCA, PHP and PMG agreed to share in the risk of providing medical
services to enrollees. The profit or loss associated with providing such services to enrollees, including the management fee due PMS,
is allocated 90% to PMG and 10% to PHP. PMG is also party to a risk sharing agreement with PHP and a third-party effective July 1,
2017. The profit or loss associated with providing such services to enrollees, including the management fee due PMS, is allocated 30%
to PMG, 60% to a third party and 10% to PHP. Approximately 86,200 and 71,200 enrollees were covered under the HCA as of June 30,
2025 and September 30, 2024, respectively.
PMS has entered
into various Management Service Agreements (each, an “MSA”), Administrative Service Agreements (each, an “ASA”)
and Management Services Arrangements with related parties. PMS provides administrative services including network management, contracting,
medical management, claims processing, eligibility services, financial management, information systems, marketing, advertising, and public
relations (collectively, “Management Services”) for a management fee based on a percentage of capitation revenue earned by
the related parties or fixed member per month amount dependent on membership composition defined in each MSA or ASA. The various MSA
and ASA have various term lengths up to 30 years and subsequently automatically renew for additional terms unless notice is given by
either party.
Management fees (in thousands) earned
from related parties are as follows:
Nine months ended June 30,
2025
2024
Alta Hospitals Systems, LLC
$ 2,621
$ 2,602
Southern California Healthcare Systems, Inc.
503
679
Prospect Health Services CT, Inc.
45
45
Prospect Health Services PA, Inc.
45
45
Coordinated Regional Care, Inc.
23
23
Total Management fees earned from related parties
$ 3,237
$ 3,394
The Company also
incurred $6,561,000 and $6,049,000 in management fees to CRCG during the nine months ended June 30, 2025 and 2024, respectively.
PHP also entered
into Hospital Services Agreements (“HSAs”) separately with Alta Los Angeles Hospitals, Inc. (“Alta”), Southern
California Healthcare System, Inc. (“SCH”), and Alta Newport, each of Alta and SCH are subsidiaries of PMH. Pursuant
to the HSAs, Alta, SCH, and Alta Newport are responsible for providing all inpatient and outpatient hospital services to Capitated MA
Enrollees assigned to them. PHP retains 2% of gross capitation received from health plans for capitated enrollees assigned to each of
Alta, Alta Newport, and SCH and transfers 54% of the remaining gross capitation to Alta, SCH, and/or Alta Newport as applicable, to cover
such inpatient and outpatient services. The 46% of the remaining gross capitation revenue is transferred for professional services to
PMG and subs. PHP incurred $144,133,000 and $134,603,000 of such expenses during the nine months ended June 30, 2025 and 2024, respectively.
These amounts are included in capitation expense, net in the accompanying condensed combined and consolidated statements of operations.
25
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Balances included
in due from related parties in the accompanying condensed combined and consolidated balance sheets as of June 30, 2025 and September 30,
2024 are as follows (in thousands):
June 30,
2025
September 30, 2024
PMH and subsidiaries
$ 21,110
$ 18,605
Due from related parties
$ 21,110
$ 18,605
The settlement
of these balances is dependent upon the ability of the affiliated companies to repay the amounts due.
Promissory
Note
As noted above,
on May 23, 2023, PMG loaned $75,000,000 to PIH’s subsidiary, FRMC Hospital Property, LLC (the "Trustor"), pursuant
to the Foothill Note. The borrower made prepayments of $48,311,000 on November 17, 2023, $5,074,000 on February 28, 2025, and
$21,615,000 on April 30, 2025. These prepayments reduced the principal balance to $26,689,000 as of September 30, 2024, and
to $0 as of June 30, 2025. This intercompany loan balance is eliminated in the preparation of the condensed combined and consolidated
financial statements.
6. Commitments
and Contingencies
Debt
Debt consists of
the following (in thousands):
June 30,
2025*
September 30, 2024*
PhysicianCo Term Loan
$ 414,792
$ 398,370
The Phase I Convertible Note
755,354
717,839
Bridge Loan
86,009
51,001
Other
1,032
1,194
Total debt
1,257,187
1,168,404
Less: Debt, current portion
(501,021 )
(51,186 )
Long-term debt, net of current portion
$ 756,166
$ 1,117,218
* These amounts
do not include debt issuance costs, discounts or premiums.
PhysicianCo
Term Loan
On May 23,
2023, a Financing Agreement (the “PhysicianCo Loan Agreement”) was executed by and among (1) the Company, PIH, PPHI,
and the Company’s other subsidiaries (excluding PHP) as guarantors (the “PhysicianCo Loan Parties”), (2) PMH and
its California hospital subsidiaries as guarantors, (the “HospitalCo Loan Parties” and together with the PhysicianCo Loan
Parties, the “Loan Parties”), (3) Wilmington Trust, National Association, as administrative agent and collateral agent,
(the “Agent”) and (4) funds managed or advised by each Centerbridge Entity, as a lender, and (5) each Blue Torch
entity, as a lender (the “Lenders”), pursuant to which the Lenders made loans (collectively, the “Initial Term Loan”)
in an aggregate initial principal amount of the PhysicianCo Loan was $375 million. The Initial Term Loan bore interest at a rate determined
through an adjusted secured overnight financing rate (SOFR) calculation set forth in the PhysicianCo Loan Agreement plus 13.00% per annum,
of which up to 3.00% per annum could, at the Company’s opinion, be paid in kind. The maturity date of the Initial Term Loan was
May 23, 2026. The Loan Agreement contained certain affirmative and negative covenants, including limitations on indebtedness, corporate
transactions, investments, dispositions, and dividends.
26
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
Immediately following
the closing of the PhysicianCo Loan Agreement financing, PIH loaned a total of $125 million to PIPH. Thereafter, PIPH contributed a total
of $125 million to PMG as additional paid in capital.
Also on May 23,
2023, PMG loaned $75,000,000 to PIH’s subsidiary, FRMC Hospital Property, LLC (Trustor) (the “Foothill Note”). As set
forth under Note 5, prepayments in the amount of $48,311,000 and $5,074,000 were made on November 17, 2023 and February 28,
2025, respectively, leaving a remaining principal balance of $21,615,000. Interest accrued on the remaining balance of the Foothill Note
at the prime rate and the obligations of Trustor were secured by Deed of Trust with Assignment of Rents recorded for the hospital property
located at 14662 Newport Ave, Tustin, CA 92780. PMG retained the right to demand repayment of the remaining indebtedness under the Foothill
Note at any time.
