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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2016

Or

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

For the transition period from to

Commission file number 001-36520

ADEPTUS HEALTH INC.(Exact name of registrant as specified in its charter)

Delaware 46-5037387(State or other jurisdiction of

incorporation or organization) (I.R.S. Employer

Identification No.) 2941 Lake Vista DriveLewisville, TX 75067

(Address of principal executive offices) (Zip Code)

(972) 899-6666 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ◻Non-accelerated filer ◻ Smaller reporting company ◻(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 ☒

The number of shares of the registrant’s series A Preferred Stock, par value $0.01 per share, outstanding was 21,893 as ofNovember 7, 2016. The number of shares of the registrant’s Class A common stock, par value $0.01 per share, outstanding was16,395,599 as of November 7, 2016. The number of shares of the registrant’s Class B common stock, par value $0.01 per share,outstanding was 4,724,430 as of November 7, 2016.

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ADEPTUS HEALTH INC. and SUBSIDIARIESFORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION 6 Item 1. 6 Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 6 Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30,

2016 and 2015 7 Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine months

ended September 30, 2016 and 2015 8 Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine months ended

September 30, 2016 9 Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2016 and

2015 10 Notes to Condensed Consolidated Financial Statements 11 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk 56 Item 4. Controls and Procedures 56 PART II. OTHER INFORMATION 57

Item 1. Legal Proceedings 57 Item 1A. Risk Factors 57 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 64 Item 3. Defaults Upon Senior Securities 64 Item 4. Mine Safety Disclosure 64 Item 5. Other Information 64 Item 6. Exhibits 65

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GENERAL

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to the “Company,”“we,” “us” and “our” refer to Adeptus Health Inc. and its consolidated subsidiaries.

On May 11, 2015, we completed a public offering of 1,572,296 shares of our Class A common stock at a price to thepublic of $63.75 per share and received net proceeds of approximately $94.5 million, after deducting underwriting discounts andcommissions and offering expenses. We used the net proceeds from the offering to purchase, for cash, 1,572,296 LLC Units. Anadditional 842,704 shares were also sold by an affiliate of a significant stockholder.

On July 29, 2015, we completed a public offering of 2,645,277 shares of our Class A common stock at a price to thepublic of $105.00 per share and received net proceeds of approximately $265.9 million, after deducting underwriting discountsand commissions and offering expenses. We used the net proceeds from the offering to purchase, for cash, 2,645,277 LLC Units.An additional 1,264,723 shares were also sold by an affiliate of a significant stockholder.

On June 8, 2016, we completed a public offering of 1,774,219 shares of our Class A common stock at a price to thepublic of $62.00 per share and received net proceeds of approximately $107.4 million, after deducting underwriting discounts andcommissions and offering expenses. We used the net proceeds from the offering to purchase, for cash, 1,774,219 LLC Units. Anadditional 1,043,281 shares were also sold by an affiliate of a significant stockholder.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by thosesections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning ourplans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial positionand our business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,”“expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” andvariations of such words or similar expressions are intended to identify forward-looking statements. The forward-lookingstatements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and variousassumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimatesand projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be noassurance that management’s expectations, beliefs, estimates and projections will be achieved and actual results may varymaterially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, thatcould cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks,uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertaintiesand factors set forth under Part I., Item 1A.“Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2015, subsequent filings and in this report, as such risk factors may be updated from time to time in ourperiodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:

· Our ability to implement our growth strategy;

· With respect to the amendment to our credit facility entered into on November 1, 2016 providing for anincremental $25 million of committed term loan financing, our ability to satisfy the conditions to funding forthe first $15 million and/or the remaining $10 million of availability after the first drawing;

· Our ability to secure sufficient liquidity from external financing sources and maintain sufficient levels of cashflow to meet growth expectations;

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· Delays in conversion of patient receivables into cash, as well as increased potential for bad debt expense,associated with deficiencies in billing and collections related to our services;

· Potential instability resulting from recent changes in our management and board of directors;

· Our ability to protect our brand;

· Federal and state laws and regulations relating to our facilities, which could lead to the incurrence of significantpenalties by us or require us to make significant changes to our operations;

· Our ability to locate available facility sites on terms acceptable to us;

· Competition from hospitals, clinics and other emergency care providers;

· Our dependence on payments from third-party payors;

· Our ability to source and procure new products and equipment to meet patient preferences;

· Our reliance on Medical Properties Trust (“MPT”) and the MPT Master Funding and DevelopmentAgreements;

· Disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital tofinance the carrying costs of inventory, to pay for capital expenditures and operating costs;

· Our ability or the ability of our healthcare system partners to negotiate favorable contracts or renew existingcontracts with third-party payors on favorable terms;

· Significant changes in our payor mix or case mix resulting from fluctuations in the types of cases treated at ourfacilities;

· Significant changes in rules, regulations and systems governing Medicare and Medicaid reimbursements;

· Material changes in IRS revenue rulings, case law or the interpretation of such rulings;

· Shortages of, or quality control issues with, emergency care-related products, equipment and medical suppliesthat could result in a disruption of our operations;

· The intense competition we face for patients, physician use of our facilities, strategic relationships andcommercial payor contracts;

· The fact that we may be subject to significant malpractice and related legal claims;

· The impact on us of PPACA, which represents a significant change to the healthcare industry and of any repealof PPACA that may occur following the inauguration of President-elect Donald Trump;

· Ensuring our continued compliance with HIPAA, which could require us to expend significant resources andcapital;

· Our actual operating results varying from the guidance we provide to investors and analysts;

· The volatility in our stock price;

· Our ability to successfully defend a pending action under the federal securities laws:

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· Our ability to maintain proper and effective internal controls necessary to provide accurate financial statementson a timely basis; and

· The factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 underPart I, “Item 1 A, Risk Factors.”

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks,uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefitsor developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affectus or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of thefactors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to thesefactors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based inpart on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or asthe date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

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PART I — FINANCIAL INFORMATIONItem 1. Financial Statements

Adeptus Health Inc. and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

September 30, December

31, 2016 2015 (unaudited) (audited)

ASSETS Current assets

Cash $ 6,077 $ 16,037Accounts receivable, less allowance for doubtful accounts of $25,941 and $28,818, respectively 79,694 65,954Other receivables and current assets 78,927 31,532Medical supplies inventory 4,394 5,167

Total current assets 169,092 118,690Property and equipment, net 33,725 70,187Investment in unconsolidated joint ventures 265,124 43,104Deposits 1,260 1,163Deferred tax assets 259,184 206,265Intangibles, net 16,900 18,235Goodwill 51,390 61,009Other long-term assets 2,004 2,950

Total assets $ 798,679 $ 521,603LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities Accounts payable and accrued expenses $ 31,278 $ 27,521Accrued compensation 19,835 23,197Current maturities of long-term debt 7,055 7,585Current maturities of capital lease obligations 71 102Deferred rent 830 858

Total current liabilities 59,069 59,263Long-term debt, less current maturities 153,325 113,563Payable to related parties pursuant to tax receivable agreement 237,914 191,302Capital lease obligations, less current maturities 307 3,954Deferred rent 2,867 3,837

Total liabilities 453,482 371,919Commitments and contingencies Shareholders' equity

Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and zero shares issued andoutstanding at September 30, 2016 and December 31, 2015 — —Class A common stock, par value $0.01 per share; 50,000,000 shares authorized, 16,395,599 and14,257,187 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 164 143Class B common stock, par value $0.01 per share; 20,000,000 shares authorized, 4,724,430 and6,510,738 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 47 65Additional paid-in capital 173,062 85,457Retained earnings 86,847 6,323

Total shareholders' equity 260,120 91,988Non-controlling interest 85,077 57,696

Total equity 345,197 149,684Total liabilities and shareholders' equity $ 798,679 $ 521,603

The accompanying notes are an integral part of these unaudited financial statements.

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Adeptus Health Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)(In thousands, except share data)

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Revenue:

Patient service revenue $ 70,174 $ 101,254 $ 305,057 $ 301,519 Provision for bad debt (8,358) (17,907) (52,084) (50,365)

Net patient service revenue 61,816 83,347 252,973 251,154 Management and contract services revenue 23,552 4,865 45,331 8,098 Total net operating revenue 85,368 88,212 298,304 259,252

Equity in (loss) earnings of unconsolidated joint ventures (8,457) 4,543 (3,521) 7,470 Operating expenses:

Salaries, wages and benefits 64,580 55,420 193,525 155,424 General and administrative 15,119 13,866 44,398 35,701 Other operating expenses 8,992 13,152 36,098 36,998 Depreciation and amortization 2,694 4,259 10,477 13,538

Total operating expenses 91,385 86,697 284,498 241,661 (Loss) income from operations (14,474) 6,058 10,285 25,061 Other (expense) income:

Gain on contribution to joint venture — — 185,336 24,250 Interest expense (2,024) (3,753) (5,672) (10,925)

Total other (expense) income (2,024) (3,753) 179,664 13,325 (Loss) income before (benefit) provision for income taxes (16,498) 2,305 189,949 38,386 (Benefit) provision for income taxes (4,765) 811 45,623 7,617

Net (loss) income (11,733) 1,494 144,326 30,769 Less: Net (loss) income attributable to non-controlling interest (3,639) 820 60,940 18,867

Net (loss) income attributable to Adeptus Health Inc. $ (8,094) $ 674 $ 83,386 $ 11,902 Net (loss) income per share of Class A common stock:

Basic $ (0.49) $ 0.05 $ 5.47 $ 1.05 Diluted $ (0.49) $ 0.05 $ 5.47 $ 1.05

Weighted average shares of Class A common stock: Basic 16,371,261 13,236,064 15,252,983 11,377,557 Diluted 16,371,261 13,236,064 15,252,983 11,377,557


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Adeptus Health Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)(In thousands)

Adeptus Health Inc. Non-controlling Interest Total Three months ended Three months ended Three months ended September 30, September 30, September 30, 2016 2015 2016 2015 2016 2015 Net (loss) income $ (8,094) $ 674 $ (3,639) $ 820 $ (11,733) $ 1,494 Other comprehensive loss, net of tax: Unrealized loss on interest rate contract — (1) — — — (1) Comprehensive (loss) income $ (8,094) $ 673 $ (3,639) $ 820 $ (11,733) $ 1,493

Adeptus Health Inc. Non-controlling Interest Total Nine months ended Nine months ended Nine months ended September 30, September 30, September 30, 2016 2015 2016 2015 2016 2015 Net income $ 83,386 $ 11,902 $ 60,940 $ 18,867 $ 144,326 $ 30,769 Other comprehensive loss, net of tax: Unrealized loss on interest rate contract — (18) — — — (18) Comprehensive income $ 83,386 $ 11,884 $ 60,940 $ 18,867 $ 144,326 $ 30,751


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Adeptus Health Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)(In thousands, except share data)

Adeptus Health Inc. Additional Total Non- Class A shares Class B shares Paid-in Retained Shareholders' Controlling Total Shares Amount Shares Amount Capital Earnings Equity Interest Equity

Balance, December 31, 2015 14,257,187 $ 143 6,510,738 $ 65 $ 85,457 $ 6,323 $ 91,988 $ 57,696 $ 149,684Issuance of Class A restricted stock 362,308 3 — — (3) — — — —Issuance of Class A common stock 1,774,219 18 — — (18) — — — —Purchase of Class B common stock — — (1,774,219) (18) 18 — — — —Conversion of Class B common stock 12,089 — (12,089) — — — — — —Adjustment of non-controlling interest forpublic offerings — — — — 33,559 — 33,559 (33,559) —Class A restricted stock withheld on vesting (19,968) — — — (1,033) — (1,033) — (1,033)Stock-based compensation — — — — 3,711 — 3,711 — 3,711Employee stock purchase plan 9,764 — — — — — — — —Effects of tax receivable agreement — — — — 51,371 — 51,371 — 51,371Tax distribution to LLC unit holders — — — — — (2,862) (2,862) — (2,862)Net income — — — — — 83,386 83,386 60,940 144,326Balance, September 30, 2016 16,395,599 $ 164 4,724,430 $ 47 $ 173,062 $ 86,847 $ 260,120 $ 85,077 $ 345,197


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Adeptus Health Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine months ended September 30, 2016 2015 Cash flows from operating activities:

Net income $ 144,326 $ 30,769 Adjustments to reconcile net income to net cash (used in) provided by operating activities:

(Gain) loss from the disposal or impairment of assets (11) 68 Depreciation and amortization 10,477 13,538 Deferred tax expense 45,064 6,328 Amortization of deferred loan costs 580 719 Provision for bad debts 52,084 50,365 Gain on contribution to unconsolidated joint venture (185,336) (24,250) Equity in loss (earnings) of unconsolidated joint ventures 3,521 (7,470) Stock-based compensation 3,711 1,946 Changes in operating assets and liabilities:

Restricted cash — (4,371) Accounts receivable (65,824) (61,753) Other receivables and current assets (47,660) (4,362) Medical supplies inventory (2,020) (852) Other long-term assets 302 (591) Accounts payable and accrued expenses 4,313 (3,215) Accrued compensation (2,293) 6,548 Deferred rent 1,483 1,703

Net cash (used in) provided by operating activities (37,283) 5,120 Cash flows from investing activities:

Deposits (97) 921 Investments in unconsolidated joint ventures (1,541) — Proceeds from sale of property and equipment 110 1,527 Capital expenditures (4,912) (4,916)

Net cash used in investing activities (6,440) (2,468) Cash flows from financing activities:

Proceeds from public offerings, net of underwriters fees and expenses 107,389 360,420 Purchase of limited liability units from LLC Unit holders (107,389) (360,420) Proceeds from long-term borrowings 63,000 54,000 Payment of deferred loan costs (78) (1,572) Payments on borrowings (25,222) (6,964) Payment of capital lease obligations (42) (60) Tax distribution to LLC Unit holders (2,862) (3,543) Restricted stock forfeited on vesting to satisfy withholding requirements (1,033) (205)

Net cash provided by financing activities 33,763 41,656 Net (decrease) increase in cash and cash equivalents (9,960) 44,308 Cash, beginning of period 16,037 2,002 Cash, end of period $ 6,077 $ 46,310

See Note 13 for Supplemental Cash Flow Information


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Adeptus Health Inc. and SubsidiariesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

NOTE 1—ORGANIZATION

Adeptus Health Inc. (the "Company") was incorporated as a Delaware corporation on March 7, 2014 for the purpose offacilitating an initial public offering of common equity. The Company is a holding company with its sole material asset being acontrolling equity interest in Adeptus Health LLC (“Adeptus Health”). As the sole managing member of Adeptus Health LLC, theCompany operates and controls all of the business and affairs of Adeptus Health LLC and, through Adeptus Health LLC and itssubsidiaries, conducts its business. Prior to the initial public offering, the Company had not engaged in any business or otheractivities except in connection with its formation and the initial public offering .

