R1 RCM
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from to Commission file number 001-34746 R1 RCM Inc.(Exact name of registrant as specified in its charter) Delaware 02-0698101(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)401 North Michigan AvenueSuite 2700Chicago, Illinois 60611(Address of principal executive offices) (Zip Code)(312) 324-7820Registrant’s telephone number, including area codeSecurities registered pursuant to Section 12(b) of the Act:Title of each class: Name of each exchange on which registered:None NoneSecurities registered pursuant to Section 12(g) of the Act:Common Stock, $0.01 par valueIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ý No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes ý No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of"large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filerýNon-accelerated filer¨Smaller reporting companyo (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ýAggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the last sale price for such stock on June 30, 2016:$209,020,006As of February 24, 2017, the registrant had 105,957,743 shares of common stock, par value $0.01 per share, outstanding.R1 RCM INC.TABLE OF CONTENTS PagePART I Item 1.Business1 Item 1A.Risk Factors16 Item 1B.Unresolved Staff Comments32 Item 2.Properties33 Item 3.Legal Proceedings33 43 Item 4.Mine Safety Disclosures34 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities35 Item 6.Selected Consolidated Financial Data38 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations43 Item 7A.Quantitative and Qualitative Disclosures About Market Risk58 Item 8.Consolidated Financial Statements and Supplementary Data58 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure58 Item 9A.Controls and Procedures59 Item 9B.Other Information61 PART III Item 10.Directors, Executive Officers and Corporate Governance63 Item 11.Executive Compensation63 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters63 Item 13.Certain Relationships and Related Transactions, and Director Independence64 Item 14.Principal Accountant Fees and Services65 PART IV Item 15.Exhibits and Financial Statement Schedules66 SIGNATURES67 FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements, within the meaning of the federal securities laws, that involve substantial risksand uncertainties. You should not place undue reliance on these statements. All statements, other than statements of historical facts, included in this AnnualReport on Form 10-K regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives ofmanagement and expected market growth are forward-looking statements. The words "anticipate", "believe", "estimate", "expect", "intend", "designed","may", "plan", "predict", "project", "would" and similar expressions are intended to identify forward-looking statements, although not all forward-lookingstatements contain these identifying words. These forward-looking statements include, among other things, statements about: •our ability to implement and expand our services under our Amended and Restated Master Professional Services Agreement with AscensionHealthcare.•our ability to attract and retain customers;•our financial performance;•the advantages of our solutions as compared to those of others;•our ability to establish and maintain intellectual property rights;•our ability to retain and hire necessary employees and appropriately staff our operations;•our estimates regarding capital requirements and needs for additional financing; and•our ability to regain a listing on a national securities exchange.We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place unduereliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in theforward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report, particularly in "Part I -Item 1A - Risk Factors," that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-lookingstatements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.You should read this Annual Report and the documents that we have filed as exhibits to the Annual Report completely and with the understanding thatour actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements,whether as a result of new information, future events or otherwise, except as required by law.PART IOn January 5, 2017, Accretive Health, Inc. changed its name to R1 RCM Inc. Unless the context indicates otherwise, references in this AnnualReport to "R1 RCM," "R1," the "Company" or "company," "we," "our" and "us" mean R1 RCM Inc. and its subsidiaries.Item 1.BusinessOverviewR1 is a leading provider of revenue cycle management, or RCM, services and physician advisory services, or PAS, to healthcare providers. We helphealthcare providers generate sustainable improvements in their operating margins and cash flows while also enhancing patient, physician and staffsatisfaction for our customers.We achieve these results for our customers by managing healthcare providers’ revenue cycle operations, which encompass processes including patientregistration, insurance and benefit verification, medical treatment documentation and coding, bill preparation and collections from patients and payers. Wedo so by deploying a unique operating model that leverages our extensive healthcare site experience, innovative technology and process excellence. Weassist our RCM customers in managing their revenue cycle operating costs while simultaneously increasing the portion of the maximum potential servicesrevenue they receive. Together, these benefits can generate significant and sustainable improvements in operating margins and cash flows for our customers.Our primary service offering consists of end-to-end RCM, which we deploy through a co-managed relationship or an operating partner relationship.Under a co-managed relationship, we leverage our customers’ existing RCM staff and processes, and supplement them with our infused management, subjectmatter specialists, proprietary technology and other resources. Under an operating partner relationship, we provide comprehensive revenue cycleinfrastructure to providers, including all revenue cycle personnel, technology, and process workflow. We also offer modular services, allowing customers toengage us for only specific components of our end-to-end RCM service offering. Our PAS offering assists hospitals in complying with payer requirementsregarding whether to classify a hospital visit as an in-patient or an out-patient observation case for billing purposes. This offering consists of both concurrentreview and retrospective chart audits to help our customers achieve compliant and accurate billing. We also provide customers with retrospective appealmanagement service support for both governmental and commercial payers. Our physicians conduct detailed retrospective reviews of medical records toidentify medical necessity for hospital services and the required documentation to appropriately support an appeal. We employ trained physicians to deliverthese services.Once implemented, our technology applications, processes and services are deeply embedded in our customers’ day-to-day operations. We believe ourservice offerings are adaptable to meet an evolving healthcare regulatory environment, technology standards and market trends.SegmentAll of our significant operations are organized around the single business of providing management services of revenue cycle operations for U.S.-basedhospitals and other medical services providers.We view our operations and manage our business as one operating and reporting segment. All of our net services revenue and trade accountsreceivable are derived from healthcare providers domiciled in the United States. The information about our business should be read together with ourconsolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. See Note 18, Segments and CustomerConcentrations, to our consolidated financial statements for information regarding our segment and customer concentrations.1Our ServicesDrawing on our combination of our extensive healthcare-site expertise, innovative technology and process excellence, we seek to deliver measurableeconomic value to our customers across our RCM and PAS solutions.Revenue Cycle Management OfferingOur primary RCM service offering consists of comprehensive end-to-end RCM services, which address the full spectrum of revenue cycle challengesfaced by healthcare providers. Our approach to deliver value for our customers is built on the R1 Performance StackSM, a holistic operating model designed tofit into a healthcare provider’s revenue cycle operations.The R1 Performance StackSM consists of seven components:Comprehensive Gains - By leveraging the customer’s data and operating within a health system’s virtual and physical environment, our services aredesigned to help ensure client economics are significantly improved while enhancing patient experience and improving client revenue predictabilityas payment models shift.Assured Standardization - Our diagnostics and tools are designed to ensure delivery consistency and enable economic gains and enhanced patientexperience. Continual measurement and assessment help us achieve these standards. Dimensional Visibility - We enable timely defect intervention and recovery workflow by providing a clear window into revenue operations throughfrequent and comprehensive reporting. Analytics & Accountability - We use hundreds of measurement methods to drive comprehensive daily accountability designed to identify and correctsmall issues before they become organizational problems. Proprietary Technologies - Our R1 Hub Technologies integrate across multiple host and payer systems. They are designed to scale and perform in thelargest, most complex systems to enable end-to-end process integration.Proven Process - Our technology, model and processes have been developed through years of experience working with healthcare organizations ontheir most challenging implementations. The approach and technology are based on standard structures and rigorous methods, tested and proven inmultiple organizations and environments. Experienced Talent - Our teams understand the missions and unique needs of non-profit organizations. Team members are trained, certified and thencontinuously developed and supported to ensure they are equipped to deliver on customer revenue cycle management goals.Our RCM service offering is designed to adapt to a provider's organizational structure. We seek to integrate our technology, personnel, ouraccumulated body of knowledge and our culture within each customer’s revenue cycle activities, with the expectation that we will enjoy a long-termcollaborative relationship with each customer. We deliver technology and operational support in the form of both on-site management and centralizedstaffing to deliver improved efficiency and quality across all RCM functions.Our end-to-end RCM agreements generally provide us with the opportunity to earn net operating fees and incentive fees. Net operating fees representthe gross base fees we charge our customers for operating the revenue cycle processes included in our agreements less corresponding costs of customers’revenue cycle operations which we undertake to pay pursuant to our RCM agreements. We have modified a portion of our RCM agreements to replace thegross base fees along with our financial obligation to pay our customers' revenue cycle operations expenses with a fee that approximates such difference. Wehelp our customers reduce their revenue cycle costs by implementing new operational practices, optimizing their technology suite and deploying moreefficient processes.2In certain cases, we work with our customers to transfer aspects of their revenue cycle operations to our shared services centers, which typically results inlower operating costs than operating those aspects of the revenue cycle at the customers’ site.Incentive fees are performance-based fees related to agreed-upon improvements in financial or operating metrics at our customers. When using thesemetrics to calculate this improvement, we typically utilize metrics that are already being tracked by, or easily calculated from, our customers’ respectiveaccounting systems and compare the results of those metrics against the results for the same metrics for a defined prior period.We seek to improve our customers’ processes using a variety of techniques including:•Gathering Complete Patient and Payer Information. We focus on gathering complete patient information and validating insurance eligibility andbenefits so patient care services can be recorded and billed to the appropriate parties. For scheduled healthcare services, we educate patients as totheir potential financial responsibilities before receiving care. Through our systems, we maintain an automated electronic scorecard which measuresthe efficiency of up-front data capture, authorization, billing and collections throughout the life cycle of any given patient account. Thesescorecards are analyzed in the aggregate, and the results are used to help improve work flow processes and operational decisions for our customers. •Improving Claims Filing and Payer Collections. Through our proprietary technology and process expertise, we identify, for each patient encounter,the amount our customer should receive from a payer if terms of the applicable contract with the payer and patient policies are followed. Over time,we compare these amounts with the actual payments collected to help identify which payers, types of medical treatments and patients representvarious levels of payment risk for a customer. Using proprietary algorithms and analytics, we consider actual reimbursement patterns to predict thepayment risk associated with a customer’s claims to its payers, and we then direct increased attention and time to the riskiest accounts.•Identifying Alternative Payment Sources. We use various methods to find payment sources for uninsured patients and reimbursement for servicesnot covered by payers. Our patient financial screening technology and methodologies often identify federal, state or private grant sources to helppay for healthcare services. These techniques are designed to ease the financial burden on uninsured or underinsured patients, increase thepercentage of patient bills that are actually paid, and improve the total amount of reimbursement received by our customers.•Employing Proprietary Technology and Algorithms. We employ a variety of proprietary data analytics and algorithms. For example, we identifypatient accounts with financial risk by applying proprietary analysis techniques to the data we have collected. Our systems are designed tostreamline work processes through the use of proprietary algorithms that focus revenue cycle staff effort on those accounts deemed to have thegreatest potential for improving net revenue yield or charge capture. We adjust our proprietary predictive algorithms to reflect changes in payer andpatient behavior based upon the knowledge we obtain from our entire customer base. As new customers are added and payer and patient behaviorchanges, the information we use to create our algorithms expands, increasing the accuracy, reliability and value of such algorithms.•Using Analytical Capabilities and Operational Excellence. We draw on the experience that we have gained from working with some of the besthealthcare provider systems in the United States to train our customers’ staff about new and innovative RCM practices. We use sophisticatedanalytical procedures to identify specific opportunities to improve business processes.•Increasing Charge Capture. We are able to help our customers increase their charge capture by implementing optimization techniques and relatedprocesses. We use sophisticated analytics software to help improve the accuracy of claims filings and the resolution of disputed claims from payers.We also overlay a range of capabilities designed to reduce missed charges, improve the clinical/reimbursement interface and produce bills thatcomply with payer requirements and applicable healthcare regulations.3•Leveraging our Shared Services Centers. We help our customers increase their revenue cycle efficiency by implementing improved practices,streamlining work flow processes and outsourcing aspects of their revenue cycle operations to our shared services centers. Examples of services thatcan be completed at our shared services centers in the United States and India include pre-registration, medical transcription, cash posting,reconciliation of payments to billing records, and patient and payer follow-up. By leveraging the economies of scale and experience of our sharedservices centers, we believe that we offer our customers better quality services at a lower cost.We believe that these techniques are enhanced by our proprietary and integrated technology, management experience and well-developed processes.Our proprietary technology applications include workflow automation and direct payer connection capabilities that enable revenue cycle staff to focus onproblem accounts rather than on manual tasks, such as searching payer websites for insurance and benefits verification for all patients. We employtechnology that identifies and isolates specific cases requiring review or action, using the same interface for all users, to automate a host of tasks thatotherwise can consume a significant amount of staff time. Our proprietary technology enhances the ability of our customers' revenue cycle staff to improvetheir interaction with patients. We use real-time feedback from our customers to improve the functionality and performance of our technology and processesand incorporate these improvements into our service offerings on a regular basis. We strive to apply operational excellence throughout our customers' entirerevenue cycle.In 2016, we integrated our value-based reimbursement capabilities into our RCM offering. These capabilities include a secure web-based workflowapplication that utilizes data analytics designed to enable patient engagement staff, revenue cycle analysts, and physician/hospital care teams to monitor andmanage gaps identified by our proprietary rules engines.Physician Advisory Services OfferingOur PAS offering provides concurrent level of care billing classification reviews, as well as retrospective chart audits to assist hospitals in properlybilling payers for selected services. These services complement our RCM offering and our ability to provide our customers end-to-end management services,and, accordingly, some of our RCM customers are also customers of our PAS offering. According to the policies of the Centers for Medicare & MedicaidServices, or CMS, the decision to classify a patient as an in-patient or out-patient observation case for billing purposes is based on complex medicaljudgment that can only be made after the physician has considered a number of factors, including the patient’s medical history and current medical needs, theseverity of signs and symptoms, the medical predictability of adverse events and the patient’s anticipated length of stay. Using our secure web portal,hospital customers transmit pertinent data about the case at hand to our trained physicians, who then leverage our proprietary diagnosis guidelines and theextensive information within our knowledge database to reach an informed billing classification judgment, which we then provide to our customers as arecommendation.We also provide customers with retrospective appeal management service support for both governmental and commercial payers. Our physiciansconduct detailed retrospective reviews of medical records to identify medical necessity for hospital services and the required documentation to appropriatelysupport an appeal.We believe that our PAS offering provides our customers with a number of operational benefits, such as•direct physician to physician contact,•improved service levels, and•real-time reporting and analytics.Relationship with AscensionOn February 16, 2016, we entered into a long-term strategic partnership with Ascension Health Alliance, the parent of our largest customer and thenation’s largest Catholic and non-profit health system, and TowerBrook Capital Partners, or TowerBrook, an investment management firm. As part of thetransaction, we amended and4restated our Master Professional Services Agreement, or A&R MPSA, with Ascension Healthcare, or Ascension, effective February 16, 2016 with a term of tenyears. Pursuant to the A&R MPSA and with certain limited exceptions, we are the exclusive provider of revenue cycle management services and PAS withrespect to acute care services provided by the hospitals affiliated with Ascension that execute supplement agreements with us. In addition, at the close of thetransaction, we issued to TCP-ASC ACHI Series LLLP, a limited liability limited partnership jointly owned by Ascension Health Alliance and investmentfunds affiliated with TowerBrook, or the Investor: (i) 200,000 shares of our 8.00% Series A Convertible Preferred Stock, par value $0.01 per share, or theSeries A Preferred Stock, for an aggregate price of $200 million and (ii) a warrant with a term of ten years to acquire up to 60 million shares of our commonstock, par value $0.01 per share, or common stock, at an exercise price of $3.50 per share, on the terms and subject to the conditions set forth in the WarrantAgreement, or the Warrant. The Series A Preferred Stock is immediately convertible into shares of common stock. We refer herein to the foregoingtransactions consummated on February 16, 2016 with the Investor and Ascension as the "Transaction".This long-term strategic partnership has expanded our relationship with Ascension, and we expect that it will continue to expand that relationship,help us to grow our overall business and improve our ability to win customers outside of the Ascension hospital base. We have made significant progress inthe phased implementation of our services for those Ascension hospitals that we did not previously service which we intend to service under the A&R MPSA.Our RCM services for both Ascension hospitals that we previously serviced under our prior Master Professional Services Agreement with Ascension andthose Ascension hospitals that we have begun to service or intend to begin to service under the A&R MPSA will be based on our operating partner serviceoffering model, whereby a significant number of Ascension's revenue cycle employees at those hospitals have become, or in the case of those hospitals weintend to begin servicing in the future, will become our employees. As a result of the implementation of our operating partner model under the A&R MPSA,we expect to expand our operations in the United States and off shore and intend to continue to invest in technology, facilities and talent to support ouranticipated growth. This operating partner model includes the transition of the non-payroll related expenses supporting Ascension's revenue cycle operationsto direct expenses of R1. We anticipate that this new in-house capability of managing these non-payroll related expenses will allow us to pursue newbusiness opportunities which require an operating partner business model. We believe the ten year term of the A&R MPSA, together with the significantinvestment in R1 by Ascension, our largest customer, provides our business with stability and growth. In addition, our management team continues to benefitfrom the oversight provided by having TowerBrook involved as a strategic investor.CustomersOur customers typically are single or multi-hospital healthcare systems, including faith-based healthcare systems, community healthcare systems,academic medical centers and their respective affiliated ambulatory clinics and physician practice groups, certain of which have common affiliations to largerumbrella healthcare organizations that are also parties to our customer contracts with their respective affiliates. We seek to develop strategic, long-termrelationships with our customers and focus on providers that we believe understand the value of our operating model and have demonstrated success in boththe provision of healthcare services and the ability to achieve financial and operational results.Hospital systems affiliated with Ascension have accounted for a significant portion of our net services revenue each year since our formation. For theyears ended December 31, 2016, 2015 and 2014, net services revenue from hospitals affiliated with Ascension accounted for 78%, 45% and 12% of our totalnet services revenue, respectively. For the year ended December 31, 2016, Intermountain Healthcare accounted for 15% of our total net services revenue.Customer AgreementsWe generally provide our RCM offering pursuant to managed services agreements with our customers. In rendering our services, we must comply withcustomer policies and procedures regarding charity care, personnel, data security, compliance and risk management, as well as applicable federal, state andlocal laws and regulations.5Our end-to-end RCM agreements typically span three to five years (subject to the parties' respective termination rights). In general, our RCM agreementsprovide that:•we are required to staff a sufficient number of our own employees commensurate with the service offering and provide the technology necessary toimplement and manage our services;•in our co-managed relationship model, our management and staff work cooperatively with our customers’ management and staff to achieve mutuallyspecified objectives, and in our operating partner relationship model, we are responsible for providing all revenue cycle personnel, technology andprocess workflow;•a portion of our fees are tied to the achievement of certain financial or operating metrics; and•the parties provide representations and indemnities to each other. Our agreements for PAS and modular RCM services generally vary in length between one and three years. Customers pay a contractually negotiated feefor this service on a per-use basis or, in the case of certain modular RCM services, a fixed fee arrangement.Sales and MarketingOur new business opportunities are generated through a combination of high-level industry contacts engaged by our commercial services team andother members of our senior management team. Our sales and marketing process generally begins by engaging senior executives of the prospective hospitalor healthcare system, typically followed by our assessment of the prospect’s existing operations, and a review of the findings. We begin negotiations with astandardized contract that is customized as necessary after collaborative discussions of operational and management issues and our proposed workingrelationship. Our sales process for RCM managed services agreements typically lasts six to 18 months from the introductory meeting to the agreement’sexecution, while our sales process for our physician advisory services offering typically lasts three to four months.TechnologyTechnology DevelopmentOur technology development organization operates out of various facilities in the United States and India. We continue to invest in the improvement ofour technology in order to enhance the services that we provide our customers. All customer sites run the same base set of code. We use a beta-testingenvironment to develop and test new technology offerings at one or more customers, while keeping the rest of our customers on production-level code.Our applications are deployed on a highly-scalable architecture based upon Microsoft and other industry leading platforms. We offer a commonexperience for end-users and believe the consistent look and feel of our applications allows our customers and staff to use our software suite quickly andeasily.We devote substantial resources to our development efforts and plan at an annual, bi-annual and quarterly release level. We employ a structured systemto assess the impact that potential new technologies or enhancements will have on net services revenue, costs, efficiency and customer satisfaction. Theresults of this analysis are evaluated in conjunction with our overall corporate goals when making development decisions. In addition to our technologydevelopment team, our operations personnel play an integral role in setting technology priorities in support of their objective of keeping our softwareoperating 24 hours a day, seven days a week.Technology Operations and SecurityOur applications are hosted in data centers located in Alpharetta, Georgia and Philadelphia, Pennsylvania, and our internal financial application suite ishosted in various locations in a U.S. based cloud model. These data centers6are operated for us by third parties and are compliant with the Statement on Standards for Attestation Engagements, or SSAE, No. 16, Reporting on Controlsat a Service Organization (Service Organization Controls 1). Our development, testing and quality assurance environments are operated from the third-partydata centers in Alpharetta, Georgia and Philadelphia, Pennsylvania. We have agreements with our hardware and system software suppliers for support24 hours a day, seven days a week. Our operations personnel also use our resources located in our other U.S. facilities, as well as our India facilities.Customers use high-speed internet connections and private network connections to access our business applications. We utilize commercially availablehardware and a combination of custom-developed and commercially available software. We designed our primary application in this manner to permitscalable growth. For example, database servers can be added without adding web servers, and vice versa.Databases are backed-up frequently by automatically shipping data files with accumulated changes to separate sets of back-up servers. In addition toserving as a back-up, these data files update the data in our online analytical processing engine, enabling the data to be more current than if only refreshedovernight. Data and information regarding our customers’ patients is encrypted when transmitted over the internet or traveling off-site on portable media suchas laptops or backup tapes.Our software interacts with our customers’ software through a series of real-time and batch interfaces. We do not require changes to the customer’s corepatient care delivery or financial systems. Instead of installing hardware or software in customer locations or data centers, we specify the information that acustomer needs to extract from its existing systems in order to interface with our systems. This methodology enables our systems to operate with manycombinations of customer systems, including custom and industry-standard implementations.When these interfaces are in place, we provide a holistic application suite across the hospital revenue cycle. For our purposes, the revenue cycle startswhen a patient registers for future service or arrives at a hospital or clinic for unscheduled service, and ends when the hospital has collected all theappropriate revenue from all possible sources. Thus, we provide eligibility, address validation, skip tracing, charge capture, patient and payer follow-up,analytics and tracking, charge master management, contract modeling, contract "what if" analysis, collections and other functions throughout the customer’srevenue cycle.In the event that a combination of events causes a system failure, we would follow planned and tested process steps designed to isolate the failure. Webelieve that no combination of failures by our systems can impact a customer’s ability to deliver patient care because our systems run parallel to the client’shost system, which is the system of record for all patient related information.Our third-party data centers are designed to withstand many catastrophic events such as blizzards, hurricanes and power grid anomalies. To protectagainst a catastrophic event in which our primary data center is destroyed and service cannot be fully restored within a few days, we store backups of oursystems, applications and databases off-site. Our secondary data center would become the primary data center until restoration at the primary site. We wouldre-establish operations by provisioning new servers, restoring data from the off-site backups and re-establishing connectivity with our customers’ hostsystems. Because our systems are web-based, no changes would need to be made on customer workstations, and customers would be able to reconnect as oursystems became available again.We dedicate significant resources to protecting our customers’ confidential and protected health information, or PHI. Our security strategy employsvarious practices and technologies to control, audit, monitor and protect access to sensitive information. We received, and have maintained since January2013, a certification status from the Health Information Trust Alliance, or HITRUST. HITRUST is a healthcare industry group focused on identifying aprescriptive set of information technology controls that are based on standards and regulations relevant to the healthcare industry. HITRUST certification isaligned with ISO 27001 and ISO 27002. Our HITRUST certification validates our continued commitment to compliance with the Health Insurance Portabilityand Accountability Act of 1996, as amended, and the regulations that have been issued under it, such as the Health Information Technology for Economicand Clinical Health Act, or HITECH Act, or HITECH, and OMNIBUS regulations, which we collectively refer to as HIPAA, and to various states’ security andprivacy laws regarding the creation, access, storage or7exchange of personal health and financial information. Our HITRUST certification status also signifies that we exhibit and are able to maintain high securitystandards for the management and protection of electronic PHI.Proprietary Software SuitesRevenue Cycle Management. Our integrated suite of RCM technology provides a layer of analytics, rules processing and workflow capabilities thatinterface with provider systems to optimize process efficiency and effectiveness. These technologies power the detection of defects on patient accounts andenable staff workflow at point of service areas, customer sites and our shared service centers.•"R1 Access" powers workflow in customer central business offices and at our scaled shared service centers for pre-registration, financial clearance, andfinancial counseling. The platform processes patient accounts through proprietary rules engines tuned to identify defects in demographic data,authorization processes, insurance benefits and eligibility and medical necessity. Our rules engines in R1 Access are also used to calculate patient costestimates and prior balance accounts receivables. For the uninsured, the platform helps staff triage patients to find coverage for their visit. Ourtechnology enables staff to work on an exception basis eliminating the need for manual intervention on accounts with no exceptions identified.•"R1 Link" delivers all of the insight and defect detection capabilities of our proprietary rules engines in real-time to point of service emergencydepartment and registration areas within the hospitals and clinics. When defects or inconsistent data are detected in the data entry or registrationprocess, users receive targeted messages alerting them to resolve the issue while the patient is still in front of them.•"R1 Contact," our patient contact application, provides the workflow and data for patient contact center representatives. It enables effective financialdiscussions with patients on outstanding balances. The platform is integrated into our call center, call-routing, and auto-dialer capabilities andfacilitates improved outcomes through propriety process and technology approaches.•"R1 Contract," our proprietary contract modeling platform, is used to accurately calculate the maximum allowed reimbursement for each claim basedupon models of our customer's contract with each payer. This platform is used to provide insight into the health of payer contracts and to powerportions of the workflow tools described above.•"R1 Analytics," our web-based reporting and analytics platform, produces over 300 proprietary reports derived from the financial, process andproductivity data that we accumulate as a result of our services, which enable us to monitor and identify areas for improvement in the efficacy of ourRCM services.