The Phase
1 Convertible Note
On May 23,
2023, PMH, the Company and another PMH subsidiary, Prospect Healthcare Facilities Management, LLC, entered into an Amended and Restated
Master Restructuring Agreement (the “MRA”) with a subsidiary of Medical Properties Trust, Inc. (MPT), MPT Picasso Investors
TRS, LLC (“MPT Picasso”), that provided for the restructuring of rights and obligations of the parties. In accordance with
the terms of the MRA, in exchange for the corresponding cancelation of certain debt obligations, including the Foothill Mortgage Loan
and the TRS Note, discussed below, and accrued and outstanding rent for the MPT Leased Properties, MPT Picasso was issued non-voting
Series A-1 Preferred Units (“Preferred Units”) by PHPH, representing a 49% ownership interest in PHPH and its subsidiaries,
and a Convertible Promissory Note (the “MPT Convertible Note”) convertible into additional Preferred Units. By two written
Orders issued on April 18, 2024, the California Department of Managed Health Care (the “DMHC”) approved the changes
in the indirect ownership of PHP resulting from the issuance of the Preferred Units.
The initial principal
amount of The Phase I Convertible Note was $646,338,000. As of the Report Date, the note was convertible into shares of PHPH Series A-1
Preferred Units at any time at the election of the holder at a conversion price per unit equal to the quotient obtained by dividing $153,662,000,
the PHPH Net Equity Value, by the aggregate number of all Units outstanding as of immediately prior to closing of the conversion. As
of the Report Date, the balance of the convertible amount not converted was due in a single lump sum on the November 20, 2026
maturity date. Interest accrued at an 8.00% per annum rate. As of the Report Date, the MPT Convertible Note was collateralized by the
issued and outstanding capital stock or other equity interests of each of PHP and PIH.
Bridge Loan
On October 24,
2023, an amendment was executed by and among PMH, and PIH and PPHI, as borrowers, and Centerbridge Entity and Blue Torch Entity, as lenders,
to the PhysicianCo Loan Agreement. Borrowers requested and the lenders agreed to make available to the borrowers delayed draw term loan
commitments. The Loan Parties, the Lenders party thereto and the Agent entered into a limited waiver, consent and amendment number one
to the PhysicianCo Loan Agreement, which, among other things, granted temporary waivers in connection with noncompliance with certain
covenants and contemplated additional the funding of additional loans in an aggregate principal amount of $50.0 million (collectively
the “2023 Bridge Loan Commitments” or “2023 Bridge Loan”) subject to certain conditions precedent.
27
PHP Holdings,
LLC & Rhode Island Market
Notes to Condensed
Combined and Consolidated Statements (Continued)
(Unaudited)
On November 14,
2023, the Loan Parties, the Lenders party thereto and the Agent entered into a permanent waiver and amendment number two to the PhysicianCo
Loan Agreement, which, among other things, permanently waived events of default in connection with noncompliance with certain covenants
and provided for the funding of the 2023 Bridge Loan in an aggregate initial principal amount of $50.0 million. The 2023 Bridge Loan
bore interest at a rate determined through an adjusted secured overnight financing rate (SOFR) calculation set forth in the Loan Agreement
plus 13.00% per annum. The maturity date of the 2023 Bridge Loan was December 31, 2024, subject to extension to June 30, 2025
upon the satisfaction of certain conditions, including the payment of an extension fee. The proceeds of the 2023 Bridge Loan were used
to provide cash required for compliance with certain minimum regulatory capital requirements by funding the prepayment described above
on the Foothill Note.
On December 31,
2024, the Loan Parties exercised their option to extend the maturity date of the 2023 Bridge Loan to June 30, 2025, by satisfying
the extension conditions including, among other things, payment of an $8.5 million fee to the Lenders, which fee was capitalized and
added to the principal amount of the PhysicianCo Loan and the 2023 Bridge Loan, ratably based on the outstanding principal amount thereof.
On February 10,
2025, the Lenders extended the maturity date of the 2023 Bridge Loan to March 31, 2026. No fee or other consideration was payable
in connection with such extension.
Additional
PhysicianCo Term Loan and Bridge Loan Events
On February 27,
2024, the Loan Parties, the Lenders party thereto and the Agent entered into amendment number three to the PhysicianCo Loan Agreement,
providing for the extension of the deadline to deliver audited financial statements of the Company and of PMH for the fiscal year ended
September 30, 2023.
On April 30,
2024, the Loan Parties, the Lenders party thereto and the Agent entered into amendment number four to the PhysicianCo Loan Agreement,
providing for a limited waiver of certain events of default related to the Foothill merger, a further extension of the deadline to deliver
audited financial statements of the Company and of PMH for the fiscal year ended September 30, 2023 and certain covenants around
maintenance of the Foothill bank accounts and the consummation of the Foothill merger.
On June 5,
2024, the Loan Parties, the Lenders party thereto and the Agent entered into amendment number five to the PhysicianCo Loan Agreement,
whereby, to facilitate the execution of an eCapital ABL Facility of PMH, Lenders agreed to certain amendments to the Deposit Account
Control Agreement.
The foregoing PhysicianCo
Loan Agreement and 2023 Bridge Loan contained certain customary covenants and restrictions and financial covenants based on earnings
before interest, taxes, depreciation, amortization, restructuring and rent costs (“EBITDAR”) performance.
On August 15,
2024, as a result of the Loan Parties’ failure to satisfy a milestone set forth therein, an $8.5 million fee payable to the Lenders
was earned in respect of the PhysicianCo Loan and 2023 Bridge Loan, discussed below, which fee was paid in kind on such date and, subject
to certain limited exceptions, will be forgiven in the event that the Loan Parties consummate a sale of the PhysicianCo Loan Parties
prior to the deadline therefor set forth in the PhysicianCo Loan Agreement.
28
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
On September 14, 2024, certain events of
default occurred under the PhysicianCo Loan Agreement as a result of which the Lenders exercised the right to impose interest at the default
rate on the PhysicianCo Loan and the 2023 Bridge Loan, equating to an additional 3.00% per annum, payable in cash on each interest payment
date. Such events of default continue to exist as of June 30, 2025 and, accordingly, the PhysicianCo Loan and the 2023 Bridge Loan
continued to accrue interest at the default rate, with the additional 3.00% per annum in cash on each interest payment date.
On April 7, 2025, PIPH and PPH along with
other Physician Co loan parties, entered into amendment No. 6 to the existing financing agreement dated May 23, 2023 (as previously
amended, the “Financing Agreement”), with Wilmington Trust, National Association, as administrative and collateral agent.
Pursuant to Amendment No. 6, the borrowers obtained incremental term loan commitments in the aggregate principal amount of $34 million
(the “Amendment No. 6 Incremental Term Loans”). The loan was fully funded on April 7, 2025 with an original maturity
date of June 30, 2025.
On May 30, 2025, the Company entered into
an agreement with all lenders under its existing Financing Agreement, originally dated May 23, 2023, to extend the maturities of
certain outstanding loans. Specifically, the maturity dates of the 2023 Bridge Loan, the Amendment No. 6 Incremental Term Loan, and
the Final Maturity Date under the Financing Agreement were each extended to June 1, 2026. No other terms of the Financing Agreement
were amended, and all obligations of the Company and its affiliates remain in full force and effect. No fee or other consideration was
payable in connection with such extension.
All amounts due under the PhysicianCo Loan Agreement
(as amended) were paid in full with proceeds from the sale transactions with Astrana, effective July 1, 2025.