Adeptus Health is a leading patient-centered healthcare organization expanding access to high quality emergencymedical care through its network of freestanding emergency rooms and partnerships with premier healthcare providers. AdeptusHealth or its predecessors began operations in 2002 and owns and operates First Choice Emergency Room, the nation’s largestand oldest network of freestanding emergency rooms and owns and/or operates hospitals and freestanding facilities in partnershipwith Texas Health Resources in Texas, UCHealth in Colorado, Dignity Health in Arizona, and development activity together withOchsner Health System in Louisiana and Mount Carmel Health System in Ohio. All Adeptus Health freestanding facilities arefully equipped emergency rooms with a complete radiology suite of diagnostic technology, on-site laboratory, and staffed withboard-certified physicians and emergency trained registered nurses. Adeptus Health delivers both major and minor emergencymedical services for adult and pediatric patients. Adeptus Health has experienced rapid growth in recent periods, growing from 14freestanding facilities at the end of 2012 to 97 freestanding facilities and three fully licensed general hospitals as of September 30,2016. In Texas, facilities are currently located in Houston, Dallas/Fort Worth, San Antonio and Austin. In Colorado, facilities arelocated in Colorado Springs and Denver. In Arizona, Dignity Health Arizona General Hospital, a full service general hospital,along with its freestanding emergency departments are located in the Phoenix market. Subsequent to September 30, 2016, theCompany has taken steps to dissolve the joint venture with Ochsner Health Systems, which had no significant operations at thatpoint, and has replaced that arrangement with a partner services agreement as described in Note 17 ( Subsequent Events ).

The Company consolidates the financial results of Adeptus Health and its subsidiaries and records non-controlling interest for the economic interest in Adeptus Health held by the non-controlling unit holders. The non-controlling interest ownership percentage as of September 30, 2016 was 22.8%.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared pursuant tothe rules and regulations of the SEC. Certain information and note disclosures normally included in audited financial statementsprepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have beencondensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make theinformation not misleading.

The condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurringadjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. Allintercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periodspresented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscalyear.

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Adeptus Health Inc. and SubsidiariesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

These condensed consolidated financial statements and related notes should be read in conjunction with the Company’sDecember 31, 2015 audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2015 filed with the SEC on February 29, 2016.

Reclassifications

As a result of our adoption of Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of DebtIssuance Costs” (Subtopic 835-30), which requires that debt issuance costs be presented in the balance sheets as a deduction fromthe carrying amount of the related debt, $3.7 million of debt issuance costs at December 31, 2015 have been reclassified in thecondensed consolidated balance sheet from other long-term assets to long-term debt, less current portion.

Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with GAAP requires our management to make certain estimatesand assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significantaccounting policies and estimates include: the useful lives of fixed assets, revenue recognition, allowances for doubtful accounts,leases, reserves for employee health benefit obligations, stock-based compensation, and other contingencies. Actual results coulddiffer from these estimates. For greater detail regarding these accounting policies and estimates, refer to our Annual Report onForm 10-K for the fiscal year ended December 31, 2015.

Segment and Geographic Information

The Company’s chief operating decision maker is our Chief Executive Officer, who reviews financial informationpresented on a company-wide basis. As a result, the Company determined that it has a single reporting segment and operating unitstructure.

All of the Company’s revenue for the three and nine months ended September 30, 2016 and 2015 was earned in theUnited States.

Cash and Cash Equivalents and Concentrations of Risk

The Company includes all securities with a maturity date of three months or less at date of purchase as cash equivalents.The Company currently has no cash equivalents. The Company maintains its cash in bank deposit accounts, which, at times, mayexceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposedto any significant risk related to uninsured bank deposits.

Patient Revenue and Accounts Receivable

Revenues consist primarily of net patient service revenues, which are based on the facilities’ established billing rates lessallowances and discounts, principally for patients covered under contractual programs with private insurance companies. Revenueis recognized when services are rendered to patients. Charges for all services provided to insured patients are initially billed andprocessed by the patients' insurance provider. The Company has agreements with insurance companies that provide for paymentsto the Company at amounts different from its established rates or as determined by the patient's out of network benefits.Differences between established rates and those set by insurance programs, as well as charity care, employee and prompt payadjustments, are recorded as adjustments directly to patient service revenue. Amounts not covered by the insurance companies arethen billed to the patients. Estimated uncollectible

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amounts from insured patients are recorded as bad debt expense in the period the services are provided. Collection of payment forservices provided to patients without insurance coverage is done at the time of service.

With respect to management and contract service revenues, amounts are recognized as services are provided. TheCompany is party to management services agreements under which it provides management services to hospital facilities andfreestanding emergency room facilities. As compensation for these services, the Company charges the managed entities amanagement fee based on a fixed percentage of each entity’s net revenue. The Company also holds minority ownership in theseentities.

Net patient service revenue by major payor source for the three and nine months ended September 30, 2016 and 2015were as follows (in thousands) :

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Commercial $ 62,388 $ 98,021 $ 277,502 $ 291,832Self-pay 4,900 1,442 15,779 5,433Medicaid 1,083 471 5,488 869Medicare 535 125 3,710 271Other 1,268 1,195 2,578 3,114Patient Service Revenue 70,174 101,254 305,057 301,519Provision for bad debt (8,358) (17,907) (52,084) (50,365)Net Revenue $ 61,816 $ 83,347 $ 252,973 $ 251,154

The Company receives payments from third-party payors that have contracts with the Company or the Company usesMultiPlan arrangements whereby the Company accesses third-party payors at in-network rates. Four major third-party payorsaccounted for 78.4%, 85.4%, 80.2% and 85.5% of patient service revenue for the three and nine months ended September 30,2016 and 2015, respectively. These same payors also accounted for 76.2% and 65.9% of accounts receivable as of September 30,2016 and December 31, 2015, respectively. The following table sets forth the percentage of patient service revenue earned bymajor payor source:

Three months ended Nine months ended September 30, September 30,

2016 2015 2016 2015 Payor:

United HealthCare 31.0% 31.2 % 29.8 % 29.7 %

Blue Cross Blue Shield 17.6 21.8 21.1 22.7 Aetna 15.4 18.8 15.8 19.4 Cigna 14.4 13.6 13.5 13.7 Other 19.3 14.0 16.8 14.1 Medicaid/Medicare 2.3 0.6 3.0 0.4 100.0 % 100.0 % 100.0 % 100.0 %

Accounts receivable are reduced by an allowance for doubtful accounts. In establishing the Company's allowance fordoubtful accounts, management considers historical collection experience, the aging of the account, the payor classification, andpatient payment patterns. Amounts due directly from patients represent the Company's highest collectability risk. There were nosignificant changes in the estimates or assumptions underlying the calculation of the allowance for doubtful accounts for the threemonths ended September 30, 2016 and 2015.

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The Company treats anyone that is emergent. Total charity care was approximately 16.9%, 12.2%, 6.5% and 10.0% ofpatient service revenue for the three and nine months ended September 30, 2016 and 2015, respectively.

Liquidity

At September 30, 2016, the Company’s cash position was $6.1 million, as compared to $16.0 million at December 31,2015. For the nine months ended September 30, 2016, net cash used in operating activities was $37.3 million, as compared to netcash provided by operating activities of $5.1 million for the comparable period in the prior year. The Company’s liquidity andcash flow from operations during the nine months ended September 30, 2016 were negatively impacted by funding of workingcapital requirements related to the joint ventures, which has led to the increase in the Other receivables and current assets balanceon our condensed consolidated balance sheets from $31.5 million at December 31, 2015 to $78.9 million at September 30,2016. An additional factor contributing to the decrease in cash flow from operations is the significant lengthening of collectioncycles on accounts receivable (as evidenced by the increase in days of sales outstanding, or DSO, from 54 days in the thirdquarter of 2015 to 119 days in the third quarter of 2016) stemming from the outsourcing of billing and collection for services to athird-party provider in October 2015, which was driven by the need to ensure compliance with ICD-10 medical codingrequirements. Although collections have been delayed, the Company is working with the payors and believes they will be able tocollect receivables consistent with historical levels. Although accounts receivable are currently deemed collectable, if theycontinue to age out significantly bad debt expense could materially increase.

The Company has taken the following steps to address these matters:

· On November 1, 2016, the Company entered into amendments under the New Facility to add $25.0 million ofadditional availability under the term loan portion of the facility and $5.0 million of additional availabilityunder the revolving credit portion of the facility, on top of the $20.0 million of incremental availability underthe revolving credit portion of the facility secured in an amendment entered into on August 12, 2016. See Note17 ( Subsequent Events ).

· On November 7, 2016, the Company issued $21.9 million of Series A Preferred Stock to funds affiliated withSterling Partners, co-founders Rick Covert, the vice chairman of the Company’s board of directors, and Dr.Jack Novak, and Thomas S. Hall, the Company’s chief executive officer, pursuant to a securities purchaseagreement dated as of November 7, 2016. See Note 17 ( Subsequent Events ).

In addition, the Company has taken additional steps, as follows:

· The Company engaged Goldman Sachs to explore various financing alternatives to assist in efforts to achieve,subject to market conditions, a comprehensive refinancing of existing indebtedness to provide additionalfinancial flexibility.

· The Company added additional internal and external resources with a view to restoring our historical cashcollection percentage levels.

· The Company plans to engage in negotiations with the health system partners in its joint ventures to share theworking capital requirements of the joint ventures.

· The Company anticipates that the majority of our development activity with new health system partners goingforward will be executed under the partner model represented by our partner services agreement with OchsnerHealth System, which will decrease working capital requirements .

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· The Company is actively evaluating planned openings of facilities with a view to matching developmentactivity to available capital resources.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the three and nine months ended September 30,2016 and 2015, was approximately $0.4 million, $1.6 million, $2.3 million and $3.9 million, respectively, and is included as acomponent of general and administrative expenses within the unaudited condensed consolidated statements of operations.

Medical Supplies Inventory

Inventory is carried at the lower of cost or market using the first-in, first-out method and consists of a standard set ofmedical supplies held in stock at all facilities.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of thenoncancelable lease term or the estimated useful life of the improvements. When assets are retired, the cost and applicableaccumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recognized. Expenditures fornormal repairs and maintenance are expensed as incurred. Material expenditures that increase the life of an asset are capitalizedand depreciated over the estimated remaining useful life of the asset.

Amortization of assets acquired under capital leases is included as a component of depreciation and amortizationexpense in the accompanying unaudited condensed consolidated statements of operations. Amortization is calculated using thestraight-line method over the shorter of the useful lives or the term of the underlying lease agreements.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash, receivables, accounts payable and accruedliabilities approximate their fair value due to their relatively short maturities. At September 30, 2016 and December 31, 2015, thecarrying value of the Company's long-term debt was based on the current interest rates and approximates its fair value.

Derivative Instruments and Hedging Activities

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respectivefair values. For derivatives not designated as a hedging instrument, changes in the fair value are recorded in net earningsimmediately. For derivatives designated in hedging relationships, changes in the fair value are either offset through earningsagainst the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated othercomprehensive income, to the extent the derivative is effective at offsetting the changes in cash flows being hedged until thehedged item affects earnings.