•"R1 Decision," classifies defects in a proprietary nomenclature and distributes data to back end teams for follow up and resolution according tostandard operating processes. Defects are identified and noted on accounts as they occur. The platform, along with our "Yield-Based Follow Up"application, is designed to power customer patient financial services departments and our shared services.These propriety technology applications run on an integrated platform built on a modern event driven architecture and rules engines that enhancesintegration of systems and operational workflows.Physician Advisory Services. Our proprietary PAS tools are designed to assist our customers in the initiation of a service request by our physicianadvisory team. Our platform allows for the electronic submission, tracking, reviewing and auditing of patient cases referred to us. The PAS portal environmentis established as a secure site that enables us to receive patient records from customer case managers and route them to our physicians for review. Thisworkflow is supported by an analytics engine within the web portal that provides our customers the ability to improve their compliance and workflow withour real time reporting, dashboards and worklists.8CompetitionThe market for our solutions is highly competitive and we expect competition to intensify in the future. We believe that competition for the services weprovide is based primarily on the following factors: •knowledge and understanding of the complex healthcare payment and reimbursement system in the United States;•a track record of delivering revenue improvements and efficiency gains for hospitals and healthcare systems;•predictable and measurable results;•the ability to deliver a solution that is fully-integrated along each step of a hospital’s revenue cycle operations;•cost-effectiveness, including the breakdown between up-front costs and pay-for-performance incentive compensation;•reliability, simplicity and flexibility of technology platforms;•understanding of the healthcare industry’s regulatory environment; and•sufficient and scalable infrastructure and financial stability.We believe that we compete effectively based upon all of these criteria, although our ability to acquire new customers has been and may continue to beadversely effected by the restatement of our previously issued consolidated financial statements, or the Restatement.We face competition from various sources, including other end-to-end RCM providers and the internal RCM departments of healthcareorganizations. Hospitals that previously have made internal investments in their RCM departments sometimes choose to continue to rely on their owninternal RCM staff.We also compete with several categories of external market participants, most of which focus on specific components of hospital revenue cycle.External market participants include: •software vendors and other technology-supported RCM business process outsourcing companies;•traditional consultants; and•information technology outsourcers.These types of external participants also compete with us in the field of physician advisory services.Although we believe that there are barriers to replicating our end-to-end RCM solution, we expect competition to intensify in the future. Othercompanies may develop superior or more economical service offerings that healthcare providers could find more attractive than our offerings. Moreover, theregulatory landscape may shift in a direction that is more strategically advantageous to existing and future competitors.Government RegulationThe customers we serve are subject to a complex array of federal and state laws and regulations. These laws and regulations may change rapidly andunpredictably, and it is frequently unclear how they apply to our business.9We devote significant efforts, through training of personnel and monitoring, to establish and maintain compliance with all regulatory requirements that webelieve are applicable to our business and the services we offer.Government Regulation of Health InformationPrivacy and Security Regulations. HIPAA contains substantial restrictions and requirements with respect to the use and disclosure of an individual'sPHI. HIPAA prohibits a covered entity from using or disclosing an individual’s PHI unless the use or disclosure is authorized by the individual or isspecifically required or permitted under HIPAA. Under HIPAA, covered entities must establish administrative, physical and technical safeguards to protectthe confidentiality, integrity and availability of electronic PHI maintained or transmitted by them or by others on their behalf.HIPAA applies to covered entities such as healthcare providers that engage in HIPAA-defined standard electronic transactions, health plans andhealthcare clearinghouses. In February 2009, HIPAA was amended by the HITECH Act to impose certain of the HIPAA privacy and security requirementsdirectly upon "business associates" that perform functions on behalf of, or provide services to, certain covered entities. Most of our customers are coveredentities and we are a business associate to many such customers under HIPAA as a result of our contractual obligations to perform certain functions on behalfof, and provide certain services to, those customers. As a business associate, we sometimes also act as a clearinghouse in performing certain functions for ourcustomers. In order to provide customers with services that involve the use or disclosure of PHI, HIPAA requires our customers to enter into business associateagreements with us.Such agreements must, among other things, provide adequate written assurances: •as to how we will use and disclose the PHI;•that we will implement reasonable administrative, physical and technical safeguards to protect such information from misuse;•that we will enter into similar agreements with our agents and subcontractors that have access to the information;•that we will report security incidents and other inappropriate uses or disclosures of the information; and•that we will assist the customer with certain of its duties under HIPAA.Transaction Requirements. In addition to privacy and security requirements, HIPAA also requires that certain electronic transactions related tohealthcare billing be conducted using prescribed electronic formats. For example, claims for reimbursement that are transmitted electronically to payers mustcomply with specific formatting standards, and these standards apply whether the payer is a government or a private entity. We are contractually required tostructure and provide our services in a way that supports our customers’ HIPAA compliance obligations.Data Security and Breaches. In recent years, there have been well-publicized data breach incidents involving the improper dissemination of personalhealth and other information of individuals, both within and outside of the healthcare industry. Many states have responded to these incidents by enactinglaws requiring holders of personal information to maintain safeguards and to take certain actions in response to data breach incidents, such as providingprompt notification of the breach to affected individuals and government authorities. In many cases, these laws are limited to electronic data, but states areincreasingly enacting or considering stricter and broader requirements. Under the HITECH Act and its implementing regulations, business associates are alsorequired to notify covered entities, which in turn are required to notify affected individuals and government authorities of data security breaches involvingunsecured PHI. In addition, the U.S. Federal Trade Commission, or FTC, has prosecuted some data breach cases as unfair and deceptive acts or practices underthe Federal Trade Commission Act, or FTC Act. We have implemented and maintain physical, technical and administrative safeguards intended to protect allpersonal10data, and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and properly respondingto any security incidents.State Laws. In addition to HIPAA, most states have enacted patient confidentiality laws that protect against the unauthorized disclosure of confidentialmedical information, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards anddata security breach notification requirements. Such state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements,and we must comply with them even though they may be subject to different interpretations by various courts and other governmental authorities.Other Requirements. In addition to HIPAA, numerous other state and federal laws govern the collection, dissemination, use, access to andconfidentiality of individually identifiable health and other information and healthcare provider information. The FTC has issued guidance for, and severalstates have issued or are considering new regulations to require, holders of certain types of personally identifiable information to implement formal policiesand programs to prevent, detect and mitigate the risk of identity theft and other unauthorized access to or use of such information. Further, federal and statelegislation has been proposed, and through rule making or executive action, several states have taken action, to restrict or discourage the disclosure ofmedical or other personally identifiable information to individuals or entities located outside of the United States.Government Regulation of ReimbursementOur customers are subject to regulation by a number of governmental agencies, including those that administer the Medicare and Medicaid programs.Accordingly, our customers are sensitive to legislative and regulatory changes in, and limitations on, the government healthcare programs and changes inreimbursement policies, processes and payment rates. During recent years, there have been numerous federal legislative and administrative actions that haveaffected government programs, including adjustments that have reduced or increased payments to physicians and other healthcare providers and adjustmentsthat have affected the complexity of our work. For example, the Patient Protection and Affordable Care Act of 2010, or ACA, may reduce reimbursement forsome healthcare providers while increasing reimbursement for others including primary care physicians. In addition, the ACA mandates the implementationof various programs and value and quality-based reimbursement incentives that may impact the amount of reimbursement for our customers. For example, theadjustment related to the Medicare Value-Based Purchasing Program will increase from 1.5% in 2015 to 2.0% in 2017 and the adjustment related to theHospital Readmission Reduction Program increased from 1.0% in 2013 to 3.0% in 2015 and applies to an increased number of conditions. It is possible thatthe federal or state governments will implement additional reductions, increases or changes in reimbursement in the future under government programs thatadversely affect our customer base or increase the cost of providing our services. Any such changes could adversely affect our own financial condition byreducing the reimbursement rates of our customers.Fraud and Abuse LawsA number of federal and state laws, generally referred to as fraud and abuse laws, apply to healthcare providers, physicians and others that make, offer,seek or receive referrals or payments for products or services that may be paid for through any federal or state healthcare program and in some instances anyprivate program. Given the breadth of these laws and regulations, they may affect our business, either directly or because they apply to our customers. Theselaws and regulations include:Anti-Kickback Laws. There are numerous federal and state laws that govern patient referrals, physician financial relationships, and inducements tohealthcare providers and patients. The federal healthcare anti-kickback law prohibits any person or entity from offering, paying, soliciting or receivinganything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and certain other federal healthcare programs or theleasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs.Courts have construed this anti-kickback law to mean that a financial arrangement may violate this law if any one of the purposes of an arrangement is toinduce referrals of federal healthcare programs, patients or business, regardless of whether there are other legitimate purposes for the11arrangement. There are several limited exclusions known as safe harbors that may protect certain arrangements from enforcement penalties although thesesafe harbors tend to be quite narrow. Penalties for federal anti-kickback violations can be severe, and include imprisonment, criminal fines, civil moneypenalties with triple damages and exclusion from participation in federal healthcare programs. Anti-kickback law violations also may give rise to a civil FalseClaims Act, or FCA, action, as described below. Many states have adopted similar prohibitions against kickbacks and other practices that are intended toinduce referrals, and some of these state laws are applicable to all patients regardless of whether the patient is covered under a governmental health programor private health plan.False or Fraudulent Claim Laws. There are numerous federal and state laws that forbid submission of false information or the failure to discloseinformation in connection with the submission and payment of provider claims for reimbursement. In some cases, these laws also forbid abuse of existingsystems for such submission and payment, for example, by systematic over treatment or duplicate billing of the same services to collect increased or duplicatepayments.In particular, the federal FCA prohibits a person from knowingly presenting or causing to be presented a civil false or fraudulent claim for payment orapproval by an officer, employee or agent of the United States. The FCA also prohibits a person from knowingly making, using, or causing to be made or useda false record or statement material to such a claim. The FCA was amended on May 20, 2009 by the Fraud Enforcement and Recovery Act of 2009, or FERA.Following the FERA amendments, the FCA’s "reverse false claim" provision also creates liability for persons who knowingly conceal an overpayment ofgovernment money or knowingly and improperly retain an overpayment of government funds. In addition, the ACA requires providers to report and returnoverpayments and to explain the reason for the overpayment in writing within 60 days of the date on which the overpayment is identified, and the failure todo so is punishable under the FCA. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequencesincluding, potentially, exclusion from participation in federally funded healthcare programs. In 2016, penalties for FCA violations doubled and can nowrange from $10,781 to $21,563 per claim (up from $5,000 to $11,000). The scope and implications of the FCA amendments have yet to be fully determinedor adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.In addition, under the Civil Monetary Penalty Act of 1981, the Department of Health and Human Services Office of Inspector General has the authorityto impose administrative penalties and assessments against any person, including an organization or other entity, who knowingly presents, or causes to bepresented, to a state or federal government employee or agent certain false or otherwise improper claims.Stark Law and Similar State Laws. The Ethics in Patient Referrals Act, known as the Stark Law, prohibits certain types of referral arrangementsbetween physicians and healthcare entities and thus potentially applies to our customers. Specifically, under the Stark Law, absent an applicable exception, aphysician may not make a referral to an entity for the furnishing of designated health service, or DHS, for which payment may be made by the Medicareprogram if the physician or any immediate family member has a financial relationship with that entity. Further, an entity that furnishes DHS pursuant to aprohibited referral may not present or cause to be presented a claim or bill for such services to the Medicare program or to any other individual or entity.Violations of the statute can result in civil monetary penalties and/or exclusion from federal healthcare programs. Stark Law violations also may give rise to acivil FCA action. Any such violations by, and penalties and exclusions imposed upon, our customers could adversely affect their financial condition and, inturn, could adversely affect our own financial condition.Laws in many states similarly forbid billing based on referrals between individuals and/or entities that have various financial, ownership or otherbusiness relationships. These laws vary widely from state to state.Laws Limiting Assignment of Reimbursement ClaimsVarious federal and state laws, including Medicare and Medicaid, forbid or limit assignments of claims for reimbursement from government fundedprograms. Some of these laws limit the manner in which business service companies may handle payments for such claims and prevent such companies fromcharging their provider customers on the basis of a percentage of collections or charges. We do not believe that the services we provide our12customers result in an assignment of claims for the Medicare or Medicaid reimbursements for purposes of federal healthcare programs. Any determination tothe contrary, however, could adversely affect our ability to be paid for the services we provide to our customers, require us to restructure the manner in whichwe are paid, or have further regulatory consequences.Emergency Medical Treatment and Active Labor ActThe federal Emergency Medical Treatment and Active Labor Act, or EMTALA, was adopted by the U.S. Congress in response to reports of a widespreadhospital emergency room practice of "patient dumping." At the time of EMTALA’s enactment, patient dumping was considered to have occurred when ahospital capable of providing the needed care sent a patient to another facility or simply turned the patient away based on such patient’s inability to pay forhis or her care. EMTALA imposes requirements as to the care that must be provided to anyone who seeks care at facilities providing emergency medicalservices. In addition, CMS of the U.S. Department of Health and Human Services has issued final regulations clarifying those areas within a hospital systemthat must provide emergency treatment, procedures to meet on-call requirements, as well as other requirements under EMTALA. Sanctions for failing to fulfillthese requirements include exclusion from participation in the Medicare and Medicaid programs and civil monetary penalties. In addition, the law createsprivate civil remedies that enable an individual who suffers personal harm as a direct result of a violation of the law to sue the offending hospital for damagesand equitable relief. A hospital that suffers a financial loss as a direct result of another participating hospital’s violation of the law also has a similar right.EMTALA generally applies to our customers, and we assist our customers with the intake of their patients. Although we believe that our customers’medical screening, stabilization and transfer practices are generally in compliance with the law and applicable regulations, we cannot be certain thatgovernmental officials responsible for enforcing the law or others will not assert that we or our customers are in violation of these laws nor what obligationsmay be imposed by regulations to be issued in the future.Regulation of Debt Collection ActivitiesThe federal Fair Debt Collection Practices Act, or FDCPA, regulates persons who regularly collect or attempt to collect, directly or indirectly, consumerdebts owed or asserted to be owed to another person. Certain of our accounts receivable activities may be deemed to be subject to the FDCPA. The FDCPAestablishes specific guidelines and procedures that debt collectors must follow in communicating with consumer debtors, including the time, place andmanner of such communications. Further, it prohibits harassment or abuse by debt collectors, including the threat of violence or criminal prosecution,obscene language or repeated telephone calls made with the intent to abuse or harass. The FDCPA also places restrictions on communications withindividuals other than consumer debtors in connection with the collection of any consumer debt and sets forth specific procedures to be followed whencommunicating with such third parties for purposes of obtaining location information about the consumer. In addition, the FDCPA contains various noticeand disclosure requirements and prohibits unfair or misleading representations by debt collectors. Finally, the FDCPA imposes certain limitations on lawsuitsto collect debts against consumers.Debt collection activities are also regulated at the state level. Most states have laws regulating debt collection activities in ways that are similar to, andin some cases more stringent than, the FDCPA. In addition, some states require companies engaged in the collection of consumer debt to be licensed. In allstates where we operate, we believe that we currently hold all required state licenses or are exempt from licensing.We are also subject to the Telephone Consumer Protection Act, or TCPA. In the process of communicating with our customers’ patients, we use avariety of communications methods. The TCPA places certain restrictions on companies that place telephone calls to consumers.The FTC has the authority to investigate consumer complaints relating to the FDCPA and the TCPA, and to initiate or recommend enforcement actions,including actions to seek monetary penalties. State officials typically have authority to enforce corresponding state laws. In addition, affected consumers maybring suits, including class13action suits, to seek monetary remedies (including statutory damages) for violations of the federal and state provisions discussed above.Regulation of Credit Card ActivitiesWe process, on behalf of our customers, credit card payments from their patients. Various federal and state laws impose privacy and information securitylaws and regulations with respect to the use of credit cards. If we fail to comply with these laws and regulations or experience a credit card security breach, ourreputation could be damaged, possibly resulting in lost future business, and we could be subjected to additional legal or financial risk as a result of non-compliance.ICD-10On October 1, 2015, the International Classification of Diseases 9, or ICD-9, which was used to report medical diagnoses and in-patient procedures wasreplaced by International Classification of Diseases 10, or ICD-10. ICD-10 affects coding for all covered entities, is significantly more complex than ICD-9,and has required system and business changes throughout the healthcare industry.Foreign RegulationsOur operations in India are subject to additional regulations that govern the creation, continuation and winding up of companies, as well as therelationships between the shareholders, the company, the public and the government.Intellectual PropertyWe rely upon a combination of patent, trademark, copyright and trade secret laws and contractual terms and conditions to protect our intellectualproperty rights, and have sought patent protection for aspects of our key innovations.We have been issued three U.S. patents, which expire in 2028, 2030 and 2031, and have filed three additional U.S. patent applications that relate to keydomains of our R1 Access software suite: improving efficiency of client claims' reimbursement, follow-up and measurement. Legal standards relating to thevalidity, enforceability and scope of protection of patents can be uncertain. We do not know whether any of our pending patent applications will result in theissuance of patents or whether the examination process will require us to narrow our claims. Our patent applications may not result in the grant of patents withthe scope of the claims that we seek, if at all, or the scope of the granted claims may not be sufficiently broad to protect our products and technology. Ourthree granted patents or any patents that may be granted in the future from pending or future applications may be opposed, contested, circumvented, designedaround by a third party or found to be invalid or unenforceable. Third parties may develop technologies that are similar or superior to our proprietarytechnologies, duplicate or otherwise obtain and use our proprietary technologies or design around patents owned or licensed by us. If our technology isfound to infringe any patent or other intellectual property right held by a third party, we could be prevented from providing our service offerings and/orsubjected to significant damage awards.We also rely, in some circumstances, on trade secrets to protect our technology. We control access to and the use of our application capabilities througha combination of internal and external controls, including contractual protections with employees, customers, contractors and business partners. We licensesome of our software through agreements that impose specific restrictions on our customers’ ability to use the software, such as prohibiting reverseengineering and limiting the use of copies. We also require employees and contractors to sign non-disclosure agreements and invention assignmentagreements to give us ownership of intellectual property developed in the course of working for us.Consistent with common industry practices, we sometimes utilize open source software or third party software products to meet our clients' needs.14Financial Information About Geographic AreasAll of our customers are entities organized and located within the United States. We do not derive any customer revenue from countries outside theUnited States.EmployeesAs of February 24, 2017, we had approximately 6,113 full-time employees, as well as approximately 531 part-time employees. Of these employees,approximately 3,815 full-time and all part-time employees were located in the U.S., and approximately 2,298 full-time employees were located in India. Ouremployees are not represented by a labor union, and we consider our current employee relations to be good.Corporate InformationWe were incorporated in Delaware in 2003 as Healthcare Services, Inc. and were named Healthcare Services, Inc. from July 2003 until August 2009when we changed our name to Accretive Health, Inc. We operated under the name Accretive Health until January 5, 2017, when we changed our name to R1RCM Inc. Our principal executive offices are located at 401 North Michigan Avenue, Suite 2700, Chicago, Illinois 60611, and our telephone number is(312) 324-7820.Information AvailabilityOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments and exhibits to those reports areavailable free of charge on our website at www.r1rcm.com under the "Investor Relations" page as soon as reasonably practicable after such material iselectronically filed with, or furnished to, the Securities and Exchange Commission, or the SEC. The content on any website referred to in this Annual Reporton Form 10-K is not incorporated by reference into this report, unless expressly noted otherwise.15Item 1A.Risk FactorsRisks Relating to our Business and IndustryWe may not be able to achieve or maintain profitability.While we generated net income in 2016, we have incurred net losses in most of our recent fiscal years and expect to report additional quarterly andannual losses in 2017, in accordance with United States generally accepted accounting principles, or GAAP. We also incurred significant costs in most of ourrecent fiscal years including, among other things, costs related to exploration of strategic alternatives, legal defense, crisis management, restructuring and/orpreviously settled lawsuits filed against us and are likely to continue to incur additional costs in connection with certain of these matters in 2017. Further, inconnection with the A&R MPSA, we have incurred and expect to incur additional costs for investments in technology, facilities and talent to support theanticipated growth of our business, including growth related to the expected implementation of our services under the A&R MPSA. We intend to continue toincrease our operating expenses associated with sales and marketing in future years in an effort to expand our business. If our revenue does not increase tooffset these increases in costs, our operating results would be adversely affected. You should not consider our historical operating results as indicative offuture operating results, and we cannot assure you that we will be able to achieve or maintain profitability in the future. Each of the risks described in this"Risk Factors" section, as well as other factors, may adversely affect our future operating results.Litigation has materially adversely affected our business, financial condition, operating results and cash flows and caused unfavorable publicity andis likely to continue to do so.We are currently and have in the past been involved in lawsuits, claims, audits and investigations, including lawsuits and investigations related to theRestatement and our business operations and practices. These lawsuits, claims, audits and investigations, which are described in "Part I – Item 3 – LegalProceedings", have resulted in, and may lead to additional, unfavorable publicity for us and may continue to materially adversely affect, our business,financial condition, operating results and cash flows in various ways, including having a disruptive effect upon the operation of our business and consumingthe time and attention of our senior management.In addition, we have incurred substantial expenses in connection with these litigation matters, including substantial fees for attorneys. Although wemaintain insurance that may provide coverage for some or all of these expenses, and we have given notice to our insurers of the claims, our insurers haveresponded by reserving their rights under the policies, including the rights to deny coverage under various policy exclusions. There is risk that the insurerswill rescind the policies, that some or all of the claims will not be covered by such policies, or that, even if covered, our ultimate liability will exceed theavailable insurance.We are unable to predict the outcome of pending legal actions. The ultimate resolutions of our pending litigation could have a material adverse effecton our financial results, financial condition or liquidity, and on the trading price of our common stock.In addition, we may become subject to future lawsuits, claims, audits and investigations that could result in the incurrence of substantial additionalexpense, subject us to significant liability, result in significant settlement payments or further divert management’s attention from our business, and therebymaterially adversely affect our business, financial condition, operating results and cash flows.If we are unable to retain our existing customers or acquire new customers, our financial condition will suffer.Our success depends in part upon the retention of our customers and our ability to acquire new customers. We derive our net services revenue primarilyfrom managed services agreements pursuant to which we receive performance-based fees. Customers can elect not to renew their managed services agreementswith us upon16expiration. In addition, our agreements with certain customers permit such customers to terminate for convenience, subject to a notice period. If a managedservices agreement is not renewed or is terminated early for any reason, we would not derive the financial benefits that we would expect to derive by servingthat customer.Some of our managed services agreements require us to adhere to extensive, complex data security, network access and other institutional proceduresand requirements of our customers, and we cannot guaranty that some of our customers will not allege that we have not complied with all such proceduresand requirements. If we breach a managed services agreement or, for certain of our managed services agreements, fail to perform in accordance withcontractual service levels, we may be liable to the customer for damages, and either we or the customer may generally terminate an agreement for a materialuncured breach by the other. Any of these events could adversely affect our business, financial condition, operating results and cash flows. In addition,financial issues or other changes in customer circumstances, such as a customer change in control (including as a result of increasing consolidation within thehealthcare provider industry), may cause us or the customer to seek to modify or terminate a managed services agreement. Increasing consolidation within thehealthcare provider industry may also make it more difficult for us to acquire new customers, as consolidated healthcare systems may be more likely to haveincumbent revenue cycle management providers or significant internal revenue cycle capabilities. For example, certain of our smaller customers have beenacquired by larger healthcare systems and ceased to be customers.Additionally, from time to time we have reached settlement agreements with customers which provided for the early terminations of those customers'agreements. The loss of customer agreements has adversely affected our operating results historically.The markets for our RCM service offering may develop more slowly than we expect, including because some potential customers for our servicespreviously have made or in the future will make investments in internally developed solutions and choose to continue to rely on their own internalresources, which could adversely affect our revenue growth.Our success depends, in part, on the willingness of hospitals, physicians and other healthcare providers to implement integrated solutions for the areasin which we provide services. Some hospitals may be reluctant or unwilling to implement our solutions for a number of reasons, including failure to perceivethe need for improved revenue cycle operations or lack of knowledge about the potential benefits our solutions provide.Even if potential customers recognize the need to improve revenue cycle operations, they may not select solutions such as ours because theypreviously have made or in the future will make investments in internally developed solutions and choose to continue to rely on their own internal resources.As a result, the markets for integrated, end-to-end revenue cycle management services may develop more slowly than we expect, which could adversely affectour revenue and operating results.Our business operations currently include the collection, on behalf of our customers, of medical co-pays and other payments that are due to ourcustomers from their patients. This business practice has been perceived negatively by the public and this negative perception has adversely affected (andmay continue to adversely affect) our business, results of operations and financial condition.We currently collect, on behalf of our customers, medical co-pays and other non-defaulted payments that are due to our customers from their patients,pursuant to managed services agreements with our customers. Collection of these payments from patients may become a more significant part of our RCMservices as industry trends continue to increase patient responsibility as a percentage of total compensation to healthcare providers. This business practice,which has received widespread, unfavorable publicity as a result of lawsuits previously initiated against us, has been negatively perceived by the public andhas led us to change aspects of our business practices, made it more difficult to retain existing customers and attract new customers, extended the time it takesto enter into service agreements with new customers, and resulted in a material adverse effect on our business, results of operations and financial condition,and it may continue to do so.17We operate in a highly competitive industry, and our current or future competitors may be able to compete more effectively than we do, which couldhave a material adverse effect on our business, revenue, growth rates and market share.The market for our solutions is highly competitive and we expect competition to intensify in the future. The rapid changes in the U.S. healthcare marketdue to financial pressures to reduce the growth in healthcare costs and from regulatory and legislative initiatives are increasing the level of competition. Weface competition from new entrants as well as the internal RCM departments of hospitals, as described above, and external participants. External participantsthat are our competitors in the revenue cycle market include end-to-end RCM providers, software vendors and other technology-supported RCM businessprocess outsourcing companies, traditional consultants, and information technology outsourcers. These types of external participants also compete with us inthe field of physician advisory services (which services and capabilities have been or are being integrated into our RCM service offering). Our competitorsmay be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, regulations or customerrequirements. We may not be able to compete successfully with these companies, and these or other competitors may introduce technologies or services thatrender our technologies or services obsolete or less marketable. Even if our technologies and services are more effective than the offerings of our competitors,current or potential customers might prefer competitive technologies or services to our technologies and services. Increased competition is likely to result inpricing pressures, which could adversely affect our margins, growth rate or market share.We face a selling cycle of variable length to secure new RCM agreements, making it difficult to predict the timing of specific new customerrelationships.We face a selling cycle of variable length, typically spanning six to 18 months or longer, to secure a new managed services agreement. Even if wesucceed in developing a relationship with a potential new customer, we may not be successful in entering into a managed services agreement with thatcustomer. In addition, we cannot accurately predict the timing of entering into managed services agreements with new customers due to the complexprocurement decision processes of most healthcare providers, which often involves high-level management or board committee approvals. Consequently, wehave only a limited ability to predict the timing of specific new customer relationships. Moreover, we believe that the unfavorable publicity we received as aresult of lawsuits previously initiated against us, the Restatement, and other related legal proceedings have reduced our attractiveness to some potentialhealthcare providers and consequently, have resulted in the lengthening of the selling cycle with potential new customers.Delayed or unsuccessful implementation of our technologies or services with our customers or implementation costs that exceed our expectationsmay harm our financial results.To implement our solutions, we work with our customer’s existing vendors, management and staff and layer our proprietary technology applications ontop of the customer’s existing patient accounting and clinical systems. Each customer’s situation is different, and unanticipated difficulties and delays mayarise such as delays in, or the inability to, obtain approvals or access rights from our customers’ vendors. If the implementation process is not executedsuccessfully or is delayed, our relationship with the customer may be adversely affected and our results of operations could suffer. Implementation of oursolutions also requires us to integrate our own employees into the customer’s operations. The customer’s circumstances may require us to devote a largernumber of our employees than anticipated, which could increase our costs and harm our financial results.Our quarterly results of operations and cash flows fluctuate as a result of many factors, some of which may be outside of our control.The timing of any new customer additions is not likely to be uniform throughout the year, which can also cause fluctuations in our quarterly results.Operating costs are typically higher in quarters in which we add new customers because we incur expenses to implement our operating model at thosecustomers. Further, fees billable to customers under many of our managed services agreements experience fluctuations as they are tied contractually to thelevel of our customers’ cash receipts. Fees have a significant effect on our cash flows, and changes in the amount18of fees can cause significant fluctuations in our quarter-to-quarter operating cash flows. Our cash flows can also be impacted by the timing of operating costs.In addition, our revenues have historically fluctuated widely from quarter to quarter based on revenue recognition criteria under GAAP. Prior to theadoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2017 ("ASU 2014-09"), werecognized revenues that were contingent in nature when all revenue recognition criteria were met, which was generally at the end of a contract or othercontractual agreement event. The adoption of ASU 2014-09 is expected to have a material impact on our consolidated financial statements, with the mostsignificant impact being the recognition of revenue at the time services are provided or as the significant uncertainty related to variable fees for incentives isresolved for our end-to-end revenue cycle base and incentive fees. We believe this will reduce but not eliminate the fluctuation in our results of operations.If we lose key personnel or if we are unable to attract, hire, integrate and retain our key personnel and other necessary employees, our business couldbe harmed.Our future success depends in part on our ability to attract, hire, integrate and retain key personnel. Our future success also depends in part on thecontinued contributions of our executive officers and other key personnel, each of whom may be difficult to replace. The loss of services of any of ourexecutive officers or key personnel, or the inability to continue to attract qualified personnel could have a material adverse effect on our business,particularly as a result of our recent restructuring activities. Competition for the caliber and number of employees we require is intense. We may facedifficulty identifying and hiring qualified personnel at compensation levels consistent with our existing compensation and salary structure. In addition, weinvest significant time and expense in training each of our employees, which increases their value to competitors who may seek to recruit them. If we fail toretain our employees, we could incur significant expenses in hiring, integrating and training their replacements, and the quality of our services and ourability to serve our customers could diminish, resulting in a material adverse effect on our business.The imposition of legal responsibility for obligations related to our employees or our customers’ employees could adversely affect our business andsubject us to liability.Under certain of our agreements with customers, we work with those customers’ employees engaged in the activities included in the scope of ourservices. Our co-management model RCM services agreements establish the division of responsibilities between us and our customers for various personnelmanagement matters, including compliance with and liability under various employment laws and regulations. We could, nevertheless, be found to haveliability with our customers for actions against or by employees of our customers, including under various employment laws and regulations, such as thoserelating to discrimination, retaliation, wage and hour matters, occupational safety and health, family and medical leave, notice of facility closings and layoffsand labor relations, as well as similar liability with respect to our own employees, and any such liability could result in a material adverse effect on ourbusiness.If we fail to manage our operations effectively, our business would be harmed.We have not always been fully successful in managing the expansion of our operations which has led, at times to some customer dissatisfaction andweaknesses in our operating, internal and financial controls. To manage potential future growth, we will need to hire, integrate and retain highly skilled andmotivated employees, and will need to work effectively with a growing number of customer employees engaged in revenue cycle operations. We will alsoneed to continue to maintain or improve our financial, internal and management controls, reporting systems and procedures. If we do not effectively manageour operations, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfycustomer requirements or maintain high-quality service offerings.Disruptions in service or damage to our shared services centers and third-party operated data centers could adversely affect our business.19Our shared