Other
In or about March 15, 2021, FRMC acquired
a Mako Robot Loan. The original cost was $1,295,000. The balance as of June 30, 2025 and September 30, 2024 is $1,032,000 and
$1,194,000, respectively.
The aggregate scheduled maturities of our total
debt outstanding as of June 30, 2025 are as follows (in thousands):
Fiscal Year
2025 (remaining three months)
$ -
2026
501,021
2027
755,598
2028
275
2029
293
$ 1,257,187
29
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
Debt Issuance Costs and Debt Discount/Premium
As of June 30, 2025 and September 30,
2024, remaining debt discount and debt premium for the debt under the Loan Agreement (the “PhysicianCo Term Loan”) and the
MPT Convertible Note (“The Phase I Convertible Note”), and debt issuance cost (“DIC”) for the Bridge Loan are
as follows (in thousands, except interest rates):
As of June 30, 2025
Debt
Discount
Debt Premium
Effective Interest
Rate
PhysicianCo Term Loan
$ 11,982
$ -
21.99 %
The Phase I Convertible Note
10,236
31,918
5.49 %
Bridge Loan
-
-
20.57 %
$ 22,218
$ 31,918
As of September 30, 2024
Debt
Discount
Debt Premium
Effective Interest
Rate
PhysicianCo Term Loan
$ 20,346
$ -
21.99 %
The Phase I Convertible Note
15,448
48,171
5.49 %
Bridge Loan
3,607
-
18.56 %
$ 39,401
$ 48,171
The above debt discount and debt premium are recorded
as a part of the debt and are amortized into interest expense using an effective interest rate over the duration of the debt.
PMH Debt Restructuring
On February 22, 2018, PMH entered into an
ABL Credit Agreement (the “ABL Agreement”), by and among PMH (as the borrower), the lenders party thereto and JPMorgan Chase
Bank, N.A. (“JPMC”), as administrative agent and collateral agent. Under the ABL Agreement, the initial maximum revolving
commitment was $250.0 million with an ability to expand the facility to $325.0 million (the “ABL Facility”). The Company and
virtually all of its direct and indirect wholly-owned subsidiaries, including the Company but excluding PHP, were guarantors of the obligations
of PMH under the ABL Agreement.
The ABL Facility matured on February 22,
2023. However, PMH and JPMC entered into Forbearance Agreements that provided that JPMC, as the Administrative Agent, and other lender
parties agreed to forbear from exercising any rights and remedies arising from or related to the occurrence and continuation of certain
defaults until May 31, 2023 and effectively extended the ABL Facility’s required repayment date to May 31, 2023.
On August 23, 2019, PMH closed a series of
transactions with affiliates of Medical Properties Trust, Inc. (“MPT”), a publicly traded Real Estate Investment Trust.
PMH sold to MPT certain hospital buildings in California, Connecticut and Pennsylvania. Concurrent with the sale transactions, PMH entered
into two master lease agreements whereby the hospital properties and related medical office buildings were leased back (the “MPT
Leased Properties”). On the same date, PMH entered into a promissory note (the “TRS Note”), under which MPT loaned to
PMH $112,937,000. Additionally on August 23, 2019, MPT provided PMH with a $51,266,700 mortgage loan secured by the real property
owned by Alta Newport (the “Foothill Mortgage Loan”). On May 2, 2022, an additional $50,000,000 loan was made by MPT
to PMH and added to the Foothill Mortgage Loan.
30
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
MPT Term Loan
The proceeds of the financing transaction PhysicianCo
Term Loan, discussed above, together with the proceeds from a separate financing transaction at PMH that did not involve the Company or
its direct or indirect subsidiaries, of a $75.0 million term loan made by MPT TRS Lender PMH, LLC to PMH (the “MPT Term Loan”),
were used to (1) refinance, and pay off in its entirety, an ABL Credit Agreement by and among PMH (as the borrower), the lenders
party thereto and JPMorgan Chase Bank, N.A. as administrative agent and collateral agent, (2) to pay certain expenses associated
with the refinancing, (3) to provide cash required for compliance with certain minimum regulatory capital requirements for PMG, and
(4) to finance certain working capital and other operational needs of PMH and its subsidiaries (see “Debt Restructuring”
discussion above).
As discussed above, on May 23, 2023, PMH
obtained the MPT Term Loan. As of the Report Date, each of PHSRI and PPGRI were guarantors of the MPT Term Loan. The MPT Term Loan bears
interest at a rate determined through an adjusted secured overnight financing rate (SOFR) calculation set forth in the Loan Agreement
plus, initially, 5.00% per annum and from and after June 5, 2024, pursuant to an amendment to the MPT Term Loan, 7.50% per annum.
The maturity date of the MPT Term Loan is May 23, 2026. The MPT Term Loan contains certain affirmative and negative covenants, as
well as a minimum liquidity covenant. As of June 30, 2025, MPT Term Loan outstanding balance was approximately $415,128,000. Further,
as of June 30, 2025, PMH was in default under certain of the MPT Term Loan covenants, including failure to make certain payments
owing thereunder. In connection with its approval of the Astrana Sale, MPT released all rights, interests and/or liens on the equity and
assets sold to Astrana.
Litigation
The Company is subject to a variety of claims
and suits that arise from time to time in the ordinary course of its business, acquisitions, or other transactions. While the Company’s
management currently believes that resolving all of these matters, individually or in the aggregate, will not have a material adverse
impact on the Company’s financial position or results of operations, the litigation and other claims that the Company faces are
subject to inherent uncertainties and management’s view of these matters may change in the future. Should an unfavorable final outcome
occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations and
cash flows for the period in which the effect becomes probable and reasonably estimable.
Leases
The Company evaluates whether an arrangement contains
a lease by determining whether (1) there is an identified asset in the contract and (2) the customer has the right to control
the use of the identified asset.
The Company’s ROU assets and lease liabilities
relate to real estate and equipment. The Company’s leases have remaining lease terms of one year to 6 years. Certain of the Company’s
leases contain renewal, extension, or termination options. The Company assesses each option on an individual basis and has only included
options reasonably certain of exercise in the lease term.
Long-term leases (leases with terms greater
than 12 months) are recorded on the condensed combined and consolidated balance sheet with a ROU asset and lease liability that are
equal to the present value of the minimum lease payments not yet paid. Right-of-use assets also include any deferred rent that
existed as of the adoption date. Variable lease payments, such as payments based on use and for property taxes, insurance, or common
area maintenance that are based on actual assessments are excluded from the ROU asset and lease liability and are expensed as
incurred.