The Company only enters into derivative contracts that it intends to designate as a hedge of a forecasted transaction orthe variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all hedgingrelationships, the Company formally documents the hedging relationship and its risk-management objective and strategy forundertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedginginstrument's effectiveness in offsetting the hedged risk will be assessed

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prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formallyassesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used inhedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instrumentsthat are designated and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on thederivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or yearsduring which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectivenessor hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effectivein offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised or the cash flowhedge is dedesignated because a forecasted transaction is not probable of occurring.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Companycontinues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value inearnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting andrecognizes immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedgingrelationship. The Company currently has no derivative instruments.

Lease Accounting

The Company determines whether to account for its facility leases as operating or capital leases depending on theunderlying terms of the lease agreement. This determination of classification is complex and requires significant judgmentrelating to certain information including the estimated fair value and remaining economic life of the facilities, the Company's costof funds, minimum lease payments and other lease terms. The lease rates under the Company's lease agreements are subject tocertain conditional escalation clauses that are recognized when probable or incurred and are based on changes in the consumerprice index or certain operational performance measures. As of September 30, 2016, the Company leased 98 facilities, which theCompany classified as operating leases.

Income Taxes

We provide for income taxes using the asset and liability method. This approach recognizes the amount of federal, stateand local taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the future taxconsequence of events recognized in the consolidated financial statements and income tax returns. Deferred income tax assets andliabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates.

A valuation allowance is required when it is more-likely-than-not that some portion of the deferred tax assets will not berealized. Realization is dependent on generating sufficient future taxable income.

We file a consolidated federal income tax return. State income tax returns are filed on a separate, combined orconsolidated basis in accordance with relevant state laws and regulations. LPs, LLPs, LLCs and other pass-through entities thatwe consolidate file separate federal and state income tax returns. We include the allocable portion of each pass-through entity’sincome or loss in our federal income tax return. We allocate the remaining income or loss of each pass-through entity to the otherpartners or members who are responsible for their portion of the taxes.

Estimated tax (benefit) expense of approximately ($4.8) million, $0.8 million, $45.6 million and $7.6 million areincluded in the (benefit) provision for income taxes in the unaudited condensed consolidated statements of operations for the threeand nine months ended September 30, 2016 and 2015, respectively. The Company's estimate of the potential outcome of anyuncertain tax positions is subject to management's assessment of relevant risks, facts, and circumstances

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existing at that time. The Company uses a more likely than not threshold for financial statement recognition and measurement ofa tax position taken or expected to be taken in a tax return.

To the extent that the Company's assessment of such tax position changes, the change in estimate is recorded in theperiod in which the determination is made. The Company reports tax related interest and penalties as a component of theprovision for income tax and operating expenses, respectively, if applicable. The Company has not recognized any uncertain taxpositions.

Deferred Rent

The Company records rent expense for operating leases on a straight-line basis over the life of the related leases. TheCompany has certain facility and equipment leases that allow for leasehold improvements allowance, free rent, and escalatingrental payments. Straight-line expenses that are greater than the actual amount paid are recorded as deferred rent and amortizedover the life of the lease.

Variable Interest Entities

The Company follows the guidance in ASC 810-10-15-14 in order to determine if we are the primary beneficiary of avariable interest entity (“VIE”) for financial reporting purposes. We consider whether we have the power to direct the activitiesof the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorblosses or the right to receive returns that would be significant to the VIE. We consolidate a VIE when we are the primarybeneficiary of the VIE. At September 30, 2016, the Company determined that it has two joint venture interests which it considersVIE’s for which it is not the primary beneficiary. Accordingly, we account for these investments in joint ventures using theequity method.

Investment in Unconsolidated Joint Ventures

Investments in unconsolidated companies in which the Company exerts significant influence but does not control orotherwise consolidate are accounted for using the equity method. As of September 30, 2016, the Company accounted for (i) 18freestanding facilities and one hospital associated with our joint venture with UCHealth, (ii) one Arizona hospital and its eightfreestanding departments associated with our joint venture with Dignity Health, (iii) one hospital in Dallas/Fort Worth and its 32freestanding departments associated with our joint venture with THR, and (iv) the development activity associated with our jointventures with Ochsner Health System in Louisiana and Mount Carmel Health System in Ohio, in each case, using the equitymethod. The Company has an ownership interest ranging from 49.0% to 50.1% in these joint ventures.

These investments are included as investment in unconsolidated joint ventures in the accompanying unauditedcondensed consolidated balance sheets.

Equity in earnings of unconsolidated joint ventures consists of (i) the Company’s share of the income generated from itsnon-controlling equity investment in one full-service healthcare hospital facility and eight freestanding emergency rooms inArizona, (ii) the Company’s preferred return and its share of the income generated from its non-controlling equity investment in18 freestanding emergency rooms in Colorado and one hospital and 32 freestanding facilities in Dallas/Fort Worth, and (iii) itsshare of the income generated from its non-controlling equity investment in the development activity associated with our jointventures with Ochsner Health System in Louisiana and Mount Carmel Health System in Ohio. Because the operations are centralto the Company’s business strategy, equity in earnings of unconsolidated joint ventures is classified as a component of operatingincome in the accompanying unaudited condensed consolidated statements of operations. The Company has contracts to managethe facilities, which results in the Company having an active role in the operations of the facilities and devoting a significantportion of its corporate

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resources to the fulfillment of these management responsibilities. Additionally, the Company receives a stipend for providingphysicians to the facilities within each joint venture.

Subsequent to September 30, 2016, the Company has taken steps to dissolve the joint venture with Ochsner HealthSystems and has replaced that arrangement with a partner services agreement as described in Note 17 ( Subsequent Events ).

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) , whichrequires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods orservices to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomeseffective. The new standard will become effective for the Company on January 1, 2018. Early application is permitted to theoriginal effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transitionmethod. The Company is evaluating the effect that ASU 2014-09 will have on its condensed consolidated financial statements andrelated disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on itsongoing financial reporting.

In February 2015, the FASB issued ASU No. 2015-02, “ Consolidation: Amendments to the Consolidation Analysis”(Topic 810) . This standard modifies existing consolidation guidance for reporting organizations that are required to evaluatewhether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years and interim periods within thoseyears beginning after December 15, 2015 and requires either a retrospective or a modified retrospective approach to adoption.Early adoption is permitted. The Company adopted the amendments under ASU 2015-02 on January 1, 2016. The adoption of thestandard did not have an impact on the Company’s condensed consolidated financial statements as there was no change to theentities currently consolidated by the Company.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs" (Subtopic835-30) , which changes the presentation of debt issuance costs in financial statements. ASU No. 2015-03 requires an entity topresent such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization ofthe costs will continue to be reported as interest expense. ASU No. 2015-03 is effective for annual reporting periods beginningafter December 15, 2015. We retrospectively adopted the provisions of ASI 2015-03 as of January 1, 2016. As of December 31,2015, $3.7 million of debt issuance costs were reclassified in the condensed consolidated balance sheet from other long-termassets to long-term debt, less current portion. The adoption of ASU 2015-03 impacted the presentation of our consolidatedfinancial position and had no impact on our results of operations, or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, “ Income Taxes (Topic 740): Balance Sheet Classification ofDeferred Taxes ”, which amended the balance sheet classification requirements for deferred income taxes to simplify theirpresentation in the statement of financial position. The ASU requires that deferred tax liabilities and assets be classified asnoncurrent in a classified statement of financial position. This ASU is effective for fiscal years beginning after December 31,2016, with early adoption permitted. The Company early adopted the provisions of this ASU for the presentation andclassification of its deferred tax assets at December 31, 2015 and has reflected the change on the condensed consolidated balancesheet for all periods presented.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). This new standard establishes acomprehensive new lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to leaseclassification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liabilitywith a corresponding right-of-use asset for leases with a lease term of more than twelve months. The standard is effective forinterim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard requires amodified retrospective transition for capital or operating leases existing at or

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entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not requiretransition accounting for leases that expire prior to the date of initial application. We are evaluating the impact of the newstandard on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (Topic718). This new standard simplifies several aspects of the accounting for share-based payment transactions, including the incometax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Thisstandard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption ispermitted. The Company is currently evaluating the impact of the new standard on our condensed consolidated financialstatements.

We do not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have amaterial effect on our condensed consolidated financial position, results of operations or cash flows.

NOTE 3—OTHER RECEIVABLES AND CURRENT ASSETS

Other receivables and current assets consisted of the following ( in thousands ):

September 30, December 31, 2016 2015Due from unconsolidated joint ventures $ 66,132 $ 15,451Due from third party developers 10,740 12,233Prepaid assets and other receivables 2,055 3,848Other receivables and current assets $ 78,927 $ 31,532

Pursuant to our joint venture agreements, the Company manages facilities associated with our investments inunconsolidated joint ventures. The Company has an active role in the operations of the facilities and devotes a significant portionof its corporate resources to the fulfillment of these management responsibilities. Additionally, the Company provides physicianservices to each facility, whether owned or managed. The Company charges a stipend for providing physicians to the facilitieswithin each joint venture as well as a management fee based on a fixed percentage of each entities’ net revenue. The Companyrecords receivables from each joint venture for these charges and for amounts the Company has paid on behalf of the joint ventureto cover working capital needs, including vendor payments and payroll. Each joint venture agreement contains provisionsregarding the repayment of amounts owed under these arrangements, prior to the distribution of profits.

The Company records receivables from the lessor to the MPT agreements and certain other developers for soft costsincurred for facilities currently under development. See Note 12 (Commitments and Contingencies) for more information aboutamounts due from third party developers.

Prepaid assets and other receivables consist of advances made for facility supplies, maintenance and janitorial contracts andvarious licenses, which are amortized on a straight line basis over the service period.

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NOTE 4—PROPERTY AND EQUIPMENT

Property and equipment consisted of the following ( in thousands ):

September 30, December 31, 2016 2015Leasehold improvements $ 35,849 $ 73,249Computer equipment 6,303 5,627Medical equipment 2,776 4,458Office equipment 3,893 5,445Automobiles 218 218Land 6,758 6,758Construction in progress 1,070 345Buildings 466 4,667 57,333 100,767Less accumulated depreciation (23,608) (30,580)Property and equipment, net $ 33,725 $ 70,187

Assets under capital leases totaled approximately $0.4 million and $4.2 million as of September 30, 2016 and December31, 2015, respectively, and were included within the medical equipment and buildings component of net property and equipmentas of September 30, 2016 and December 31, 2015, respectively. Accumulated depreciation associated with these capital leaseassets totaled approximately $16,000 and $0.6 million as of September 30, 2016 and December 31, 2015, respectively.

NOTE 5—INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

Joint Venture with Dignity Health

On October 22, 2014, the Company announced its expansion into Arizona through a joint venture with Dignity Health,one of the nation’s largest health systems. The partnership started with Dignity Health Arizona General Hospital, a full-servicegeneral hospital facility in Laveen, Arizona, and includes providing for additional access to emergency medical care in thePhoenix area. As of September 30, 2016, the joint venture with Dignity Health in Arizona has eight freestanding emergencydepartments in Arizona.

Joint Venture with UCHealth

On April 21, 2015, the Company announced the formation of a joint venture with UCHealth to enhance access toemergency medical care in Colorado. The Company contributed the 12 existing freestanding emergency rooms it held inColorado and the related business associated with these facilities to the joint venture. The contribution of the controlling interestin these facilities and their operations was deemed a change of control for accounting purposes, and as such, the Companyrecorded a gain of $24.3 million on the contribution of the previously fully owned facilities in June 2015. As of September 30,2016, the joint venture had 18 freestanding facilities under the UCHealth partnership.

Pursuant to the terms of the joint venture agreement, the Company receives an annual preferred return up to a specifiedamount on its investment in the joint venture prior to proportionate distributions to the partners. Due to this preferred returnprovision within the joint venture agreement, this joint venture interest is considered a variable interest entity. Additional termswithin the agreement allow for certain decisions to be made in which the Company has determined that it does not have control.As such, the Company concluded that it is not the primary beneficiary of the VIE. Accordingly, the Company accounts for thisinvestment in joint venture under the equity method.

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Joint Venture with Ochsner Health System

In September 2015, the Company announced the formation of a new partnership with New Orleans-based OchsnerHealth System to enhance access to emergency medical care in Louisiana. The joint venture was to include multiple freestandingemergency department facilities and a hospital. This joint venture did not have operating facilities during the period endedSeptember 30, 2016, but did incur expenses related to preopening activities which are included in our equity in earnings of jointventures within the unaudited condensed consolidated statements of operations. Subsequent to September 30, 2016, the Companyhas taken steps to dissolve the joint venture with Ochsner Health Systems and has replaced that arrangement with a partnerservices agreement as described in Note 17 ( Subsequent Events ) below.