services centers and third-party operated data centers are essential to our business. Our operations depend on our ability to operate ourshared services centers, and to maintain and protect our applications, which are located in data centers that are operated for us by third parties. We cannotcontrol or assure the continued or uninterrupted availability of these third-party data centers. In addition, our information technologies and systems, as wellas our data centers and shared services centers, are vulnerable to damage or interruption from various causes, including (1) acts of God and other naturaldisasters, war and acts of terrorism and (2) power losses, computer systems failures, internet and telecommunications or data network failures, operator error,losses of and corruption of data and similar events. We have a business continuity plan and maintain insurance against fires, floods, other natural disastersand general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at one of our data centers orshared services centers, but the situations we plan for and the amount of insurance coverage we maintain may not be adequate in every particular case. Inaddition, the occurrence of any of these events could result in interruptions, delays or cessations in service to our customers, or in interruptions, delays orcessations in the direct connections we establish between our customers and payers. Any of these events could impair or inhibit our ability to provide ourservices, reduce the attractiveness of our services to current or potential customers and adversely affect our financial condition and results of operations.In addition, despite the implementation of security measures, our infrastructure, data centers, shared services centers or systems that we interface with,including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses,programming errors, denial-of-service attacks or other attacks by third parties seeking to disrupt operations or misappropriate information or similar physicalor electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in servicedisruptions. As a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviateproblems caused by such breaches.If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may be perceived as not beingsecure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.Our services involve the storage and transmission of customers’ proprietary information and protected health, financial, payment and other personalinformation of patients. We rely on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to providesecurity for processing, transmission and storage of such information, and because of the sensitivity of this information, the effectiveness of such securityefforts is very important. The systems currently used for transmission and approval of credit card transactions, and the technology utilized in credit cardsthemselves, all of which can put credit card data at risk, are determined and controlled by the payment card industry, not by us. If our security measures arebreached or fail as a result of third-party action, employee error, malfeasance or otherwise, someone may be able to obtain unauthorized access to customer orpatient data. Improper activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries andother events or developments may facilitate or result in a compromise or breach of our computer systems. Techniques used to obtain unauthorized access orto sabotage systems change frequently and generally are not recognized until launched against a target, and we may be unable to anticipate these techniquesor to implement adequate preventive measures. Our security measures may not be effective in preventing these types of activities, and the security measuresof our third-party data centers and service providers may not be adequate. If a breach of our security occurs, we could face damages for contract breach,penalties for violation of applicable laws or regulations, possible lawsuits by individuals affected by the breach and significant remediation costs and effortsto prevent future occurrences. In addition, whether there is an actual or a perceived breach of our security, the market perception of the effectiveness of oursecurity measures could be harmed and we could lose current or potential customers.We may be liable to our customers or third parties if we make errors in providing our services, and our anticipated net services revenue may be lowerif we provide poor service.The services we offer are complex, and we make errors from time to time. Errors can result from the interface of our proprietary technology applicationsand a customer’s existing technologies or we may make human errors in20any aspect of our service offerings. The costs incurred in correcting any material errors may be substantial and could adversely affect our operating results.Our customers, or third parties such as our customers’ patients, may assert claims against us alleging that they suffered damages due to our errors, and suchclaims could subject us to significant legal defense costs in excess of our existing insurance coverage and adverse publicity regardless of the merits oreventual outcome of such claims. In addition, if we provide poor service to a customer and the customer therefore fails to achieve agreed upon improvementin financial or operating metrics, the incentive fee payments to us from that customer will be lower than anticipated.We offer our services in many jurisdictions and, therefore, may be subject to federal, state and local taxes that could harm our business or that wemay have inadvertently failed to pay.We may lose sales or incur significant costs should various tax jurisdictions be successful in imposing taxes on a broader range of services. Impositionof such taxes on our services could result in substantial unplanned costs, which would effectively increase the cost of such services to our customers and mayadversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.Our growing operations in India expose us to risks that could have a material adverse effect on our costs of operations.We employ a significant number of persons in India and expect to continue to add personnel in India. While there are cost and service advantages tooperating in India, significant growth in the technology sector in India has increased competition to attract and retain skilled employees and has led to acommensurate increase in compensation expense. In the future, we may not be able to hire and retain such personnel at compensation levels consistent withour existing compensation and salary structure in India. In addition, our reliance on a workforce in India exposes us to disruptions in the business, politicaland economic environment in that region. Maintenance of a stable political environment is important to our operations, and terrorist attacks and acts ofviolence or war may directly affect our physical facilities and workforce or contribute to general instability. Our operations in India require us to comply withlocal laws and regulatory requirements, which are complex and of which we may not always be aware, and expose us to foreign currency exchange rate risk.Our Indian operations may also subject us to trade restrictions, reduced or inadequate protection for intellectual property rights, security breaches and otherfactors that may adversely affect our business. Negative developments in any of these areas could increase our costs of operations or otherwise harm ourbusiness.Negative public perception in the United States regarding offshore outsourcing and proposed legislation may increase the cost of delivering ourservices.Offshore outsourcing is a politically sensitive topic in the United States. For example, various organizations and public figures in the United Stateshave expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in the United States. In addition, there hasbeen publicity about the negative experience of certain companies that use offshore outsourcing, particularly in India. Current or prospective customers mayelect to perform such services themselves or may be discouraged from transferring these services from onshore to offshore providers to avoid negativeperceptions that may be associated with using an offshore provider. Any slowdown or reversal of existing industry trends towards offshore outsourcing wouldincrease the cost of delivering our services if we had to relocate aspects of our services from India to the United States where operating costs are higher.Legislation in the United States may be enacted that is intended to discourage or restrict offshore outsourcing. In the United States, federal and statelegislation has been proposed, and in several states enacted, to restrict or discourage U.S. companies from outsourcing their services to companies outside theUnited States. Further, through rule making or executive action, some states have imposed limitations on offshore outsourcing of administrative services forthe Medicaid program. It is possible that additional legislation could be adopted or regulatory guidance issued that would restrict U.S. private sectorcompanies that have federal or state government contracts, or that receive government funding or reimbursement, such as Medicare or Medicaid payments,from outsourcing their services to offshore service providers. Any changes to existing laws or the enactment of new legislation restricting21offshore outsourcing in the United States may adversely affect our ability to do business, particularly if these changes are widespread, and could have amaterial adverse effect on our business, results of operations, financial condition and cash flows.We have previously identified material weaknesses in our internal control over financial reporting, and if we cannot maintain an effective system ofinternal control over financial reporting in the future, our business could be adversely affected.We have previously identified material weaknesses in our internal control over financial reporting and we may not be capable of maintaining aneffective system of internal control in the future. Our ability to identify and remediate any material weaknesses in our internal controls could affect our abilityto prepare financial reports in a timely manner, control our policies, procedures, operations, and assets, assess and manage our operational, regulatory andfinancial risks, and integrate any acquired businesses. Any failures to ensure full compliance with internal control and financial reporting requirements in thefuture could result in another restatement, cause us to fail to timely meet our reporting obligations, harm our reputation and the market price for our securitiesand adversely affect our business.Our ability to use our net operating loss carryforwards may be limited.As of December 31, 2016, we had approximately $181.2 million of federal net operating loss carryforwards for U.S. income tax purposes that begin toexpire in 2033 and cumulative state net operating loss carryforwards of approximately $185.8 million . Section 382 of the Internal Revenue Code imposeslimitations on a corporation’s ability to use its net operating loss carryforwards if it experiences an "ownership change." Similar rules and limitations mayapply for state income tax purposes. In the event an "ownership change" were to occur in the future, our ability to utilize our net operating losses could belimited. If our net operating loss carryforwards are limited, and we have taxable income which exceeds the available net operating loss carryforwards for thatperiod, we would incur an income tax liability even though net operating loss carryforwards may be available in future years prior to their expiration.Risks Related to Ascension and the TransactionsHospital systems affiliated with Ascension currently account for a significant portion of our net services revenue as well as our gross cash generatedfrom contracting activities. The early termination of our A&R MPSA with Ascension, or any significant loss of business from our large customers, wouldhave a material adverse effect on our business, results of operations and financial condition.Hospital systems affiliated with Ascension have accounted for a significant portion of our net services revenue each year since our formation. In 2016,2015, and 2014, net services revenue from hospitals affiliated with Ascension represented 78%, 45%, and 12% of our total net services revenue, respectively,in such periods. Additionally, in 2016, 2015, and 2014, gross cash generated from customer contracting activities, as defined in "Part II - Item 6 - SelectedConsolidated Financial Data", with hospital systems affiliated with Ascension represented 71%, 59%, and 53%, respectively, of our total gross cash generatedfrom contracting activities in such periods. In 2016, one hospital system unaffiliated with Ascension accounted for 15% of our total services revenue and 7%of our gross cash generated from customer contracting activities. The early termination of the A&R MPSA, the loss of any of our other large customers or theirfailure to renew their managed services agreements with us upon expiration, or a reduction in the fees for our services for these customers, could have amaterial adverse effect on our business, results of operations and financial condition.Our agreements with Ascension and certain other customers require us to offer to such customer service fees that are at least as low as the fees wecharge any other customer receiving comparable services at comparable or lower volumes.Our A&R MPSA with Ascension requires us to offer to Ascension's affiliated hospital systems fees for our services that are at least as low as the fees wecharge any other customer receiving comparable services at lower22volumes. If we were to charge lower service fees to any other customer receiving comparable services at lower volumes, we would be obligated to charge suchlower fees to the hospital systems affiliated with Ascension effective as of the date such lower charges were first implemented for such other customer.Additionally, our RCM agreement with another customer requires us to provide that customer with a gain sharing rate that is as low as the rate provided toany new customer, unless the fee arrangement with the new customer results in a greater ratio of annual aggregate fees compared to such new customer's in-scope net patient revenue than the average ratio of annual aggregate fees compared to in-scope net patient revenue for our current customer. If we offercustomers lower rates than as discussed above, it could have a material adverse effect on our results of operations and financial condition.We may be unsuccessful in integrating transitioned Ascension employees.Under the terms of the A&R MPSA, we expect to continue to transition a significant number of Ascension revenue cycle employees to our employment.We may experience difficulties in integrating these employees. Such difficulties may include the diversion of management’s attention from other businessconcerns. If we experience difficulties in integrating these employees, our business, results of operations and financial condition could be adversely affected.The shares of Series A Preferred Stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and paymentsupon liquidation and have other terms, such as a put right and a mandatory conversion date, that could negatively impact the value of shares of ourcommon stock.We have issued more than $200 million of Series A Preferred Stock to the Investor. The rights of the holders of our Series A Preferred Stock with respectto dividends, distributions and payments upon liquidation rank senior to similar obligations to our common stock holders. Upon our liquidation or uponcertain changes of control, the holders of our Series A Preferred Stock are entitled to receive, prior and in preference to any distribution to the holders of anyother class of our equity securities, an amount equal to the greater of the outstanding principal plus all accrued and unpaid dividends on such Series APreferred Stock (which cumulative dividends accrue at the rate of 8.0% per annum and compound quarterly) and the amount such holders would havereceived if such Series A Preferred Stock had been converted into common stock. Until February 16, 2023, the dividends on the Series A Preferred Stock willbe paid-in-kind and thereafter such dividends may be paid in cash or paid-in-kind at the election of the Company.The terms of the Series A Preferred Stock provide rights to their holders that could negatively impact our Company. Shares of our Series A PreferredStock may be converted at any time at the option of the holder at an effective initial conversion price of $2.50 per share (which conversion price is subject toadjustment upon the occurrence of certain events).Further, so long as Investor owns at least 25% of our common stock on an as-converted basis, no dividends on our common stock (or any other equitysecurities junior in right to the Series A Preferred Stock) may be paid without the consent of the Investor. To the extent any dividend, distributions or otherpayments are made on our common stock, the holders of the Series A Preferred Stock shall have the right to participate on an as converted basis in any suchdividends, distributions or other payments. The existence of such a senior security could have an adverse effect on the value of our common stock.The Investor, an affiliate of TowerBrook and Ascension, is a significant shareholder in us and may have conflicts of interest with us or you in thefuture.In connection with the Transactions, we entered into a purchase agreement with the Investor and Ascension, pursuant to which we issued (i) 200,000shares of our Series A Preferred Stock for an aggregate price of $200 million and (ii) a warrant to acquire up to 60 million shares of our common stock. As aresult of this ownership, so long as certain ownership thresholds are met, the Investor, among other things, has the right to nominate a majority of themembers of our board of directors, or Board, and has a consent right over certain corporate actions, including the declaration of any dividend, anyamendment of the A&R MPSA, the incurrence of indebtedness in excess of $25.0 million, the acquisition of any assets or properties or the making of anycapital expenditures in excess of $10.023million, the approval of our annual budget and the hiring or termination of our chief executive officer. In addition, as of December 31, 2016, the issued andoutstanding Series A Preferred Stock would represent approximately 45% of the current voting power at a meeting of our stockholders.The interests of the Investor and its affiliates may differ from our other stockholders in material respects. For example, the Investor may have an interestin pursuing acquisitions, divestitures, financings (including financings that are secured and senior to the Series A Preferred Stock) or other transactions that,in their judgment, could enhance their equity investments, even though such transactions might involve risks to you. Additionally, Ascension is an affiliateof Investor and as our largest customer their interests may differ from yours. The Investor or its affiliates or advisors are also in the business of making oradvising on investments in companies, and may from time to time in the future, acquire interests in, or provide advice to, businesses that directly or indirectlycompete with certain portions of our business or are suppliers or customers of ours. They may pursue acquisition opportunities that may be complementary toour business and, as a result, those acquisition opportunities may not be available to us. You should consider that the interests of these holders may differfrom yours in material respects.Regulatory RisksThe healthcare industry is heavily regulated. Our failure to comply with regulatory requirements could create liability for us, result in adversepublicity and adversely affect our business.The healthcare industry is heavily regulated and is subject to changing political, legislative, regulatory and other influences. Many healthcare laws arecomplex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and regulations, whenenacted, did not anticipate the services that we provide. There can be no assurance that our operations will not be challenged or adversely affected byenforcement initiatives. Enforcement activity is growing and is an identified priority of federal and state governments. Our failure to accurately anticipate theapplication of these laws and regulations to our business, or any other failure to comply with regulatory requirements, could create liability for us, result inadverse publicity and adversely affect our business. Federal and state legislatures and agencies frequently consider proposals to revise laws that impact thehealthcare industry or to revise or create additional statutory and regulatory requirements. Such proposals, if implemented, could adversely affect ouroperations, the attractiveness of our services to existing customers and our ability to market new services, or could create unexpected liabilities for us. We areunable to predict what changes to laws or regulations might be made in the future or how those changes could affect our business or our operating costs.Developments in the healthcare industry, including national healthcare reform, could adversely affect our business.The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. The timing and impactof developments in the healthcare industry are difficult to predict. We cannot be sure that the markets for our services will continue to exist at current levelsor that we will have adequate technical, financial and marketing resources to react to changes in those markets. It is uncertain what impact the newPresidential administration and a Republican-controlled Congress will have on health care spending in light of campaign promises to repeal the AffordableCare Act. This could lead to an increase in the uninsured population and an increase in bad debt, which could reduce revenue to hospitals and in turn impactour revenue. The adoption of other measures to reform the Medicaid program through block grants and other methods could similarly reduce hospitalrevenue and have an adverse effect on our business. We are unable to predict what additional healthcare initiatives, if any, will be implemented at the federalor state level, or what the ultimate effect of federal health care reform or any future legislation or regulation will have on us. Other material changes, such asthe required transition to ICD-10 in October 2015, have required and will continue to require significant system and business changes throughout thehealthcare industry, and may be disruptive to our customers and our business. Such disruption could result in, among other things, the imposition ofsignificant new challenges to our ability to achieve performance targets specified under our customer contracts, as well as a need for us to redeploy resourcesor to obtain new resources in an effort to meet such challenges, all of which could adversely affect our business or our results of operations. Additionally,several reductions or changes to Medicare reimbursement have been enacted recently or24will be implemented, which reductions and changes could reduce the amounts received by our customers and may have an adverse indirect effect on ourbusiness.Healthcare reform also is causing the transition of some payment methods and provider reimbursement from volume-based reimbursement to value-based reimbursement models, which can include risk-sharing, accountable care organizations, capitation, bundled payment and other innovative approaches.While such new reimbursement models may provide us with opportunities to provide new or additional services to our customers (e.g., our value basedreimbursement capabilities within our RCM service offering) and to participate in incentive based payment arrangements for our services, there can be noassurance that such new models and approaches will prove to be profitable to our customers or to us. Further, such new models and approaches may requireinvestment by us to develop technology or expertise to offer necessary and appropriate services or support to our customers, and the amount of suchinvestment and the timing for return of such investment are not fully known at this time due to the uncertainties of healthcare reform and payment andreimbursement model transitions that are occurring. Certain new care delivery and reimbursement models are being offered as pilot programs or as limited ortransitional programs, and there is no assurance that such programs will continue or be renewed. Any of these models and approaches, and changes generallyin the healthcare industry, can impact the relationships between our customers and payers, from which our customers derive revenue and with which revenueour customers pay for our services. Adoption of such new models and approaches may require compliance with a range of federal and state laws relating tofraud and abuse, insurance, reinsurance and managed care regulation, billing and collection, corporate practice of medicine restrictions and licensing, amongothers. Many states in which these new value-based structures are being developed lack regulatory guidance or a well-developed body of law for these newmodels and approaches, or may not have updated their laws or enacted legislation yet to reflect the new healthcare reform models. As a result, although wehave structured, and will attempt to structure and conduct, our operations in accordance with our interpretation of current laws and regulations, new laws,regulations or guidance could have a material adverse effect on our current and future operations and could subject us to the risk of restructuring orterminating our customer agreements and arrangements, as well as the risk of regulatory enforcement, penalties and sanctions, if state enforcement agenciesdisagree with our interpretation of state laws.If we violate HIPAA, the HITECH Act or state health information privacy laws, we may incur significant liabilities, and any such violations couldmake it more difficult to retain existing customers or attract new customers, extend the time it takes to enter into service agreements with new customers,and result in a material adverse effect on our business, results of operations and financial condition.HIPAA contains substantial restrictions and requirements with respect to the use and disclosure of individuals’ PHI. Under HIPAA, covered entities,including health plans, healthcare providers, and healthcare clearinghouses that conduct HIPAA-defined standard electronic transactions, are restricted inhow they use and disclose PHI and must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availabilityof electronic PHI maintained or transmitted by them or by others on their behalf. Most of our customers are covered entities and we are a business associate tomany of those customers under HIPAA as a result of our contractual obligations to perform certain functions on behalf of, and to provide certain services to,those customers. As a business associate, we sometimes also act as a clearinghouse in performing certain functions for our customers. In addition, although webelieve that we are not a healthcare provider, if we were found to be a healthcare provider, we could have liability under the provisions of HIPAA that applyto providers as well as under state health information privacy and licensing laws. Our use and disclosure of PHI is restricted by HIPAA and the businessassociate agreements we are required to enter into with our covered entity customers. In 2009, HIPAA was amended by the HITECH Act to impose certain ofthe HIPAA privacy and security requirements directly upon business associates of covered entities and increase significantly the monetary penalties forviolations of HIPAA. The HITECH Act also requires business associates to notify covered entities, who in turn must notify affected individuals andgovernment authorities, of data security breaches involving unsecured PHI. Since the passage of the HITECH Act, enforcement of HIPAA violations hasincreased, as indicated by the announcement of a number of significant settlement agreements and/or sanctions by federal authorities, the pursuit of HIPAAviolations by state attorneys general, and the roll-out of a new federal audit program for covered entities (which will in the future be extended to businessassociates).25In addition to HIPAA, most states have enacted patient confidentiality laws that protect against the unauthorized disclosure of confidential medicalinformation, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and datasecurity breach notification requirements. Such state laws, if more stringent than HIPAA, are not preempted by the federal requirements, and we must complywith them even though such state laws may be subject to different interpretations by various courts and other governmental authorities.We have implemented and maintain physical, technical and administrative safeguards intended to protect all personal data and have processes in placeto assist us in complying with applicable laws and regulations regarding the protection of this data and properly responding to any security incidents orbreaches. We voluntarily sought, and received, HITRUST certification to help ensure compliance. A knowing breach of HIPAA’s requirements could exposeus to criminal liability. A breach of our safeguards and processes that is not due to reasonable cause or involves willful neglect could expose us to significantcivil penalties and the possibility of civil litigation under HIPAA and applicable state law. In 2011, a laptop computer used by one of our employees thatcontained PHI for patients of two customers was stolen. The laptop was password-protected but was not encrypted, in violation of company policy. Wenotified both customers of the 2011 theft, which customers in turn notified the affected individuals as well as the appropriate regulators. The MinnesotaAttorney General subsequently initiated a lawsuit against us, which we settled in 2012, for, among other things, alleged violations of federal and Minnesotastate health privacy laws and regulations arising from the laptop theft. Laptop computers used by our employees that contained PHI have also been stolen onother occasions. We do not believe that any patient data has been compromised as a result of any of these thefts. Nonetheless, these incidents have made itmore difficult to retain existing customers and attract new customers. They have also extended the time it takes to enter into service agreements with newcustomers, and could result in a material adverse effect on our business, results of operations and financial condition.If we fail to comply with federal and state laws governing submission of false or fraudulent claims to government healthcare programs and financialrelationships among healthcare providers, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcareprograms.A number of federal and state laws, including anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims, apply tohealthcare providers, physicians and others that make, offer, seek or receive payments or split fees for referrals of products or services that may be paid forthrough any federal or state healthcare program and, in some instances, any private program. These laws are complex and their application to our specificservices and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Healthcare, as one of the largest industriesin the country and one of the costliest lines in the federal budget, continues to attract attention from legislators and regulators. Federal and state regulatoryand law enforcement authorities continue to focus on enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and otherhealthcare reimbursement laws and rules in an effort to reduce overall healthcare spending. From time to time, participants in the healthcare industry receiveinquiries or subpoenas to produce documents in connection with government investigations. We could be required to expend significant time and resourcesto comply with these requests, and the attention of our management team could be diverted by these efforts. Furthermore, if we are found to be in violation ofany federal or state fraud and abuse laws, we could be subject to civil and criminal penalties, forced to restructure our business and excluded fromparticipating in federal and state healthcare programs such as Medicare and Medicaid which would result in significant harm to our business and financialcondition.The federal healthcare anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly orindirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arrangingfor or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states have adopted similarprohibitions against kickbacks and other practices that are intended to induce referrals, and some of these state laws are applicable to all patients regardless ofwhether the patient is covered under a governmental health program or private health plan. New payment structures, such as accountable care organizationsand other arrangements involving combinations of hospitals, physicians and other providers who share payment savings, potentially26implicate anti-kickback and other fraud and abuse laws. We seek to structure our business relationships and activities to avoid any activity that could beconstrued to implicate the federal healthcare anti-kickback law and similar laws. We cannot assure you, however, that our arrangements and activities will bedeemed outside the scope of these laws or that increased enforcement activities will not directly or indirectly have a material adverse effect on our business,financial condition or results of operations. Any determination by a federal or state agency or court that we have violated any of these laws could subject usto civil or criminal penalties, could require us to change or terminate some portions of our operations or business, could disqualify us from providing servicesto healthcare providers doing business with government programs, could give our customers the right to terminate our managed services agreements withthem and, thus, could have a material adverse effect on our business and results of operations. Moreover, any violations by, and resulting penalties orexclusions imposed upon, our customers could adversely affect their financial condition and, in turn, have a material adverse effect on our business andresults of operations.There are also numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with thesubmission and payment of healthcare provider claims for reimbursement. In particular, the federal FCA prohibits a person from knowingly presenting orcausing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCAprohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. The FCA may beenforced by the government or by private whistleblowers under the "qui tam" provisions of the statute. Whistleblowers are entitled to a share of any recoveryin a FCA case. Changes to the FCA enacted as part of the ACA make it easier for whistleblowers to bring FCA claims. Although changes may be made to theACA, the changes to the FCA contained in the ACA may remain in place. Violations of the FCA may result in treble damages, significant monetary penalties,and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implicationsof the amendments to the FCA pursuant to the FERA have yet to be fully determined or adjudicated and as a result it is difficult to predict how futureenforcement initiatives may affect our business.These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Errors created by our proprietaryapplications or services that relate to entry, formatting, preparation or transmission of claim or cost report information may be determined or alleged to causethe submission of false claims or otherwise be in violation of these laws and regulations. Further, our continued growth of coding and billing servicesprovided from an offshore shared services environment necessitates comprehensive monitoring and oversight of these services to ensure a constant vigilanceto quality control and regulatory compliance. Any failure of our proprietary applications or services to comply with these laws and regulations could result insubstantial civil or criminal liability and could, among other things, adversely affect demand for our services, invalidate all or portions of some of ourmanaged services agreements with our customers, require us to change or terminate some portions of our business, require us to refund portions of our base feerevenues and incentive payment revenues, cause us to be disqualified from serving customers doing business with government payers, and give ourcustomers the right to terminate our managed services agreements with them.We cannot be certain that governmental officials responsible for enforcing EMTALA, or other parties, will not assert that our customers are inviolation of EMTALA, and defending and settling allegations of EMTALA violations could have a material adverse effect on our business even if we areultimately not found to have contributed to such violations.EMTALA requires Medicare-participating hospitals that have emergency departments to provide a medical screening examination and stabilizingtreatment to all individuals who come to the hospital seeking treatment of an emergency medical condition, regardless of the patient’s ability to pay for thecare. Sanctions for failing to fulfill these requirements include exclusion from participation in the Medicare and Medicaid programs and civil monetarypenalties. In addition, the law creates private civil remedies that enable an individual who suffers personal harm as a direct result of a violation of the law tosue the offending hospital for damages and equitable relief.Since we are not a healthcare provider, EMTALA is not applicable to us, but we cannot be certain that governmental officials responsible for enforcingEMTALA, or other parties, will not assert that our customers are in27violation of EMTALA. If our customers are found to have violated EMTALA, they may assert claims that our management practices contributed to theviolation. Defending and settling allegations of EMTALA violations could have a material adverse effect on our business even if we are ultimately not foundguilty of a violation.Our failure to comply with debt collection and other consumer protection laws and regulations could subject us to fines and other liabilities, whichcould harm our reputation and business, and could make it more difficult to retain existing customers or attract new customers, extend the time it takes toenter into service agreements with new customers, and result in a material adverse effect on our business, results of operations and financial condition.The FDCPA regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer debts in default that are owed or asserted tobe owed to another person. However, our business practices that involve collecting, or assisting our customers in collecting, non-defaulted amounts owed bypatients for current and prior services activities may be determined to be subject to the FDCPA. Many states impose additional requirements on debtcollection communications, and some of those requirements may be more stringent than the federal requirements. Moreover, regulations governing debtcollection are subject to changing interpretations that may be inconsistent among different jurisdictions. Further, we are subject to the TCPA, which imposescertain restrictions on companies that place telephone calls to consumers.We could incur costs or could be subject to fines or other penalties under the TCPA, the FDCPA and the FTC Act if we are determined to have violatedthe provisions of those regulations during the course of conducting our operations. We, or our customers, could be required to report such breaches toaffected consumers or regulatory authorities, leading to disclosures that could damage our reputation or harm our business, financial position and operatingresults. As a result of the theft of a laptop in 2011 giving rise to a lawsuit against us by the Minnesota Attorney General and a related FTC inquiry of our datasecurity practices, in December 2013, we entered into a consent order with the FTC pursuant to which no fine or penalty was paid but in which we agreed,among other things, to maintain a comprehensive information security program reasonably designed to protect the security, confidentiality, and integrity ofpersonal information collected from or about consumers. Future allegations of this type could require us to change aspects of our business practices, make itmore difficult to retain existing customers or attract new customers, extend the time it takes to enter into service agreements with new customers, and result ina material adverse effect on our business, results of operations and financial condition.Potential additional regulation of the disclosure of health information outside the United States may increase our costs.Federal or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on the collection,use, transmission and other disclosures of health information. Legislation has been proposed at various times at both the federal and the state levels thatwould limit, forbid or regulate the use or transmission of medical information pertaining to U.S. patients outside of the United States. Some states have alsoimposed limitations through rule making or executive action. If additional states or the federal government were to adopt additional limitations, that mayrender our operations in India impracticable or substantially more expensive. Moving such operations to the United States may involve substantial delay inimplementation and increased costs.Risks Related to Intellectual PropertyWe may be unable to adequately protect our intellectual property.Our success depends, in part, upon our ability to establish, protect and enforce our intellectual property and other proprietary rights. If we fail toestablish or protect our intellectual property rights, we may lose an important advantage in the market in which we compete. We rely upon a combination ofpatent, trademark, copyright and trade secret law and contractual terms and conditions to protect our intellectual property rights, all of which provide onlylimited protection. We cannot assure you that our intellectual property rights are sufficient to protect our competitive advantages. Although we have filedthree U.S. patent applications, we cannot assure you that any patents that will be issued from these applications will provide us with the protection that weseek or that any future patents issued to us28will not be challenged, invalidated or circumvented. We have also been issued three U.S. patents, but we cannot assure you that they will provide us with theprotection that we seek or that they will not be challenged, invalidated or circumvented. Legal standards relating to the validity, enforceability and scope ofprotection of patents are uncertain. Any patents that may be issued in the future from pending or future patent applications or our three issued patents maynot provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that anytrademark registrations will be issued for pending or future applications or that any of our trademarks will be enforceable or provide adequate protection ofour proprietary rights.We also rely in some circumstances on trade secrets to protect our technology. Trade secrets may lose their value if not properly protected. We endeavorto enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietaryinformation. The steps we have taken, however, may not prevent unauthorized use of our technology, and adequate remedies may not be available in theevent of unauthorized use or disclosure of our trade secrets and proprietary technology. Moreover, others may reverse engineer or independently developtechnologies that are competitive to ours or infringe our intellectual property.Accordingly, despite our efforts, we may be unable to prevent third parties from infringing or misappropriating our intellectual property and using ourtechnology for their competitive advantage. Any such infringement or misappropriation could have a material adverse effect on our business, results ofoperations and financial condition. Monitoring infringement of our intellectual property rights can be difficult and costly, and enforcement of ourintellectual property rights may require us to bring legal actions against infringers. Infringement actions are inherently uncertain and therefore may not besuccessful, even when our rights have been infringed, and even if successful may require a substantial amount of resources and divert our management’sattention.Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.Our competitors protect their intellectual property rights by means such as patents, trade secrets, copyrights and trademarks. We have not conducted anindependent review of patents issued to third parties. Additionally, because patent applications in the United States and many other jurisdictions are keptconfidential for 18 months before they are published, we may be unaware of pending patent applications that relate to our proprietary technology. Any partyasserting that we infringe its proprietary rights would force us to defend ourselves, and possibly our customers, against the alleged infringement. These claimsand any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights or interruption orcessation of our operations. The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarksand trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, the risk of sucha lawsuit will likely increase as our size and scope of our services and technology platforms increase, as our geographic presence and market share expandand as the number of competitors in our market increases.Any such claims or litigation could:•be time-consuming and expensive to defend, whether meritorious or not;•require us to stop providing the services that use the technology that infringes the other party’s intellectual property;•divert the attention of our technical and managerial resources;•require us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable, if at all;29•prevent us from operating all or a portion of our business or force us to redesign our services and technology platforms, which could be difficult andexpensive and may make the performance or value of our service offerings less attractive;•subject us to significant liability for damages or result in significant settlement payments; or•require us to indemnify our customers, as we are required by contract to indemnify some of our customers for certain claims based upon theinfringement or alleged infringement of any third party’s intellectual property rights resulting from our customers’ use of our intellectual property.Intellectual property litigation can be costly. Even if we prevail, the cost of such litigation could deplete our financial resources. Litigation is also time-consuming and could divert management’s attention and resources away from our business. Furthermore, during the course of litigation, confidentialinformation may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. Disclosure of ourconfidential information and our involvement in intellectual property litigation could materially adversely affect our business. Some of our competitors maybe able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. Inaddition, any uncertainties resulting from the initiation and continuation of any litigation could significantly limit our ability to continue our operations andcould harm our relationships with current and prospective customers. Any of the foregoing could disrupt our business and have a material adverse effect onour operating results and financial condition.Risks Related to the Ownership of Shares of Our Common StockOur common stock has been delisted and is not listed on any other national securities exchange, which may negatively impact the trading price ofour common stock and the levels of liquidity available to our stockholders.Our common stock was suspended from trading on the New York Stock Exchange, or the NYSE, prior to the opening of the market on March 17, 2014(and subsequently delisted) and began trading under the symbol "ACHI" through the facilities of the OTC Markets Group, Inc., or OTC, on that date.While we have applied to list our common stock for trading on the NASDAQ Capital Market, or NASDAQ, we can provide no assurance that we will beable to relist or that the stock will continue being traded on the OTC. The trading of our common stock on the OTC rather than the NYSE or NASDAQ maynegatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.Securities traded in the OTC market generally have significantly less liquidity than securities traded on a national securities exchange due to factorssuch as the reduced number of investors that will consider investing in the securities, the reduced number of market makers in the securities, and the reducednumber of securities analysts that follow such securities. As a result, holders of our common stock may find it difficult to resell their shares at prices quoted inthe market or at all. Furthermore, because of the limited market and low volume of trading in our common stock that could occur, the share price of ourcommon stock could more likely be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in themarket’s perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties. Thelack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrangefor any financing we may need in the future.The trading price of our common stock has been volatile and may continue to be volatile.Since December 31, 2010, our common stock has traded at a price per share as high as $32.82 and as low as $1.47. The trading price of our commonstock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors. In addition to the risks described inthis section, factors that may cause the market price of our common stock to fluctuate include:30•fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;•changes in estimates of our financial results;•failure to meet expectations of securities analysts;•the loss of service agreements with customers;•lawsuits filed against us by governmental authorities or stockholders;•unfavorable publicity concerning our operations or business practices;•our common stock’s eligibility for stock exchange listing;•investors’ general perception of us; and•changes in general economic, industry, regulatory and market conditions.In addition, if the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasonsunrelated to our business, financial condition or results of operations.Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company andmay affect the trading price of our common stock.We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change incontrol by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes aninterested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation andamended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Ourrestated certificate of incorporation and amended and restated bylaws:•authorize the issuance of "blank check" preferred stock that could be issued by our Board to thwart a takeover attempt;•until the annual meeting of stockholders to be held in 2018, provide for a classified board of directors;•require that directors only be removed from office upon a supermajority stockholder vote;•provide that vacancies on our Board, including newly created directorships, may be filled only by a majority vote of directors then in office;•limit who may call special meetings of stockholders; prohibit stockholder action by written consent, requiring all actions to be taken at a meeting ofthe stockholders; and•require supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and amended and restated bylaws.At our 2015 Annual Meeting of Stockholders held on August 14, 2015, our stockholders voted to approve an amendment to our current restatedcertificate of incorporation that provides for the phased-in declassification of our Board and the annual election of all directors. Our Board has madeconforming changes to our amended and restated bylaws. Our restated certificate of incorporation provides that directors may be removed with or without31cause, with the same supermajority vote that currently applies (the affirmative vote of the holders of at least two-thirds of the shares entitled to vote at anelection of directors).We may not pay any cash dividends on our capital stock in the foreseeable future.Although we paid cash dividends on our capital stock prior to our May 2010 initial public offering, or IPO, there is no assurance that we will pay cashdividends on our common stock in the foreseeable future. Any future dividend payments will be within the discretion of our Board and will depend on,among other things, our financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, provisionsof applicable law and other factors that our Board may deem relevant. Additionally, pursuant to the Investor Rights Agreement between the Company and theInvestor, or the Investor Rights Agreement, and subject to certain ownership thresholds contained in the Investor Rights Agreement, any dividends on ourcommon stock would require the approval of the holders of our Series A Preferred Stock that are held by the Investor or any Investor Affiliate (as defined inthe Investor Rights Agreement). We may not generate sufficient cash from operations in the future to pay dividends on our common stock.Item 1B.Unresolved Staff CommentsNone.32Item 2.PropertiesWe lease our existing facilities and do not own any real estate property.Our corporate headquarters occupy approximately 43,000 square feet in Chicago, Illinois under a lease expiring on August 31, 2020. In addition, wehave a right of first offer to lease an additional 11,100 square feet of space on another floor in the same building. We also lease office space and otherfacilities in Kalamazoo, Michigan; Southfield, Michigan; Birmingham, Alabama; Cape Girardeau, Missouri; and three facilities near New Delhi, India.Pursuant to our managed services agreements with customers, we occupy space on-site at all hospitals where we provide our RCM services. We generally donot pay customers for our use of space provided by them for our use in the provision of RCM services to that customer.We believe that our facilities are sufficient for our current needs. We intend to add new facilities or expand existing facilities as we add employees orexpand or change our geographic markets and office locations, and we believe that suitable additional or substitute space will be available as needed toaccommodate any such expansion of our operations. Item 3.Legal ProceedingsOther than as described below, we are presently not a party to any material litigation or regulatory proceeding and are not aware of any pending orthreatened litigation or regulatory proceeding against us which, individually or in the aggregate, could have a material adverse effect on our business,operating results, financial condition or cash flows.On July 22, 2014, we were named as a defendant in a putative class action lawsuit filed in the U.S. District Court for the Eastern District of Michigan(Anger v. Accretive Health, Inc.). The primary allegations are that we attempted to collect debts without providing the notice required by the FDCPA andMichigan Fair Debt Collection Practices Act and failed to abide by the terms of an agreed payment plan in violation of those same statutes. On August 27,2015, the Court granted in part and denied in part our motion to dismiss. An amended complaint was filed on November 30, 2015. Discovery is underway,but on July 15, 2016, the court postponed all deadlines in the case as the parties attempt to finalize a confidential agreement in principle to settle the case. OnFebruary 23, 2017, the parties reached a settlement in principle and are preparing a motion for pre-approval and class settlement. We believe that we havemeritorious defenses and intend to vigorously defend ourselves against these claims, if the settlement in principle is not finalized.In April 2015, we were named among other defendants in an employment action brought by a former employee before the Maine Human RightsCommission, or the MHRC, alleging that she was improperly terminated in retaliation for uncovering alleged Medicare fraud. We filed our response with theMHRC on May 19, 2015 seeking that we be dismissed entirely from the action. On June 23, 2015, the MHRC issued its Notice of Right to Sue and decisionto terminate its process with respect to all charges asserted by the former employee. The Plaintiff has filed a parallel qui tam action in the District of Maine(Worthy v. Eastern Maine Healthcare Systems) in which she makes the same allegations. The U.S. Department of Justice declined to intervene in the federalcourt action, and the case was unsealed in April 2015. The Company and other defendants filed motions to dismiss the Third Amended Complaint on March21, 2016. Those motions were granted with respect to the retaliation claims, but denied with respect to the other claims by the federal district court onJanuary 18, 2017. The parties are currently engaged in an initial discovery phase. There is a scheduling conference with the court scheduled for April 5, 2017.We believe that we have meritorious defenses to all of the remaining claims in the federal qui tam case, and intend to vigorously defend ourselves againstthese claims. The outcomes are not presently determinable.In May 2016, we were served with a False Claims Act case brought by a former emergency department service associate who worked at a hospital of oneof our customers, MedStar Inc.’s Washington Hospital Center (“WHC”), along with WHC and three other hospitals that were PAS clients and a place holder,John Doe hospital, representing all PAS clients (USA ex rel. Graziosi vs. Accretive Health, Inc. et. al.). The Second Amended Complaint, which33seeks monetary damages, alleges that our PAS business violates the federal False Claims Act. The case was originally filed under seal in 2013 in the federaldistrict court in Chicago, was presented to the U.S. Attorney in Chicago twice, and the U.S. Attorneys declined to intervene. We filed a motion to dismiss theSecond Amended Complaint on July 29, 2016. Those motions are now fully briefed and awaiting decision by the federal district court. We believe that wehave meritorious defenses to all claims in the case, and intend to vigorously defend ourelves against these claims. The outcome is not presently determinable.Item 4.Mine Safety DisclosuresNot applicable.34PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock has traded on the OTC market under the symbol "ACHI" since March 17, 2014 and is quoted through the facilities of the OTCMarkets Group, Inc. Our common stock traded on the NYSE under the symbol "AH" from May 20, 2010 through March 14, 2014. Our common stock wassuspended from trading on the NYSE prior to the opening of the market on March 17, 2014 (and subsequently delisted) and began trading under the symbol"ACHI" through the facilities of the OTC Markets Group, Inc. on that date. Prior to May 20, 2010, there was no public market for our common stock. We haveapplied to list our common stock for trading on NASDAQ under the symbol "RCM."The following table sets forth the high and low closing sales prices per share of our common stock, as reported by the NYSE and the OTC MarketsGroup, Inc., as applicable, for the periods indicated: Price Range High Low2015 Quarter ended March 31, 2015 $6.55 $5.70Quarter ended June 30, 2015 $5.94 $5.29Quarter ended September 31, 2015 $5.51 $2.31Quarter ended December 31, 2015 $3.25 $1.942016 Quarter ended March 31, 2016 $3.20 $2.40Quarter ended June 30, 2016 $2.53 $1.74Quarter ended September 31, 2016 $2.52 $1.50Quarter ended December 31, 2016 $2.42 $2.15The closing sale price per share of our common stock, as reported by the OTC Markets Group, Inc., on February 24, 2016 was $2.15. As of February 24,2016, there were approximately 41 stockholders of record of our common stock and approximately 2,400 beneficial holders.DividendsWe did not pay any dividends on our common stock during the years ended December 31, 2016 and 2015. We currently intend to retain earnings, ifany, to finance the growth and development of our business, and we do not expect to pay any cash dividends on our common stock in the foreseeable future.Payment of future dividends, if any, will be at the discretion of our Board and will depend on, among other things, our financial condition, results ofoperations, capital expenditure requirements, contractual restrictions, provisions of applicable law and other factors that the Board deems relevant.Issuer Purchases of Equity SecuritiesThe following table provides information about our repurchases of common stock during the periods indicated (in thousands, except share and per sharedata):35PeriodNumber ofShares Purchased (1) Average PricePaid per Share(3) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plans or Programs (inthousands) (2)October 1, 2016 through October 31, 2016 3,809 $2.43 — $50,000November 1, 2016 through November 30, 2016 3,809 $2.43 — $50,000December 1, 2016 through December 31, 2016 162,366 $2.29 158,557 $49,640(1)Amounts include stock repurchased under our repurchase program (see discussion below) and repurchases of our stock related to employees’ tax withholdingupon vesting of 3,809 RSAs for each of the three months ended October 31, 2016, November 30, 2016 and December 31, 2016. See Note 9, Share-BasedCompensation, to our consolidated financial statements included in this Annual Report on Form 10-K.(2)On November 13, 2013, the Board authorized, subject to the completion of the Restatement, the repurchase of up to $50.0 million of our common stock fromtime to time in the open market or in privately negotiated transactions, or the 2013 Repurchase Program. The timing and amount of any shares repurchasedunder the 2013 Repurchase Program will be determined by our management based on its evaluation of market conditions and other factors. The 2013Repurchase Program may be suspended or discontinued at any time. See Note 8, Stockholders' Equity, to our consolidated financial statements included in thisAnnual Report on Form 10-K.(3)Average price paid per share of common stock repurchased under the 2013 Repurchase Program is the execution price, including commissions paid tobrokers.Stock Price Performance GraphThe following graph compares the change in the cumulative total return (including the reinvestment of dividends) on our common stock to thechange in the cumulative total return on the stocks included in the NYSE Composite Index and NASDAQ Health Care Index over the period from December31, 2011 through December 31, 2016. The graph assumes an investment of $100 made in our common stock on December 31, 2011. We did not pay anydividends during the period reflected in the graph.36COMPARISON OF CUMULATIVE TOTAL RETURN 12/31/201112/31/201212/31/201312/31/201412/31/201512/31/2016R1 RCM Inc.Return % (49.61)(20.90)(25.12)(53.35)(29.69)Cum $10050.3939.8629.8513.399.79NYSE Composite IndexReturn % 12.9323.184.22(6.42)9.01Cum $100112.93139.1144.97135.66147.88NASDAQ Health CareIndexReturn % 27.2457.0428.476.86(16.91)Cum $100127.24199.82256.7274.3227.91The comparisons shown in the graph above are based on historical data and we caution that the stock price performance shown in the graph above is notindicative of, and is not intended to forecast, the potential future performance of our common stock. The information in this "Stock Price Performance Graph"section shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any futurefiling under the Securities Act of 1933, or the Securities Act, or the Securities Exchange Act of 1934, or the Exchange Act, except to the extent that wespecifically incorporate it by reference into such filing.37Item 6.Selected Consolidated Financial DataThe selected consolidated financial data presented below should be read in conjunction with "Management’s Discussion and Analysis of FinancialCondition and Results of Operations," and "Consolidated Financial Statements and Supplementary Data," included elsewhere in this Form 10-K.We derived the consolidated statements of operations and comprehensive income (loss) data for the years ended December 31, 2016, 2015, and 2014,and the consolidated balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements, which are included in thisAnnual Report on Form 10-K. We derived the consolidated balance sheet data as of December 31, 2014, 2013 and 2012, from our audited consolidatedfinancial statements and audited restated consolidated financial statements, which are not included in this Annual Report on Form 10-K. We derived theconsolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2013 and 2012 and the consolidated balancesheet data as of December 31, 2013 and 2012 from our audited consolidated financial statements and audited restated consolidated financial statements,which are not included in this Annual Report on Form 10-K.Selected Financial Data Year Ended December 31, 2016 2015 2014 2013 2012 (In thousands, except per share data)Consolidated Statement of Operations Data: Net services revenue $592,557 $117,239 $210,140 $504,768 $72,254Operating expenses: Cost of services 199,697 168,977 182,144 186,752 188,666Selling, general and administrative 74,137 74,963 69,883 79,951 67,750Restatement and other 20,822 9,343 86,766 33,963 3,714Total operating expenses 294,656 253,283 338,793 300,666 260,130Income (loss) from operations 297,901 (136,044) (128,653) 204,102 (187,876)Net interest income (expense) 297 231 302 330 141Net income (loss) before income tax provision 298,198 (135,813) (128,351) 204,432 (187,735)Income tax provision (benefit) 121,127 (51,557) (48,731) 74,349 (67,995)Net income (loss) $177,071 $(84,256) $(79,620) $130,083 $(119,740)Net income (loss) per common share Basic $0.65 $(0.87) $(0.83) $1.36 $(1.21)Diluted $0.65 $(0.87) $(0.83) $1.34 $(1.21) As of December 31, 2016 2015 2014 2013 2012 (In thousands)Consolidated Balance Sheet Data: Cash and cash equivalents $181,176 $103,497 $145,167 $228,891 $176,956Working capital (1) $153,393 $24,237 $41,593 $124,045 $139,852Total assets $415,059 $460,289 $446,373 $509,991 $557,377Non-current liabilities $120,691 $440,975 $325,470 $202,799 $85,848Total stockholders’ equity (deficit) $(12,334) $(213,313) $(142,246) $(85,612) $(236,200) (1)We define working capital as total current assets excluding the current portion of deferred tax assets pertaining to the current portion of deferred customer billings, less totalcurrent liabilities excluding the current portion of deferred customer billings. We exclude the current portion of deferred customer billings and related deferred tax assetsfrom the definition of working capital due to the nature of these balances. We adopted the provisions of Accounting Standards Update 2015-17, Income Taxes: BalanceSheet Classification of Deferred Taxes (Topic 740), or ASU 2015-17, on a38prospective basis for the reporting period ended December 31, 2015. Consequently, under the guidance of ASU 2015-17, deferred tax assets were classified as non-currentin the consolidated balance sheet for the reporting period ended December 31, 2015 and 2016. As permitted by ASU 2015-17, the current and non-current deferred taxassets were not retroactively adjusted for the prior reporting periods ended December 31, 2014, 2013 and 2012.Non-GAAP MeasuresIn order to provide a more comprehensive understanding of the information used by our management team in financial and operational decision-making, we supplement our consolidated financial statements that have been prepared in accordance with GAAP with the following non-GAAP financialmeasures: gross and net cash generated from customer contracting activities, and adjusted EBITDA. Our Board and management team use these non-GAAPmeasures as (i) one of the primary methods for planning and forecasting overall expectations and for evaluating actual results against such expectations and(ii) as a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentivecompensation plans for employees.These non-GAAP measures are used throughout this Form 10-K including "Management’s Discussion and Analysis of Financial Condition and Resultsof Operations."Use of Non-GAAP Financial InformationWe typically invoice customers for base fees and incentive fees on a quarterly or monthly basis, and typically receive cash from customers on a similarbasis. For GAAP reporting purposes, we only recognize these net operating fees and incentive fees as net services revenue to the extent that all the criteria forrevenue recognition are met, which is generally upon contract renewal, termination or "other contractual agreement event", as defined in Note 2, Summary ofSignificant Accounting Policies, to the consolidated financial statements included in this Annual Report on Form 10-K. As such, net operating and incentivefees are typically recognized for GAAP purposes in periods subsequent to the periods in which the services are provided. Therefore, our net services revenueand other items in our GAAP consolidated financial statements and adjusted EBITDA will typically include the effects of billings and collections fromperiods prior to the period in which revenue is recognized. See Note 2, Summary of Significant Accounting Policies, to the consolidated financial statementsfor additional information.We understand that although non-GAAP measures are frequently used by investors, securities analysts, and others in their evaluation of companies,such measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results of operations asreported under GAAP. Some of these limitations are:• Gross and net cash generated from customer contracting activities include invoiced or accrued net operating fees, and invoiced as well as collectedincentive fees which may be subject to adjustment or concession prior to the end of a contract or "other contractual agreement event", as defined inNote 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in this Annual Report on Form 10-K;•Gross and net cash generated from customer contracting activities include progress billings on incentive fees that have been collected for a numberof our RCM contracts. These progress billings have, from time-to-time been subject to adjustments, and the fees included in these non-GAAPmeasures may be subject to adjustments in the future;•Net cash generated from customer contracting activities and adjusted EBITDA do not reflect changes in, or cash requirements for, our workingcapital needs;•Net cash generated from customer contracting activities and adjusted EBITDA do not reflect share-based compensation expense;39•Net cash generated from customer contracting activities and adjusted EBITDA do not reflect income tax expenses or benefits or cash requirements topay taxes;•Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced inthe future, and net cash generated from customer contracting activities and adjusted EBITDA do not reflect cash requirements for such replacementsor other purchase commitments, including lease commitments; and•Other companies in our industry may calculate gross or net cash generated from customer contracting activities or adjusted EBITDA differently thanwe do, limiting its usefulness as a comparative measure.Selected Non-GAAP MeasuresFor each of the periods indicated, the following table presents selected non-GAAP measures and the most comparable GAAP measures. See below for anexplanation of how we calculate and use these non-GAAP measures, and for a reconciliation of these non-GAAP measures to the most comparable GAAPmeasures. See "Selected Financial Data" above for a presentation of net income (loss) the most comparable GAAP measure to adjusted EBITDA and net cashgenerated for customer contracting activities, and net services revenue, the most comparable GAAP measure to gross cash generated from customercontracting activities. Year End December 31, 2016 2015 2014 2013 2012 (In thousands)Non-GAAP Measures: Adjusted EBITDA $357,023 $(86,568) $(15,668) $268,689 $(152,509)Net cash generated from customer contracting activities $(26,841) $26,370 $7,759 $15,562 $47,605Gross cash generated from customer contracting activities $208,693 $230,177 $233,567 $251,641 $272,368Gross and Net Cash Generated from Customer Contracting ActivitiesGross and net cash generated from customer contracting activities reflect the change in the deferred customer billings, relative to GAAP net servicesrevenue, and adjusted EBITDA (defined below), respectively. Deferred customer billings include the portion of both (i) invoiced or accrued net operating feesand (ii) cash collections of incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer billings are included in thedetail of our customer liabilities balance in the consolidated balance sheet. Deferred customer billings are reduced by the amounts of revenue recognizedwhen a revenue recognition event occurs. Gross cash generated from customer contracting activities is defined as GAAP net services revenue, plus the changein deferred customer billings. Accordingly, gross cash generated from customer contracting activities is the sum of (i) invoiced or accrued net operating fees,(ii) cash collections on incentive fees and (iii) other services fees.Net cash generated from customer contracting activities is defined as adjusted EBITDA, plus the change in deferred customer billings.Gross and net cash generated from customer contracting activities include invoices issued to customers that may remain uncollected or may be subjectto credits, and cash collected may be returned to our customers in the form of concessions or other adjustments. Customer concessions and other adjustmentshave occurred in the past and we cannot determine the likelihood that they will again occur in the future.Adjusted EBITDAWe define adjusted EBITDA as net income before net interest income (expense), income tax provision, depreciation and amortization expense, share-based compensation, reorganization-related expense and certain other40items. The use of adjusted EBITDA to measure operating and financial performance is limited by our revenue recognition criteria, pursuant to which GAAPnet services revenue is recognized at the end of a contract or "other contractual agreement event", as defined in Note 2, Summary of Significant AccountingPolicies, to the consolidated financial statements included in this Annual Report on Form 10-K. Adjusted EBITDA does not adequately match correspondingcash flows resulting from customer contracting activities. Accordingly, as described above, in order to better compare our cash flows from customercontracting activities to our operating performance, we use additional non-GAAP measures: gross and net cash generated from customer contractingactivities. We use adjusted EBITDA to reconcile net cash generated from customer contracting activities to our GAAP consolidated financial statements.41Reconciliation of GAAP and Non-GAAP Measures: The following table presents a reconciliation of adjusted EBITDA and net cash generated fromcustomer contracting activities to net income (loss), and gross cash generated from customer contracting activities to net services revenue the mostcomparable GAAP measures, for each of the periods indicated. Year End December 31, 2016 2015 2014 2013 2012 ( in thousands)Net income (loss) (GAAP) $177,071 $(84,256) $(79,620) $130,083 $(119,740)Net interest (income) expense (297) (231) (302) (330) (141)Income tax provision (benefit) 121,127 (51,557) (48,731) 74,349 (67,995)Depreciation and amortization expense 10,198 8,462 6,047 6,823 6,355Share-based compensation expense (1) 28,102 31,671 20,172 23,801 25,298Other (2) 20,822 9,343 86,766 33,963 3,714Adjusted EBITDA (Non-GAAP) 357,023 (86,568) (15,668) 268,689 (152,509)Change in deferred customer billings (3) (383,864) 112,938 23,427 (253,127) 200,114Net cash generated from customer contracting activities(Non-GAAP) (26,841) 26,370 7,759 15,562 $47,605Net services revenue (GAAP) $592,557 $117,239 $210,140 $504,768 72,254Change in deferred customer billings (3) (383,864) 112,938 23,427 (253,127) 200,114Gross cash generated from customer contractingactivities (Non-GAAP) $208,693 $230,177 $233,567 $251,641 $272,368(1)Share-based compensation expense represents the expense associated with stock options, RSAs and RSUs granted, as reflected in our Consolidated Statements ofOperations. See Note 9, Share-Based Compensation, to the consolidated financial statements included in this Annual Report on Form 10-K for the detail of the amounts ofshare-based compensation expense.(2)Other costs consist of the following (in millions): Year End December 31, 2016 2015 2014Severance and employee benefits$3.5 $0.6 $9.2Facility charges1.1 2.6 5.0Non-cash share based compensation1.8 — 7.9Reorganization-related6.4 3.2 22.1Restatement costs1.2 2.5 57.3Transaction fees12.7 — —Defined Contribution plan contributions0.5 — —Strategic Alternative Exploration— 3.8 —Prior year employment tax expense— (0.2) 0.9Office Transformation— — 6.5Other14.4 6.1 64.7Total other$20.8 $9.3 $86.8(3)Deferred customer billings include the portion of both (i) invoiced or accrued net operating fees and (ii) cash collections on incentive fees, in each case, that have not metour revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities balance in the consolidated balance sheets. Deferredcustomer billings are reduced by revenue recognized when revenue recognition occurs. Change in deferred customer billings represents the net change in the cumulative netoperating fees and incentive fees that have not met revenue recognition criteria.42Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with ourconsolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some ofthe information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect toour plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. Please review "RiskFactors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the resultsdescribed in or implied by the forward-looking statements contained in the following discussion and analysis.OverviewWe are a leading provider of RCM and PAS services to healthcare providers. We help healthcare providers generate sustainable improvements in theiroperating margins and cash flows while also enhancing patient, physician and staff satisfaction for our customers.While we cannot control the changes in the regulatory environment imposed on our customers, we believe that our role becomes increasingly moreimportant to our customers as macroeconomic, regulatory and healthcare industry conditions continue to impose financial pressure on healthcare providers tomanage their operations effectively and efficiently.Our primary service offering consists of end-to-end RCM, which encompasses patient registration, insurance and benefit verification, medical treatmentdocumentation and coding, bill preparation and collections. We deploy our RCM services through a co-managed relationship or an operating partnerrelationship. Under a co-managed relationship, we leverage our customers’ existing RCM staff and processes, and supplement them with our infusedmanagement, subject matter specialists, proprietary technology and other resources. Under an operating partner relationship, we provide comprehensiverevenue cycle infrastructure to providers, including revenue cycle personnel, technology, and process workflow. We also offer modular services, allowingclients to engage us for only specific components of our end-to-end RCM service offering. Our PAS offering complements our RCM offering bystrengthening our customer’s compliance with certain third-party payer requirements and limiting denials of claims. For example, our PAS offering helpscustomers determine whether to classify a hospital visit as an in-patient or an out-patient observation case for billing purposes.We operate our business as a single segment configured with our significant operations and offerings organized around the business of providing end-to-end RCM services to U.S.-based hospitals and other healthcare providers.Summary of OperationsOn February 16, 2016, we entered into the A&R MPSA with Ascension for a 10-year term, becoming the exclusive provider of RCM and PASservices to Ascension hospitals that execute supplement agreements with us. The onboarding of new Ascension hospitals under the expanded relationship isexpected to occur over three years, and we started onboarding the first phase of new hospitals in mid-2016.In addition, we renewed our agreement with our second-largest customer, Intermountain Healthcare, during 2016. The A&R MPSA and renewedagreement with Intermountain Healthcare collectively helped provide stability to our business and improved our confidence and our outlook as we look to2017 and beyond.In 2016, we also strengthened our leadership team and pursued a number of initiatives designed to enhance our core value proposition and re-establish our brand identity:43•Investments in our technology platform: We conducted a comprehensive overhaul of our technology that manages payer billing and follow-upoperations. This overhaul improves productivity by automating a number of manual tasks and at the same time accelerates resolution rates onaccounts worked.