31
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
The components of lease
expense for the nine months ending June 30, 2025 and 2024 are as follows (in thousands):
Nine months ended June 30,
2025
2024
Finance lease cost:
Amortization of right-of-use assets
$ 147
$ 110
Interest on lease liabilities
117
17
Operating lease cost
1,584
1,405
Variable lease cost
731
1,222
Total lease cost
$ 2,579
$ 2,754
The Company’s right-of-use assets and lease
liabilities at June 30, 2025 and September 30, 2024 a as follows (in thousands):
June 30,
2025
September 30,
2024
Assets
Finance lease right-of-use assets (included in property, plant and equipment, net)
$ 2,175
$ 2,493
Operating lease right-of-use assets
3,444
5,577
Total lease assets
$ 5,619
$ 8,070
June 30,
2025
September 30,
2024
Liabilities
Lease liabilities, current:
Finance lease liabilities
$ 712
$ 702
Operating lease liabilities
2,247
2,461
Total lease liabilities, current
2,959
3,163
Lease liabilities, noncurrent:
Finance lease liabilities
1,269
1,723
Operating lease liabilities
1,728
3,933
Total lease liabilities, noncurrent
2,997
5,656
Total leased liabilities
$ 5,956
$ 8,819
32
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
Supplemental information related to leases for
the nine months ended June 30, 2025 and 2024 are as follows (in thousands):
Nine months ended June 30,
2025
2024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$ 1,879
$ 1,992
Financing cash flows from finance leases
533
441
Total cash paid
$ 2,412
$ 2,433
The following table summarizes the Company’s weighted average
remaining lease term and weighted average discount rate as of June 30, 2025 and September 30, 2024 (in thousands):
June 30,
2025
September 30,
2024
Weighted-average remaining lease term (years):
Finance leases
3.03
3.64
Operating leases
1.96
2.90
Weighted-average discount rate:
Finance leases
4.45 %
4.54 %
Operating leases
4.60 %
4.10 %
Total remaining lease payments for the Company’s finance and
operating leases as of June 30, 2025 are as follows (in thousands):
Fiscal Year
Finance
Leases
Operating
Leases
2025 (remaining three months)
$ 270
$ 626
2026
671
2,199
2027
726
1,291
2028
249
763
2029
216
23
Total lease payments
2,132
4,902
Less: amounts representing interest
151
927
Present value of lease liabilities
$ 1,981
$ 3,975
PACE financing
In August 2019, Alta Newport entered into
an agreement with a third party that specializes in property assessed clean energy (“PACE”) financing to finance qualifying
renovations for the hospital property. The full amount of the funds was deposited into an escrow account managed by a third-party administrator.
The amount financed is subject to an annual interest rate of 6.0% and the financing has a maturity date of September 2, 2045. Payments
are collected through property tax bills as a non-ad valorem assessment. Payments commenced in July 2020. At June 30, 2025,
Alta Newport had a related financing liability of approximately $5,805,000, of which $173,000 and $5,632,000 is classified within other
current liabilities and other long-term liabilities, respectively, in the accompanying condensed combined and consolidated balance sheets.
At September 30, 2024, Alta Newport had a related financing liability of approximately $5,578,000 of which $172,000 and $5,406,000
is classified within other current liabilities and other long-term liabilities, respectively, in the accompanying condensed combined and
consolidated balance sheets.
33
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
All amounts due under PACE financing were paid
in full with proceeds from the sale transactions with Astrana effective July 1, 2025.
Liability Insurance Coverage
The Company carries errors and omissions and directors’
and officers’ liability coverage for managed care companies (including affiliates which do not directly employ physicians). Errors
and omissions are subject to an individual limit of $7,000,000 per claim and aggregate of $7,000,000 with a retention of $250,000 per
claim. Director’s and officer’s claims are covered at an aggregate of $80,000,000. The individual physicians who contract
with the Affiliates carry their own medical malpractice insurance.
Regulatory and Other Matters
Laws and regulations governing the third-party
payor arrangements are extremely complex and subject to interpretation. The Company and its affiliates believe that they are in compliance
with all applicable laws and regulations, and are not aware of any pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the third-party payor
arrangements.
PMG must comply with a minimum working capital
requirement, Tangible Net Equity (“TNE”) requirement, cash-to-claims ratio and claims payment requirements prescribed by the
California Department of Managed Health Care (“DMHC”). TNE is defined as net assets less intangibles, less non-allowable assets
(which include amounts due from affiliates), plus subordinated obligations. Following the direction of the DMHC to report the secured
affiliate note (see Note 6) as an unsecured affiliate receivable, PMG was not in compliance with its TNE requirements. Thereafter, as
set forth above, PMG collected partial repayment of the Foothill note receivable in November 2024 and submitted a corrective action
plan that was approved by the DMHC to achieve required compliance with financial solvency criteria. PMG was out of compliance with tangible
net equity and working capital requirements as of June 30, 2025.
Many of PMG's payer and provider contracts are
complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing
interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for
claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.
Seismic Standards
California hospitals, including Alta Newport’s
facility, are required to comply with laws that regulate the seismic performance of all aspects of hospital facilities in California and
imposes near-term and long-term compliance deadlines for seismic safety assessment, submission of corrective plans, and retrofitting or
replacement of medical facilities to comply with current seismic standards. These laws and regulations require hospitals to meet seismic
performance standards to ensure that they are capable of providing medical services to the public after an earthquake.
34
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
These requirements can result in significant operational
changes and capital outlays. Management is continuing to assess its options and the methods of financing the required retrofits. Based
on management's evaluation, the costs of renovation needed to comply with the California seismic safety standards for its acute-care facilities,
including asbestos abatement, are not estimable at this time.
Legislation and HIPAA
The healthcare industry is subject to numerous
laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to,
matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services,
and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning
possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could
result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant
repayments for patient services previously billed.
The Company believes that it is in compliance
with fraud and abuse regulations as well as other applicable government laws and regulations. Compliance with such laws and regulations
can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
The Health Insurance Portability and Accountability
Act (“HIPAA”) assures health insurance portability, reduces healthcare fraud and abuse, guarantees security and privacy of
health information, and enforces standards for health information. The Health Information Technology for Economic and Clinical Health
Act (“HITECH Act”) expanded upon HIPAA in a number of ways, including establishing notification requirements for certain breaches
of protected health information. In addition to these federal rules, California has also developed strict standards for the privacy and
security of health information as well as for reporting certain violations and breaches. The Company may be subject to significant fines
and penalties if found not to be compliant with these state or federal provisions.
Provider Contracts
Many payer and provider contracts are complex
in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services. Such differing
interpretations may not come to light until a substantial period of time has passed following contract implementation. Liabilities for
claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.
35
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
7. Accrued Medical Claims and Other Healthcare Costs Payable
The following table presents the roll-forward
of accrued medical claims payable and other healthcare costs payable as of and for each of the nine months ended June 30, 2025 (in
thousands):
Nine months ended
June 30,
2025
Beginning of period
$ 131,182
Healthcare claim expenses incurred during the period:
Related to current period
396,577
Related to prior periods
(24,668 )
Total incurred
371,909
Healthcare claims paid during the period:
Related to current period
(275,685 )
Related to prior periods
(95,542 )
Total paid
(371,227 )
End of period
$ 131,864
8. Partnership
As discussed at Note 1, PMG and an unrelated
third party, AMVI, operated a partnership to service Medi-Cal members under the CalOptima program in Orange County, California. PMG does
not consolidate the partnership, rather the investment is accounted for as an equity method basis, and accordingly PMG includes in its
combined and consolidated financial statements only the net results attributable to those enrollees specifically identified as assigned
to it. The parties terminated the operations of this partnership during the fiscal year ended September 30, 2024.