Joint Venture with Mount Carmel Health System

In February 2016, the Company announced its expansion into Ohio and a new partnership with Mount Carmel HealthSystem. The partnership will construct and operate freestanding emergency rooms in the Columbus area. This joint venture didnot have operating facilities during the period ended September 30, 2016, but did incur expenses related to preopening activitieswhich are included in our equity in earnings of joint ventures within the unaudited condensed consolidated statements ofoperations.

Joint Venture with Texas Health Resources

On May 11, 2016, the Company announced the formation of a new partnership with Texas Health Resources to enhanceaccess to emergency medical care in Dallas/Fort Worth. The Company contributed the 27 existing freestanding emergency roomsand one existing hospital it held in Dallas/Fort Worth and the related business associated with these facilities to the joint venture.

The contribution of the controlling interest in these facilities and their operations was deemed a change of control foraccounting purposes, and as such, the Company recorded a gain of $185.4 million on the contribution of the previously fullyowned facilities in June 2016. This gain is net of a $9.6 million reduction of the goodwill related to the business associated withthe facilities contributed to the joint venture.

Pursuant to the terms of the joint venture agreement, the Company receives an annual preferred return up to a specifiedamount on its investment in the joint venture prior to proportionate distributions to the partners. Due to this preferred returnprovision within the joint venture agreement and certain other provisions, this joint venture interest is considered a variableinterest entity. Additional terms within the agreement allow for certain decisions to be made in which the Company hasdetermined that it does not have control. As such, the Company concluded that it is not the primary beneficiary of the VIE.Accordingly, the Company accounts for this investment in joint venture under the equity method.

The Company accounts for each of these joint ventures under the equity method of accounting as an investment inunconsolidated joint ventures, as the Company’s level of influence is significant but does not reach the threshold of controllingthe entity.

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Summarized unaudited financial information for the Company’s equity method investees is as follows ( in thousands ):

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Total net operating revenue $ 81,643 $ 25,702 $ 173,254 $ 46,374Total operating expenses 90,353 21,603 175,530 40,629(Loss) income from operations $ (8,710) $ 4,099 $ (2,276) $ 5,745

September 30, December 31,Balance sheet information: 2016 2015Current assets $ 90,348 $ 25,646Noncurrent assets 54,615 36,154Current liabilities 86,156 20,774Noncurrent liabilities 10,007 1,637

Our investment in unconsolidated joint ventures consists of the following ( in thousands ):

September 30, December 31, 2016 2015Beginning balance $ 43,104 $ 2,100Share of (loss) income (3,521) 8,927Fair value of contributed businesses 225,541 36,277Distributions — (4,200)Investment in unconsolidated joint ventures $ 265,124 $ 43,104

NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the change in goodwill during the nine months ended September 30, 2016(in thousands) :

Balance at December 31, 2015 $ 61,009Adjustments (9,619)Balance at September 30, 2016 $ 51,390

See Note 5 ( Investment in Unconsolidated Joint Ventures ) for more information on adjustment to goodwill.

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The following table summarizes the change in intangible assets during the nine months ended September 30, 2016 (inthousands) :

Noncompete Trade Domain Agreements Names Names TotalBalance at December 31, 2015 $ 1,335 $ 9,300 $ 7,600 $ 18,235Additions — — — —Amortization (1,335) — — (1,335)Balance at September 30, 2016 $ — $ 9,300 $ 7,600 $ 16,900

NOTE 7—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company used an interest rate cap agreement with notional amount totaling $37.5 million to manage its exposurerelated to changes in interest rates on the Senior Secured Credit Facility. See Note 9 (Debt) for more information. This agreementhad the economic effect of capping the LIBOR variable component of the Company's interest rate at a maximum of 3.00% on anequivalent amount of the Company's Term Loan debt. The cap agreement did not contain credit-risk contingent features. InOctober 2015, the Company extinguished the debt related to the senior Secured Credit Facility, and reclassified losses of $0.1million from accumulated other comprehensive income into earnings. The interest rate cap agreement was terminated on January4, 2016. The Company has not engaged in hedging activity related to the New Credit Facility.

NOTE 8—ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts payable and accrued expenses consisted of the following (in thousands) :

September 30, December 31, 2016 2015Accounts payable $ 19,615 $ 13,600Accrued expenses 7,097 7,297Accrued tax distribution to LLC Unit holder 4,246 4,246Other 320 2,378Total accounts payable and accrued expenses $ 31,278 $ 27,521

NOTE 9—DEBTThe components of debt consisted of the following (in thousands) :

September 30, December 31, 2016 2015Term loan $ 118,750 $ 123,438Revolving credit 44,000 —Other financing agreements 805 1,388Total debt principal outstanding 163,555 124,826Deferred financing costs (3,175) (3,678) 160,380 121,148Less current maturities (7,055) (7,585) $ 153,325 $ 113,563

On October 31, 2013, the Company entered into a Senior Secured Credit Facility (the “Facility”) for a $75.0 millionterm loan which was set to mature on October 31, 2018. The Facility included an additional $165.0 million

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delayed draw term loan commitment, which expired in April 2015, and a $10.0 million revolving commitment that was set tomature on October 31, 2018. All of the Company's assets were pledged as collateral under the Facility. The borrowing under theFacility was used by the Company to provide financing for working capital, capital expenditures and for new facility expansionand replaced an existing credit facility.

On June 11, 2014, the Company amended the Facility to, among other things, provide for a borrowing under the delayeddraw term loan in an aggregate principal amount of up to $75.0 million, $60.0 million in principal amount of which was used tomake specified distributions and up to $10.0 million in principal amount which was used to repay certain revolving loans. OnJune 11, 2014, the Company drew $75.0 million and made the $60.0 million dividend distribution on June 24, 2014.

On April 20, 2015, the Company amended the Facility to, among other things, increase the maximum aggregate amountpermitted to be funded by MPT under the MPT Agreements to $500.0 million. In April 2015, the Company drew $30.0 million onthe delayed draw term loan prior to its expiration.

Borrowings under the Facility bore interest, at our option, at a rate equal to an applicable margin over (a) a base ratedetermined by reference to the highest of (1) the prime rate, (2) the federal funds effective rate plus 0.50% and (3) LIBOR for aninterest period of one month plus 1%, or (b) LIBOR for the applicable interest period. The margin for the Facility was 6.50% inthe case of base rate loans and 7.50% in the case of LIBOR loans. The Facility included an unused line fee of 0.50% per annumon the revolving commitment and delayed draw term loan commitment, a draw fee of 1.0% of the principal amount of eachborrowing on the delayed draw term loan and an annual Agency fee of $0.1 million.

On October 6, 2015, the Company entered into a senior secured credit facility (the “New Facility”) for a $125.0 millionterm loan and a $50.0 million revolving facility. The New Facility matures on October 6, 2020. The revolving credit facilityincludes a sub-limit of $15.0 million for letters of credit and a sub-limit of $5.0 million for swing line loans. In addition, the NewFacility contains an option to borrow up to an additional $50.0 million under certain conditions. All of the assets of theCompany’s subsidiaries are pledged as collateral under the New Facility, and such subsidiaries guarantee the New Facility.Borrowings under the New Facility replace the Company’s existing credit facility and will be used by the Company to providefinancing for working capital and capital expenditures.

On August 12, 2016, the Company amended the New Facility to increase availability under the revolving credit portionof that facility to $70.0 million. All other terms of the agreement remain the same.

Borrowings under the New Facility bear interest, at our option, at a rate equal to an applicable margin over (a) a baserate determined by reference to the highest of (1) the prime rate, (2) the federal funds effective rate plus 0.50% and (3) LIBOR foran interest period of one month plus 1%, or (b) LIBOR for the applicable interest period. The applicable margin for the NewFacility ranges, based on our consolidated net leverage ratio, from 2.25% to 3.00% in the case of base rate loans and from 3.25%to 4.00% in the case of LIBOR loans. The New Facility includes an unused line fee ranging, based on our consolidated netleverage ratio, from 0.40% to 0.50% per annum on the revolving commitment. The Company had $15.8 million available underthe revolving commitment at September 30, 2016, subject to certain debt covenants. During the three months ended September30, 2016, the Company made mandatory principal payments under the New Facility of $1.6 million.

The net carrying amount of deferred financing fees capitalized in connection with the New Facility were approximately$3.2 million and $3.7 million, respectively, as of September 30, 2016 and December 31, 2015, which are included as a deductionto long-term debt, less current maturities in the accompanying condensed consolidated balance sheets. Amortization expenserelated to the deferred financing fees was approximately $0.2 million, $0.3 million, $0.6 million, and $0.7 million for the threeand nine months ended September 30, 2016 and 2015. Amortization expense is included within interest expense in theaccompanying unaudited condensed consolidated statements of operations.

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The Facility contains certain affirmative covenants, negative covenants, and financial covenants which are measured ona quarterly basis. As of September 30, 2016, the Company was in compliance with all covenant requirements.

In 2016, the Company entered into a finance agreement totaling approximately $0.7 million to finance the renewal ofcertain insurance policies. The finance agreement has a fixed interest rate of 4.0% with principal being repaid over 10 months. InSeptember 2016, the Company entered into a security agreement totaling approximately $0.3 million for the purchase of medicalequipment. The security agreement contains a payment schedule requiring twelve monthly payments. In June 2015, the Companyentered into a twelve month finance agreement totaling approximately $0.8 million with a fixed interest rate of 3.5% to financethe renewal of certain insurance policies.

NOTE 10—TRANSACTIONS WITH RELATED PARTIESThe Company made payments for contractor services to various related-party vendors, which totaled approximately

$60,000, $32,000, $141,000 and $93,000 for the three and nine months ended September 30, 2016 and 2015, respectively.

NOTE 11—EMPLOYEE BENEFIT PLANS

The Company provides a 401(k) savings plan to all employees who have met certain eligibility requirements, includingperforming one month of service with the Company. The 401(k) plan permits discretionary matching employer contributions.During the nine months ended September 30, 2016 and 2015, the Company contributed approximately $1.7 million and $0.9million to the 401(k) plan for 2015 and 2014 matching contributions, respectively.

NOTE 12—COMMITMENTS AND CONTINGENCIESLitigation and Asserted Claims

The Company is a party to various legal proceedings arising in the ordinary course of business. While managementbelieves the outcome of pending litigation and claims will not have a material adverse effect on the Company's consolidatedfinancial condition, operations, or cash flows, litigation is subject to inherent uncertainties. See also Note 17 ( Subsequent Events).

Insurance Arrangements

The Company is self-insured for employee health benefits. Accruals for losses are provided based upon claimsexperience and actuarial assumptions, including provisions for incurred but not reported losses. At September 30, 2016 andDecember 31, 2015, the Company has an accrual of approximately $1.2 million and $0.8 million, respectively, for incurred butnot reported claims, which is included in accrued compensation within the condensed consolidated balance sheets.

The Company is insured for worker's compensation claims up to $1.0 million per accident and per employee with apolicy limit of $1.0 million. The Company submits periodic payments to its insurance broker based upon estimated payroll.Worker's compensation expense for the three and nine months ended September 30, 2016 and 2015 was approximately $36,000,$0.1 million, $0.2 million and $0.2 million, respectively. The Company is insured for professional liability claims up to$1.0 million per incident and $3.0 million per facility with an aggregate policy limit of $20.0 million.

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Leases

The Company leases certain medical facilities and equipment under various noncancelable operating leases. In June2013, the Company entered into an initial MPT Agreement (the “Initial MPT Agreement”) with an affiliate of Medical PropertiesTrust (“MPT”) to fund future facility development and construction.

In July 2014, the Company entered into an additional Master Funding and Development Agreement (the “AdditionalMPT Agreement” and, together with the Initial MPT Agreement, the “MPT Agreements”) with MPT to fund future newfreestanding emergency rooms and hospitals. This agreement is separate from and in addition to the Initial MPT Agreement. Allother material terms remain consistent with the Initial MPT Agreement.

The lessor to the MPT Agreement will acquire parcels of land, fund the ground-up construction of new freestandingemergency room facilities and lease the facilities to the Company upon completion of construction. Under the terms of the MPTAgreements, as amended, the lessor is to fund all hard and soft costs, including the project purchase price, closing costs andpursuit costs for the assets relating to the construction of a fixed number of facilities with a maximum aggregate funding of$500.0 million. Each completed project will be leased for an initial term of 15 years, with three 5-year renewal options. TheCompany follows the guidance in ASC 840, Leases , and ASC 810, Consolidation, in evaluating the lease as a build-to-suit leasetransaction to determine whether the Company would be considered the accounting owner of the facilities during the constructionperiod.

In addition to the MPT Agreements, the Company has entered into similar agreements with certain developers to fundand lead the development efforts on the construction of future facilities. As of September 30, 2016, the Company had totalreceivables of $10.7 million from the lessor under the MPT agreements and certain other developers for soft costs, such as titleand survey costs, attorneys’ fees and fees for third party consultants, incurred for facilities currently under development.

The Company leases approximately 80,000 square feet for its corporate headquarters. Lease expense associated with thislease was $0.2 million, $0.4 million, $0.9 million and $1.2 million for the three and nine months ended September 30, 2016 and2015, respectively. In November 2015, the Company extended the lease term through April 2021 for its corporate headquarters.