•Brand re-launch: In mid-2016, we commenced a comprehensive re-launch effort to re-establish our brand identity and improve our marketing effortswith prospective customers. Our new brand, launched in early 2017, reflects our ability to be the one revenue partner for healthcare providers acrosscare settings or payment models.We believe these initiatives will position us to better serve our customers and grow our business.Net Services RevenueRevenues from our RCM agreements consist primarily of net operating fees and incentive fees that are primarily performance-based and/or contingentfees. The vast majority of our operations relate to our RCM offering, however, the criteria for recognition of revenue for RCM services results in substantialvariability in the net services revenue recognized between periods.Other services revenue is primarily derived from our PAS offering.The following table summarizes the composition of our net services revenue for the years ended December 31, 2016, 2015 and 2014: Year ended December 31, 2016 2015 2014RCM services: net operating fees $368,848 62.2% $66,234 56.5% $77,456 36.9%RCM services: incentive fees 191,317 32.3% 20,311 17.3% 99,934 47.6%RCM services: other 16,322 2.8% 16,381 14.0% 8,103 3.8%Other services fees 16,070 2.7% 14,313 12.2% 24,647 11.7%Total net services revenue $592,557 100.0% $117,239 100.0% $210,140 100.0%Cost of ServicesOur cost of services includes:•Infused management and technology expenses. We incur costs related to our management and staff employees who are devoted to customeroperations. These expenses consist primarily of the wages, bonuses, benefits, share-based compensation, travel and other costs associated withdeploying our employees to customer sites to guide and manage our customers’ revenue cycle operations. The employees we deploy to customersites typically have significant experience in revenue cycle operations, care coordination, technology, quality control or other managementdisciplines. Included in these expenses is an allocation of the costs associated with maintaining, improving and deploying our integrated proprietarytechnology suite.•Shared services center costs. We incur expenses related to salaries and benefits of employees in our shared services centers, as well as non-payrollcosts associated with operating our shared services centers.•Other expenses. We incur expenses related to our employees who manage PAS and other services. These expenses consist primarily of wages,bonuses, benefits, share-based compensation and other costs.44Selling, General and Administrative ExpensesSelling, general and administrative expenses consist primarily of expenses for executives, sales, corporate IT, legal, regulatory compliance, finance andhuman resources personnel, professional service fees related to external legal, tax, audit and advisory services, insurance premiums, facility charges and othercorporate expenses.Other CostsOther costs include reorganization-related expenses and certain other costs. We initiated restructuring plans consisting of reductions in our workforcein certain corporate, administrative, operations and management functions as part of efforts beginning in June 2013 and continuing into 2016.Reorganization costs consist primarily of severance payments, employee benefits and share-based compensation expense for accelerated awards. In 2016, weincurred costs relating to retention payments and legal fees paid in connection with the execution of the Transaction. We also incurred costs related toadditional contributions to our defined contribution plan and the Restatement.Interest IncomeInterest income is derived from the return achieved from our cash and cash equivalents.Income TaxesIncome tax provision (benefit) consists of federal and state income taxes in the United States and other local taxes in India.Application of Critical Accounting Policies and Use of EstimatesOur consolidated financial statements reflect the assets, liabilities and results of operations of R1 RCM Inc. and our wholly-owned subsidiaries. Allmaterial intercompany transactions and balances have been eliminated in consolidation. Our consolidated financial statements have been prepared inaccordance with GAAP.The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in ourconsolidated financial statements and the accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we baseestimates on historical experience and on assumptions that we believe to be reasonable given our operating environment. Estimates are based on our bestknowledge of current events and the actions we may undertake in the future. Although we believe all adjustments considered necessary for fair presentationhave been included, our actual results may differ materially from our estimates.We believe that the accounting policies described below involve our more significant judgments, assumptions and estimates, and therefore, could havethe greatest potential impact on our consolidated financial statements. In addition, we believe that a discussion of these policies is necessary to understandand evaluate the consolidated financial statements contained in this Annual Report on Form 10-K. For further information on our critical and othersignificant accounting policies, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in this AnnualReport on Form 10-K.Revenue RecognitionRevenue is generally recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) services have beenrendered, (iii) a fee is fixed or determinable and (iv) collectability is reasonably assured. Our primary source of revenue is RCM services fees. We alsogenerate revenue from other fixed fee consulting or transactional fee engagements. Net services revenue, as reported in the consolidated statement ofoperations and comprehensive income (loss), consist of: (a) RCM services fees and (b) professional service fees earned on a fixed fee, transactional fee or timeand materials basis. RCM services fees are primarily contingent, but along with fixed fees are generally viewed as one deliverable. To the extent that certainRCM services fees are fixed45and not subject to refund, adjustment or concession, these fees are generally recognized into revenue on a straight-line basis over the term of the contract.RCM services fees that are contingent in nature are recognized as revenue once all the criteria for revenue recognition are met, which is generally at theend of a contract or other contractual agreement events. Revenue is recognized for RCM services fees upon the contract reaching the end of its stated term(such that the contract relationship will not continue in its current form) to the extent that cash has been received for invoiced fees and there are no disputesat the conclusion of the term of the contract.If fees or services are disputed by a customer at the end of a contract, a settlement agreement entered into with the customer triggers revenuerecognition. An other "contractual agreement event" occurs when a renewal, amendment, or other settlement agreement to an existing contract is executed inwhich the parties reach agreement on prior fees. We recognize revenue up to the amount covered by such agreements.RCM services fees generally consist of two types of contingent fees: (i) net operating fees and (ii) incentive fees.Net Operating FeesWe generate net operating fees to the extent we are able to assist customers in reducing the cost of revenue cycle operations. Our net operating feesconsist of (i) gross base fees invoiced to customers; less (ii) corresponding costs of customers’ revenue cycle operations which we to pay pursuant to our RCMagreements, including salaries and benefits for the customers' RCM personnel, and related third-party vendor costs; less (iii) any cost savings we share withcustomers.Net operating fees are recorded in deferred customer billings until we recognize revenue on a customer contract at the end of a contract or uponreaching an "other contractual agreement event." The amount of unpaid costs of customers’ revenue cycle operations and shared cost savings are reported asaccrued service costs within customer liabilities on our consolidated balance sheet.Incentive FeesWe also generate revenue in the form of performance-based fees when we improve our customers’ revenue yield. These performance metrics vary bycustomer contract. However, certain contracts contain a contract-to-date performance metric that is not resolved until the end of the term of the contract. Insome cases, when a customer agreement is extended under an evergreen provision or other amendment, fees may not be considered finalized until the end ofthe customer relationship. Incentive fees associated with performance metrics which are not resolved until the end of the term of the contract or an "othercontractual agreement event" are recorded in deferred customer billings until we recognize revenue. Incentive fees are considered contingent fees.Estimates of Cost of Customers’ Revenue Cycle OperationsCost of customers’ revenue cycle operations consist of invoiced costs from customers and estimated costs not yet invoiced. These costs consist ofpayroll and third-party non-payroll costs. Customers’ payroll costs are reasonably estimable; however, we are significantly dependent upon informationgenerated from our customers’ records to determine the amount of third-party non-payroll costs. We estimate the amount of non-payroll costs incurred but notinvoiced in order to properly calculate the deferred customer billings balance of the end of each reporting period. Such estimated costs are based oncontractually allowable expenses, historical reimbursed costs and estimated lag in the timing of receipt of information for third-party non-payroll costs. Thetiming difference includes the lag between the services rendered by third-party vendors and their billings to our customers. The accruals for such costs areincluded in accrued service costs and are part of the net operating fees included in deferred customer billings within the customer liabilities balance in theconsolidated balance sheet. These estimates are based on the best available information and are subject to future adjustments based on additional information46received from our customers. Due to the variable nature of these estimates, the adjustments can have a significant impact on the deferred customer billingsbalance for any reporting period in the future.Income TaxesWe account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for future income tax consequences thatare attributable to differences between the carrying amount of assets and liabilities for financial statement purposes and the income tax bases of such assetsand liabilities. We base the measurement of deferred tax assets and liabilities on enacted tax rates that we expect will apply to taxable income in the year weexpect to settle or recover those temporary differences. We recognize the effect on deferred income tax assets and liabilities of any change in income tax ratesin the period that includes the enactment date.The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies, and are based onmanagement’s assumptions and estimates about future operating results and levels of taxable income, and judgments regarding the interpretation of theprovisions of current accounting principles. We provide a valuation allowance for deferred tax assets if, based upon the weight of all available evidence, bothpositive and negative, it is more likely than not that some or all of the deferred tax assets will not be realized. We have established a valuation allowance withrespect to certain separate state income net operating loss carryforward deferred tax assets.The estimated effective tax rate for the year is applied to our quarterly operating results. In the event that there is a significant unusual or discrete itemrecognized, or expected to be recognized, in our quarterly operating results, the tax attributable to that item is calculated separately and recorded at the sametime as the unusual or discrete item, such as the resolution of prior-year tax matters.We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination bytaxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position aremeasured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.Interest and penalties related to income taxes are recognized in our tax provision in the consolidated statement of operations and comprehensiveincome (loss). See Note 12, Income Taxes, to our consolidated financial statements included in this Annual Report on Form 10-K for additional informationon income taxes.Share-Based Compensation ExpenseWe determine the expense for all employee share-based compensation awards by estimating their fair value and recognizing that value as an expense,on a ratable basis, in our consolidated financial statements over the requisite service period in which our employees earn the awards. The fair value ofperformance and service condition stock options is calculated using the Black-Scholes option pricing model and, for market condition stock options, the fairvalue is estimated using Monte Carlo simulations.To determine the fair value of a share-based award using the Black-Scholes option pricing model, we make assumptions regarding the risk-free interestrate, expected future volatility, expected life of the award, and expected forfeitures of the awards. These inputs are subjective and generally requiresignificant analysis and judgment to develop. We aggregate all employees into one pool for valuation purposes. The risk-free rate is based on the U.S.treasury yield curve in effect at the time of grant. We estimate the expected volatility of our share price by reviewing the historical volatility levels of ourcommon stock in conjunction with that of public companies that operate in similar industries or are similar in terms of stage of development or size and thenprojecting this information toward its future expected volatility. We exercise judgment in selecting these companies, as well as in evaluating the availablehistorical and implied volatility for these companies. We calculate the expected term in years for each stock option using a simplified method based on theaverage of each option’s vesting term and original contractual term. We apply an estimated forfeiture rate derived from our historical data and our estimatesof the likely future actions of option holders when recognizing the share-based compensation expense of the options.47To determine the fair value of a share-based award using Monte Carlo simulations, we make assumptions regarding the risk-free interest rate, expectedfuture volatility, expected dividend yield and performance period. The risk-free rate is based on the U.S. treasury yield curve in effect at the time of grant. Weestimate the expected volatility of the share price by reviewing the historical volatility levels of our common stock in conjunction with that of publiccompanies that operate in similar industries or are similar in terms of stage of development or size and then projecting this information toward our futureexpected volatility. Dividend yield is determined based on our future plans to pay dividends. We calculate the performance period based on the specificmarket condition to be achieved and derived from historical data and estimates of future performance.We recognize compensation expense, net of forfeitures, using a straight-line method over the applicable vesting period. Each appropriate quarter, theshare-based compensation expense is adjusted to reflect all options that vested or were forfeited during the period.The fair value of modifications to share-based awards is generally estimated using the Black-Scholes option pricing model. If a share-basedcompensation award is modified after the grant date, incremental compensation expense, if any, is recognized in an amount equal to the excess of the fairvalue of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for vestedawards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensationexpense for the original award on the modification date is recognized over the modified service period.New Accounting StandardsFor additional information regarding new accounting guidance, see Note 3, Recent Accounting Pronouncements, to our consolidated financialstatements included in this Annual Report on Form 10-K, which provides a summary of recently adopted accounting standards and disclosures.48Results of OperationsYear Ended December 31, 2016 Compared to Year Ended December 31, 2015The following table provides consolidated operating results and other operating data for the periods indicated: Year Ended December 31, 2016 vs. 2015Change 2016 2015 Amount % (In thousands)Consolidated statement of operations Data: RCM services: net operating fees $368,848 $66,234 $302,614 456.9 %RCM services: incentive fees 191,317 20,311 171,006 841.9 %RCM services: other 16,322 16,381 (59) (0.4)%Other services fees 16,070 14,313 1,757 12.3 %Total net services revenue 592,557 117,239 475,318 405.4 %Operating expenses: Cost of services 199,697 168,977 30,720 18.2 %Selling, general and administrative 74,137 74,963 (826) (1.1)%Other 20,822 9,343 11,479 122.9 %Total operating expenses 294,656 253,283 41,373 16.3 %Income (loss) from operations 297,901 (136,044) 433,945 favNet interest income 297 231 66 28.6 %Net income (loss) before income tax provision 298,198 (135,813) 434,011 favIncome tax provision (benefit) 121,127 (51,557) 172,684 unfavNet income (loss) 177,071 (84,256) 261,327 favNet interest income (297) (231) (66) 28.6 %Income tax provision (benefit) 121,127 (51,557) 172,684 unfavDepreciation and amortization expense 10,198 8,462 1,736 20.5 %Share-based compensation expense 28,102 31,671 (3,569) (11.3)%Other 20,822 9,343 11,479 122.9 %Adjusted EBITDA 357,023 (86,568) 443,591 favChange in deferred customer billings (383,864) 112,938 (496,802) unfavNet cash generated from customer contracting activities $(26,841) $26,370 $(53,211) unfavNet services revenue $592,557 $117,239 $475,318 405.4 %Change in deferred customer billings (383,864) 112,938 (496,802) unfavGross cash generated from customer contracting activities $208,693 $230,177 $(21,484) (9.3)%Components of gross cash generated from customer contracting activities: RCM services: net operating fee $150,527 $123,185 $27,342 22.2 %RCM services: incentive fee 29,112 67,656 (38,544) (57.0)%RCM services: other 12,985 25,023 (12,038) (48.1)%Total RCM services fees 192,624 215,864 (23,240) (10.8)%Other services fees 16,069 14,313 1,756 12.3 %Gross cash generated from customer contracting activities $208,693 $230,177 $(21,484) (9.3)%fav - Favorableunfav - Unfavorable49Net Services RevenueNet services revenue increased by $475.3 million, or 405.4%, from $117.2 million for the year ended December 31, 2015 to $592.6 million for the yearended December 31, 2016. The increase was primarily due to contractual agreement events related to Ascension and other RCM clients in the year endedDecember 31, 2016, resulting in revenue recognition of $557.8 million in net services revenue, partially offset by the recognition of revenue from contractualagreement events during 2015.In addition, other service fees increased by $1.8 million in 2016 as compared to 2015, primarily driven by an increase in PAS revenue.Gross Cash Generated from Customer Contracting Activities (Non-GAAP)Gross cash generated from customer contracting activities decreased by $21.5 million, or 9.3%, from $230.2 million for the year ended December 31,2015, to $208.7 million for the year ended December 31, 2016. The decrease in gross cash generated was primarily driven by reduction in the scope ofservices for certain customers and customer attrition.Gross cash generated from customer contracting activities is a non-GAAP measure. Please see "Selected Consolidated Financial Data - Selected Non-GAAP Measures" for an explanation of how we calculate and use gross cash generated from customer contracting activities and for its reconciliation to netservices revenue, the most comparable GAAP measure.Cost of ServicesCost of services increased by $30.7 million, or 18.2%, from $169.0 million for the year ended December 31, 2015, to $199.7 million for the year endedDecember 31, 2016. The increase in costs was primarily due to the transition to the A&R MPSA, which has resulted in a change in classification of costs froman offset to net operating fees to cost of services due to on-boarding of employees. The Company expects cost of services to increase as our headcountincreases as a result of the on-boarding of former Ascension employees. Previously, these costs were netted against billings as a component of net operatingfees. Additionally, the implementation of ICD-10, a clinical cataloging system that went into effect for the U.S. healthcare industry on October 1, 2015,increased costs.Selling, General and Administrative ExpensesSelling, general and administrative expenses decreased by $0.8 million, or 1.1%, from $75.0 million for the year ended December 31, 2015 to $74.1million for the year ended December 31, 2016. The decrease was primarily due to a decrease in stock compensation expense.Net Cash Generated from Customer Contracting Activities (Non-GAAP)Net cash generated from customer contracting activities decreased by $53.2 million from $26.4 million for the year ended December 31, 2015 to$(26.8) million for the year ended December 31, 2016. This decrease was primarily due to a decrease in gross cash generated from customer contractingactivities and an increase in cost of services as explained above.Please see "Selected Consolidated Financial Data - Selected Non-GAAP Measures" for an explanation of how we calculate and use net cash generatedfrom customer contracting activities and for its reconciliation to net income (loss), the most comparable GAAP measure.Other CostsOther costs increased by $11.5 million, from $9.3 million for the year ended December 31, 2015, to $20.8 million for the year ended December 31,2016. The increase was primarily attributable to $12.7 million in costs50related to retention payments paid in connection with the closing of the Transaction with Ascension Health Alliance and TowerBrook on February 16, 2016.Income TaxesIncome tax provision increased by $172.7 million to $121.1 million for the year ended December 31, 2016 from a benefit of $51.6 million for the yearended December 31, 2015, primarily due to an increase in pretax income. Our effective tax rate was approximately 41% and 38% for the years endedDecember 31, 2016 and 2015. Our tax rate is affected by discrete items that may occur in any given year, but not consistent from year to year. Our rate wasnegatively impacted by the write-down of state deferred tax assets from the geographical mix of business.51Year Ended December 31, 2015 Compared to Year Ended December 31, 2014The following table sets forth consolidated operating results and other operating data for the periods indicated: Year Ended December 31, 2015 vs. 2014Change 2015 2014 Amount % (In thousands)Consolidated Statement of Operations Data: RCM services: net operating fees $66,234 $77,456 $(11,222) (14.5)%RCM services: incentive fees 20,311 99,934 (79,623) (79.7)%RCM services: other 16,381 8,103 8,278 102.2 %Other services fees 14,313 24,647 (10,334) (41.9)%Total net services revenue 117,239 210,140 (92,901) (44.2)%Operating expenses: Cost of services 168,977 182,144 (13,167) (7.2)%Selling, general and administrative 74,963 69,883 5,080 7.3 %Other 9,343 86,766 (77,423) (89.2)%Total operating expenses 253,283 338,793 (85,510) (25.2)%Income (loss) from operations (136,044) (128,653) (7,391) 5.7 %Net interest income 231 302 (71) (23.5)%Net income (loss) before income tax provision (135,813) (128,351) (7,462) 5.8 %Income tax provision (benefit) (51,557) (48,731) (2,826) 5.8 %Net income (loss) (84,256) (79,620) (4,636) 5.8 %Net interest income (231) (302) 71 (23.5)%Income tax provision (benefit) (51,557) (48,731) (2,826) 5.8 %Depreciation and amortization expense 8,462 6,047 2,415 39.9 %Share-based compensation expense 31,671 20,172 11,499 57.0 %Restatement and other 9,343 86,766 (77,423) (89.2)%Adjusted EBITDA (86,568) (15,668) (70,900) 452.5 %Change in deferred customer billings 112,938 23,427 89,511 382.1 %Net cash generated from customer contracting activities $26,370 $7,759 $18,611 239.9 %Net services revenue $117,239 $210,140 $(92,901) (44.2)%Change in deferred customer billings 112,938 23,427 89,511 382.1 %Gross cash generated from customer contracting activities $230,177 $233,567 $(3,390) (1.5)%Components of Gross Cash Generated from Customer Contracting Activities: RCM services: net operating fee $123,185 $121,730 $1,455 1.2 %RCM services: incentive fee 67,656 77,239 (9,583) (12.4)%RCM services: other 25,023 9,952 15,071 151.4 %Total RCM services fees 215,864 208,921 6,943 3.3 %Other services fees 14,313 24,646 (10,333) (41.9)%Gross cash generated from customer contracting activities $230,177 $233,567 $(3,390) (1.5)%52Net Services RevenueNet services revenue decreased by $92.9 million, or 44.2%, from $210.1 million for the year ended December 31, 2014 to $117.2 million for the yearended December 31, 2015. The decrease was primarily driven by fewer RCM contractual agreement events in the year ended December 31, 2015. RCMservices other revenue increased by $8.3 million in 2015 compared to 2014, primarily due to significant progress toward completion of a client accountsreceivable collection project started in 2015.In addition, other service fees decreased by $10.3 million in 2015 as compared to 2014, primarily driven by a decrease in PAS revenue ofapproximately $8.0 million. The decrease was the result of the two-midnight rule, a regulatory change in the healthcare industry related to billingclassifications for certain hospital patients.Gross Cash Generated from Customer Contracting Activities (Non-GAAP)Gross cash generated from customer contracting activities decreased by $3.4 million, or 1.5%, from $233.6 million for the year ended December 31,2014, to $230.2 million for the year ended December 31, 2015. The decrease was primarily the result of an $8.0 million decrease in PAS revenue, offset inpart by an increase in gross cash generated from customer contracting activities from RCM services. RCM services other revenue increased in 2015 comparedto 2014, primarily due to significant progress toward completion of a client accounts receivable collection project which started in 2015.Gross cash generated from customer contracting activities is a non-GAAP measure. Please see "Selected Consolidated Financial Data - Selected Non-GAAP Measures" for an explanation of how we calculate and use gross cash generated from customer contracting activities and for its reconciliation to netservices revenue, the most comparable GAAP measure.Cost of ServicesCost of services decreased by $13.2 million, or 7.2%, from $182.1 million for the year ended December 31, 2014, to $169.0 million for the year endedDecember 31, 2015. The decrease in cost of services was primarily a result of decreased costs in our PAS business and a decrease in incentive compensationcosts, offset by an increase in depreciation and amortization expense of $3.2 million due to investments in our shared services centers and infrastructurerelated to RCM.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased by $5.1 million, or 7.3%, from $69.9 million for the year ended December 31, 2014 to $75.0million for the year ended December 31, 2015. The increase was primarily due to an increase of $11.1 million in stock based compensation expense, drivenby a larger number of RSAs granted in 2015 and a cash bonus of $1.8 million paid to 2014 bonus plan RSA grantees. In addition, modification of share-basedawards granted to our former chief executive officer during the second quarter of 2015 resulted in a $3.1 million increase in share-based compensation. Thisincrease was offset by a decrease in other selling, general and administrative expenses as a result of the continuation of cost reduction initiatives started in theprior year and a decrease in incentive compensation costs.53Net Cash Generated from Customer Contracting Activities (Non-GAAP)Net cash generated from customer contracting activities increased by $18.6 million from $7.8 million for the year ended December 31, 2014 to $26.4million for the year ended December 31, 2015. This increase was primarily due to lower cash-based cost of services and selling, general and administrativeexpenses offset by a decrease in gross cash generated from customer contracting activities of $3.4 million as described above. Net cash generated fromcustomer contracting activities is a non-GAAP measure. Please see "Selected Consolidated Financial Data - Selected Non-GAAP Measures" for an explanationof how we calculate and use net cash generated from customer contracting activities and for its reconciliation to net income (loss), the most comparableGAAP measure.Other CostsOther costs decreased by $77.4 million, from $86.8 million for the year ended December 31, 2014, to $9.3 million for the year ended December 31,2015. The decrease was primarily driven by a reduction in Restatement-related costs of $54.8 million, reorganization-related costs of $18.9 million, and $6.5million in costs related to our Transformation Office in 2014. This decrease was offset by $3.8 million in costs related to the review of strategic alternatives.Such costs are considered unusual in nature by us and are reported separately under the caption "Other" in the accompanying consolidated statement ofoperations and comprehensive income (loss).Income TaxesTax benefit increased by $2.8 million to $51.6 million for the year ended December 31, 2015 from $48.7 million for the year ended December 31,2014. Our effective tax rate was approximately 38.0% for both the years ended December 31, 2015 and 2014. Our tax rate is affected by discrete items thatmay occur in any given year, but not consistent from year to year.Liquidity and Capital ResourcesCash flows from operating, investing and financing activities, as reflected in our Consolidated Statements of Cash Flows, are summarized in thefollowing table: Year Ended December 31, 2016 2015 2014 (In thousands)Net cash used in operating activities $(86,860) $(23,812) $(77,236)Net cash used in investing activities (11,612) (22,298) (6,034)Net cash provided by (used in) financing activities 176,395 4,940 (194)Effect of exchange rate changes on cash (244) (500) (260)Net increase (decrease) in cash and cash equivalents $77,679 $(41,670) $(83,724)As of December 31, 2016, 2015 and 2014, we had cash and cash equivalents of $181.2 million, $103.5 million and $145.2 million, respectively. Thesebalances consist primarily of highly liquid money market funds. Our cash and cash equivalents, at any time, include amounts paid to us in advance bycustomers for the purpose of reimbursing their revenue cycle operations costs. See Note 2, Summary of Significant Accounting Policies, to our consolidatedfinancial statements included in this Annual Report on Form 10-K for additional information. We expect that the combination of our current liquidity andexpected additional cash generated from operations will be sufficient to satisfy our anticipated cash requirement through at least the next twelve months.54Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Operating ActivitiesCash used in operating activities increased by $63.1 million, from cash used of $23.8 million for the year ended December 31, 2015, to cash used of$86.9 million for the year ended December 31, 2016. The increase resulted from the decrease in net cash generated from customer contracting activities andunfavorable changes in working capital primarily related to the change to an operating partner model with Ascension as employee costs are paid as incurredas opposed to the longer payment cycle associated with reimbursements under the co-managed model.Investing ActivitiesCash used in investing activities decreased by $10.7 million from $22.3 million for the year ended December 31, 2015, to $11.6 million for the yearended December 31, 2016. Cash used in investing activities decreased primarily due to a year-over-year decline in purchases of computer software and lowerspending on leasehold improvements related the on-going build out of a new shared service center. Cash used was offset by cash provided of $1.0 millionfrom proceeds received from the maturation of short-term investments.Financing ActivitiesCash provided by financing activities increased by $171.5 million for the year ended December 31, 2016, primarily due to the investment of $200million by the Investor in connection with the Transaction offset by transaction costs of $21.3 million.Year Ended December 31, 2015 Compared to Year Ended December 31, 2014Operating ActivitiesCash from operating activities improved by $53.4 million, from cash use of $77.2 million for the year ended December 31, 2014, to cash use of $23.8million for the year ended December 31, 2015. The improvement was primarily attributable to a decrease in Restatement expenditures of $54.8 million from$57.3 million, for the year ended December 31, 2014 to $2.5 million for the year ended December 31, 2015.Investing ActivitiesCash used in investing activities increased by $16.3 million from $6.0 million for the year ended December 31, 2014, to $22.3 million for the yearended December 31, 2015. This increase was due to the purchase of computer hardware and software and for additional leasehold improvements related to theopening of a new shared services center and purchase of short-term investments.Financing ActivitiesCash used in financing activities increased by $5.1 million for the year ended December 31, 2015 primarily due to the expiration and non-renewal ofour line of credit on February 15, 2015. The $5.0 million demand deposit that secured our line of credit was reclassified from restricted cash into cash andcash equivalents at March 31, 2015 as a result of the expiration.Future Capital NeedsIn connection with our strategic initiatives, we plan to continue to enhance customer service by continuing our investment in technology to enable oursystems to more effectively integrate with our customers’ existing technologies. We plan to continue to deploy resources to strengthen our informationtechnology infrastructure in order to drive additional value for our customers. We also continue to invest in our shared services capabilities. We55also plan on expanding our capabilities in India which will require investments. We may also selectively pursue acquisitions and/or strategic relationshipsthat will enable us to broaden or further enhance our offerings.Additionally, new business development remains a priority as we plan to continue to boost our sales and marketing efforts. We plan to continue to addexperienced personnel to our sales organization, develop more disciplined sales processes, and create an integrated marketing capability.56Contractual ObligationsLeasesThe following table presents our obligations and commitments to make future minimum rental payments under all non-cancelable operating leaseshaving remaining terms in excess of one year as of December 31, 2016 (in thousands): 2017 2018 2019 2020 2021 Thereafter TotalFuture minimum rental payments $5,962 $6,365 $5,957 $5,393 $4,198 $10,511 $38,386We rent office space and equipment under a series of operating leases, primarily for our Chicago corporate office, shared services centers and Indiaoperations. Our leases contain various rent holidays and rent escalation clauses and entitlements for tenant improvement allowances. Lease payments areamortized to expense on a straight-line basis over the lease term.Uncertain Tax PositionsWe have a $0.3 million liability for uncertain tax positions as of December 31, 2016. These have been excluded from the "Contractual Obligations"table as we cannot reasonably estimate the period of cash settlement for the tax positions presented in our financial statements as a reduction of our deferredtax asset.Off-Balance Sheet ArrangementsOther than operating leases for office space and the revolving credit facility as noted above, there were no off-balance sheet transactions, arrangementsor other relationships with other persons in 2016, 2015 or 2014 that would have affected or are likely to affect our liquidity or the availability of, orrequirements for, capital resources.57Item 7A.Qualitative and Quantitative Disclosures about Market RiskInterest Rate Sensitivity. Our interest income is primarily generated from interest earned on operating cash accounts. Our exposure to market risksrelated to interest expense as of December 31, 2016 was limited to interest earned on our cash, cash equivalents and restricted cash equivalents. We do notenter into interest rate swaps, caps or collars or other hedging instruments. As a result, we believe that the risk of a significant impact on our operating incomefrom interest rate fluctuations is not material.Foreign Currency Exchange Risk. Our results of operations and cash flows are subject to fluctuations due to changes in the Indian rupee because aportion of our operating expenses are incurred by our subsidiary in India and are denominated in Indian rupees. However, we do not generate any revenuesoutside of the United States. For the years ended December 31, 2016, 2015 and 2014, 8%, 7% and 5% , respectively, of our expenses were denominated inIndian rupees and as of December 31, 2016, 2015 and 2014, we had net assets of $15.8, $11.8, $8.9 million in India. As a result, we believe that the risk of asignificant impact on our operating income from foreign currency fluctuations is not substantial.Item 8.Consolidated Financial Statements and Supplementary DataThe financial statements required by this Item are located beginning on page F-1 of this report.Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone58Item 9A.Controls and ProceduresThis Item 9A includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer andChief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Annual Report as Exhibits 31.1 and 31.2.OverviewAs previously disclosed under "Item 9A - Controls and Procedures" in our Annual Reports on Form 10-K for the fiscal years ended December 31, 2014and 2015, or the 2014 and 2015 10-Ks, we concluded that our internal control over financial reporting was not effective as a result of the material weaknessesidentified in the 2014 and 2015 10-Ks.Our management was committed to the planning and implementation of remediation efforts to address all material weaknesses. These remediationefforts, summarized below, were implemented to address the identified material weaknesses and to enhance our control environment.During 2014, 2015 and 2016, numerous changes were made throughout our organization and significant actions have been undertaken to reinforce theimportance of a strong control environment, including training and other steps designed to strengthen and enhance our control culture.To remediate the control environment deficiencies previously identified, our leadership team, including our audit committee of the Board, or AuditCommittee, Chief Executive Officer, and the Chief Financial Officer, have reaffirmed and reemphasized the importance of internal control, controlconsciousness and a strong control environment. In addition, we developed and implemented a remediation plan to address the 2014 and 2015 identifiedmaterial weaknesses.Our plan used to remediate these deficiencies included the following actions:•adopted new accounting policies for revenue recognition and software capitalization;•implemented periodic reviews with the relevant internal process owners of tangible and intangible asset acquisitions and dispositions to ensureproper accounting;•established a contract governance committee to oversee all contracting activity;•completed the implementation of a robust contract governance structure to assure appropriate administration, compliance and accounting treatmentfor new or amended contract terms;•established a contracting boundaries protocol to clarify the delegation of contracting authority to personnel involved in establishing customercontract terms;•appointed experienced professionals to key leadership positions;•established a new reporting structure with more clearly defined accountabilities;•hired additional accounting personnel with appropriate backgrounds and skill sets, including professionals with certified public accountantqualifications, master’s degrees and public accounting experience and created new positions for a Director of Revenue and a Director of Taxes;•implemented a new internal reporting model and performance metrics based on cash flow performance;•centralized certain accounting functions and revised organizational structures to enhance accurate reporting59and ensure appropriate accountability;•established a formal delegation of authority from the Board of Directors to management with further delegation to accountable personnel;•expanded the use of our financial reporting systems to facilitate more robust analysis of operating performance, budgeting and forecasting;•strengthened our current disclosure committee with formalized processes to enhance the transparency of our external financial reporting;•finalized our transition to the 2013 Committtee of Sponsoring Organizations, or COSO, framework;•strengthened our information technology general controls;•implemented and executed a year round internal controls testing and monitoring program; and•enhanced our Sarbanes-Oxley compliance procedures.Management’s Report on Internal Control Over Financial ReportingManagement has responsibility for establishing and maintaining adequate internal control over financial reporting. Internal control over financialreporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal reporting purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2016. In making its assessment, management has utilized the criteria set forth by the COSO of the TreadwayCommission in Internal Control-Integrated Framework (2013). Management concluded that based on its assessment, our internal control over financialreporting was effective as of December 31, 2016. The Company’s internal control over financial reporting as of December 31, 2016 has been audited by Ernst& Young LLP as stated in their report which appears on page 61.Evaluation of Disclosure Controls and ProceduresDisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that information requiredto be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specifiedin SEC rules and forms and that such information is accumulated and communicated to management including its principal executive officer and principalfinancial officer to allow timely decisions regarding required disclosures.In connection with the preparation of this report, our management, under the supervision and with the participation of the Chief Executive Officer andChief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016. Our Chief Executive Officer and ChiefFinancial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were effective.Changes in Internal Control Over Financial ReportingOther than matters discussed in this Item 9A, there have been no changes in our internal control over financial reporting since our last Quarterly Reportfiled on Form 10-Q for the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controlover financial reporting.60Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholdersof R1 RCM Inc.We have audited R1 RCM Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). R1 RCMInc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is toexpress an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, R1 RCM Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on theCOSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof R1 RCM Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), stockholders’equity (deficit), and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 1, 2017 expressed anunqualified opinion thereon./s/ Ernst & Young LLPChicago, IllinoisMarch 1, 201761Item 9B.Other InformationNonePART IIIItem 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item with respect to our directors and executive officers will be contained in our 2017 Proxy Statement under thecaption "Information About Our Directors, Officers and 5% Stockholders" and is incorporated in this report by reference.The information required by this item with respect to Section 16(a) beneficial ownership reporting compliance will be contained in our 2017 ProxyStatement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated in this report by reference.The information required by this item with respect to corporate governance matters will be contained in our 2017 Proxy Statement under the caption"Corporate Governance" and is incorporated in this report by reference.Code of EthicsWe have adopted a code of business conduct and ethics that applies to our directors and officers (including our principal executive officer, principalfinancial officer, principal accounting officer or controller, or persons performing similar functions) as well as our employees. Copies of our code of businessconduct and ethics are available without charge upon written request directed to Corporate Secretary, R1 RCM Inc., 401 N. Michigan Avenue, Suite 2700,Chicago, Illinois, 60611. Additionally, copies are available without charge online at http://ir.r1rcm.com/phoenix.zhtml?c=234481&p=irol-govhighlights.Item 11.Executive CompensationInformation required to be furnished by Item 402 of Regulation S-K and paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K regardingexecutive compensation will be included in our 2017 Proxy Statement, and is herein incorporated by reference.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersWe maintain an Amended and Restated Stock Option Plan, or the 2006 Plan, and a Second Amended and Restated 2010 Stock Incentive Plan, or the2010 Amended Plan, and together with the 2006 Plan, the Plans. Under the 2010 Amended Plan we may issue up to a maximum of 46,374,756 shares,including any shares that remained available for issuance under the 2006 Plan as of the date of the IPO and any shares subject to awards that were outstandingunder the 2006 Plan as of the date of the IPO that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us without the issuanceof shares thereunder. We will not make any further grants under the 2006 Plan. The 2010 Amended Plan provides for the grant of incentive stock options,non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and and other share-based awards. As of December 31, 2016,15,581,377 shares were available for future grants of awards under the 2010 Amended Plan. However, to the extent that previously granted awards under the2006 Plan or 2010 Amended Plan expire, terminate or are otherwise surrendered, canceled or forfeited, the number of shares available for future awards underthe 2010 Amended Plan will increase.The following table summarizes information about the securities authorized for issuance under our equity compensation plans as of December 31,2016:63 (a) (b) (c)Plan Category Number ofSecuritiesto be Issued UponExercise of OutstandingOptions and RestrictedStock Units Weighted-AverageExercise Priceof OutstandingOptions Number of Securities RemainingAvailable for Future IssuanceUnder EquityCompensation Plans(Excluding Securities reflectedin Column (a))Equity compensation plans approved by stockholders (1)(2) 18,061,580 $5.44 18,831,652Equity compensation plans not approved by stockholders (3)(4) 3,703,801 $9.97 —Total 20,418,607 $— 18,831,652 (1)Includes 16,714,806 outstanding stock options awarded under our 2006 Plan and 2010 Amended Plan and 1,346,774 restricted stock units awarded under our2010 Amended Plan. Since the restricted stock units have no exercise price, they are not included in the weighted-average exercise price calculation in column b.(2)Excludes 5,862,712 shares of RSAs that were unvested and not forfeited as of December 31, 2016.(3)Represents stock option inducement grants made pursuant to the NYSE inducement grant rules.(4)Excludes 49,972 shares of restricted stock that were unvested and not forfeited as of December 31, 2016.We entered into a Stock Option Agreement with Stephen Schuckenbrock on April 3, 2013, as an inducement award pursuant to an exemption from theNYSE’s stockholder approval requirements in connection with Mr. Schuckenbrock’s appointment as our then-chief executive officer. Pursuant to thisagreement, we granted Mr. Schuckenbrock a non-statutory stock option for the purchase of up to 2,903,801 shares of our common stock with an exerciseprice of $9.56 per share, which option vests in substantially equal monthly installments over 48 months. Pursuant to an amendment to that Stock OptionAgreement entered into in May 2015, such vesting continues irrespective of the termination of Mr. Schuckenbrock's service as an employee and director.We entered into a Non-Statutory Stock Option Agreement and a Restricted Stock Award Agreement with Joseph Flanagan on June 3, 2013, each as aninducement award pursuant to an exemption from the NYSE’s stockholder approval requirements in connection with Mr. Flanagan’s appointment as our chiefoperating officer. Pursuant to the Non-Statutory Stock Option Agreement, we granted Mr. Flanagan a non-statutory stock option for the purchase of up to800,000 shares of our common stock with an exercise price of $11.47 per share and pursuant to the Restricted Stock Award Agreement, we granted Mr.Flanagan 400,000 shares of our common stock. These equity awards to Mr. Flanagan vest in substantially equal monthly installments over 48 months subjectto continued service with us.The information required by this item with regard to security ownership of certain beneficial owners and management will be contained in our 2017Proxy Statement under the caption "Information About Our Directors, Officers and 5% Stockholders - Security Ownership of Certain Beneficial Owners andManagement" and is incorporated in this report by reference.The information required by this item with regard to securities authorized for issuance under equity compensation plans will be contained in our2017 Proxy Statement under the caption "Executive Compensation - Securities Authorized for Issuance under our Equity Compensation Plans" and isincorporated in this report by reference.Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item will be contained in our 2017 Proxy Statement under the captions "Related-Party Transactions" and "CorporateGovernance" and is incorporated in this report by reference.64Item 14.Principal Accountant Fees and ServicesThe information required by this item will be contained in our 2017 Proxy Statement under the caption "Ratification of the Selection of IndependentRegistered Public Accounting Firm" and is incorporated in this report by reference.65PART IVItem 15.Exhibits and Financial Statement Schedulesa) The following documents are filed as a part of this report:(1) Financial Statements: The financial statements and notes thereto annexed to this report beginning on page F-1.(2) Financial Statement Schedules: Schedule II- Valuation and Qualifying Accounts Disclosure schedules have been omitted because they are notrequired or because the required information is in the Consolidated Financial Statements and notes thereto.(3) Exhibits: The list of Exhibits filed as part of this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding suchExhibits and is incorporated herein by this reference.66SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. R1 RCM INC. By:/s/ Joseph Flanagan Joseph Flanagan President, Chief Executive Officer and Chief OperatingOfficer By:/s/ Christopher Ricaurte Christopher Ricaurte Chief Financial Officer and TreasurerDate: March 1, 2017Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrantin the capacities and on the dates indicated.Signature Title Date /s/ Joseph Flanagan Joseph Flanagan President, Chief Executive Officer and Chief Operating Officer(Principal Executive Officer) March 1, 2017 /s/ Christopher Ricaurte Christopher Ricaurte Chief Financial Officer and Treasurer (Principal Financial Officer) March 1, 2017 /s/ Richard Evans Richard Evans Principal Accounting Officer March 1, 2017 /s/ Steven J. Shulman Steven J. Shulman Chairman of the Board March 1, 2017 /s/ Charles J. Ditkoff Charles J. Ditkoff Director March 1, 2017 /s/ John B. Henneman III John B. Henneman III Director March 1, 2017 /s/ Joseph R. Impicciche Joseph R. Impicciche Director March 1, 2017 /s/ Alex J. Mandl Alex J. Mandl Director March 1, 2017 /s/ Neal Moszkowski Neal Moszkowski Director March 1, 2017 /s/ Ian Sacks Ian Sacks Director March 1, 2017 /s/ Anthony J. Speranzo Anthony J. Speranzo Director March 1, 201767R1 RCM Inc.Index to Consolidated Financial Statements PageAudited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets F-3Consolidated Statements of Operations and Comprehensive Income (Loss) F-4Consolidated Statements of Stockholders’ Equity (Deficit) F-5Consolidated Statements of Cash Flows F-6Notes to Consolidated Financial Statements F-7F-1Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholdersof R1 RCM Inc.We have audited the accompanying consolidated balance sheets of R1 RCM Inc. as of December 31, 2016 and 2015, and the related consolidated statementsof operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31,2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of R1 RCM Inc. atDecember 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2016, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), R1 RCM Inc.’s internal controlover financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2017, expressed an unqualified opinion thereon./s/ Ernst & Young, LLPChicago, IllinoisMarch 1, 2017F-2R1 RCM Inc.Consolidated Balance Sheets(In thousands, except per share data) December 31, 2016 2015Assets Current assets: Cash and cash equivalents $181,176 $103,497Short-term investments — 1,023Accounts receivable, net 3,985 10,194Accounts receivable, net - related party 1,831 —Prepaid income taxes 3,818 1,102Prepaid expenses and other current assets 13,804 10,924Total current assets 204,614 126,740Property, equipment and software, net 32,789 27,217Non-current deferred tax asset 169,916 300,825Restricted cash equivalents 1,500 1,500Other assets 6,240 4,007Total assets $415,059 $460,289Liabilities Current liabilities: Accounts payable 7,947 5,306Current portion of customer liabilities 69,713 202,516Current portion of customer liabilities - related party 14,175 —Accrued compensation and benefits 24,789 9,062Other accrued expenses 18,485 15,743Total current liabilities 135,109 232,627Non-current portion of customer liabilities 1,000 432,477Non-current portion of customer liabilities - related party 110,032 —Other non-current liabilities 9,659 8,498Total liabilities $255,800 $673,602 8.00% Series A convertible preferred stock: par value $0.01 per share, 370,000 authorized, 210,160 shares issuedand outstanding as of December 31, 2016; no shares authorized or issued as of December 31, 2015 (aggregateliquidation value of $214,363 as of December 31, 2016) 171,593 —Stockholders’ equity (deficit): Common stock, $0.01 par value, 500,000,000 shares authorized, 116,425,524 shares issued and 106,659,542shares outstanding at December 31, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding atDecember 31, 2015 1,164 1,133Additional paid-in capital 349,198 322,492Accumulated deficit (304,702) (481,773)Accumulated other comprehensive loss (2,843) (2,488)Treasury stock, at cost, 9,765,982 shares as of December 31, 2016; 5,543,972 shares as of December 31, 2015 (55,151) (52,677)Total stockholders’ equity (deficit) (12,334) (213,313)Total liabilities and stockholders’ equity (deficit) $415,059 $460,289See accompanying notes to consolidated financial statements.F-3R1 RCM Inc.Consolidated Statements of Operations and Comprehensive Income (Loss)(In thousands, except per share data) Year Ended December 31, 2016 2015 2014Net services revenue ($461.4 million from related party for the 12 months ended December 31, 2016 and$0 million from related party for the year ended December 31, 2015 and 2014, respectively.) $592,557 $117,239 $210,140Operating expenses: Cost of services 199,697 168,977 182,144Selling, general and administrative 74,137 74,963 69,883Other 20,822 9,343 86,766Total operating expenses 294,656 253,283 338,793Income (loss) from operations 297,901 (136,044) (128,653)Net interest income 297 231 302Income (loss) before income tax provision 298,198 (135,813) (128,351)Income tax provision (benefit) 121,127 (51,557) (48,731)Net income (loss) $177,071 $(84,256) $(79,620)Net income (loss) per common share: Basic $0.65 $(0.87) $(0.83)Diluted $0.65 $(0.87) $(0.83)Weighted average shares used in calculating net income (loss) per common share: Basic 100,160,206 96,806,885 95,760,762Diluted 100,160,206 96,806,885 95,760,762Consolidated statements of comprehensive income (loss) Net income (loss) 177,071 (84,256) (79,620)Other comprehensive loss: Foreign currency translation adjustments (355) (725) (304)Comprehensive income (loss) $176,716 $(84,981) $(79,924)Reconciliation of net income (loss) to income (loss) available to common shareholders: Basic: Net income (loss)$177,071 $(84,256) $(79,620)Less dividends on preferred shares(62,684) — —Less income allocated to preferred shareholders(48,955) — —Net income (loss) available/allocated to common shareholders - basic$65,432 $(84,256) (79,620)Diluted: Net income (loss)$177,071 $(84,256) $(79,620)Less dividends on preferred shares(62,684) — —Less income allocated to preferred shareholders(48,955) — —Net income (loss) available/allocated to common shareholders - diluted$65,432 $(84,256) $(79,620)See accompanying notes to consolidated financial statements.F-4R1 RCM Inc.Consolidated Statements of Stockholders’ Equity (Deficit)(In thousands, except per share data) Common Stock Treasury Stock AdditionalPaid-InCapital AccumulatedDeficit Accumulatedothercomprehensive(loss) Total Shares Amount Shares Amount Balance at January 1, 2014 100,525,241 $1,005 (4,514,330) $(50,700) $283,439 $(317,897) $(1,459) $(85,612)Share-based compensation expense — — — — 27,181 — — 27,181Deferred tax asset write off includingshortfall of $176 (3,521) (3,521)Exercise of vested stock options — — — — — — — —Issuance of common stock related toshare-based compensation plans 2,365,000 24 — — (24) — — —Treasury stock purchases — — (263,892) (370) — — — (370)Foreign currency translationadjustments — — — — — — (304) (304)Net income — — — — — (79,620) — (79,620)Balance at December 31, 2014 102,890,241 $1,029 (4,778,222) $(51,070) $307,075 $(397,517) $(1,763) $(142,246)Share-based compensation expense — — — — 29,236 — — 29,236Deferred tax asset write off includingwindfall of $15 — — — — (15,262) — — (15,262)Issuance of common stock related toshare-based compensation plans 8,994,729 90 — — (90) — — —Exercise of vested stock options 1,374,438 14 — — 1,533 — — 1,547Treasury stock purchases — — (765,750) (1,607) — — — (1,607)Foreign currency translationadjustments — — — — — — (725) (725)Net income (loss) — — — — — (84,256) — (84,256)Balance at December 31, 2015 113,259,408 $1,133 (5,543,972) $(52,677) $322,492 $(481,773) $(2,488) $(213,313)Share-based compensation expense — — — — 30,183 — — 30,183Deferred tax asset write off includingshortfall of $3,526 — — — — (10,687) — — (10,687)Issuance of common stock related toshare-based compensation plans 3,071,876 31 — — (31) — — —Exercise of vested stock options 94,240 — — — 165 — — 165Beneficial conversion feature — — — — 48,320 — — 48,320Issuance of stock warrants — — — — 21,440 — — 21,440Dividends paid/accrued dividends — — — — (14,364) — — (14,364)Deemed preferred stock dividend — — — — (48,320) — — (48,320)Treasury stock purchases — — (4,222,010) (2,474) — — — (2,474)Foreign currency translationadjustments — — — — — — (355) (355)Net income (loss) — — — — — 177,071 — 177,071Balance at December 31, 2016 116,425,524 $1,164 (9,765,982) $(55,151) $349,198 $(304,702) $(2,843) $(12,334)See accompanying notes to consolidated financial statements.F-5R1 RCM Inc.Consolidated Statements of Cash Flows(In thousands) Year Ended December 31, 2016 2015 2014Operating activities Net income (loss) $177,071 $(84,256) $(79,620)Adjustments to reconcile net income (loss) to net cash used in operations: Depreciation and amortization 10,198 8,462 6,047Share-based compensation 29,834 29,236 27,181Loss on disposal 207 — 1,604Provision (recovery) for doubtful receivables 5 (46) (430)Deferred income taxes 121,834 (52,690) (49,227)Excess tax benefit from share-based awards — — (176)Reimbursed tenant improvements 1,419 — —Changes in operating assets and liabilities: Accounts receivable and related party accounts receivable 4,373 (5,709) 20,548 Restricted cash equivalents — (1,500) —Prepaid income taxes (2,770) 5,058 3,794Prepaid expenses and other assets (6,920) (7,465) (47)Accounts payable 1,197 (7,162) 8,251Accrued compensation and benefits 15,747 (5,918) 3,174Other liabilities 1,018 248 (3,312)Customer liabilities and customer liabilities - related party (440,073) 97,930 (15,023)Net cash used in operating activities (86,860) (23,812) (77,236)Investing activities Purchase of short-term investments — (1,023) —Purchases of property, equipment, and software (12,635) (21,275) (6,034) Proceeds from maturation of short-term investments 1,023 — —Net cash used in investing activities (11,612) (22,298) (6,034)Financing activities Series A convertible preferred stock and warrant issuance, net of issuance costs 178,669 — —Excess tax benefit from share-based awards — — 176Exercise of vested stock options 165 1,547 —Purchase of treasury stock (2,439) (1,607) (370)Restricted cash release from letter of credit — 5,000 —Net cash provided by (used in) financing activities 176,395 4,940 (194)Effect of exchange rate changes in cash (244) (500) (260)Net increase (decrease) in cash and cash equivalents 77,679 (41,670) (83,724)Cash and cash equivalents, at beginning of year 103,497 145,167 228,891Cash and cash equivalents, at end of year $181,176 $103,497 $145,167Supplemental disclosures of cash flow information Accrued dividends payable to Preferred Stockholders $4,203 $— $—Accrued liabilities related to purchases of property, equipment and software $2,447 $411 $—Accounts payable related to purchases of property, equipment and software $2,027 $565 $863Income taxes paid $(1,111) $(1,088) $(801)Income taxes refunded $666 $1,441 $3,014See accompanying notes to consolidated financial statements.F-6R1 RCM Inc.Notes to Consolidated Financial StatementsNote 1. Description of BusinessR1 RCM Inc. (the "Company") is a leading provider of revenue cycle management ("RCM") services and physician advisory services ("PAS") tohealthcare providers. The Company helps healthcare providers generate sustainable improvements in their operating margins and cash flows while alsoenhancing patient, physician and staff satisfaction for its customers.The Company achieves these results for its customers by managing healthcare providers’revenue cycle operations, which encompass processes including patient registration, insurance and benefit verification, medical treatment documentationand coding, bill preparation and collections from patients and payers. The Company does so by deploying a unique operating model that leverages itsextensive healthcare site experience, innovative technology and process excellence. The Company's primary service offering consists of end-to-end RCM, which encompasses patient registration, insurance and benefit verification,medical treatment documentation and coding, bill preparation and collections. The Company deploys its RCM services through a co-managed relationshipor an operating partner relationship. Under a co-managed relationship, the Company leverages its customers’ existing RCM staff and processes, andsupplements them with our infused management, subject matter specialists, proprietary technology and other resources. Under an operating partnerrelationship, the Company provides comprehensive revenue cycle infrastructure to providers, including all revenue cycle personnel, technology, and processworkflow. The Company also offers modular services, allowing customers to engage the Company for only specific components of our end-to-end RCMservice offering. The Company's PAS offering complements the Company's RCM offering by strengthening customer’s compliance with certain third-partypayer requirements and limiting denials of claims. For example, the Company's PAS offering helps customers determine whether to classify a hospital visit asan in-patient or an out-patient observation case for billing purposes.On February 16, 2016, the Company entered into a long-term strategic partnership with Ascension Health Alliance, the parent of the Company's largestcustomer and the nation’s largest Catholic and non-profit health system, and TowerBrook Capital Partners ("TowerBrook"), an investment management firm(the "Transaction"). As part of the Transaction, the Company amended and restated its Master Professional Services Agreement ("A&R MPSA") withAscension Health ("Ascension") effective February 16, 2016 with a term of ten years. Pursuant to the A&R MPSA and with certain limited exceptions, theCompany will become the exclusive provider of RCM services and PAS with respect to acute care services provided by the hospitals affiliated withAscension that execute supplement agreements with the Company.Note 2. Summary of Significant Accounting PoliciesBasis of PresentationThe consolidated financial statements include the assets, liabilities and results of operations of the Company and its wholly owned subsidiaries. Allmaterial intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with theUnited States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reportedin these consolidated financial statements and accompanying notes. Actual results can differ from those estimates.SegmentsReporting segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by thechief operating decision maker, or decision-making group, relating to resource allocation and performance assessments. All of the Company’s operations areorganized around the single business of providing end-to-end management services of revenue cycle operations for U.S-based hospitals and other medicalproviders. The Company views its operations and manages its business as one operating and reporting segment.F-7R1 RCM Inc.Notes to Consolidated Financial StatementsRevenue RecognitionRevenue is generally recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) services have beenrendered, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured.Net service fees, as reported in the consolidated statement of operations and comprehensive income (loss), consist of: (a) RCM services fees and(b) professional service fees earned on a fixed fee, transactional fee or time and materials basis. The Company’s primary source of revenue is RCM servicesfees. RCM services fees are primarily contingent, but along with fixed fees are generally viewed as one deliverable. To the extent that certain RCM servicesfees are fixed and not subject to refund, adjustment or concession, such fees are generally recognized as revenue on a straight-line basis over the term of thecontract.On a limited basis, the Company enters into contracts with multiple accounting elements which may include a combination of fixed fee or transactionalfee elements. The selling price of each element is determined by using management's best estimate of selling price. Revenues are recognized in accordancewith the accounting policies for the separate elements.RCM services fees that are contingent in nature are recognized as revenue once all the criteria for revenue recognition are met, which is generally at theend of a contract or other contractual agreement event. Revenue is recognized for RCM services fees upon the contract reaching the end of its stated term(such that the contractual relationship will not continue in its current form) to the extent that: (i) cash has been received for invoiced fees and (ii) there are nodisputes at the conclusion of the term of the contract.If fees or services are disputed by a customer at the end of a contract, a settlement agreement entered into with the customer triggers revenuerecognition. An other "contractual agreement event" occurs when a renewal, amendment to an existing contract, or other settlement agreement is executed inwhich the parties reach agreement on prior fees. Revenue is recognized up to the amount covered by such agreements.RCM services fees consist of the following contingent fees: (i) Net Operating Fees and (ii) Incentive Fees.Net Operating FeesThe Company generates net operating fees to the extent the Company is able to assist customers in reducing the cost of revenue cycle operations. TheCompany’s net operating fees consist of:i) gross base fees invoiced to customers; lessii) corresponding costs of customers’ revenue cycle operations which the Company pays pursuant to its RCM agreements, including salaries andbenefits for the customers' RCM personnel, and related third-party vendor costs; lessiii) any cost savings the Company shares with customers.Net operating fees are recorded as deferred customer billings until the Company recognizes revenue for a customer contract at the end of a contract orreaches an "other contractual agreement event". The amount of unpaid costs of customers’ revenue cycle operations and shared cost savings are reported asaccrued service costs within customer liabilities in the consolidated balance sheets.Incentive FeesThe Company generates revenue in the form of performance-based fees when the Company improves the customers’ financial or operational metrics.These performance metrics vary by customer contract. However, certain contracts contain a contract-to-date performance metric that is not resolved until theend of the term of the contract.F-8R1 RCM Inc.Notes to Consolidated Financial StatementsIncentive fees are reported as deferred customer billings only upon cash receipt and until the Company recognizes revenue for a customer at the end of acontract or other contractual agreement event. In some cases, when a customer agreement is extended under an evergreen provision or other amendment, feesmay not be considered finalized until the end of the customer relationship. Incentive fees associated with performance metrics which are not resolved untilthe end of the term of the contract or an "other contractual agreement event" are recorded in deferred customer billings until the Company recognizesrevenue. Incentive fees are considered contingent fees.Customer LiabilitiesBase fees and fixed fees are billed on a monthly or quarterly basis and incentive fees are billed to customers on a quarterly basis. Generally, base fees arebilled in advance of each service period. Customer liabilities include (i) accrued service costs (amounts due and accrued for cost reimbursements net ofamounts receivable for base fees from the corresponding customer), (ii) deferred customer billings (net operating fees invoiced or accrued and incentive feescollected that have not met all revenue recognition criteria), (iii) customer deposits (consisting primarily of net operating fees under the Company’s RCMcontracts that are paid prior to the service period and amounts due as a refund to our customers on incentive fees) and (iv) deferred revenue (fixed feesamortized to revenue over the service period or fixed or determinable fees that have not met all other revenue recognition criteria). Deferred customer billingsare classified as current based on the customer contract end dates or other termination events that fall within twelve months of the balance sheet dates.Accrued service cost, customer deposits and deferred revenue are classified as current or non-current based on the anticipated period in which the liabilitiesare expected to be settled or the revenue is expected to be recognized.Consulting Fees, Transaction Fees and Contingent Service FeesThe Company also generates revenue from fixed-fee arrangements, transactional service contracts and contingent-fee service contracts. Provided allother criteria of revenue recognition are met under Accounting Standards Codification ("ASC") 605, Revenue Recognition, revenue under these arrangementsis recognized as services are performed, deliverables are provided and related contingencies are removed. All related direct costs are recorded as period costswhen incurred. Such consulting fees, transactional fees and contingent service fees are generated from services such as physician advisory services and otherrelated consulting services.Cost of ServicesCosts associated with generating the Company’s net services revenue, including the cost of operating its shared services centers, are expensed asincurred. Cost of services consist of (i) infused management, on site revenue cycle employees and technology costs, (ii) shared services costs and (iii) othercosts to perform physician advisory services. Infused management and technology costs consist primarily of wages, bonuses, benefits, share-basedcompensation, travel and other costs associated with deploying the Company’s employees at customer sites to help manage the Company’s customers’revenue cycle operations. The other significant portion of such expenses is an allocation of the costs associated with maintaining, improving and deployingour integrated proprietary technology suite. Shared services costs relate to the Company’s shared services centers in the U.S. and India that perform patientscheduling and pre-registration, medical transcription, cash posting, reconciliation of payments to billing records, patient follow-up and Medicaid eligibilitydetermination for our customers. The Company incurs expenses related to salaries and benefits for employees in its shared services centers and non-payrollcosts associated with operating its shared services centers. Other expenses consist of costs related to managing PAS and other services. These expenses consistprimarily of wages, bonuses, benefits, share-based compensation and facilities costs.Comprehensive Income (Loss)Comprehensive income (loss) is the net income (loss) of the Company combined with other changes in stockholders’ equity (deficit) not involvingownership interest changes. For the Company, such changes are foreign currency translation adjustments.F-9R1 RCM Inc.Notes to Consolidated Financial StatementsCash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.Short-term InvestmentsAt December 31, 2015 the Company's Indian subsidiaries had invested in $1.0 million of time deposits with an original maturity greater than threemonths. The Company's time deposits were classified as "held-to-maturity" as the Company had both the intent and ability to hold to maturity. The currentvalue was not materially different than the fair value.Restricted Cash EquivalentsIn 2015 and 2016, restricted cash equivalents represent the amount of certificate of deposits ("CDs"), with a maturity of three months or less, that theCompany is unable to access for operational purposes as the CDs collateralize the Company's corporate travel program. At December 31, 2015 andDecember 31, 2016, the Company had $1.5 million in restricted cash equivalents.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable is comprised of unpaid balances pertaining to non-RCM services fees and net receivable balances for RCM customers afterconsidering cost reimbursements owed to such customers, including related accrued balances.The Company maintains an estimated allowance for doubtful accounts to reduce its accounts receivable to the amount that it believes will be collected.This allowance is based on the Company’s historical experience, its assessment of each customer’s ability to pay, the length of time a balance has beenoutstanding, input from key customer resources assigned to each customer and the status of any ongoing operations with each applicable customer.Property, Equipment and SoftwareProperty, equipment and software are stated at cost, and related depreciation and amortization are calculated on the straight-line method over theestimated useful lives of the assets.The Company capitalizes qualifying internal and third-party costs and hardware and software costs related to the Company’s software developmentactivities in accordance with GAAP. The Company amortizes the capitalized software development costs over their estimated life on a straight-line basis.The major classifications of property, equipment and software and their expected useful lives are as follows: Computers and other equipment 3 yearsLeasehold improvements Shorter of 10 years or lease termOffice furniture 5 yearsSoftware 3 yearsImpairment of Long-Lived AssetsProperty, equipment, software and other acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of the asset may not be recoverable. If circumstances require a long-lived asset or asset group be reviewed for possible impairment,the Company firstF-10R1 RCM Inc.Notes to Consolidated Financial Statementscompares undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. If the carrying value of the long-lived asset orasset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds the fairvalue. There was no impairment of property, equipment, software or other acquired intangible assets for the years ended December 31, 2016, 2015 and 2014.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating lossand tax credit carry forwards. Deferred tax assets and liabilities are measured using current tax laws and enacted tax rates in effect for the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in incomein the period that includes the enactment date. The Company records a valuation allowance for deferred tax assets if, based upon the weight of all availableevidence, both positive and negative, it is more likely than not that some or all of the deferred tax assets will not be realized.