Summarized unaudited financial information for the partnership for
the nine months ended June 30, 2025 and 2024 is as follows (in thousands):
Nine months ended June 30,
2025
2024
Earnings before income taxes
$ -
$ 40
PMG’s equity gain
$ -
$ 45
9. Subsequent Events
The Company has evaluated subsequent events through
September 30, 2025, the date the condensed combined and consolidated financial statements were available for issuance.
As noted in Note 1 (Organization – Rhode
Island), PHSRI and PPGRI were included in the bankruptcy filing of PMH on January 11, 2025.
As set forth in Note 1 (Organization - Acquisition
by Astrana Health, Inc.), effective July 1, 2025, (the “Sale Closing Date”) the Company sold to Astrana and certain
of its direct and indirect subsidiaries all of the outstanding equity of Alta Newport and PHP, its indirect 51% equity ownership interest
in Gateway Medicor, and substantially all of the assets of the other entities (the “Asset Selling Entities”) included within
these condensed combined and consolidated financial statements for total purchase consideration of $674.9 million.
36
PHP Holdings, LLC & Rhode Island Market
Notes to
Condensed Combined and Consolidated Statements (Continued)
(Unaudited)
On July 1, 2025, the Company repaid in full
all amounts outstanding under the PhysicianCo Loan Agreement, including the Initial Term Loan, the 2023 Bridge Loan, and the Amendment
No. 6 Incremental Term Loan. The repayment was funded with proceeds from the sale transactions with Astrana. As a result of the repayment,
all obligations under the PhysicianCo Loan Agreement were satisfied and the related liens and security interests were released.
Additionally, in accordance with an executed Mutual
Release and Waiver, MPT released and waived any and all right, interest or claim to any of the equity or assets sold in the Astrana Sale.
The release included the termination of the Foothill Mortgage Loan and the related security interest in Alta Newport’s real property.
On July 7, 2025, following the consummation
of the Astrana Sale, the remaining assets and entities of the Company that had not been transferred as part of the Astrana Sale (i.e.
the residual assets of the Asset Selling Entities) were added to the PMH bankruptcy proceedings.
37
EX-99.2 — EXHIBIT 99.2
EX-99.2
Filename: tm269272d1_ex99-2.htm · Sequence: 3
Exhibit 99.2
ASTRANA HEALTH, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF INCOME
On July 1, 2025 (the “Closing”), Astrana
Health, Inc. and its affiliates (the “Company” or “Astrana”), acquired substantially all the assets of certain
direct and indirect subsidiaries of PHP Holdings, LLC (“PHPH”), including medical groups in multiple states (“Prospect
Medical Group”) and a management services organization (“Prospect Medical Systems”), and all of the outstanding equity
interests of Prospect Health Plan, Inc. (“PHP”), and Alta Newport Hospital, LLC (d/b/a Foothill Regional Medical Center) (“Alta”),
pursuant to the Asset and Equity Purchase Agreement (the “Purchase Agreement”) dated November 8, 2024 (such transaction, the
“Acquisition”).
The aggregate purchase price for the Acquisition
consisted of approximately $674.9 million in cash transferred at Closing. To finance the Acquisition, the Company borrowed $707.3 million
from a five-year delayed draw term loan credit facility (the “DDTL A”) pursuant to the Second Amended and Restated Credit
Agreement, dated as of February 26, 2025, by and among the Company, as borrower, the lenders from time to time party thereto, and Truist
Bank, as administrative agent for the lenders, as issuing bank and as swingline lender (the “Financing”, and together with
the Acquisition, the “Transactions”).
The following unaudited pro forma condensed combined
statement of income presents the financial information of Astrana, adjusted to give effect to the Transactions. The unaudited pro forma
condensed combined statement of income has been prepared in accordance with Article 11 of Regulation S-X.
The following unaudited pro forma condensed combined
statement of income combines the historical consolidated financial statements of Astrana and the historical combined and consolidated
financial statements of PHP Holdings, LLC, Prospect Health Services RI, Inc., and Prospect Provider Group RI, LLC (which is substantially
reflective of the assets and entities acquired in the Acquisition and are referred to hereinafter as the “Prospect Business”).
Astrana’s fiscal year ends on December 31, and the fiscal year end of the Prospect Business was September 30. Although Astrana’s
and the Prospect Business’s fiscal year ends differ by only one fiscal quarter, the Company has elected to prepare the unaudited
pro forma condensed combined statement of income utilizing the historical statement of operations of the Prospect Business, adjusted to
conform to the same calendar period as Astrana’s fiscal year. The unaudited pro forma condensed combined statement of income for
the year ended December 31, 2025, combines Astrana’s historical results, which include the operations of the Prospect Business beginning
July 1, 2025, with the Prospect Business’s historical results of operations for the six months ended June 30, 2025. These adjustments
are presented on a pro forma basis to reflect the impact of the Transactions as if they had occurred on January 1, 2025. An unaudited
pro forma condensed combined balance sheet is not presented as the Transactions have been fully reflected in the Company’s historical
consolidated balance sheet as of December 31, 2025 included in Astrana’s annual report on Form 10-K, as filed with the SEC on March 12,
2026.
Assumptions and estimates underlying the unaudited
pro forma adjustments included in the unaudited pro forma condensed combined statement of income are described in the accompanying notes.
The unaudited pro forma adjustments are based on available preliminary information and certain assumptions that the Company believes are
reasonable under the circumstances. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2025,
is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had
the Transactions occurred on the date indicated above. The actual results of operations may differ significantly from the pro forma amounts
reflected herein due to a variety of factors.
The following
unaudited pro forma condensed combined statement of income gives effect to the following:
·
The
Acquisition, inclusive of the following:
·
reclassification
of certain historical financial information of the Prospect Business to conform to Astrana’s presentation of similar revenues
and expenses;
·
the
estimated adjustments associated with the preliminary allocation of the estimated purchase price to the acquired assets and assumed
liabilities (i.e., depreciation and amortization expense);
·
the
incremental interest expense effects associated with the Financing; and
·
the
related income tax effects of the pro forma adjustments.
The Acquisition was accounted for under the acquisition
method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations
(“ASC 805”). Under the acquisition method of accounting, the total purchase price has been allocated to the tangible and intangible
assets acquired and liabilities assumed of the Prospect Business based on their estimated fair values. The Company is currently finalizing
its valuation of the acquired assets and liabilities. Preliminary amounts have been recorded and are subject to change, primarily for
accounts that include the use of estimates, such as medical liabilities, collectability of receivables, accrued expenses, and tax liabilities.