Future minimum lease payments required under noncancelable operating leases and future minimum, capital leasepayments as of September 30, 2016 were as follows (in thousands) :

Capital OperatingYears ending December 31, leases leases2016 (3 months) $ 22 $ 20,1222017 86 80,5432018 86 77,2292019 86 69,5292020 86 61,740Thereafter 49 703,082Total future minimum lease payments $ 415 $ 1,012,245Less: Amounts representing interest (37) Present value of minimum lease payments 378 Current portion of capital lease obligations 71 Long-term portion of capital lease payments $ 307

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Rent expense totaled approximately $7.0 million, $7.8 million, $24.9 million and $22.1 million for the three and ninemonths ended September 30, 2016 and 2015, respectively and is included as a component of other operating expenses within theunaudited condensed consolidated statements of operations. The Company has sublease agreements with the joint ventures inArizona, Colorado, Dallas/Fort Worth and Louisiana under which the Company subleases certain freestanding emergency roomfacilities, ground leases and equipment leases to the joint ventures. Under these agreements, the Company received $14.4million, $3.6 million, $27.4 million and $6.8 million during the three and nine months ended September 30, 2016 and 2015,respectively, as rental income which is accounted for as a reduction of rent expense.

Future rental income associated with the sublease agreements as of September 30, 2016 were as follows (in thousands):

RentalYears ending December 31, Income2016 (3 months) $ 13,2082017 52,9642018 50,8962019 45,7412020 40,458Thereafter 493,607Total future rental income $ 696,874

NOTE 13—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information and supplemental noncash activities consisted of the following for the nine monthsended September 30 (in thousands) :

September

30, September 30, 2016 2015

Supplemental cash flow information: Interest paid $ 4,966 $ 10,147Taxes paid 2,935 1,650Supplemental noncash activities: Assets acquired through capital lease 385 —Assets acquired through financing agreement 222 —Note payable for other financing agreements 729 818Contribution of assets to joint venture 32,741 12,027Effects of tax receivable agreement 51,371 —

NOTE 14—STOCK BASED COMPENSATION

In connection with the initial public offering, the Company’s Board of Directors adopted the Adeptus Health Inc. 2014Omnibus Incentive Plan (the “2014 Plan”). In May 2016, the Company’s stockholders approved the Amended and RestatedAdeptus Health Inc. 2014 Omnibus Incentive Plan (the “Amended and Restated Omnibus Plan”). The Amended and RestatedOmnibus Plan provides for the granting of stock options, restricted stock and other stock-based or performance-based awards todirectors, officers, employees, consultants and advisors of the Company and its affiliates. The total number of shares of Class Acommon stock that may be issued under the Omnibus Incentive Plan is 1,033,500. At September 30, 2016, 556,152 stock-basedawards had been issued under the Omnibus Incentive Plan and 477,348 stock-based awards remained available for equity grants.

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During the three months ended September 30, 2016, the Company issued 38,070 time-based restricted shares of Class Acommon stock. The fair value of the time-based restricted shares of Class A common stock issued during the three months endedSeptember 30, 2016 ranged from $42.61 to $52.26 per share, and these shares vest over a period of three years. The Company didnot issue any restricted shares of Class A common stock during the three months ended September 30, 2015.

During the nine months ended September 30, 2016 and 2015, the Company issued 152,560 and 149,741 time-basedrestricted shares of Class A common stock, respectively. The fair value of the time-based restricted shares of Class A commonstock issued during the nine months ended September 30, 2016 ranged from $42.61 to $56.92 per share, and these shares vestover a period of one to three years. The fair value of the time-based restricted shares of Class A common stock issued during thenine months ended September 30, 2015 ranged from $35.03 to $93.72 per share, and these shares vest over a period of six monthsto four years. In addition, the Company issued 209,748 performance-based restricted shares of Class A common stock during thenine months ended September 30, 2016. The fair value of the performance-based restricted shares of Class A common stockissued during the nine months ended September 30, 2016 ranged from $54.16 to $56.92 per share. The vesting of theseperformance-based shares is contingent upon meeting specified performance targets over a three year period.

The Company also has one legacy equity-compensation plan, under which it has issued agreements awarding incentiveunits (restricted units) in the Company to certain employees and non-employee directors. In conjunction with the ReorganizationTransactions, these restricted units were replaced with LLC Units with consistent restrictive terms. The restricted units are subjectto such conditions as continued employment, passage of time and/or satisfaction of performance criteria as specified in theagreements. The restricted units vest over 3 to 4 years from the date of grant. The Company used a waterfall calculation, based onthe capital structure and payout of each class of debt and equity, and a present value pricing model less marketability discount todetermine the fair values of the restricted units. The Company did not issue any incentive units under the legacy plan during thenine months ended September 30, 2016 and 2015.

The Company recorded compensation expense of $1.4 million, $0.8 million, $3.7 million and $1.8 million, adjusted forforfeitures, during the three and nine months ended September 30, 2016 and 2015, respectively, related to restricted units,restricted stock and stock options with time-based vesting schedules. Compensation expense for the value of the portion of thetime-based restricted unit that is ultimately expected to vest is recognized using a straight-line method over the vesting period,adjusted for forfeitures. No compensation expense was recorded during the three and nine months ended September 30, 2016related to restricted units with performance-based vesting criteria as vesting was not considered probable as of September 30,2016. On February 18, 2015, our Board of Directors accelerated the vesting of all performance-based units. As a result of thisacceleration, the Company recognized $0.1 million of stock-based compensation expense related to the restricted units withperformance-based vesting criteria for the nine months ended September 30, 2015.

As of September 30, 2016, $8.2 million of total unrecognized compensation costs for unvested awards, net of estimatedforfeitures, was expected to be recognized over a weighted average period of 2.0 years.

In May 2016, the Company’s stockholders approved the Adeptus Health Inc. Stock Purchase Plan (“ESPP”). Thepurpose of the ESPP is to afford eligible employees an opportunity to obtain a proprietary interest in the continued growth andprosperity of the Company through purchase of its common stock at a discount. An aggregate of 285,336 shares of Class Acommon stock have been reserved for issuance, of which 9,764 of the shares have been issued as of September 30, 2016. TheCompany expensed approximately $63,000 related to the ESPP discount during the three and nine months ended September 30,2016.

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NOTE 15—INCOME TAXES

The Company makes estimates and judgments in determining income tax expense for financial statement purposes.These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in thetiming of recognition of revenue and expense for tax and financial statement purposes.

The Company’s provision for income taxes in interim periods is based on our estimated annual effective tax rate. Theestimated annual effective tax rate calculation does not include the effect of discrete events that may occur during the year. Theeffect of these events, if any, is recorded in the quarter in which the event occurs.

The Company’s effective tax rate for the period differs from the statutory rates due primarily to state taxes that are notbased on pre-tax income/(loss) but on gross margin resulting in state tax expense with little relation to pre-tax income and even inperiods of pretax losses .

Tax Receivable Agreement

Upon the consummation of the Company’s initial public offering, the Company entered into a tax receivable agreementwith the LLC Unit holders after the closing of the offering that provides for the payment from time to time by the Company tothe LLC Unit holders of 85% of the amount of the benefits, if any, that the Company is deemed to realize as a result of increasesin tax basis and certain other tax benefits related to exchanges of LLC Units pursuant to the exchange agreement, including taxbenefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of theCompany; however, payments to LLC Unit holders will only be paid as tax benefits for the Company are realized. For purposesof the tax receivable agreement, the benefit deemed realized by the Company was computed by comparing its actual income taxliability (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to payhad there been no increase to the tax basis of the assets of Adeptus Health LLC as a result of the exchanges and had theCompany not entered into the tax receivable agreement. The step-up in basis will depend on the fair value of the LLC Units atconversion.

As of September 30, 2016, the Company has recorded an estimated payable pursuant to the tax receivable agreementof $237.9 million related to exchanges of LLC Units in connection with public offerings and other exchanges that are expectedto give rise to certain tax benefits in the future. NOTE 16—NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed by dividing the net (loss) income by the weighted average number ofcommon shares outstanding during the period. Diluted net (loss) income per share is computed by using the weighted averagenumber of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect ofoutstanding stock options and restricted stock using the treasury stock method.

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The following table sets forth the computation of basic and diluted net (loss) income per common share ( in thousands,except share and per share data ):

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Numerator Net (loss) income attributable to Adeptus Health Inc. $ (8,094) $ 674 $ 83,386 $ 11,902 Denominator: Denominator for basic net income per Class A common share-weightedaverage shares 16,371,261 13,236,064 15,252,983 11,377,557

Effect of dilutive securities: Restricted shares — — — —

Denominator for diluted net (loss) income per Class A common share-weighted average shares 16,371,261 13,236,064 15,252,983 11,377,557

Net (loss) income attributable to Adeptus Health Inc. per Class A commonshare - Basic $ (0.49) $ 0.05 $ 5.47 $ 1.05

Net (loss) income attributable to Adeptus Health Inc. per Class A commonshare - Diluted $ (0.49) $ 0.05 $ 5.47 $ 1.05

The shares of Class B common stock do not share in the earnings or losses of Adeptus Health Inc. and are therefore notparticipating securities. Accordingly, basic and diluted net loss per share of Class B common stock has not been presented.

NOTE 17—SUBSEQUENT EVENTS

Partner Services Agreement with Ochsner Health System

In October 2016 the Company entered into a partner services agreement with New Orleans-based Ochsner HealthSystem to enhance access to emergency medical care in Louisiana. The partner services agreement will replace the previouslyannounced joint venture with Ochsner Health System, which is in the process of being dissolved. The partner services agreementwill include the development and operation of multiple freestanding emergency department facilities. It will not involve thedevelopment or operation of a hospital.

Under the partner services agreement the Company will provide network development services, including thepreparation of initial capital and operating budgets, identification of suggested locations, and the provision of necessary capitalfor the initial build-out of the freestanding emergency department facilities. In addition, the Company will provide managementservices for the freestanding emergency department facilities developed pursuant to the partner services agreement. Additionally,the Company receives a stipend for facilitating the provision of physicians to the freestanding emergency department facilities.

As compensation under the partner services agreement, the Company will receive both network development fees andmanagement services fees. On October 11, 2016, Ochsner Health System opened the first facility under the partner servicesagreement with the Company, which is located in Marrero, Louisiana. One facility is expected to be opened pursuant to thepartner services agreement by December 31, 2016.

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Amendments to New Facility

On November 1, 2016, the Company entered into further amendments under its New Facility to add $25.0 million ofadditional availability under the term loan portion of the facility and $5.0 million of additional availability under the revolvingcredit portion of the facility, on top of the $20.0 million of incremental availability under the revolving credit portion of thefacility secured in an amendment entered into on August 12, 2016.

The applicable margin for the incremental amount of the term loan shall be 4.25% per annum in the case of anyEurodollar rate loan and 3.25% per annum in the case of any base rate loan, provided that the applicable margin shall increase byan additional .50% per annum on the first day of each month after the effective date of the incremental term loan amendment,commencing on January 1, 2017. Up to $15.0 million of the incremental amount of the term loan (the “ First Drawing ”) shall beavailable on a single date (the “ Initial Drawing Date ”) not earlier than December 1, 2016, but prior to December 31, 2016, andup to $10.0 million of the incremental amount of the term loan (the “ Second Drawing ”) shall be available on a single date (the “Second Drawing Date ”) not earlier than December 15, 2016, but prior to January 14, 2017, in each case, on the terms andconditions set forth in the incremental term loan amendment to the Senior Secured Credit Facility. Funding of the First Drawingis subject to, among other conditions, (i) administrative agent’s receipt of satisfactory evidence not later than December 1, 2016that the Company has established a system of cash flow reporting pursuant to which the Company shall furnish to theadministrative agent a consolidated weekly forecast of cash availability and utilization covering a period of at least the 13 fullweeks immediately following the week during which such forecast is furnished (a “ Cash Flow Forecast ”), such Cash FlowForecast to have been established and provided to the lenders, (ii) the Company shall have retained and made available to thelenders a liquidity consultant by no later than December 1, 2016, (iii) the Company shall have received at least $27.5 million innet proceeds from an issuance of non-cash pay preferred stock and (iv) no loan party shall have incurred or contracted to incurindebtedness that is guaranteed by a subsidiary that is not a guarantor under the credit facility or secured by a lien on any assetsnot constituting collateral for the incremental term loans or the collateral that ranks pari passu with, or senior to, the liens thatsecure the indebtedness under the credit facility. Funding of the Second Drawing is subject to the same conditions applicable tothe First Drawing, plus the following additional conditions: (i) the administrative agent and the lenders under the incrementalterm loan shall be reasonably satisfied that the results of any Cash Flow Forecast that has been delivered for each of the fourweeks preceding the Second Drawing Date shall not vary by more than 15% with respect to the results of any other Cash FlowForecast delivered during such time, (ii) the administrative agent and the lenders under the incremental term loan shall bereasonably satisfied that the Cash Flow Forecast delivered on the Friday immediately prior to the Second Drawing reflects apositive 13-week cash balance forecast and (iii) the administrative agent and lenders shall have received satisfactory evidence thatthe borrower under the incremental term loan has at least $50.0 million cash on hand at the time of (but without giving effect to)the Second Drawing, and, to the extent any such cash shall have been received from proceeds of any issuance of anyindebtedness, the ratio of (x) the aggregate principal amount of proceeds received from the issuance of any and all equity interestssubsequent to the effective date of the incremental term loan amendment to the credit facility to (y) the aggregate principalamount of proceeds received from the issuance of all such indebtedness subsequent to the effective date of the incremental termloan amendment to the credit facility shall be at least 1.35:1.00. The Company will also pay to the lenders providing theincremental term loan under the New Facility certain customary fees, including a ticking fee in an amount equal to 0.50%multiplied by the aggregate amount of incremental term loans, that will be payable beginning on January 1, 2017 and the first dayof each month thereafter. To the extent the all-in-yield paid to the lenders providing the incremental term loans exceeds the all-in-yield paid to the other lenders by more than 0.50% the applicable margin on the loans of such other lenders shall increase bysuch excess. All other material terms of the New Facility remain the same.