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained uponexamination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements fromsuch a position are measured based on the largest amount of benefit that has a greater than 50% percent likelihood of being realized upon ultimatesettlement. Interest and penalties relating to income taxes are recognized in our income tax provision in the consolidated statements of operations andcomprehensive income (loss).Legal and Other ContingenciesIn the normal course of business, the Company is subject to regulatory investigations or legal proceedings, as well as demands, claims and threatenedlitigation. The Company records an estimated loss for any claim, lawsuit, investigation or proceeding when it is probable that a liability has been incurredand the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of the probability and whether the losscan be reasonably estimated. Actual expenses could differ from such estimates.Foreign Currency Translation and Transaction Gains (Losses)Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where such local currency is the functional currency, aretranslated to U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange rates duringthe year which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded as a separate component ofaccumulated other comprehensive income (loss).The Company’s foreign currency transaction gains and losses are included in selling, general and administrative in the accompanying consolidatedstatements of operations and comprehensive income (loss).Share-Based Compensation ExpenseThe Company determines the expense for all employee share-based compensation awards by estimating their fair value and recognizing such value asan expense, on a ratable basis, in the consolidated financial statements over the requisite service period in which the employees earn the awards. The fairvalue of performance and service condition stock options is calculated using the Black-Scholes option pricing model and, for market condition stockoptions, the fair value is estimated using Monte Carlo simulations.To determine the fair value of a share-based award using the Black-Scholes option pricing model, the Company makes assumptions regarding the risk-free interest rate, expected future volatility, expected life of theF-11R1 RCM Inc.Notes to Consolidated Financial Statementsaward and expected forfeitures of the awards. These inputs are subjective and generally require significant analysis and judgment to develop. The Companyaggregates all employees into one pool based on the grant date for valuation purposes. The risk-free rate is based on the U.S. treasury yield curve in effect atthe time of grant. The Company estimates the expected volatility of the share price by reviewing the historical volatility levels of its common stock inconjunction with that of public companies that operate in similar industries or are similar in terms of stage of development or size and then projecting thisinformation toward its future expected volatility. The Company exercises judgment in selecting these companies, as well as in evaluating the availablehistorical and implied volatility for these companies. The Company calculates the expected term in years for each stock option using a simplified methodbased on the average of each option’s vesting term and original contractual term. The Company applies an estimated forfeiture rate derived from its historicaldata and estimates of the likely future actions of option holders when recognizing the share-based compensation expense of the options.To determine the fair value of a share-based award using Monte Carlo simulations, the Company makes assumptions regarding the risk-free interest rate,expected future volatility, expected dividend yield and performance period. The risk-free rate is based on the U.S. treasury yield curve in effect at the time ofgrant. The Company estimates the expected volatility of the share price by reviewing the historical volatility levels of its common stock in conjunction withthat of public companies that operate in similar industries or are similar in terms of stage of development or size and then projecting this information towardits future expected volatility. Dividend yield is determined based on the Company’s future plans to pay dividends. The Company had no plans to do so atDecember 31, 2016. The Company calculates the performance period based on the specific market condition to be achieved and derived from historical dataand estimates of future performance.The Company recognizes compensation expense, net of forfeitures, using a straight-line method over the applicable service or performance period.During each quarter, the share-based compensation expense is adjusted to reflect all expense for options that vested during the period; however,compensation expense already recognized is not adjusted if market conditions are not met.The Company accounts for stock options issued to non-employees based on their estimated fair value determined using the Black-Scholes optionpricing model. The stock options issued to non-employees vest over the arrangement period. The fair value of the equity awards granted to non-employees isremeasured on each balance sheet date until the awards vest, and the related expense is adjusted based on the resulting changes in fair value, if any. The non-employee share-based compensation expense is recognized over the performance period, which is the vesting period. Upon vesting, the performance of thenon-employee is deemed complete and the vested awards are not subsequently remeasured.The fair value of modifications to share-based awards is generally estimated using the Black-Scholes option pricing model. If a share-basedcompensation award is modified after the grant date, incremental compensation expense, if any, is recognized in an amount equal to the excess of the fairvalue of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for vestedawards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensationexpense for the original award on the modification date is recognized over the modified service period.Treasury StockThe Company records treasury stock at the cost to acquire such shares, including commissions paid to brokers. Treasury stock is included as acomponent of stockholders’ equity (deficit).Earnings (Loss) Per ShareBasic net income per share is computed by dividing net income, less any dividends, accretion or decretion, redemption or induced conversion on thePreferred Stock, by the weighted average number of common shares outstanding during the period. As the Preferred Stock (as defined in Note 8) participatesin dividends alongside the Company’s common stock (per their participating dividends), the Preferred Stock would constitute participatingF-12R1 RCM Inc.Notes to Consolidated Financial Statementssecurities under ASC 260-10 and are applied to earnings per share using the two-class method. Under this method, all earnings (distributed and undistributed)are allocated to common shares and participating securities based on their respective rights to receive dividends.F-13R1 RCM Inc.Notes to Consolidated Financial StatementsNote 3. Recent Accounting PronouncementsRecently Issued Accounting Standards and DisclosuresIn May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU2014-09"), which supersedes the revenue recognition requirements in Accounting Standard Codification 605, Revenue Recognition ("ASC 605"). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount,timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09is effective for annual reporting periods beginning after December 15, 2017, including interim periods within such reporting period, with early applicationpermitted. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied toeach prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period presented, or the modifiedretrospective method (which we have previously referred to as the cumulative effect method), in which case the cumulative effect of applying the standardwould be recognized as of the date of initial application.The Company adopted the standard, effective January 1, 2017, using the modified retrospective method. Under this method, we could elect to applythe cumulative effect method to either all contracts as of the date of initial application or only to contracts that are not complete as of that date. We elected toapply the modified retrospective method to contracts that are not complete as of the date of initial application.As part of adopting the standard, the Company identified two main revenue streams: 1) fees from its end-to-end revenue cycle offering, and 2) feesfrom its PAS offering. The adoption of the standard is expected to have a material impact on the Company’s consolidated financial statements with the mostsignificant impact being the recognition of revenue at the time services are provided or as the significant uncertainty related to variable fees for incentives isresolved for its end-to-end revenue cycle base and incentive fees. Prior to adopting the standard, the Company recognized these revenues that are contingentin nature when all revenue recognition criteria had been met, which was generally at the end of a contract or other contractual agreement event. Adoption ofthe standard is not expected to have significant impact on the Company’s PAS revenue stream or its fixed fee arrangements. Additionally, the Company doesnot anticipate a change in cost capitalization resulting from the application of the fulfillment cost guidance and will continue to capitalize such costs thatrelate directly to a contract, generate or enhance resources the Company uses to satisfy future performance obligations, and are expected to be recovered, seenote 17.The cumulative impact of adopting the standard on January 1, 2017 is an increase in stockholders' equity (deficit), which at December 31, 2016 was$(12.3) million, of between $110 million and $115 million and a decrease to deferred customer billings partially offset by a decrease to deferred tax assets.In April 2015, the FASB issued ASU No. 2015-05, Customers Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). TheCompany adopted ASU 2015-05 on the required date of January 1, 2016 using the prospective method. For the year ended December 31, 2016, the Companydid not enter into any new, material arrangements covered by this standard.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which supersedes existing guidance on accounting forleases in Topic 840, Leases. ASU 2016-02 generally requires all leases to be recognized in the statement of financial position. The provisions of ASU 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this prospective guidance onits consolidated financials.In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting ("ASU 2016-09"). ASU 2016-09 simplifies the accounting for employee share-based payment transactions, including the accounting for incometaxes, forfeitures,F-14R1 RCM Inc.Notes to Consolidated Financial Statementsand statutory tax withholding requirements, as well as classification in the statement of cash flows. Additionally, ASU 2016-09 eliminates additional paid-in capital pools and requires excess tax benefits and tax deficiencies to be recognized as a component of income tax expense rather than equity. Under thenew standard, entities can make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. The provisions ofASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption ispermitted for any entity in any interim or annual period. The Company adopted ASU 2016-19 on a prospective basis effective January 1, 2017 and theCompany will record forfeitures as they occur rather than estimating expected forfeitures. The Company expects to record the cumulative impact of applyingthis guidance to retained earnings, which is estimated to increase between $1.0 million and $2.0 million.ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 is intended to reduce diversity in practice inthe classification and presentation of changes in restricted cash on the Consolidated Statement of Cash Flows. The ASU requires that the ConsolidatedStatement of Cash Flows explain the change in total cash and equivalents and amounts generally described as restricted cash or restricted cash equivalentswhen reconciling the beginning-of-period and end-of-period total amounts. ASU 2016-18 also requires a reconciliation between the total of cash andequivalents and restricted cash presented on the Consolidated Statement of Cash Flows and the cash and equivalents balance presented on the ConsolidatedBalance Sheet. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidancerequires application using a retrospective transition method. The Company is currently evaluating the impact of the adoption of this prospective guidance onits consolidated financials.Note 4. Fair Value of Financial InstrumentsThe Company records its financial assets and liabilities at fair value. The accounting standard for fair value (i) defines fair value as the price that wouldbe received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date,(ii) establishes a framework for measuring fair value, (iii) establishes a hierarchy of fair value measurements based upon the ability to observe inputs used tovalue assets and liabilities, (iv) requires consideration of nonperformance risk and (v) expands disclosures about the methods used to measure fair value. Theaccounting standard establishes a three-level hierarchy of measurements based upon the reliability of observable and unobservable inputs used to arrive atfair value. Observable inputs are independent market data, while unobservable inputs reflect the Company’s assumptions about valuation. The three levels ofthe hierarchy are defined as follows:•Level 1: Observable inputs such as quoted prices in active markets for identical assets and liabilities;•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices forsimilar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and•Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.The carrying amounts of the Company’s financial instruments, which include financial assets such as cash and cash equivalents, restricted cash,restricted cash equivalents, accounts receivable, amounts due from related party, short-term investments and certain other current assets, as well as financialliabilities such as accounts payable, accrued service costs, accrued compensation and benefits and certain other accrued expenses, approximate their fairvalues, due to the short-term nature of these instruments. The Company does not have any financial assets or liabilities that are required to be measured at fairvalue on a recurring basis.F-15R1 RCM Inc.Notes to Consolidated Financial StatementsNote 5. Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable is comprised of unpaid balances pertaining to non-RCM services fees and net receivable balances for RCM customers afterconsidering cost reimbursements owed to such customers, including related accrued balances.The Company maintains an estimated allowance for doubtful accounts to reduce its accounts receivable to the amount that it believes will be collected.This allowance is based on the Company’s historical experience, its assessment of each customer’s ability to pay, the length of time a balance has beenoutstanding, input from key customer resources assigned to each customer, and the status of any ongoing operations with each applicable customer. Movements in the allowance for doubtful accounts are as follows (in thousands): For the Year Ended For the Year Ended December 31, December 31, 2016 2015 (unaudited) Beginning balance$99 $314(Recoveries) provision5 (46)Write-offs(38) (169)Ending balance$66 $99Note 6. Property, Equipment and SoftwareProperty, equipment and software consist of the following (in thousands): December 31, 2016 2015Computer and other equipment $23,291 $21,348Leasehold improvements 16,017 17,851Software 28,131 22,302Office furniture 4,867 4,888Property and equipment and software, gross 72,306 66,389Less accumulated depreciation and amortization (39,517) (39,172)Property and equipment and software, net $32,789 $27,217During the year ended December 31, 2016, the Company wrote-off approximately $9.1 million in fully depreciated assets that were no longer inservice.The following table summarizes the allocation of depreciation and amortization expense between cost of services and selling, general andadministrative expenses (in thousands):F-16R1 RCM Inc.Notes to Consolidated Financial Statements For the Year Ended December 31, 2016 2015 2014Cost of services $9,492 $7,536 $4,603Selling, general and administrative 706 926 1,444Total depreciation and amortization $10,198 $8,462 $6,047Note 7. Customer LiabilitiesCustomer liabilities consist of the following (in thousands): December 31, December 31, 2016 2015Deferred customer billings, current$68,173 $130,124Accrued service costs, current (1)14,768 70,656Customer deposits, current (1)947 1,641Deferred revenue, current— 95Current portion of customer liabilities83,888 202,516Deferred customer billings, non-current (2)$110,032 $431,944Customer deposits, non-current— 533Deferred revenue, non-current$1,000 $—Non current portion of customer liabilities$111,032 $432,477Total customer liabilities$194,920 $634,993(1) Includes $13.2 million and $1.0 million in current accrued service costs and customer deposits, respectively, for a related party that are included in the current portion ofcustomer liabilities - related party in the accompanying consolidated balance sheets at December 31, 2016.(2) Includes $110.0 million in deferred customer billings for a related party that are included in the non-current portion of customer liabilities - related party in theaccompanying consolidated balance sheets at December 31, 2016.Note 8. Stockholders’ Equity (Deficit)Preferred Stock and WarrantThe Company has 5,000,000 shares of authorized preferred stock, each with a par value of $0.01. The preferred stock may be issued from time to time inone or more series. The board of directors of the Company ("Board") is authorized to determine the rights, preferences, privileges and restrictions of theCompany’s authorized but unissued shares of preferred stock. On February 16, 2016, at the close of the Transaction, the Company issued to TCP-ASC ACHISeries LLLP, a limited liability limited partnership jointly owned by Ascension Health Alliance and investment funds affiliated with TowerBrook (the"Investor"): (i) 200,000 shares of its 8.00% Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock" or "PreferredStock"), for an aggregate price of $200 million and (ii) an exercisable warrant to acquire up to 60 million shares of its common stock with an exercise price of$3.50 per common share and a term of ten years. The Series A Preferred Stock is immediately convertible into shares of common stock. As of December 31,2015 and 2014, the Company did not have any shares of preferred stock outstanding. See Note 13, 8% Series A Convertible Preferred Stock, for additionalinformation.F-17R1 RCM Inc.Notes to Consolidated Financial StatementsCommon StockEach outstanding share of the Company's common stock, par value $0.01 per share ("common stock"), is entitled to one vote per share on all matterssubmitted to a vote by shareholders. Subject to the rights of any preferred stock which may from time to time be outstanding, the holders of outstandingshares of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive pro rata all assets legally available fordistribution to stockholders. No dividends were declared or paid on the common stock during 2016, 2015 and 2014.Treasury StockOn November 13, 2013, the Board authorized a repurchase of up to $50.0 million of the Company’s common stock in the open market or in privatelynegotiated transactions. The timing and amount of any shares repurchased will be determined by the Company based on its evaluation of market conditionsand other factors. The repurchase program may be suspended or discontinued at any time at the sole discretion of the Board. Any repurchased shares will beavailable for use in connection with the Company’s stock plans and for other corporate purposes. The Company funds the repurchases from cash on hand. Asof December 31, 2015, no shares of common stock had been repurchased under this plan. During the fourth quarter of 2016, the Company repurchased158,557 shares of the Company stock for $0.4 million. No shares have been retired. As of December 31, 2016, the Company held in treasury 4,465,919 sharesof repurchased stock.Treasury stock also includes repurchases of Company stock related to employees’ tax withholding upon vesting of restricted shares. See Note 9, Share-Based Compensation.Note 9. Share-Based CompensationThe Company maintains two stock incentive plans: the Amended and Restated Stock Option Plan (the "2006 Plan") and the Second Amended andRestated Stock 2010 Incentive Plan (the "2010 Amended Plan", together with the 2006 Plan, the "Plans"). In December 2016, the Company's stockholdersapproved the Second Amended and Restated 2010 Stock Incentive Plan, which authorized the issuance of an additional seventeen million shares of theCompany's common stock pursuant to awards.Under the Plans, the Company could issue (up to a maximum of 46,374,756 shares) any shares that remained available for issuance under the 2006 Planas of the date of the IPO and any shares subject to awards that were outstanding under the 2006 Plan as of the date of the IPO that expire, terminate or areotherwise surrendered, canceled, forfeited or repurchased by the Company without the issuance of shares thereunder. The Company will not make any furthergrants under the 2006 Plan. The 2010 Amended Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights,restricted stock awards ("RSAs"), restricted stock units ("RSUs") and other share-based awards. As of December 31, 2016, 15,581,377 shares were available forfuture grants of awards under the 2010 Amended Plan. To the extent that previously granted awards under the 2006 Plan or 2010 Amended Plan expire,terminate or are otherwise surrendered, canceled or forfeited, the number of shares available for future awards under the 2010 Amended Plan will increase.Under the terms of the Plans, all stock options will expire if they are not exercised within ten years of their grant date. Generally all employee options,RSAs and RSUs vest ratably between one and four years.In 2014 and 2013, the Company granted service-based, non-qualified options to purchase 3,400,000 and 4,703,801 shares of common stock andawarded 1,000,000 and 400,000 shares of restricted stock, respectively, to key employees pursuant to inducement grant rules of the New York StockExchange ("NYSE"), of which 3,703,801 and 7,103,801 of the stock options were outstanding as of December 31, 2016 and 2015, respectively, and 41,630and 1,399,980 of the shares of restricted stock were outstanding as of December 31, 2016 and 2015, respectively.Also in 2014, pursuant to inducement grant rules of the NYSE, the Company granted a market-based award of 500,000 shares of restricted stock to theChief Executive Officer. This RSA vests only when the average closingF-18R1 RCM Inc.Notes to Consolidated Financial Statementsprice of the Company’s stock price equals or exceeds twice the amount of the grant date stock price. As of December 31, 2016, this RSA was no longeroutstanding.The Company uses the Black-Scholes option pricing model to estimate the fair value of its service-based options as of its grant date. The Company usesthe Monte Carlo simulations to estimate the fair value of its RSAs with vesting based on market-based performance conditions as of their respective grantdates. Expected life is based on the market condition to which the vesting is tied.The following table sets forth the significant assumptions used in the Black-Scholes option pricing model and the Monte Carlo simulations and thecalculation of share-based compensation expense during 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014Expected dividend yield — — —Risk-free interest rate 1.2% to 2.06% 1.5% to 2.0% 1.9% to 2.2%Expected volatility 45% - 50% 50% 50%Expected term (in years) 5.96 to 6.30 6.25 6.25 to 7.50Forfeitures 5.68% annually 5.68% annually 5.68% annuallyTotal share-based compensation costs that have been included in the Company’s consolidated statements of operations were as follows (in thousands): Year Ended December 31, 2016 2015 2014 Share-Based Compensation Expense Allocation Details: Cost of services $6,137 $7,208 $6,668Selling, general and administrative 21,965 24,463 13,503Other costs 1,828 — 8,761Total share-based compensation expense (1) $29,930 $31,671 $28,932(1) Includes $0.1 million, $2.4 million and $1.8 million in share-based compensation expense paid in cash during the years ended December 31, 2016 , 2015 and 2014,respectively.There was $23.2 million, $47.2 million and $42.8 million of total, unrecognized share-based compensation expense related to stock options, RSAs andRSUs granted under the Plans, which the Company expects to recognize over a weighted-average period of 2.8 years, 2.9 years and 3.2 years as ofDecember 31, 2016, 2015 and 2014, respectively. Refer to the consolidated statements of stockholders’ equity (deficit) for the tax benefits realized for the taxdeductions from stock option exercises.F-19R1 RCM Inc.Notes to Consolidated Financial StatementsStock optionsThe following table sets forth a summary of all employee and non-employee option activity under all plans and inducement grants for the years endedDecember 31, 2016, 2015 and 2014: Shares Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm(in years) AggregateIntrinsic Value(in thousands)Outstanding at January 1, 2014 20,540,273 $11.77 7.4 $15,673Granted 4,406,856 8.78 Exercised — — Canceled/forfeited (5,022,724) 13.17 Outstanding at December 31, 2014 19,924,405 10.91 6.9 9,444Granted 2,231,504 5.60 Exercised (1,374,438) 1.13 Canceled/forfeited (5,521,205) 13.17 Outstanding at December 31, 2015 15,260,266 10.23 7.0 261Granted 11,186,107 2.39 Exercised (94,240) 1.93 Canceled/forfeited (5,933,526) 9.22 Outstanding at December 31, 2016 20,418,607 6.26 7.9 256Outstanding, vested and exercisable at December 31, 2014 9,605,505 $11.89 5.9 $15,096Outstanding, vested and exercisable at December 31, 2015 11,879,209 $11.73 5.6 $9,444Outstanding, vested and exercisable at December 31, 2016 7,993,168 $11.34 5.3 $15The weighted-average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $1.07, $2.78 and $4.40per share, respectively. The total intrinsic value of the options exercised in the years ended December 31, 2016 and 2015 was $0.1 million and $4.9 million,respectively. No options were exercised in the year ended December 31, 2014. The total fair value of options vested during the years ended December 31,2016, 2015 and 2014 was $15.0 million, $14.9 million and $22.9 million, respectively.F-20R1 RCM Inc.Notes to Consolidated Financial StatementsRestricted stock awardsIn the third quarter of 2011, the Company began to grant RSAs to its employees. A summary of the activity during the years ended December 31, 2016,2015 and 2014 is shown below: Shares Weighted-Average GrantDate Fair ValueOutstanding and unvested at January 1, 2014 458,299 $11.45Granted 2,365,000 8.39Vested (127,084) 11.46Forfeited (218,750) 9.40Outstanding and unvested at December 31, 2014 2,477,465 $8.71Granted 8,994,729 3.34Vested (1,892,049) 5.24Forfeited (324,213) 7.61Outstanding and unvested at December 31, 2015 9,255,932 $4.24Granted 3,071,876 2.58Vested (3,361,336) 4.37Forfeited (3,103,760) 4.69Outstanding and unvested at December 31, 2016 5,862,712 $3.01The total fair value of RSAs vested during the years ended December 31, 2016, 2015 and 2014 was $14.7 million, $9.9 million and $1.5 million,respectively. The Company’s RSA agreements allow employees to deliver to the Company shares of stock upon vesting of their RSAs in lieu of their paymentof the required personal employment-related taxes. The Company does not withhold taxes in excess of minimum required statutory requirements. During theyears ended December 31, 2016, 2015 and 2014, employees delivered to the Company 996,510, 441,537 and 45,142 shares of stock, respectively, which theCompany recorded at a cost of approximately $2.2 million, $1.6 million and $0.4 million, respectively. As of December 31, 2016, the Company held1,529,937 shares of surrendered common stock in treasury related to the vesting of RSAs.Forfeited and canceled RSAs are added to treasury stock. For the years ended December 31, 2016, 2015 and 2014, 3,103,760, 324,213 and 218,750shares were respectively added to treasury stock due to canceled RSAs.Restricted stock unitsIn the fourth quarter of 2016, the Company began to grant RSUs to its employees. A summary of the activity during the years ended December 31, 2016is shown below:F-21R1 RCM Inc.Notes to Consolidated Financial Statements Shares Weighted-Average GrantDate Fair ValueOutstanding and unvested at December 31, 2015 — $—Granted 1,361,794 2.35Vested — —Forfeited (15,020) 2.35Outstanding and unvested at December 31, 2016 1,346,774 $2.35The Company’s RSU agreements allow employees to receive shares of stock upon vesting of their RSUs. As of December 31, 2016, no RSUs had vested.Modifications of share-based awardsDuring the second quarter of 2014, the Company modified the terms of awards granted to 39 employees (including the 13 who were affected in 2013)who were terminated under the 2013 restructuring plan to allow for the extension of the exercise period for vested options until such time as the Company'sregistration statement on Form S-8 had been effective for 60 consecutive days. Such modifications resulted in a net increase in share-based compensationexpense of $2.3 million for the year ended December 31, 2014.During the first quarter of 2014, in connection with the resignation of a senior executive from the Company, the Company modified the terms of awardspreviously granted to such executive. Such modification extended the term to exercise vested options from 60 days following his effective resignation dateto such time as the Company's registration statement on Form S-8 had been effective for 60 consecutive days. Such modification resulted in a net increase ofshare-based compensation expense for the year ended December 31, 2014 of $5.6 million.During the second quarter of 2013, the Company modified the terms of an award granted to Mary Tolan, the Company's former chief executive officer,in connection with her transition to the role of the Chairman of the Board of the Company. This modification allowed for the extension of the exercise periodfor options vested as of the date of the modification from 60 days following the termination of employment to the expiration of the original award (ten yearsfrom the grant date). This modification resulted in a net increase in share-based compensation expense of $1.5 million for the year ended December 31, 2014.During the second quarter of 2014, the Company granted to the Chief Operating Officer (the "COO") retention equity awards subject to the approval ofour stockholders of an amendment to our Amended 2010 Plan. In the event that the stockholders did not approve the amendment prior to December 31, 2014,then in lieu of the incentive equity awards, the COO would be entitled to receive cash payments following each date that any portion of such equity grantwould have otherwise vested equal to: (i) for stock options, the difference between the exercise price and the closing price of the common stock on thevesting date and (ii) for restricted stock, the closing price of the common stock on the vesting date. The Company determined that stockholder approval toamend the 2010 Plan would not occur by December 31, 2014 and accrued for these grants at the value as explained above. For the years ended December 31,2016, 2015 and 2014, the Company incurred $0.1 million, $0.6 million and $0.9 million of share-based compensation expense related to this grant,respectively.Additionally, as part of the COO's retention agreement, the Company modified the terms of a stock option granted to the COO at the commencement ofhis employment. This modification would be triggered upon termination of employment by the Company without cause or by the COO for good reason andif triggered, the vested portion of the stock option would remain exercisable for a period of time equal to 60 days plus the number of days of service with theCompany, but not longer than two years, or until the stock option otherwise expires, ifF-22R1 RCM Inc.Notes to Consolidated Financial Statementsearlier. This modification resulted in a net increase in share-based compensation expense of $0.2 million for year ended December 31, 2014.During the year ended December 31, 2014, the Company settled share-based awards in cash with three employees who had options that expired duringthe year as all employees were restricted from exercising vested options during the year. This modification resulted in an increase in share-basedcompensation expense of $0.9 million for the year ended December 31, 2014.During the second quarter of 2015, in connection with the resignation of a member of the Board who was also the former Chief Executive Officer of theCompany, the Company modified the terms of awards previously granted to such Board member. This modification allowed for the continuation of vesting ofoptions despite his resignation from the Board. Such modification resulted in a net increase of share-based compensation expense for the year endedDecember 31, 2015 of $3.1 million.During the third quarter of 2015, the Compensation Committee of the Board approved the grant of cash bonuses to the participants in the Company's2014 annual cash incentive bonus plan who received all or a portion of their 2014 annual cash incentive award in the form of restricted shares of theCompany's common stock (the "2014 Bonus Plan RSA Grantees"). Such bonuses were paid to 2014 Bonus Plan RSA Grantees on the second regularlyscheduled payroll date following the Company’s scheduled second quarter earnings release on August 5, 2015 and were equal to the product of (i) $2.66(which amount represents the difference of $5.38, the trading price per share of the Company’s common stock as of the close of trading on the date that theCompany determined the number of restricted shares to be granted to 2014 Bonus Plan RSA Grantees, minus $2.72, the trading price per share of theCompany’s common stock as of the close of trading on the second business day following the earnings release), multiplied by (ii) the number of restrictedshares granted to the applicable 2014 Bonus Plan RSA Grantee. The aggregate number of restricted shares granted to 2014 Bonus Plan RSA Grantees was683,401. This modification resulted in a net increase of share-based compensation expense for the year ended December 31, 2015 of $1.8 million.During the second quarter of 2016, in connection with the resignation of the Company's Chief Executive Officer, Chief Financial Officer and theRestructuring Plan as further described in Note 11, the vesting of certain options and RSAs was accelerated pursuant to the agreements previously enteredinto by the former employees and resulted in an increase of share-based compensation expense for the year ended December 31, 2016 of $7.0 million.Note 10. Retirement PlanThe Company maintains a 401(k) retirement plan (the "401(k) plan") that is intended to be a tax-qualified defined contribution plan underSection 401(k) of the Internal Revenue Code. In general, all employees are eligible to participate. The 401(k) plan includes a salary deferral arrangementpursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $18,000, $18,000 and$17,500 in 2016, 2015 and 2014, respectively, and have the amount of the reduction contributed to the 401(k) plan. The Company currently matchesemployee contributions up to 50% of the first 3% of base compensation that a participant contributes to the 401(k) plan. In 2016, 2015 and 2014, director-level and above employees were excluded from the matching contribution feature of the plan. For the years ended December 31, 2016, 2015 and 2014, totalCompany contributions to the plan were $0.7 million, $0.4 million and $0.5 million, respectively.Note 11. OtherOther costs are comprised of reorganization-related and certain other costs. For the years ended December 31, 2016 and 2015, the Company incurred$20.8 million and 9.3 million in other costs, respectively.F-23R1 RCM Inc.Notes to Consolidated Financial StatementsOther costs consist of the following (in millions): Year Ended December 31, 2016 2015 2014Severance and employee benefits$3.5 $0.6 $9.2Facility charges1.1 2.6 5.0Non-cash share based compensation1.8 — 7.9Reorganization-related6.4 3.2 22.1Restatement costs1.2 2.5 57.3Transaction fees (1)12.7 — —Defined Contribution plan contributions (2)0.5 — —Strategic Alternative Exploration— 3.8 —Prior year employment tax expense— (0.2) 0.9Office Transformation— — 6.5Other14.4 6.1 64.7Total other$20.8 $9.3 $86.8(1) Costs related to retention payments and legal fees paid in connection with the closing of the Transaction (see Note 8).(2) Additional contributions to the Company's defined contribution plan for the year ended December 31, 2016.Reorganization-related In 2013, the Company initiated a restructuring plan (the "Restructuring Plan") consisting of reductions in workforce in order to align itsorganizational structure and resources to better serve its customers. In January 2014, the Company revised the Restructuring Plan to include additionalreductions to its workforce in certain corporate, administrative and management functions. During the second and fourth quarter of 2016, the Companyinitiated a restructuring plan consisting of reductions in its workforce in order to align the size and composition of its workforce to its current client base,better position itself for already committed future growth, and enable the Company to more efficiently serve contracted demand.F-24R1 RCM Inc.Notes to Consolidated Financial StatementsThe Company's reorganization activity was as follows (in thousands): Severance andEmployee Benefits Facilities andOther Costs TotalReorganization liability at January 1, 2014$1,143 $— $1,143Restructuring charges17,108 5,010 22,118Cash payments(7,050) (3,482) (10,532)Non-cash charges(7,905) (1,370) (9,275)Reorganization liability at December 31, 2014$3,296 $158 $3,454Restructuring charges596 2,564 3,160Cash payments(3,575) (546) (4,121)Non-cash charges— — —Reorganization liability at December 31, 2015$317 $2,176 $2,493Restructuring charges5,369 1,080 6,449Cash payments(2,272) (2,731) (5,003) Non-cash charges(1,800) $— (1,800)Reorganization liability at December 31, 2016$1,614 $525 $2,139F-25R1 RCM Inc.Notes to Consolidated Financial StatementsNote 12. Income TaxesThe domestic and foreign components of income (loss) before income taxes consist of the following (in thousands): Year Ended December 31, 2016 2015 2014Domestic $292,400 $(139,058) $(130,945)Foreign 5,798 3,245 2,594Total income (loss) before income taxes $298,198 $(135,813) $(128,351)For the years ended December 31, 2016, 2015 and 2014, the Company’s current and deferred income tax expense (benefit) attributable to income (loss)from operations are as follows (in thousands): Current Deferred TotalYear Ended December 31, 2014 U.S. Federal $(627) $(42,240) $(42,867)State & Local 46 (6,363) (6,317)Foreign 1,025 (572) 453 $444 $(49,175) (48,731)Year Ended December 31, 2015 U.S. Federal $68 $(43,199) $(43,131)State & Local (176) (8,468) (8,644)Foreign 530 (312) 218 $422 $(51,979) $(51,557)Year Ended December 31, 2016 U.S. Federal $(210) $95,613 $95,403State & Local (25) 24,977 24,952Foreign 1,176 (404) 772 $941 $120,186 $121,127Reconciliation of the difference between the actual tax rate and the statutory U.S. federal income tax rate is as follows: Year Ended December 31, 2016 2015 2014Federal statutory tax rate 35% 35 % 35%Increase in income tax rate resulting from: State and local income taxes, net of federal tax benefits 5% 4 % 3%Other 1% (1)% Actual tax rate 41% 38 % 38%In the three month period ended March 31, 2014, the Company corrected the statutory rate used in one of its state deferred calculations for the yearended December 31, 2013. The Company discovered this error in the process of preparing its annual and quarterly financial statements for the year endedDecember 31, 2014, and recorded the amount in the first quarter of 2014. The correction of this error increased tax expense for the yearF-26R1 RCM Inc.Notes to Consolidated Financial Statementsended December 31, 2014 by approximately $2.4 million. The Company has determined the amount is immaterial for the year ended December 31, 2014.The following table sets forth the Company’s net deferred tax assets as of December 31, 2016 and 2015 (in thousands): As of December 31, 2016 2015Deferred Tax assets: Deferred customer billings 67,935 220,075Net operating loss carryforwards 70,953 48,201Share-based compensation 22,905 24,995Accrued bonus 4,786 2,008Other reserves 699 606Alternative minimum tax 1,857 1,537Other 919 2,446Fixed assets 238 435R&D credit 289 189Charitable contributions 539 534Stock warrants 72 101Total gross deferred tax assets 171,192 301,127Less valuation allowance (1,276) (302)Net deferred tax asset $169,916 $300,825At December 31, 2016, the Company had cumulative U.S. federal net operating loss carryforwards of approximately $181.2 million which are availableto offset U.S. federal taxable income in future periods through 2036.At December 31, 2016, the Company has cumulative state net operating loss ("NOL") carryforwards of approximately $185.8 million which areavailable to offset state taxable income in future periods through 2036. A valuation allowance is required to be established when, based on currentlyavailable information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxesprovides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recentyears and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The valuation allowance recordedrelates to state NOL carryforwards where the Company no longer has business activities in that state, or where the activity level has decreased to such a levelwhere it is not more likely than not the NOL will be realized.Consideration is given to the weight of all available evidence, both positive and negative. Generally, a cumulative loss in recent years is negativeevidence in determining the need for a deferred tax asset valuation allowance. However, the recent cumulative losses in book income are primarily the resultof a delay in revenue recognition on contracts that have been in place for a number of years. Revenue is being deferred by the Company until a future eventoccurs and the revenue becomes fixed, per the terms of each contract. The Company notes that the majority of the remaining deferred revenue from contractsthat the Company has previously entered are recognized in the cumulative effect transition adjustment that was recognized with the adoption of the newrevenue recognition standard on January 1, 2017 as discussed in Note 3. The majority of the deferred revenue amounts have already been reported on incometax returns filed in accordance with a previously established and approved method of accounting for federal and state income tax reporting. The significantpositive evidence related to the projected realization of the deferred customer billings from existing contracts and projected taxable income outweighs thenegative evidence from the cumulative losses incurred in recent years. The Company estimates its already contracted business growth associated with theAscension A&R MPSA will be profitable and allow the Company to utilize itsF-27R1 RCM Inc.Notes to Consolidated Financial StatementsNOL carryforwards and other deferred tax assets. Accordingly, the Company believes that it is more likely than not that the remaining deferred tax assets willbe realized. Should the Company not operationally execute as expected, and the growth in the Ascension business not be as profitable as expected, suchrealizability assessment may change.The Company has recorded valuation allowances at December 31, 2016 and 2015 of $1.3 million and $0.3 million, respectively, based on ourassessment that it is more likely than not that a portion of the Company’s separate state income tax net operating loss will not be realized.The Company has not recognized a deferred tax liability for the undistributed earnings of its foreign subsidiaries that arose in 2016 or 2015 because theCompany considers such earnings to be indefinitely reinvested outside of the United States. As of December 31, 2016 and 2015, the undistributed earnings ofsuch subsidiaries were $11.9 million and $9.0 million, respectively. It is not practicable to estimate the amount of recognized deferred tax liabilities, if any,for these undistributed foreign earnings.The 2016, 2015 and 2014 current tax provision includes $1.2 million, $0.5 million and $1.0 million, respectively, for income taxes arising from thepre-tax income of the Company’s India subsidiaries. The tax provisions are net of the impact of a tax holiday in India. The Company’s benefits from this taxholiday were $0.9 million for the year ended December 31, 2016, $0.7 million for the year ended December 31, 2015 and $0.5 million for the year endedDecember 31, 2014. The tax holiday is set to expire on March 31, 2021.