The pro forma adjustments arising from the preliminary allocation of the purchase price is based upon management’s estimates utilizing
information currently available and is subject to revision as additional information on the fair value of the assets and liabilities become
available and final appraisals and detailed analyses are completed.
The unaudited pro forma condensed combined statement of income was
derived from, and should be read together with, the accompanying notes to the unaudited pro forma condensed combined statement of income,
Astrana’s historical consolidated financial statements, accompanying notes, and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in its annual report on Form 10-K for the fiscal year ended December 31, 2025, as filed with
the Securities and Exchange Commission (the “SEC”) on March 12, 2026. The unaudited pro forma condensed combined statement
of income should also be read together with the Prospect Business’s historical unaudited condensed combined and consolidated financial
statements as of and for the nine months ended June 30, 2025, and related notes, filed as Exhibit 99.1 to this Current Report on Form
8-K.
ASTRANA HEALTH, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF INCOME
YEAR ENDED DECEMBER 31, 2025
(in thousands, except share and per share data)
Historical
Pro Forma
Prospect
Business
Financing
Transaction
Astrana
As Adjusted
Adjustments
Adjustments
Pro Forma
As Reported
(Note 2)
(Note 3)
Note
(Note 3)
Note
Combined
Note
Revenue
Capitation, net
$ 2,924,265
$ 547,264
$ -
$ -
$ 3,471,529
Risk pool settlements and incentives
86,199
12,142
-
-
98,341
Management fee income
30,394
22,092
-
-
52,486
Fee-for-service, net
112,635
45,820
-
-
158,455
Other revenue
28,276
10,822
-
-
39,098
Total revenue
3,181,769
638,140
-
-
3,819,909
Operating expenses
Cost of services, excluding depreciation and amortization
2,840,239
556,057
-
-
3,396,296
General and administrative expenses
217,256
50,346
-
-
3(e)
267,602
Depreciation and amortization
45,749
1,936
-
15,118
3(c)
62,803
Total expenses
3,103,244
608,339
-
15,118
3,726,701
Income from operations
78,525
29,801
-
(15,118 )
93,208
Other (expense) income
(Loss) income from equity method investments
1,708
-
-
-
1,708
Interest expense
(49,928 )
(79,346 )
(21,470 )
3(a)
79,346
3(d)
(71,398 )
Interest income
12,157
938
-
-
13,095
Unrealized gain (loss) on investments
(68 )
-
-
-
(68 )
Other (loss) income
(2,788 )
179
-
-
(2,609 )
Total other (expense) income, net
(38,919 )
(78,229 )
(21,470 )
79,346
(59,272 )
Income (loss) before provision for income taxes
39,606
(48,428 )
(21,470 )
64,228
33,936
Provision for income taxes
15,530
(36,931 )
(6,205 )
3(b)
18,562
3(f)
(9,044 )
Net income (loss)
24,076
(11,497 )
(15,265 )
45,666
42,980
Net income attributable to noncontrolling interests
1,589
-
-
-
1,589
Net income (loss) attributable to Astrana Health, Inc.
$ 22,487
$ (11,497 )
$ (15,265 )
$ 45,666
$ 41,391
Earnings per share - basic
$ 0.46
$ 0.84
Note 4
Earnings per share - diluted
$ 0.46
$ 0.84
Note 4
Weighted average shares of common stock outstanding:
Basic
49,075,727
49,075,727
Note 4
Diluted
49,369,685
49,369,685
Note 4
See Notes to Unaudited Pro Forma Condensed Combined
Statement of Income
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
1.
Basis of Presentation
The unaudited pro forma condensed combined statement
of income has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and Article 11 of Regulation S-X. The accompanying pro forma statement of income is based on the historical consolidated statement of
income of Astrana for the year ended December 31, 2025, and the historical combined and consolidated statements of operations of the Prospect
Business after giving effect to the Acquisition and the Financing, as well as certain reclassifications (see Note 2).
The Company accounted for the Acquisition under
the acquisition method of accounting in accordance with ASC 805, with Astrana as the acquirer of the Prospect Business. In accordance
with the acquisition method of accounting, Astrana recorded the preliminary estimated fair value of assets acquired and liabilities assumed
from the Prospect Business on the acquisition date, July 1, 2025. Fair value is defined in ASC 820, Fair Value Measurements and
Disclosures (“ASC 820”) as “the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective, and
it is possible the application of reasonable judgment could result in different assumptions resulting in a range of alternative estimates
using the same facts and circumstances. The Company is currently finalizing its valuation of the acquired assets and liabilities. Preliminary
amounts have been recorded and are subject to change, primarily for accounts that include the use of estimates, such as medical liabilities,
collectability of receivables, accrued expenses, and tax liabilities. The pro forma adjustments arising from the preliminary allocation
of the purchase price is based upon management’s estimates utilizing information currently available and is subject to revision
as additional information on the fair value of the assets and liabilities become available and final appraisals and detailed analyses
are completed.
The unaudited pro forma condensed combined statement
of income for the year ended December 31, 2025, combines Astrana’s historical results, which include the operations of the
Prospect Business beginning July 1, 2025, with the Prospect Business’s historical results of operations for the six months
ended June 30, 2025. These adjustments are presented on a pro forma basis to reflect the impact of the Transactions as if they had
occurred on January 1, 2025.
The unaudited pro forma condensed combined statement
of income for the fiscal year ended December 31, 2025, has been prepared using, and should be read in conjunction with, the following:
·
Astrana’s audited
consolidated statement of income for the fiscal year ended December 31, 2025, and the related notes included in Astrana’s
annual report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the SEC on March 12, 2026;
and
·
The Prospect Business’s
unaudited condensed combined and consolidated financial statements as of and for the nine months ended June 30, 2025, and related
notes, filed as Exhibit 99.1 to this Current Report on Form 8-K.
The foregoing historical financial statements
have been prepared in accordance with GAAP. The unaudited pro forma condensed combined statement of income has been prepared based on
the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro
forma condensed combined statement of income. Management has made significant estimates and assumptions in its determination of the pro
forma adjustments. As the unaudited pro forma condensed combined statement of income has been prepared based on these preliminary estimates,
the final amounts recorded may differ materially from the information presented.
The unaudited pro forma condensed combined statement
of income is not necessarily indicative of what the actual results of operations would have been had the Transactions taken place on the
date indicated above, nor are they indicative of the future consolidated results of operations of the post-combination company. The unaudited
pro forma condensed combined statement of income does not give effect to any synergies, operating efficiencies, tax savings or cost savings
that may be associated with the Transactions.
See Note 3 of Astrana’s annual report on
Form 10-K for the fiscal year ended December 31, 2025, for information regarding the purchase consideration, fair value estimates
of the assets acquired and liabilities assumed, and resulting goodwill as of the acquisition date.
2.