Committed Equity Investment

On October 31, 2016, the Company entered into an agreement with funds affiliated with Sterling Partners, co-foundersRick Covert, the vice chairman of the Company’s board of directors, and Dr. Jack Novak, and Thomas S. Hall, the Company’schief executive officer (collectively, the “Investors”) pursuant to which the Investors have committed, severally and not jointly, tosubscribe for up to 27,500 shares of Series A Preferred Stock at a purchase price of $1,000

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per share, for an aggregate purchase price of $27.5 million. The issuance of the Series A Preferred Stock has been approved bythe board of directors of the Company upon the recommendation of a special committee of independent directors. The Investors’commitment is subject to the entry by the Company and them of a definitive securities purchase agreement and the execution anddelivery of a definitive agreement providing for at least $30.0 million in incremental term loans, revolving credit loans or acombination thereof under the New Facility.

On November 7, 2016, the Company issued and sold 21,893 shares of Series A Preferred Stock to the Investors at apurchase price of $1,000 per share, for an aggregate purchase price of $21.9 million pursuant to a securities purchase agreemententered into on the same date.

The Series A Preferred Stock is a newly authorized series of non-convertible, non-voting cumulative redeemablepreferred stock of the Company designated pursuant to a certificate of designation filed on November 4, 2016 with the Secretaryof State for the State of Delaware. When and as declared by the Board of Directors, the Company shall pay preferential dividendsin cash to the holders of the Series A Preferred Stock with respect to each Dividend Period (as defined). Dividends on each shareof Series A Preferred Stock shall accrue on a daily basis, commencing on the date of issuance, at the rate of 8.0% per annum onthe sum of $1,000 plus all accumulated and unpaid dividends thereon (the “Liquidation Value”) and shall be payable on aquarterly basis on March 15, June 15, September 15 and December 15, commencing on March 15, 2017. Such dividends shallaccumulate whether or not they have been declared and whether or not there are profits, surplus or other funds of the Companylegally available for the payment of dividends. All accumulated and unpaid dividends shall be fully paid or declared before anydividends, distributions, redemptions or other payments may be made with respect to any of the Company’s common stock orother securities ranking junior to the shares of Series A Preferred Stock (“Junior Stock”). The holders of the shares of Series APreferred Stock will not be entitled to any dividends except as provided in the certificate of designation.

Upon any liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock will beentitled to be paid, before any distribution or payment is made upon any Junior Stock, an amount in cash equal to the aggregateLiquidation Value of all shares of Series A Preferred Stock held by such holder, and the holders of Series A Preferred Stock shallnot be entitled to any further payment.

The Series A Preferred Stock are non-voting and are not convertible into the Company’s common stock.

Within 30 days following a “Change of Control” (as defined in the certificate of designation), any holder of shares ofSeries A Preferred Stock will have the right upon three business days’ notice to the Company to require the Company to redeemall or a portion of the shares of Series A Preferred Stock of such holder. Such redemption will be at a purchase price equal to thethen-current Liquidation Value.

The Company will have the right to redeem the Series A Preferred Stock upon three business days’ notice to the holders.Such redemption will be at a purchase price equal to: (i) 104.0% of the Liquidation Value at any time prior to the first anniversaryof the issuance of the Series A Preferred Stock; (ii) 102.0% of the Liquidation Value at any time on or after the first anniversaryof the issuance of the Series A Preferred Stock and prior to the second anniversary of the issuance of the Series A PreferredStock; or (iii) 100.0% of the Liquidation Value at any time on or after the second anniversary of the issuance of the Series APreferred Stock.

On the tenth anniversary of the issuance of the Series A Preferred Stock, any remaining shares of theSeries A Preferred Stock outstanding shall be redeemed by the Company at a price per share equal to the then-current Liquidation Value. Until the third anniversary of the issuance of the Series A Preferred Stock, the SeriesA Preferred Stock may not be transferred, except in certain circumstances specified in the certificate ofdesignation.

At such time as the Company reports Adjusted EBITDA (as such term is defined and calculated pursuant to theCompany’s earnings release for the second quarter of 2016) of $125.0 million or more (on a trailing twelve-month basis)

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for two consecutive fiscal quarters, the Company shall, subject to compliance with its credit agreements, use commerciallyreasonable efforts (as determined by the Company’s board of directors in its sole discretion) to effectuate one or more refinancingtransactions resulting in the redemption of all of the outstanding shares of Series A Preferred Stock pursuant to the redemptionprovisions described in the second preceding paragraph, provided that regardless of the redemption date, the redemption price pershare shall be equal to the Liquidation Value of such share.

The approval of holders of a majority of the outstanding shares of Series A Preferred Stock shall be required for (i) theissuance by the Company of any series of capital stock ranking senior to the Series A Preferred Stock with respect to thedistribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends or rights ofredemption, (ii) the incurrence by the Company or any of its subsidiaries of new indebtedness (excluding non-recourseindebtedness) in excess of $400.0 million in the aggregate or (iii) the amendment, alteration or repeal of any provision of thecertificate of designation in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock.

Securities Litigation

On October 27, 2016, a purported securities class action complaint was filed by the Oklahoma Law EnforcementRetirement System against the Company in the United States District Court for the Eastern District of Texas. The complaint alsonames as defendants, among others, the members of the Company’s board of directors, Sterling Partners and the joint book-running managers in the Company’s secondary public offering of shares of its Class A common stock completed in July 2015 (the“SPO”). The lawsuit is purportedly filed on behalf of all persons similarly situated and alleges material misstatements andomissions in the registration statement relating to the SPO and in the Company’s SEC filings and other corporate reports andpublic announcements in violation of the federal securities laws. The action seeks rescission of the SPO and an award of the costsand attorneys’ fees, accountants’ fees and experts’ fees of the litigation on behalf of all purchasers of the Company’s shares ofClass A common stock in the SPO under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The action alsoseeks monetary damages and an award of the costs and attorneys’ fees, accountants’ fees and experts’ fees of the litigation onbehalf of open market purchasers of the Company’s shares of Class A common stock between April 23, 2015 and November 16,2015 under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgatedthereunder. The Company believes that the claims are without merit and intends to vigorously defend the action.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial position should be read in conjunction with the respectivecondensed consolidated financial statements and related footnotes of Adeptus Health Inc. included in Part I of this QuarterlyReport on Form 10-Q, as well as our consolidated audited financial statements and related notes included in our 2015 AnnualReport on Form 10-K. This discussion contains forward-looking statements that are subject to known and unknown risks anduncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those discussed in the section herein entitled “Forward LookingStatements” and in the section of the 2015 Annual Report on Form 10-K entitled Part I, "Item 1.A. Risk Factors.”

Overview

We are a patient-centered healthcare organization providing emergency medical care through the largest network offreestanding emergency rooms in the United States and partnerships with premier healthcare providers. We own and operate FirstChoice Emergency Room in Texas, and operate a hospital and freestanding facilities in partnership with Texas Health Resourcesin Texas and a hospital and UCHealth Emergency Rooms in partnership with University of Colorado Health inColorado. Together with Dignity Health, we also operate Dignity Health Arizona General Hospital and freestanding emergencydepartments in Arizona. Adeptus Health is the largest and oldest network of freestanding emergency rooms in the United States.We have experienced rapid growth in recent periods, growing from 14 freestanding facilities at the end of 2012 to 97 freestandingfacilities and three fully licensed general hospitals at September 30, 2016. We own and/or operate facilities currently located inthe Houston, Dallas/Fort Worth, San Antonio and Austin, Texas markets, as well as in the Colorado Springs and Denver,Colorado and Phoenix, Arizona markets. In the Arizona, Dallas/Fort Worth and Colorado markets, each of the freestandingfacilities are outpatient departments of the hospitals in those markets. On October 11, 2016, we opened our first hospital in theHouston market, allowing conversion of 23 of our 28 freestanding emergency rooms to outpatient departments of the hospital. Asof September 30, 2016, 79.4% of our freestanding emergency departments have been converted to Hospital OutpatientDepartments (“HOPDs”). A key benefit of the conversion to HOPD is that our HOPD facilities can bill government payors,including Medicare, Medicaid and Tricare, commercial payors and private pay patients in addition to offering an expanded suiteof services and access to new markets.

Since our founding in 2002, our mission has been to address the need within our local communities for immediate andconvenient access to quality emergency care in a patient-friendly, cost-effective setting. We believe we are transforming theemergency care experience with a differentiated and convenient care delivery model which improves access, reduces wait timesand provides high-quality clinical and diagnostic services on-site. Our facilities are fully licensed and provide comprehensive,emergency care with an acuity mix that we believe is comparable to hospital-based emergency rooms.

Initial Public Offering

On June 30, 2014, we completed our initial public offering of 5,321,414 shares of our Class A common stock at a priceto the public of $22.00 per share and received net proceeds of approximately $96.2 million, after deducting underwritingdiscounts and commissions and offering expenses. We used the net proceeds from the initial public offering to purchase limitedliability company units of Adeptus Health LLC, or LLC Units, from Adeptus Health LLC. Adeptus Health LLC used the proceedsit received as a result of our purchase of LLC Units to cause First Choice ER, LLC to reduce outstanding borrowings under itssenior secured credit facility, to make a $2.0 million one-time payment to an affiliate of a significant stockholder in connectionwith the termination of an advisory services agreement and for general corporate purposes. An additional 313,586 shares werealso sold by an affiliate of a significant stockholder.

Secondary Offerings

On May 11, 2015, we completed a public offering of 1,572,296 shares of our Class A common stock at a price to thepublic of $63.75 per share and received net proceeds of approximately $94.5 million, after deducting underwriting discounts andcommissions and offering expenses. We used the net proceeds from the offering to purchase, for cash,

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1,572,296 LLC Units. As such, the Company did not receive benefit from the net proceeds. An additional 842,704 shares werealso sold by an affiliate of a significant stockholder.

On July 29, 2015, we completed a public offering of 2,645,277 shares of our Class A common stock at a price to thepublic of $105.00 per share and received net proceeds of approximately $265.9 million, after deducting underwriting discountsand commissions and offering expenses. We used the net proceeds from the offering to purchase, for cash, 2,645,277 LLC Units.As such, the Company did not receive benefit from the net proceeds. An additional 1,264,723 shares were also sold by an affiliateof a significant stockholder.

On June 8, 2016, we completed a public offering of 1,774,219 shares of our Class A common stock at a price to thepublic of $62.00 per share and received net proceeds of approximately $107.4 million, after deducting underwriting discounts andcommissions and offering expenses. We used the net proceeds from the offering to purchase, for cash, 1,774,219 LLC Units. Assuch, the Company did not receive benefit from the net proceeds. An additional 1,043,281 shares were also sold by an affiliate ofa significant stockholder.

First Texas Hospital CyFair

On October 11, 2016, the Company opened a full-service hospital facility in Houston, Texas. The hospital received itsDepartment of Health and Human Services’ Centers for Medicare and Medicaid Services, (“CMS”) certification from the JointCommission on October 11, 2016. CMS certification allows us to receive reimbursement for services provided to Medicare andMedicaid patients of the hospital as well as 23 of 28 of our freestanding emergency rooms, which became outpatient departmentsof First Texas Hospital CyFair on October 11, 2016, and thus the hospital and these freestanding emergency rooms which becameoutpatient departments are required to comply with additional federal and state regulatory schemes. First Texas Hospital CyFair isa full-service healthcare hospital facility, licensed by the state as a general hospital. Spanning 77,000 square feet, the hospital has50 inpatient rooms, three operating rooms for inpatient and outpatient surgical procedures, an emergency department, a high-complexity laboratory and a full radiology suite. In August 2016, as part of the planned conversion to HOPD’s, the Companyclosed one facility due to its physical proximity to the new hospital.