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained uponexamination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements are measured basedon the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company’s unrecognized tax benefits asof December 31, 2016, 2015 and 2014 totaled $0.3 million, $1.2 million and $1.1 million, respectively.F-28R1 RCM Inc.Notes to Consolidated Financial StatementsThe following table summarizes the activity related to the unrecognized tax benefits (in thousands): Tax BenefitUnrecognized tax benefits at December 31, 2013$1,302Increases in positions taken in a current period66Increases in positions taken in prior period94Decreases in positions taken in a prior period(51)Decreases due to lapse of statute of limitations(313)Decreases due to settlement—Unrecognized tax benefits at December 31, 2014$1,098Increases in positions taken in a current period134Increases in positions taken in prior period597Decreases in positions taken in a prior period—Decreases due to lapse of statute of limitations(587)Decreases due to settlement—Unrecognized tax benefits at December 31, 2015$1,242Increases in positions taken in prior period—Increases in positions taken in a current period504Decreases in position taken in prior period(465)Decreases due to lapse of statute of limitations—Decreases due to settlement(940)Unrecognized tax benefits at December 31, 2016$341As of December 31, 2016, approximately $0.3 million of the total gross unrecognized tax benefits represented the amount that, if recognized, wouldresult in an adjustment to the effective income tax rate in future periods. The Company recognizes interest and penalties related to income tax matters as partof income tax expense. The Company recorded adjustments to interest and potential penalties related to these unrecognized tax benefits during 2016, and intotal, as of December 31, 2016, the Company has recorded a liability for interest and potential penalties of $0.0 million. The Company anticipates changes tothe reserves within the next 12 months to be primarily related to interest. The Company believes it has sufficient accruals for contingent tax liabilities.In connection with tax return examinations, contingencies can arise that generally result from different interpretations of tax laws and regulations asthey pertain to the amount, timing or inclusion of revenues and expenses in taxable income, or the ability to utilize tax credits to reduce income taxespayable. While it is probable, based on the potential outcome of the Company’s federal and state tax examinations or the expiration of the statute oflimitations for specific jurisdictions, that the liability for unrecognized tax benefits may increase or decrease within the next 12 months, the Company doesnot expect any such change would have a material effect on our financial condition, results of operations or cash flow.The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. U.S. federalincome tax returns since 2011 are currently open for examination. State jurisdictions vary for open tax years. The statute of limitations for most states rangesfrom three to six years. Local tax authorities have completed their income tax examinations of the Company’s subsidiary in India for fiscal years 2009 and2010. The proposed adjustments in India have been appealed, and the Company believes the ultimate outcome of these appeals will not result in a materialadjustment to its tax liability.Pursuant to the acquisition of a business in May 2006, the sellers, certain of which were former employees of the Company, are obligated to indemnifythe Company for federal and state income taxes, including 50% of any interest and penalties incurred, related to periods up to and including the date of theacquisition. The potentialF-29R1 RCM Inc.Notes to Consolidated Financial Statementsamount due to the Company related to this indemnity was $1.3 million as of December 31, 2014 and 2013. As of December 31, 2015, the Company released$1.3 million due to the lapse of the statute of limitations (of which $0.7 million related to interest and penalties). The amount due from the related party wassecured by the fair value of shares and cost held by the Company in escrow. The escrow agreement expired on June 15, 2015. The cost and fair value of theshares were $0.8 million and $1.0 million at December 31, 2014 and 2013, respectively. Given that the fair value of the shares was less than the amount duefrom the related party in 2014 and 2013, the Company recorded a reserve of $0.5 million and $0.3 million, respectively, to reflect the difference between thefair value of the shares and the receivable they securitized. Subsequent to the expiration of the escrow agreement in 2015, the shares held as security by theCompany were released to the former sellers.Note 13. 8.00% Series A Convertible Preferred StockAt the close of the Transaction on February 16, 2016 (as described in Note 1), the Company issued to the Investor: (i) 200,000 shares of PreferredStock, for an aggregate price of $200 million, and (ii) a warrant with a term of ten years to acquire up to 60 million shares of common stock, par value $0.01per share (“common stock”), at an exercise price of $3.50 per share, on the terms and subject to the conditions set forth in the Warrant Agreement (“Warrant”).The Preferred Stock is immediately convertible into shares of common stock.The Company incurred direct and incremental expenses of $21.3 million (including $14.0 million in closing fees paid to the Investor) relating tofinancial advisory fees, closing costs, legal expenses and other offering-related expenses in connection with the Transaction. These direct and incrementalexpenses reduced the carrying amount of the Preferred Stock. In connection with the issuance of the Preferred Stock, a beneficial conversion feature of $48.3million was recognized. Since the Preferred Stock is presently convertible into common stock, this amount was subsequently accreted to the carrying amountof the Preferred Stock, and treated as a deemed preferred stock dividend in the calculation of earnings per share.Dividend RightsThe holders of the Preferred Stock are entitled to receive cumulative dividends January 1, April 1, July 1 and October 1 of each year (dividendpayment dates), commencing on April 1, 2016, at a rate equal to 8% per annum (preferred dividend) multiplied by the liquidation preference per share,initially $1,000 per share adjusted for any unpaid cumulative preferred dividends. For the first seven years after issuance, the dividends on the Preferred Stockwill be paid-in-kind. As of December 31, 2016, the Company had accrued dividends of $4.2 million associated with the Preferred Stock, of which $4.2million was paid in additional shares of Preferred Stock and $0.0002 million was paid in cash in January 2017. For the year ended December 31, 2016, thedividends that were paid, or accrued, in additional shares of Preferred Stock totaled $14.4 million.Conversion FeaturesEach share of the Preferred Stock may be converted to common stock on any date at the option of the holder into the per share amount (as defined inthe Certificate of Designations of the 8.00% Series A Convertible Preferred Stock (the "Series A COD")). Fractional shares will be rounded to the nearestwhole share.Redemption RightsSince the redemption of the Preferred Stock is contingently or optionally redeemable and therefore not certain to occur, the Preferred Stock is notrequired to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Preferred Stock is redeemable at the option of the holdersupon a fundamental change (as defined in the Series A COD) and is redeemable in certain circumstances upon the occurrence of an event that is not solelywithin the Company's control, the Company has classified the Preferred Stock in mezzanine equity on the Condensed Consolidated Balance Sheets. In theevent the Company believes that redemption of the Preferred Stock is probable, the Company would be required to accrete changes in the carrying value tothe redemption value over the period until the expected redemption date.F-30R1 RCM Inc.Notes to Consolidated Financial StatementsVoting RightsEach holder of the Preferred Stock is entitled to vote with the common stock on an as-converted basis, and has full voting rights and powers equal tothe voting rights and powers of the holders of common stock.The following summarizes the Preferred Stock activity for the year ended December 31, 2016: Preferred Stock Shares Issued andOutstanding Carrying ValueBalance at December 31, 2015 — $—Issuance of preferred stock 200,000 108,909Beneficial conversion feature deemed dividend — 48,320Dividends paid/accrued dividends 10,160 14,364Balance at December 31, 2016 210,160 $171,593Note 14. Earnings (Loss) Per ShareBasic net income per share is computed by dividing net income, less any dividends, accretion or decretion, redemption or induced conversion on thePreferred Stock, by the weighted average number of common shares outstanding during the period. As the Preferred Stock participates in dividends alongsidethe Company’s common stock (per their participating dividends), the Preferred Stock would constitute participating securities under ASC 260-10 and areapplied to earnings per share using the two-class method. Under this method, all earnings (distributed and undistributed) are allocated to common shares andparticipating securities based on their respective rights to receive dividends.Diluted net income per share is calculated using the more dilutive of the if-converted or the two-class method. For the year ended December 31, 2016,the two-class method was more dilutive and was computed by adjusting the denominator used in the basic net income per share computation by the weightedaverage number of common shares outstanding and potentially dilutive securities outstanding during the period plus, when their effect is dilutive,incremental shares consisting of shares subject to stock options, shares issuable upon vesting of RSAs, RSUs and Preferred Stock.F-31R1 RCM Inc.Notes to Consolidated Financial StatementsBasic and diluted net income (loss) per common share are calculated as follows (in thousands, except share and per share data): 2016 2015 2014Basic EPS: Net income (loss)$177,071 $(84,256) $(79,620)Less dividends on preferred shares(62,684) — —Less income allocated to preferred shareholders(48,955) — —Net income (loss) available/(allocated) to common shareholders -basic$65,432 $(84,256) $(79,620)Diluted EPS: Net income (loss)177,071 (84,256) (79,620)Less dividends on preferred shares(62,684) — —Less income allocated to preferred shareholders(48,955) — —Net income (loss) available/(allocated) to common shareholders -diluted$65,432 $(84,256) $(79,620)Basic weighted-average common shares100,160,206 96,806,885 95,760,762Add: Effect of dilutive securities— — —Diluted weighted average common shares100,160,206 96,806,885 95,760,762Net income (loss) per common share (basic)$0.65 $(0.87) $(0.83)Net income (loss) per common share (diluted)$0.65 $(0.87) $(0.83)Because of their anti-dilutive effect, 27,628,093 common share equivalents comprised of stock options, RSAs and RSUs have been excluded from thediluted earnings per share calculation for the year ended December 31, 2016. Due to the net loss, stock options and RSAs totaling 24,516,198 and22,401,870 were not included in the computation of diluted income (loss) per share for the years ended December 31, 2015 and 2014, respectively.Note 15. Commitments and ContingenciesOperating LeasesThe Company rents office space and equipment under operating leases, primarily for its Chicago corporate office, U.S. shared services centers and Indiaoperations. Office space lease terms range from one to 10 years, whereas equipment lease terms range from one to three years. The Company’s leases containvarious rent holidays and rent escalation clauses and entitlements for tenant improvement allowances. Lease payments are amortized to expense on a straight-line basis over the lease term.Total rent expense under all operating leases was $5.6 million, $6.2 million and $4.9 million for the years ended December 31, 2016, 2015 and 2014,respectively.F-32R1 RCM Inc.Notes to Consolidated Financial StatementsThe aggregate future minimum rental commitments under all noncancelable operating leases having remaining terms in excess of one year as ofDecember 31, 2016 are as follows (in thousands):20175,96220186,36520195,95720205,39320214,198Thereafter10,511 Total$38,386 Legal ProceedingsOther than as described below, the Company is not presently a party to any material litigation or regulatory proceeding and is not aware of any pendingor threatened litigation or regulatory proceeding against the Company which, individually or in the aggregate, could have a material adverse effect on itsbusiness, operating results, financial condition or cash flows.On July 22, 2014, the Company was named as a defendant in a putative class action lawsuit filed in the U.S. District Court for the Eastern District ofMichigan (Anger v. Accretive Health, Inc.). The primary allegations are that the Company attempted to collect debts without providing the notice required bythe Fair Debt Collection Practices Act and Michigan Fair Debt Collection Practices Act and failed to abide by the terms of an agreed payment plan inviolation of those same statutes. On August 27, 2015, the Court granted in part and denied in part the Company’s motion to dismiss. An amended complaintwas filed on November 30, 2015. Discovery is underway, but on July 15, 2016, the court postponed all deadlines in the case as the parties attempt to finalizea confidential agreement in principle to settle the case. On February 23, 2017, the parties reached a settlement in principle and are preparing a motion for pre-approval and class settlement. The Company believes that it has meritorious defenses and intends to vigorously defend itself against these claims, if thesettlement in principle is not finalized.In April 2015, the Company was named among other defendants in an employment action brought by a former employee before the Maine HumanRights Commission ("MHRC"), alleging that she was improperly terminated in retaliation for uncovering alleged Medicare fraud. The Company filed itsresponse with the MHRC on May 19, 2015 seeking that the Company be dismissed entirely from the action. On June 23, 2015, the MHRC issued its Noticeof Right to Sue and decision to terminate its process with respect to all charges asserted by the former employee. The Plaintiff has filed a parallel qui tamaction in the District of Maine (Worthy v. Eastern Maine Healthcare Systems) in which she makes the same allegations. The U.S. Department of Justicedeclined to intervene in the federal court action, and the case was unsealed in April 2015. The Company and other defendants filed motions to dismiss theThird Amended Complaint on March 21, 2016. Those motions were granted with respect to the retaliation claims, but denied with respect to the False ClaimsAct claims by the federal district court in January 2017. The parties are currently engaged in an initial discovery phase. There is a scheduling conference withthe court scheudled for April 5, 2017. The Company believes that it has meritorious defenses to all of the claims in the federal qui tam case, and intends tovigorously defend itself against these claims. The outcomes are not presently determinable.In May 2016, the Company was served with a False Claims Act case brought by a former emergency department service associate who worked at ahospital of one of the Company’s customers, MedStar Inc.’s Washington Hospital Center (“WHC”), along with WHC and three other hospitals that were PASclients and a place holder, John Doe hospital, representing all PAS clients (USA ex rel. Graziosi vs. Accretive Health, Inc. et. al.). The Second AmendedComplaint, which seeks monetary damages, alleges that the Company’s PAS business violates the federal False Claims Act. The case was originally filedunder seal in 2013 in the federal district court in Chicago, was presented to the U.S. Attorney in Chicago twice, and the U.S. Attorneys declined to intervene.The CompanyF-33R1 RCM Inc.Notes to Consolidated Financial Statementsfiled a motion to dismiss the Second Amended Complaint on July 29, 2016. Those motions are now fully briefed and awaiting decision by the federal districtcourt. The Company believes that it has meritorious defenses to all claims in the case, and intends to vigorously defend itself against these claims. Theoutcome is not presently determinable.Note 16. Related Party TransactionsAs a result of the closing of the Transaction on February 16, 2016 and Ascension's ownership interest in the Investor, Ascension became a related partyto the Company. See Note 13, 8% Series A Convertible Preferred Stock, for additional information.The Company provides RCM services to Ascension. The execution of the A&R MPSA, as discussed in Note 1, was a contractual settlement agreementof the prior Master Professional Services Agreement between the Company and Ascension. Therefore, the Company recorded revenue of $437.4 million inconnection with these services for the year ended December 31, 2016. In addition to the revenue recorded related to the execution of the A&R MPSA, theCompany recorded revenue from services provided to Ascension of $24.0 million for the year ended December 31, 2016. At December 31, 2016, theCompany had $14.2 million in current portion of customer liabilities for a related party, consisting of $13.2 million in current accrued service costs and $1.0million in current customer deposits. The Company had $110.0 million in non-current portion of customer liabilities for a related party related to deferredcustomer billings as of December 31, 2016. At December 31, 2016, the Company had $1.8 million in accounts receivable with Ascension.As part of the transition of Ascension personnel to the Company in conjunction with the A&R MPSA, the Company has agreed to reimburseAscension for certain severance and retention costs related to certain Ascension employees who will not be transitioned to the Company. The Company hasaccrued $1.7 million in accrued compensation and benefits at December 31, 2016 related to these costs.As Ascension is the Company's largest customer, a significant percentage of the Company's cost of services is associated with providing services toAscension. However, due to the nature of the Company's shared services and information technology operations, it is impractical to assign the dollar amountassociated with services provided to Ascension.Note 17. Deferred Contract CostsEligible, one-time, nonrecurring costs associated with the initial phases of the Ascension A&R MPSA and with the transition of additional Ascensionhospitals are deferred and subsequently amortized. The costs related to transition or setup activities for personnel, process, and systems are amortized on astraight-line basis over the expected period of benefit. At December 31, 2016, the Company had $4.8 million in deferred eligible costs and had no eligiblecosts deferred at December 31, 2015. These deferred costs are included in other assets in the accompanying condensed consolidated balance sheets.Note 18. Segments and Customer ConcentrationsThe Company has determined that it has a single operating segment in accordance with how its business activities are managed and evaluated. All ofthe Company’s significant operations are organized around the single business of providing end-to-end management services of revenue cycle operations forU.S.-based hospitals and other medical providers. Accordingly, for purposes of segment disclosures, the Company has only one reporting segment. All of theCompany’s net services revenue and trade accounts receivable are derived from healthcare providers domiciled in the United States.Hospital systems affiliated with Ascension have accounted for a significant portion of the Company’s net services revenue each year since theCompany’s formation. For the years ended December 31, 2016, 2015 and 2014,F-34R1 RCM Inc.Notes to Consolidated Financial Statementsnet services revenue from hospitals affiliated with Ascension accounted for 78%, 45% and 12% of the Company's total net services revenue, respectively. Forthe year ended December 31, 2016, Intermountain Healthcare accounted for 15% of the Company's total net services revenue. For the year endedDecember 31, 2015, one customer, unaffiliated with Ascension, accounted for 17% of the Company's total net services revenue. For the year ended December31, 2014, three different customers, unaffiliated with Ascension, accounted for 71% of the Company's total net services revenue.The Ascension system, through its individual customer contracts with the Company, accounted for 62%, 75% and 76% of the Company’s total deferredcustomer billings at December 31, 2016, 2015 and 2014, respectively. The loss of customers within the Ascension health system would have a materialadverse impact on the Company’s operations.The Company did not have a concentration of credit risk within accounts receivable as reported in the consolidated balance sheets with any one largecustomer at December 31, 2015 or December 31, 2016.Note 19. Quarterly Financial Information (Unaudited)The following tables provide our Quarterly Condensed Consolidated Statements of Operations (in thousands, except per share data): 1st Quarter Ended March 31, 2nd Quarter Ended June 30, 3rd Quarter EndedSeptember, 30 4th Quarter EndedDecember 31, 20162015 20162015 20162015 20162015Net services revenue $352,193$10,971 $8,672$22,085 $125,535$15,842 $106,157$68,341Total operating expenses 73,47260,833 78,42364,342 64,11370,685 78,64857,423Income (loss) from operations 278,721(49,862) (69,751)(42,257) 61,422(54,843) 27,50910,918Net income (loss) $167,403$(30,445) $(40,791)$(26,288) $37,333$(32,970) $13,126$5,447 Net income (loss) per common share Basic $0.85$(0.32) $(0.45)$(0.27) $0.18$(0.34) $0.05$0.06Diluted $0.85$(0.32) $(0.45)$(0.27) $0.18$(0.34) $0.05$0.06F-35EXHIBIT INDEX ExhibitNumberDescription 3.1Restated Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to Amendment No. 4 to theRegistration Statement on Form S-1 (File No. 333-162186) filed on April 26, 2010)3.2Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 4 to the Registration Statementon Form S-1 (File No. 333-162186) filed on April 26, 2010)3.3Certificate of Amendment to Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 10.1 to the CurrentReport on Form 8-K (File No. 001-34746) filed on August 20, 2015)3.4Amendment No.1 to the Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 10.1 to the Current Report onForm 8-K (File No. 001-34746) filed on August 20, 2015)3.5Certificate of Designations of the Registrant's 8.00% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.5 to AnnualReport on Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)3.6Certificate of Amendment to Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the CurrentReport on Form 8-K (file No. 001-34746) filed on January 5, 2017)3.7Certificate of Amendment to Certificate of Designation of 8.00% Series A Convertible Preferred Stock, Par Value $0.01 per Share, of theCompany (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (file No. 001-34746) filed on January 5, 2017)3.8Amendment No. 2 to the Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the Current Report onForm 8-K (file No. 001-34746) filed on January 5, 2017)4.1Specimen Certificate evidencing shares of Common Stock (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the RegistrationStatement on Form S-1 (File No. 333-162186) filed on April 26, 2010)10.1*Amended and Restated Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Amendment No. 4 to the RegistrationStatement on Form S-1 (File No. 333-162186) filed on April 26, 2010)10.2*Form of Acknowledgment of Grant, used to evidence option grants under the Amended and Restated Stock Option Plan (incorporated byreference to Exhibit 10.2 to the Registration Statement on Form S-1 (File No. 333-162186) filed on September 29, 2009)10.3*Restricted Stock Plan, as amended (incorporated by reference to Exhibit 10.3 to Amendment No. 4 to the Registration Statement on Form S-1(File No. 333-162186) filed on April 26, 2010)10.4*Form of Restricted Stock Award Agreement under the Restricted Stock Plan, as amended (incorporated by reference to Exhibit 10.4 to theRegistration Statement on Form S-1 (File No. 333-162186) filed on September 29, 2009)10.5*Form of Indemnification Agreement, entered into between the Registrant and each director and executive officer (incorporated by reference toExhibit 10.1 to Current Report on Form 8-K (File No. 001-34746) filed on February 16, 2016)10.6*Form of Incentive Stock Option Agreement under the 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.24 to AmendmentNo. 4 to the Registration Statement on Form S-1 (File No. 333-162186) filed on April 26, 2010)10.7*Form of Restricted Stock Unit Grant Agreement under the Amended and Restated 2010 Stock Incentive Plan (incorporated by reference toExhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-34746) filed on November 2, 2016)10.8*Form of Performance Based Restricted Stock Unit Grant Agreement under the Amended and Restated 2010 Stock Incentive Plan (incorporatedby reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-34746) filed onNovember 2, 2016)10.9*Form of Nonstatutory Stock Option Agreement under the Amended and Restated 2010 Stock Incentive Plan (incorporated by reference toExhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-34746) filed on November 2, 2016)10.10* Accretive Health, Inc. Second Amended and Restated 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the CurrentReport on Form 8-K (file No. 001-34746) filed on December 12, 2016)10.11Third Amended and Restated Stockholders’ Agreement, dated as of February 22, 2009, among the Registrant and the parties named therein, asamended (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-172707) filed on March 9, 2011)10.12Form of Share Exchange Agreement, entered into in February 2009, with each of Etienne H. Deffarges, Steven N. Kaplan, Gregory N. Kazarian,The Shultz 1989 Family Trust, Spiegel Family LLC and John T. Staton Declaration of Trust (incorporated by reference to Exhibit 10.6 to theRegistration Statement on Form S-1 (File No. 333-162186) filed on September 29, 2009)10.13Lease Agreement, dated as of May 4, 2005, between the Registrant and Zeller Management Corporation, as amended by First LeaseAmendment, dated as of January 30, 2007, and Second Lease Amendment, dated as of November 26, 2008 (incorporated by reference toExhibit 10.7 to the Registration Statement on Form S-1 (File No. 333-162186) filed on September 29, 2009)10.14*Form of Nonstatutory Stock Option Agreement under the 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.25 toAmendment No. 4 to the Registration Statement on Form S-1 (File No. 333-162186) filed on April 26, 2010)10.15+Amended and Restated Master Professional Services Agreement by and between Ascension Health and the Registrant effective as of February16, 2016 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 001-34746) filed on May 10, 2016)10.16*Employment Agreement, dated April 2, 2013, between Registrant and Stephen F. Schuckenbrock (incorporated by reference to Exhibit 10.16to Annual Report on Form 10-K filed for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.17*Stock Option Agreement, dated April 3, 2013, between Registrant and Stephen F. Schuckenbrock (incorporated by reference to Exhibit 10.17to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.18*Offer Letter, dated April 27, 2013, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit 10.18 to Annual Report onForm 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.19*Restricted Stock Award, dated June 3, 2013, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit 10.19 to AnnualReport on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.20*Nonstatutory Stock Option Award Agreement, dated June 3, 2013, between Registrant and Joseph Flanagan (incorporated by reference toExhibit 10.20 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.21*Amendment to Offer Letter, dated April 29, 2014, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit 10.25 toAnnual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.22*Nonstatutory Stock Option Award Agreement, dated April 29, 2014, between Registrant and Joseph Flanagan (incorporated by reference toExhibit 10.26 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.23*Restricted Stock Award Agreement, dated April 29, 2014, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit10.27 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.24*Offer Letter, dated July 10, 2014, between Registrant and Emad Rizk (incorporated by reference to Exhibit 10.29 to Annual Report on Form10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.25*Nonstatutory Stock Option Award Agreement, dated July 21, 2014, between Registrant and Emad Rizk (incorporated by reference to Exhibit10.30 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.26*Restricted Stock Award Agreement, dated July 21, 2014, between Registrant and Emad Rizk (incorporated by reference to Exhibit 10.31 toAnnual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.27*Offer Letter, dated August 6, 2014, between Registrant and Peter Csapo (incorporated by reference to Exhibit 10.33 to Annual Report on Form10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.28*Nonstatutory Stock Option Award Agreement, dated August 12, 2014, between Registrant and Peter Csapo (incorporated by reference toExhibit 10.34 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.29*Restricted Stock Award Agreement, dated August 12, 2014, between Registrant and Peter Csapo (incorporated by reference to Exhibit 10.35 toAnnual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.30*Chairman Services Agreement, dated November 14, 2014, between Registrant and Steve Shulman (incorporated by reference to Exhibit 10.36to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (File No. 001-34746) filed on December 30, 2014)10.31*Offer Letter, dated January 9, 2015, between Registrant and Richard Evans (incorporated by reference to Exhibit 10.37 to Annual Report onForm 10-K for the fiscal year ended December 31, 2014 (File No. 001-34746) filed on June 23, 2015)10.32*Omnibus Amendment, dated May 18, 2015, to Employment Agreement dated April 2, 2013 between Registrant and Stephen F.Schuckenbrock and Stock Option Agreement, dated April 3, 2013, between Registrant and Stephen F. Schuckenbrock (incorporated byreference to Exhibit 10.38 to Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (File No. 001-34746) filed on June 23,2015)10.33*Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Emad Rizk (incorporated by referenceto Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-34746) filed on November 9, 2015)10.34*Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Peter Csapo (incorporated by referenceto Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-34746) filed on November 9, 2015)10.35*Retention Bonus and Enhanced Severance Agreement, dated August 12, 2015, between Registrant and Joseph Flanagan (incorporated byreference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-34746) filed on November9, 2015)10.36*Form of Restricted Stock Award Agreement under the Amended and Restated 2010 Stock Incentive Plan10.37*Amendment to Retention and Severance Bonus Agreement, dated October 19, 2015, between Registrant and Emad Rizk (incorporated byreference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-34746) filed on November9, 2015)10.38*Letter Agreement, dated December 7, 2015, between Registrant and Emad Rizk (incorporated by reference to Exhibit 10.45 to Annual Reporton Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)10.39*Letter Agreement, dated December 7, 2015, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit 10.46 to AnnualReport on Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)10.40*Restricted Stock Award Agreement, dated December 31, 2015, between Registrant and Peter Csapo (incorporated by reference to Exhibit10.47 to Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)10.41*Restricted Stock Award Agreement, dated December 31, 2015, between Registrant and Joseph Flanagan (incorporated by reference to Exhibit10.48 to Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)10.42*Restricted Stock Award Agreement, dated December 31, 2015, between Registrant and Emad Rizk (incorporated by reference to Exhibit 10.49to Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34746) filed on March 10, 2016)10.43Securities Purchase Agreement, dated as of December 7, 2015, by and among Accretive Health, Inc., TCP-ASC ACHI Series LLLP, and, solelyfor the purposes set forth therein, Ascension Health Alliance d/b/a Ascension (incorporated by reference to Exhibit 10.1 to Current Report on8-K (File No. 001-34746) filed December 9, 2015).10.44Investor Rights Agreement, dated as of February 16, 2016, by and among the Registrant, TCP-ASC ACHI Series LLLP, and the other partiesthereto (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 001-34746) filed on May 10, 2016)10.45Registration Rights Agreement, dated as of February 16, 2016, by and between the Registrant and TCP-ASC ACHI Series LLLP (incorporatedby reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 001-34746) filed on May 10,2016)10.46Warrant, dated as of February 16, 2016, by and between the Registrant and TCP-ASC ACHI Series LLLP (incorporated by reference to Exhibit10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (File No. 001-34746) filed on May 10, 2016)10.47*Transition, Separation and General Release Agreement, dated April 25, 2016, by and between the Registrant and Peter Csapo (incorporated byreference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-34746) filed on April 25, 2016)10.48*General Release and Mutual Non-Disparagement Agreement, dated May 25, 2016, by and between the Registrant and Emad Rizk(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file No. 001-34746) filed on May 26, 2016)10.49Agreement by and between TCP-ASC ACHI Series LLLP and the Registrant dated September 9, 2016 (incorporated by reference to Exhibit10.1 to the Current Report on Form 8-K (file No. 001-34746) filed on September 9, 2016)10.50*Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Christopher Ricaurte and the Registrant(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)10.51*Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Christopher Ricaurte and the Registrant(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)10.52*Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Joseph G. Flanagan and the Registrant(incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)10.53*Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Joseph G. Flanagan and the Registrant(incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)21.1Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Amendment No. 4 to the Registration Statement on Form S-1 filedon April 26, 2010)23.1Consent of Ernst & Young LLP31.1Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 200231.2Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 200232.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of200232.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002101The following materials from the Accretive Health, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted ineXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations andComprehensive Income (Loss), (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and(v) related notes.*Management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(b) of Form 10-K.+Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and ExchangeCommission.Exhibit 21.1Subsidiaries of R1 RCM Inc. Subsidiary Jurisdiction of OrganizationSDI Acquisition, Inc. (doing business as SureDecisions) Delaware Rover16, Inc. Delaware Accretive Mauritius, Inc. Mauritius R1 RCM India Private Limited India R1 RCM Global Private Limited India Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:1.Registration Statement (Form S-8 No. 333-170718) pertaining to the Amended and Restated Stock Option Plan, as amended and the 2010 StockIncentive Plan of R1 RCM Inc.;2.Registration Statement (Form S-8 No. 333-206482) pertaining to the Amended and Restated 2010 Stock Incentive Plan and the Inducement StockOption Awards of R1 RCM Inc.; and3.Registration Statement (Form S-8 No. 333-215094) pertaining to the Second Amended and Restated 2010 Stock Incentive Plan of R1 RCM Inc.of our reports dated March 1, 2017, with respect to the consolidated financial statements of R1 RCM Inc., and the effectiveness of internal control overfinancial reporting of R1 RCM Inc., included in this Annual Report (Form 10-K) of R1 RCM Inc. for the year ended December 31, 2016./s/ Ernst & Young LLPChicago, IllinoisMarch 1, 2017Exhibit 31.1Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002I, Joseph Flanagan, certify that:1. I have reviewed this Annual Report on Form 10-K of Accretive Health, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: March 1, 2017/s/ Joseph Flanagan Joseph FlanaganPresident, Chief Executive Officer and Chief Operating Officer(Principal Executive Officer)Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002I, Christopher Ricaurte, certify that:1. I have reviewed this Annual Report on Form 10-K of Accretive Health, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: March 1, 2017/s/ Christopher Ricaurte Christopher RicaurteChief Financial Officer and Treasurer(Principal Financial Officer)Exhibit 32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002In connection with the Annual Report on Form 10-K of Accretive Health, Inc. (the “Company”) for the period ended December 31, 2016 as filed withthe Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Joseph Flanagan, President, Chief Executive Officerand Chief Operating Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 1, 2017/s/ Joseph Flanagan Joseph FlanaganPresident, Chief Executive Officer and Chief Operating Officer(Principal Executive Officer)Exhibit 32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002In connection with the Annual Report on Form 10-K of Accretive Health, Inc. (the “Company”) for the period ended December 31, 2016 as filed withthe Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Christopher Ricaurte, Chief Financial Officer andTreasurer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 1, 2017/s/ Christopher Ricaurte Christopher RicaurteChief Financial Officer and Treasurer(Principal Financial Officer)

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