Accounting Policies and Reclassifications
The Company has performed a preliminary analysis
to identify differences in Astrana’s and the Prospect Business’s historical financial statement presentation and significant
accounting policies. As part of this analysis, Astrana has identified a required adjustment to the unaudited pro forma condensed combined
statement of income to conform the Prospect Business’s significant accounting policies to Astrana’s, described in Note 2(i)
below. Additionally, certain reclassification adjustments have been made to conform the Prospect Business’s historical statement
of operations captions to Astrana’s statement of income captions in the unaudited pro forma condensed combined statement of income.
The following
sets forth the reclassification and accounting policy adjustments made in the unaudited pro forma statement of income for the year ended
December 31, 2025, to conform the Prospect Business’s presentation to Astrana’s
presentation (in thousands):
For the Six Months Ended June 30, 2025
Prospect
Prospect
Business
Business
Prospect Business caption
Astrana caption
(Note 5)
Reclassifications and Policy Adjustments
Note
As Adjusted
Operating revenues:
Revenue
Capitation
Capitation, net
$ 547,264
$ -
$ 547,264
Patient services, net
53,636
(53,636 )
2(a)
-
Fee-for-service, net
45,820
2(a)
45,820
Management fees
Management fee income
22,092
22,092
Other operating revenues
15,802
(15,802 )
2(b)
-
Risk pool settlements and incentives
12,142
2(b)
12,142
Other revenue
3,006
2(b)
10,822
7,816
2(a)
Total net revenue
Total revenue
638,794
(654 )
638,140
Cost of revenues:
Claims expense
326,088
(326,088 )
2(c)
-
Capitation expense
125,524
(125,524 )
2(c)
-
Other cost of revenues
28,082
(28,082 )
2(c)
-
Total cost of revenues
479,694
(479,694 )
-
Operating expenses:
Operating expenses:
Cost of services, excluding depreciation and amortization
-
(475 )
2(b)
556,057
479,694
2(c)
70,774
2(d)
881
2(e)
2,841
2(f)
1,377
2(g)
965
2(i)
Salary and benefits
73,681
(73,681 )
2(d)
-
Outside services
20,501
(20,501 )
2(e)
-
Management fees
7,922
(7,922 )
2(h)
-
Professional fees
3,302
(3,302 )
2(g)
-
Marketing
1,414
(1,414 )
2(h)
-
Lease and rental expense
1,527
(1,527 )
2(h)
-
Repair, maintenance and utilities
3,239
(3,239 )
2(h)
-
Software licensing
5,027
(5,027 )
2(h)
-
Taxes, licenses and fees
3,582
(3,582 )
2(f)
-
Insurance
3,224
(3,224 )
2(h)
-
Other operating expenses
2,800
(2,800 )
2(h)
-
General and administrative expenses
-
2,907
2(d)
50,346
19,620
2(e)
741
2(f)
1,925
2(g)
25,153
2(h)
Depreciation and amortization
Depreciation and amortization
1,936
1,936
Total operating expenses
Total expenses
128,155
480,184
608,339
Operating income
Income from operations
30,945
(1,144 )
29,801
Other (expense) income
Interest expense, net
(78,408 )
78,408
2(j)
-
Interest expense
(79,346 )
2(j)
(79,346 )
Interest income
938
2(j)
938
Other (loss) income
179
2(b)
179
Total other (expense) income, net
(78,408 )
179
(78,229 )
Loss before income taxes
(Loss) Income before provision for income taxes
(47,463 )
(965 )
(48,428 )
Income tax (benefit) expense
Provision for income taxes
(36,931 )
(36,931 )
Net loss
Net (loss) income attributable to Astrana Health, Inc.
$ (10,532 )
$ (965 )
$ (11,497 )
2(a)
Reflects the reclassification of “Patient services, net” on the Prospect Business’s statement of operations to “Fee-for-service, net” and “Other revenues” to conform to Astrana’s statement of income presentation.
2(b)
Represents the reclassification of “Other operating revenues” on the Prospect Business’s statement of operations to “Risk pool settlements and incentives”, “Other revenues”, “Cost of services, excluding depreciation and amortization”, and “Other (loss) income” to conform to Astrana’s statement of income presentation.
2(c)
Represents the reclassification of “Claims expense”, “Capitation expense”, and “Other costs of revenues” on the Prospect Business’s statement of operations to “Cost of services, excluding depreciation and amortization” to conform to Astrana’s statement of income presentation.
2(d)
Represents the reclassification of “Salary and benefits” on the Prospect Business’s statement of operations to “Cost of services, excluding depreciation and amortization” and “General and administrative expenses” to conform to Astrana’s statement of income presentation.
2(e)
Represents the reclassification of “Outside services” on the Prospect Business’s statement of operations to “Cost of services, excluding depreciation and amortization” and “General and administrative expenses” to conform to Astrana’s statement of income presentation.
2(f)
Represents the reclassification of “Taxes, licenses and fees” on the Prospect Business’s statement of operations to “Cost of services, excluding depreciation and amortization” and “General and administrative expenses” to conform to Astrana’s statement of income presentation.
2(g)
Represents the reclassification of “Professional fees” on the Prospect Business’s statement of operations to “Cost of services, excluding depreciation and amortization” and “General and administrative expenses” to conform to Astrana’s statement of income presentation.
2(h)
Represents the reclassification of “Management fees”, “Marketing”, “Lease and rental expense”, “Repair, maintenance and utilities”, “Software licensing”, “Insurance” and “Other operating expenses” on the Prospect Business’s statement of operations to “General and administrative expenses” to conform to Astrana’s statement of income presentation.
2(i)
Reflects an adjustment to reduce “Cost of services, excluding depreciation and amortization” to eliminate the change in the provision for adverse deviation reported by the Prospect Business to conform to Astrana’s policies, which do not include such a provision.
2(j)
Represents the reclassification of “Interest expense, net” on the Prospect Business’s statement of operations to “Interest expense” and “Interest income” to conform to Astrana’s statement of income presentation.
3.
Adjustments to Unaudited Pro Forma Condensed Combined Statement of
Income
Pro Forma
Financing Adjustments
The following pro forma adjustments are included
in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2025, to reflect the Financing
as if it occurred on January 1, 2025:
3(a)
Reflects the recognition of estimated incremental interest expense associated with the Financing, comprised of the following (in thousands):
For the Year Ended
December 31, 2025
Incremental interest expense on new $707.3 million DDTL A
$ 21,314
Amortization of new deferred financing costs paid in connection with the Financing, net of amounts written off for reduction in delayed draw term loan commitment
156
Total adjustment to interest expense
$ 21,470
Actual interest expense arising from
the Financing is included in Astrana’s historical results of operations beginning July 1, 2025. Therefore, the pro forma adjustment
is calculated for the six months ended June 30, 2025.
The pro forma adjustment to interest
expense is calculated based on an estimated interest rate of 6.08%, calculating using the three month Term SOFR as of July 1, 2025,
plus a spread of 1.75%, representing the applicable spread as of July 1, 2025 based on the Company’s leverage ratio, in accordance
with the terms of the Second Amended and Restated Credit Agreement. Interest expense on the DDTL A is variable and may be higher or lower
depending on fluctuations in the benchmark rate of interest and the Company’s leverage ratio in each interest period.