Joint Venture with Dignity Health

On October 22, 2014, we announced our expansion into Arizona through a joint venture with Dignity Health, one of thenation’s largest health systems. As of September 30, 2016, the partnership includes Dignity Health Arizona General Hospital, afull-service healthcare hospital facility in Phoenix Arizona and eight freestanding emergency departments. The hospital receivedits CMS certification from the Joint Commission on January 30, 2015. CMS certification allows us to receive reimbursement forservices provided to Medicare and Medicaid patients of the hospital. Dignity Health Arizona Health Hospital is a full-servicehospital facility, licensed by the state as a general hospital. Spanning 39,000 square feet, the hospital has 16 inpatient rooms, twooperating rooms for inpatient and outpatient surgical procedures, an emergency department, a high-complexity laboratory and afull radiology suite. Patients have full access to the Dignity Health area facilities and physicians, and the hospital providesPhoenix-area residents with 24/7 access to emergency medical care.

Joint Venture with University of Colorado Health

On April 21, 2015, we announced a new partnership with University of Colorado Health, or UCHealth, to improveaccess to high-quality and convenient emergency medical care in Colorado. Under the partnership, UCHealth holds a majoritystake in the freestanding emergency rooms throughout Colorado Springs, northern Colorado and the Denver metro area. TheCompany contributed the 12 existing freestanding emergency rooms it held in Colorado, which have since been rebranded asUCHealth emergency rooms, and the related business associated with these facilities to the joint venture. The partnership will alsoinclude hospital locations planned for Colorado Springs and Denver.

Joint Venture with Ochsner Health System

In September 2015, the Company announced the formation of a new partnership with New Orleans-based OchsnerHealth System to enhance access to emergency medical care in Louisiana. The joint venture was to include

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multiple freestanding emergency department facilities and a hospital. This joint venture did not have operating facilities duringthe period ended September 30, 2016, but did incur expenses related to preopening activities which are included in our equity inearnings of joint ventures within the unaudited condensed consolidated statements of operations. The joint venture is in theprocess of being dissolved and has been replaced with a partner services agreement as described below.

Partner Services Agreement with Ochsner Health System

In October 2016 the Company entered a partner services agreement with New Orleans-based Ochsner Health System toenhance access to emergency medical care in Louisiana. The partner services agreement will replace the previously announcedjoint venture with Ochsner Health System, which is in the process of being dissolved. The partner services agreement willinclude the development and operation of multiple freestanding emergency department facilities. It will not involve thedevelopment or operation of a hospital.

Under the partner services agreement the Company will provide network development services, including the preparationof initial capital and operating budgets, identification of suggested locations, and the provision of necessary capital for the initialbuild-out of the freestanding emergency department facilities. In addition, the Company will provide management services forthe freestanding emergency department facilities developed pursuant to the partner services agreement. Additionally, theCompany receives a stipend for facilitating the provision of physicians to the freestanding emergency department facilities.

As compensation under the partner services agreement, Company will receive both a network development fee and amanagement services fee. On October 11, 2016, Ochsner Health System opened the first facility under the partner servicesagreement with the Company, which is located in Marrero, Louisiana. One to two additional facilities are expected to be openedpursuant to the partner services agreement by December 31, 2016.

The Company expects that the majority of its development activity going forward will be executed under the partner modelrepresented by its partner services agreement with Ochsner Health System. The Company believes that this partner model willallow it to grow at an accelerated rate without the significant demands for capital experienced in the past under its joint venturearrangements.

Joint Venture with Mount Carmel Health System

In February 2016, the Company announced expansion into Ohio and a new partnership with Mount Carmel HealthSystem. The partnership will include freestanding emergency rooms in the Columbus, Ohio market.

Joint Venture with Texas Health Resources

On November 4, 2015, the Company opened a full-service hospital facility in Carrollton, Texas, a suburb of theDallas/Fort Worth Metroplex. This facility received its CMS certification from the Joint Commission on November 4, 2015. CMScertification allows us to receive reimbursement for services provided to Medicare and Medicaid patients of the hospital and itsfreestanding emergency departments in the Dallas/Fort Worth market. First Texas Hospital is a full-service healthcare hospitalfacility, licensed by the state as a general hospital. Spanning 77,000 square feet, the hospital has 50 inpatient rooms, threeoperating rooms for inpatient and outpatient surgical procedures, an emergency department, a high-complexity laboratory and afull radiology suite.

On May 11, 2016, the Company announced the formation of a new partnership with Texas Health Resources (“THR”) toenhance access to emergency medical care in Dallas/Fort Worth. The Company contributed First Texas Hospital and the 27existing freestanding emergency rooms it held in Dallas/Fort Worth and the related business associated with these facilities to thejoint venture. Under the joint venture, THR will hold a majority interest in these facilities. The contribution of these facilitiesand their operations was deemed a change of control for accounting purposes, and as such, the Company recorded a gain of$185.4 million on the contribution of the previously fully owned facilities in May 2016. This gain is net of a $9.6 millionreduction of the goodwill related to the business associated with the facilities contributed to the joint venture.

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We may not consolidate the financial results of the operations of any particular joint venture. While revenues fromunconsolidated joint ventures are not recorded as revenues by us for GAAP reporting purposes, equity in earnings of jointventures could be a significant portion of our overall earnings. The Company has contracts to manage the facilities, whichresults in the Company having an active role in the operations of the facilities and devoting a significant portion of its corporateresources to the fulfillment of these management responsibilities for which the Company receives a management fee.Additionally, the Company receives a stipend for providing physicians to the facilities within each joint venture.

Industry Trends

The emergency room remains a critical access point for millions of Americans who experience sudden serious illness orinjury in the United States each year. The availability of that care is under pressure and threatened by a wide range of factors,including shrinking capacity and an increasing demand for services. According to AHA, from 1992 to 2012, the number ofemergency room visits increased by 46.7%, while the number of emergency departments decreased by 11.4%. The number ofemergency room visits exceeded 130 million in 2012, or approximately 247 visits per minute.

Factors affecting access to emergency care include availability of emergency departments, capacity of emergencydepartments, and availability of staffing in emergency departments. ACEP's National Report Card on U.S. emergency care ratesthe access to emergency care category with a near-failing grade of "D-" and a grade of "D+" for the overall emergency roomsystem. As the largest operator of freestanding emergency rooms, we believe we are an essential part of the solution, providingaccess to high-quality emergency care and offering a significantly improved patient experience.

Key Revenue Drivers

Our revenue growth is primarily driven by facility expansion, increasing patient volumes and reimbursement rates.

Facility Expansion

We add new facilities based on capacity, location, demographics and competitive considerations. We expect the newfacilities we open to be the primary driver of our revenue growth. Our results of operations have been and will continue to bematerially affected by the timing and number of new facility openings and the amount of new facility opening costs incurred. Anew facility builds its patient volumes over time and, as a result, generally has lower revenue than our more mature facilities. Anew facility generally takes up to 12 months to achieve a level of operating performance comparable to our similar existingfacilities.

Patient Volume

We generate revenue by providing emergency care to patients based upon the estimated amounts due from commercialinsurance providers, patients and other third-party payors. Revenue per treatment is sensitive to the mix of services used intreating a patient. Our patient volumes are directly correlated to our new facility openings, our targeted marketing efforts andexternal factors such as severity of annually recurring viruses that lead to increases in patient visits. Revenue is recognized whenservices are rendered to patients.

Patient volume is supported through marketing programs focused on educating communities about the convenient andhigh-quality emergency care we provide. Through our targeted marketing campaigns, which include direct mail, radio, television,outdoor advertising, digital and social media, we aim to increase our patient volumes by reaching a broad base of potentialpatients in order to increase brand awareness. We also have a dedicated field marketing team that works to educate localcommunities in which we operate about the access and care available at our facilities. Our dedicated field marketing team targetsspecific audiences by attending local chamber of commerce meetings, meeting with primary care physicians and visiting withschool nurses and athletic directors, in order to increase patient volumes within a facility's local community.

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Our patient volume is also influenced by local market conditions, such as weather, economy, etc., that may be beyondour direct control, as well as, seasonal conditions. These seasonal conditions include the timing, location and severity ofinfluenza, allergens and other annually recurring viruses, which at times leads to severe upper respiratory concerns. Patientvolume is impacted by HOPD status; sites that are outpatient departments of hospitals are able to be reimbursed for all insuranceincluding Medicare, Medicaid and Tricare as well as commercial insurance. Further, in markets where we have partners the localbrand and its marketing support impacts patient volume.

Reimbursement Rates and Acuity Mix

The majority of our net patient revenue is derived from patients with commercial health insurance coverage. Thereimbursement rates set by third-party payors tend to be higher for higher acuity visits, reflecting their higher complexity. TheAmerican College of Emergency Physicians establishes a scale of acuity, where cases rated 3-5 should be seen in an emergencysetting. Approximately 93% of our patients have an acuity level of 3 or greater. Consistent with billing practices at all emergencyrooms and in light of the fact our facilities are open 24 hours a day, seven days a week and staffed with Board-certifiedphysicians, we bill payors a facility fee, a professional services fee and other related fees. The reimbursement rates we have beenable to negotiate have held relatively stable; however, the mix of both acuity and payors can vary period to period, changing theoverall blended reimbursement rate. With select payors, we have the ability to make annual increases in our billed amounts.

Seasonality

Our patient volumes are sensitive to seasonal fluctuations in emergency activity. Typically, winter months see a higheroccurrence of influenza, bronchitis, pneumonia and similar illnesses; however, the timing and severity of these outbreaks can varydramatically. Additionally, as consumers shift towards high deductible insurance plans, they are responsible for a greaterpercentage of their bill, particularly in the early months of the year before other healthcare spending has occurred, which may leadto an increase in bad debt expense during that period. Our quarterly operating results may fluctuate significantly in the futuredepending on these and other factors.

Sources of Revenue by Payor

We receive payments for services rendered to patients from third-party payors or from our patients directly, as describedin more detail below. Generally, our revenue is determined by a number of factors, including the payor mix, the number andnature of procedures performed and the rate of payment for the procedures.

Patient service revenue before the provision for bad debt by major payor source for the periods indicated is as follows(in thousands) :

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Commercial $ 62,388 $ 98,021 $ 277,502 $ 291,832Self-pay 4,900 1,442 15,779 5,433Medicaid 1,083 471 5,488 869Medicare 535 125 3,710 271Other 1,268 1,195 2,578 3,114Patient Service Revenue 70,174 101,254 305,057 301,519Provision for bad debt (8,358) (17,907) (52,084) (50,365)Net Revenue $ 61,816 $ 83,347 $ 252,973 $ 251,154

Four major third-party payors accounted for 78.4%, 85.4%, 80.2% and 85.5%, of our patient service revenue for thethree and nine months ended September 30, 2016 and 2015, respectively. These same payors also accounted for 76.2% and 65.9%of our accounts receivable as of September 30, 2016 and December 31, 2015, respectively.

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The following table presents a breakdown by major payor source of the percentage of patient service revenues for the periodsindicated:

Three months ended Nine months ended September 30, September 30,

2016 2015 2016 2015 Payor: United HealthCare 31.0 % 31.2 % 29.8 % 29.7 % Blue Cross Blue Shield 17.6 21.8 21.1 22.7 Aetna 15.4 18.8 15.8 19.4 Cigna 14.4 13.6 13.5 13.7 Other 19.3 14.0 16.8 14.1 Medicaid/Medicare 2.3 0.6 3.0 0.4 100.0 % 100.0 % 100.0 % 100.0 %

Third-Party Payors

Third-party payors include health insurance companies as well as related payments from patients for deductibles and co-payments and have historically comprised the vast majority of our patient service revenue. We enter into contracts with healthinsurance companies and other health benefit groups by granting discounts to such organizations in return for the patient volumethey provide.

Most of our commercial revenue is attributable to contracts where a fee is negotiated relative to the service provided atour facilities. Our contracts are structured as either case-rate contracts or as discounts to billed charges. In a case rate contract, aset fee is assigned to visits based on acuity level. We also enter into contracts with payors based on a discount of our billedcharges. There are contracted rates for both the professional component and the technical component. Each portion of the claim isbilled separately and paid based on the patient's emergency room benefits received.

Freestanding emergency room facilities, like hospital emergency rooms, are full-service emergency rooms licensed bythe states of Texas, Colorado and Arizona. As such, we collect the emergency room benefits based on a patient's specificinsurance plan. Additionally, Texas insurance law provides that all fully funded insurance plans should pay all emergency claimsat the in-network benefit rate, regardless of the provider's contract status.

Self-Pay

Self-pay consists of out-of-pocket payments for treatments by patients not otherwise covered by third-party payors. Forthe three and nine months ended September 30, 2016 and 2015, self-pay payments accounted for 7.0%, 1.4%, 5.6% and 1.8% ofour patient service revenue, respectively.

Charity Care

Our facilities treat all patients that require emergency medical care. Charity care consists of the write-off of all chargesassociated with patients who are treated but do not have commercial insurance or the ability to self-pay. For the three and ninemonths ended September 30, 2016 and 2015, charity care write-offs represented 16.9%, 12.2%, 6.5% and 10.0%, of our patientservice revenue, respectively.