The following table reflects the estimated
impact to the pro forma adjustment to interest expense as a result of interest rate changes of plus or minus 12.5 basis points (in thousands):
For the Year Ended
Pro forma adjustment to interest expense:
December 31, 2025
As presented
$ 21,470
+ 12.5 basis points
21,908
- 12.5 basis points
21,032
For purposes of the unaudited pro forma
condensed combined statement of income, the amortization of incremental deferred financing costs is calculated using the effective interest
method for the six months ended June 30, 2025, assuming a five-year term beginning January 1, 2025.
3(b)
Reflects an adjustment to the provision for income taxes as a result of the estimated income tax effects of the pro forma financing adjustments herein. The adjustment was calculated using a blended statutory income tax rate of 28.9%. The blended statutory tax rate is not necessarily indicative of the effective tax rate of Astrana in future periods, which could be significantly different depending on various factors.
Pro Forma
Transaction Accounting Adjustments
The following pro forma adjustments are included
in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2025, to reflect the effects of
the Acquisition as if it occurred on January 1, 2025:
3(c)
Reflects the estimated incremental depreciation and amortization expense resulting from the Acquisition, and is comprised of the following (in thousands):
For the Year Ended
December 31, 2025
Estimated incremental depreciation expense related to the acquired property and equipment
$ 1,080
Estimated incremental amortization expense related to the acquired finite-lived intangibles
15,974
Elimination of historical depreciation and amortization expense reported by the Prospect Business
(1,936 )
Net adjustment to depreciation and amortization expense
$ 15,118
Depreciation expense related to the
acquired property and equipment and amortization expense related to the acquired finite-lived intangible assets are included in Astrana’s
historical results of operations beginning July 1, 2025. Therefore, the pro forma adjustment for depreciation and amortization expense
is calculated for the six months ended June 30, 2025.
The estimated incremental depreciation
and amortization expenses are based on the preliminary fair values assigned to the acquired property and equipment and finite-lived intangibles.
The finite-lived intangibles acquired in the Acquisition consist of member relationships, network relationships, management contracts,
and a trade name. The Knox-Keene license acquired in the Acquisition was determined to be an indefinite-lived intangible asset and, accordingly,
is not subject to amortization and does not impact the pro forma adjustment. For further discussion regarding the preliminary purchase
price allocation, including the nature of the acquired finite-lived intangibles and the fair value measurements, refer to Note 3 of Astrana’s
audited consolidated financial statements for the fiscal year ended December 31, 2025 included in Astrana’s annual report on
Form 10-K, as filed with the SEC on March 12, 2026.
3(d)
Reflects the reversal of the Prospect Business’ historical interest expense, inclusive of amortization of debt discounts and premiums for the six months ended June 30, 2025 that would not have been incurred had the Acquisition been consummated on January 1, 2025 as all outstanding debt obligations were settled at Closing and not assumed by Astrana pursuant to the terms of the Purchase Agreement.
3(e)
Reflects no pro forma adjustments as all transaction costs are reflected in Astrana’s consolidated statement of income for the historical period. Astrana’s historical general and administrative expense includes approximately $19.6 million of non-recurring acquisition-related costs associated with the Acquisition.
3(f)
Reflects an adjustment to the provision for income taxes as a result of the estimated income tax effects of the pro forma transaction accounting adjustments herein. The adjustment was calculated using a blended statutory income tax rate of 28.9%. The blended statutory tax rate is not necessarily indicative of the effective tax rate of Astrana in future periods, which could be significantly different depending on various factors.
4.
Earnings per Share
Pro forma basic and diluted net earnings per share
has been adjusted to reflect the pro forma adjustments herein for the year ended December 31, 2025. The following table sets forth
the computation of pro forma combined basic and diluted net earnings per share (in thousands, except share and per share amounts):
For the Year Ended
December 31, 2025
Pro forma net income attributable to Astrana Health, Inc.
$ 41,391
Astrana historical weighted-average shares of common stock outstanding - basic(1)
49,075,727
Pro forma weighted-average shares of common stock outstanding - basic
49,075,727
Astrana historical weighted-average shares of common stock outstanding - diluted(1)
49,369,685
Pro forma weighted-average shares of common stock outstanding - diluted
49,369,685
Pro forma earnings per share attributable to Astrana Health, Inc. common stockholders:
Basic
$ 0.84
Diluted
$ 0.84
(1)
As reported by Astrana for the year ended December 31, 2025.
5.
Prospect Business Statement of Operations Reconciliation
As previously discussed, Astrana’s fiscal
year ends on December 31, and the fiscal year end of the Prospect Business is September 30. The Company has prepared the unaudited
pro forma condensed combined statement of income utilizing the historical statements of operations of the Prospect Business, adjusted
to conform to the same calendar period as Astrana’s fiscal year.
Astrana’s historical results include the
operations of the Prospect Business beginning July 1, 2025. Therefore, the statement of operations data of the Prospect Business
presented in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2025, include the Prospect
Business’s results of operations for the six months ended June 30, 2025, derived from the Prospect Business’s unaudited
combined and consolidated statement of operations for the nine months ended June 30, 2025, and adjusted to exclude the three months
ended December 31, 2024, as follows (in thousands):
Nine Months
Ended
June 30, 2025
Three Months
Ended
December 31, 2024
Six Months
Ended
June 30, 2025
(A)
(B)
(A - B)
Operating revenues:
Capitation
$ 830,370
$ 283,106
$ 547,264
Patient services, net
81,797
28,161
53,636
Management fees
29,061
6,969
22,092
Other operating revenues
20,528
4,726
15,802
Total net revenue
961,756
322,962
638,794
Cost of revenues:
Claims expense
488,946
162,858
326,088
Capitation expense
189,794
64,270
125,524
Other cost of revenues
44,112
16,030
28,082
Total cost of revenues
722,852
243,158
479,694
Gross margin
238,904
79,804
159,100
Operating expenses:
Salary and benefits
109,633
35,952
73,681
Outside services
31,663
11,162
20,501
Management fees
11,654
3,732
7,922
Professional fees
4,846
1,544
3,302
Marketing
2,122
708
1,414
Lease and rental expense
2,316
789
1,527
Repair, maintenance and utilities
4,635
1,396
3,239
Software licensing
7,022
1,995
5,027
Taxes, licenses and fees
5,365
1,783
3,582
Insurance
4,110
886
3,224
Depreciation and amortization
2,748
812
1,936
Other operating expenses
4,314
1,514
2,800
Total operating expenses
190,428
62,273
128,155
Operating income
48,476
17,531
30,945
Interest expense, net
(121,832 )
(43,424 )
(78,408 )
Loss before income taxes
(73,356 )
(25,893 )
(47,463 )
Income tax (benefit) expense
(34,666 )
2,265
(36,931 )
Net loss attributable to PHP Holdings, LLC & RI Market
$ (38,690 )
$ (28,158 )
$ (10,532 )
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Mar. 30, 2026
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