Key Performance Measures

The key performance measures we use to evaluate our business focus on the number of patient visits, or patient volume,same-store revenue and Adjusted EBITDA. As a result of our strategy of partnering with Dignity Health in Arizona, University ofColorado Health in Colorado and THR in Dallas/Fort Worth, we review unconsolidated facility

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revenues and also manage our facilities utilizing certain supplemental systemwide growth metrics, including systemwide same-store revenue, systemwide net patient services revenue and systemwide patient volume. Approximately one year ago, weconverted our facilities in the Dallas/Fort Worth Market to HOPDs. We have actively transitioned our business from a non-HOPD business to a HOPD business and approximately 79.4% of our freestanding facilities are HOPDs at September 30, 2016.On September 20, our Denver hospital received CMS certification, allowing us to convert our 12 UCHealth freestanding ERs toHOPDs. On October 11, 2016, First Texas Hospital in Houston received CMS certification, allowing us to convert 23 of our 28freestanding ERs to HOPDs. As of November 1, 2016, 79% of our freestanding facilities are HOPDs.

Patient Volume

We utilize patient volume to forecast our expected net revenue and as a basis by which to measure certain costs of thebusiness. We track patient volume at the facility level. The number of patients we treat is influenced by factors we control andalso by conditions that may be beyond our direct control. See "—Key Revenue Drivers."

Systemwide Net Patient Services Revenue

The revenues and expenses of equity method facilities are not directly included in our consolidated GAAP results. Onlythe (i) Company’s share of the income generated from its non-controlling equity investment in one full-service healthcare hospitalfacility and eight freestanding emergency rooms in Arizona, (ii) the Company’s preferred return and its share of the incomegenerated from its non-controlling equity investments in one hospital and 18 freestanding emergency rooms in Colorado and onehospital and 32 freestanding facilities in Dallas/Fort Worth, and (iii) its share of the income generated from its non-controllingequity investment in the development activity associated with our joint ventures with Ochsner Health System in Louisiana(through September 30, 2016) and Mount Carmel Health System in Ohio is reported on a net basis in the line item equity inearnings of unconsolidated joint ventures. Because of this, management supplementally focuses on non-GAAP systemwideresults, which measure results from all our facilities, including revenues from our consolidated facilities and our equity methodfacilities (without adjustment based on our percentage of ownership). Systemwide net patient services revenue is a non-GAAPmeasure of our financial performance, as it includes revenue from our unconsolidated facilities as if they were consolidated, andshould not be considered as an alternative to net patient service revenue as a measure of financial performance, or any otherperformance measure derived in accordance with GAAP. We believe the presentation of systemwide net patient service revenueprovides supplemental information regarding our financial performance as it includes revenue earned by all of our affiliatedfacilities, regardless of consolidation. Subsequent to September 30, 2016, the Company has taken steps to dissolve the jointventure with Ochsner Health Systems and has replaced that arrangement with a partner services agreement as described under “—Overview—Joint Venture with Ochsner Health System,” “—Partner Services Agreement with Ochsner Health System” and inNote 17 ( Subsequent Events ) to the Condensed Consolidated Financial Statements appearing at Item 1 of this Quarterly Reporton Form 10-Q.

For the three months ended September 30, 2016, systemwide net patient services revenue grew by 31.6% to $143.4million for the three months ended September 30, 2016, from $109.0 million for the three months ended September 30, 2015. Thegrowth in systemwide net patient services revenue was primarily attributable to the impact of increased patient volumes from theexpansion of the number of freestanding facilities from 74 to 97 and continued growth of our hospitals and their hospitaloutpatient departments in Arizona and Texas. For the three months ended September 30, 2016, systemwide patient volume grewby 59.4% to 97,112 compared to 60,926 for the three months ended September 30, 2015.

For the nine months ended September 30, 2016, systemwide net patient services revenue grew by 43.2% to $426.1million for the nine months ended September 30, 2016, from $297.5 million for the nine months ended September 30, 2015. Thegrowth in systemwide net patient services revenue was primarily attributable to the impact of increased patient volumes from theexpansion of the number of freestanding facilities from 74 to 97 and continued growth of our hospitals and their hospitaloutpatient departments in Arizona and Texas. For the nine months ended September 30, 2016, systemwide patient volume grewby 64.6% to 277,188 compared to 168,446 for the nine months ended September 30, 2015.

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The following table sets forth a reconciliation of our systemwide net patient services revenue for the periods indicated (in thousands ):

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Net Patient Services Revenue:

Consolidated facilities $ 61,816 $ 83,347 $ 252,973 $ 251,154Unconsolidated joint ventures 81,588 25,691 173,168 46,354Systemwide net patient services revenue $ 143,404 $ 109,038 $ 426,141 $ 297,508

(1) Net patient services revenue from our Colorado and Dallas/Fort Worth facilities were included as consolidated facilitiesrevenue until consummation of the UCHealth joint venture on April 20, 2015 and the THR joint venture on May 11, 2016,respectively.

Systemwide Same-Store Revenue

We begin comparing systemwide same-store revenue for a new facility on the first day of the 16th full fiscal monthfollowing the facility's opening, which is when we believe systemwide same-store comparison becomes meaningful. When afacility is relocated, we continue to include revenue from that facility in systemwide same-store revenue. Systemwide same-storerevenue allows us to evaluate how our facility base is performing by measuring the change in period-over-period net revenue infacilities that have been open for 15 months or more. Various factors affect systemwide same-store revenue, including outbreaksof illnesses, changes in marketing and competition. For the three months ended September 30, 2016, our systemwide same-storerevenue decreased by 8.6% to $86.8 million from $95.0 million for the three months ended September 30, 2015. For the ninemonths ended September 30, 2016, our systemwide same-store revenue decreased by 0.9% to $258.2 million from $260.6 millionfor the nine months ended September 30, 2015. Same-store HOPD revenue increased 18.5% to $40.3 million from $34.0 millionwhile same store non-HOPD revenue decreased 23.1% to $50.0 million from $65.0 million for the nine months ended September30, 2016. Opening new facilities is an important part of our growth strategy. These new facilities, within 15 months after opening,generally have historically generated approximately $5.0 million to $6.0 million in annual net revenue and on average havehistorically incurred approximately $3.6 million to $4.0 million in annual operating expenses. On that basis, our average annualestimated operating income, excluding depreciation and amortization, for such facilities has historically been between$1.0 million and $2.0 million, which would represent a facility operating margin, excluding depreciation and amortization, ofbetween approximately 28% and 33%. As we continue to pursue our growth strategy, we anticipate that a significant percentageof our revenue will come from stores not yet included in our systemwide same-store revenue calculation.

Adjusted EBITDA

We define Adjusted EBITDA as net income before interest, taxes, depreciation, and amortization, further adjusted toeliminate the impact of certain additional items, including facility pre-opening expenses, stock compensation expense, costsassociated with our public offerings, and other non-recurring costs, losses or gains that we do not consider in our evaluation ofongoing operating performance from period to period. Adjusted EBITDA is included in this Quarterly Report on Form 10-Qbecause it is a key metric used by management to assess our financial performance. We use Adjusted EBITDA to supplementGAAP measures of performance in order to evaluate the effectiveness of our business strategies, to make budgeting decisions andto compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also frequentlyused by analysts, investors and other interested parties to evaluate companies in our industry.

Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternativeto net income as a measure of financial performance, or any other performance measure derived in accordance with GAAP, norshould it be construed as an inference that our future results will be unaffected by unusual

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or other items. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same asor similar to some of the adjustments in this presentation, such as preopening expenses, stock compensation expense, and otheradjustments. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionaryuse, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures, facilityopenings and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, includingthe failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets beingdepreciated and amortized. Management compensates for these limitations by supplementally relying on our GAAP results inaddition to using Adjusted EBITDA. Our presentation of Adjusted EBITDA is not necessarily comparable to other similarly titledcaptions of other companies due to different adjustments included in the calculation.

The following table sets forth a reconciliation of our Adjusted EBITDA to net (loss) income using data derived from ourcondensed consolidated financial statements for the periods indicated (in thousands ):

Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015Net (loss) income ($11,733) 1,494 144,326 30,769Depreciation and amortization(a) 5,628 4,902 15,643 14,587Interest expense 2,024 3,753 5,672 10,925(Benefit) provision for income taxes (4,765) 811 45,623 7,617Gain on contribution to joint venture(b) — — (185,336) (24,250)Preopening expenses(c) 14,056 5,102 19,290 9,191Management recruiting expenses(d) — — — 185Stock compensation expense(e) 1,402 789 3,711 1,946Public offering costs(f) 3 1,079 532 2,072Duplicative billing effort(g) — — 208 —Other(h) 3,054 711 4,233 1,801Total adjustments 21,402 17,147 (90,424) 24,074

Adjusted EBITDA 9,669 18,641 53,902 54,843

(a) Includes the Company’s proportionate share of depreciation and amortization related to its joint ventures. (b) Consists of a gain recognized on the contribution and change of control of previously owned freestanding facilities to the

joint venture with THR in May 2016 and UCHealth in April 2015.(c) Includes labor, marketing costs and occupancy costs prior to opening facilities and hospital losses prior to obtaining

Medicare certification.(d) Third-party costs and fees involved in recruiting our management team.(e) Stock compensation expense associated with grants of management incentive units.(f) For the three and nine months ended September 30, 2016 and 2015, we incurred cost of approximately $3,000, $1.1 million,

$0.5 million and $2.1 million, respectively, in conjunction with secondary public offerings.(g) Consists of duplicative costs, including salaries, stay bonuses, and contract labor, incurred during the transition to outsource

billing services for the ICD-10 conversion.

(h) For the three months ended September 30, 2016, we incurred costs to develop long-term strategic goals and objectivestotaling $1.2 million, terminated real-estate development costs of $1.2 million and rebranding costs associated with of ourDallas/Fort Worth facilities of $0.6 million. For the three months ended September 30, 2015, we incurred costs to developlong-term strategic goals and objectives totaling approximately $0.7 million.

For the nine months ended September 30, 2016, we incurred costs to develop long-term strategic goals and objectivestotaling $2.4 million, terminated real-estate development costs of $1.2 million and rebranding costs

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associated with our Dallas/Fort Worth facilities of $0.6 million. For the nine months ended September 30, 2015, we incurredcosts to develop long-term strategic goals and objectives totaling approximately $1.8 million.

Results of Operations

Three months ended September 30, 2016 Compared to Three months ended September 30, 2015

The following table summarizes our results of operations for the three months ended September 30, 2016 and 2015 ( inthousands ):

Three months ended September 30, Percentage of Change from prior net patient period service revenue 2016 2015 $ % 2016 2015 Statement of Operations Data: Revenue Patient service revenue $ 70,174 $ 101,254 $ (31,080) (30.7)% Provision for bad debt (8,358) (17,907) 9,549 (53.3) Net patient service revenue 61,816 83,347 (21,531) (25.8) 100.0 % 100.0 %Management and contract services revenue 23,552 4,865 18,687 384.1 38.1 5.8 Total net operating revenue 85,368 88,212 (2,844) (3.2) 138.1 105.8 Equity in (loss) earnings of unconsolidated joint ventures (8,457) 4,543 (13,000) (286.2) (13.7) 5.5 Operating expenses: Salaries, wages and benefits 64,580 55,420 9,160 16.5 104.5 66.5 General and administrative 15,119 13,866 1,253 9.0 24.5 16.6 Other operating expenses 8,992 13,152 (4,160) (31.6) 14.5 15.8 Depreciation and amortization 2,694 4,259 (1,565) (36.7) 4.4 5.1 Total operating expenses 91,385 86,697 4,688 5.4 147.8 104.0 (Loss) income from operations (14,474) 6,058 (20,532) (338.9) (23.4) 7.3 Other expense: Gain on contribution to joint venture — — — — — — Interest expense (2,024) (3,753) 1,729 (46.1) (3.3) (4.5) Total other expense (2,024) (3,753) 1,729 (46.1) (3.3) (4.5) (Loss) income before (benefit) provision for income taxes (16,498) 2,305 (18,803) (815.7) (26.7) 2.8 (Benefit) provision for income taxes (4,765) 811 (5,576) (687.5) (7.7) 1.0 Net (loss) income $ (11,733) $ 1,494 $ (13,227) (885.3)% (19.0)% 1.8 %

Overall

Our results for the three months ended September 30, 2016 reflect a 3.2% decrease in net operating revenue to$85.4 million and net loss of $11.7 million compared to net income of $1.5 million for the three months ended September 30,2015. The net loss is primarily attributable to a decrease of $2.8 million in net operating revenue resulting from thedeconsolidation of our Dallas/Fort Worth locations and softer patient volumes in our non-HOPD markets, slightly offset byincreases in management and contract services revenue. This decrease is coupled with an increase of salaries, wages, and benefitsand other costs related to our growth initiatives and an $8.5 million loss in unconsolidated joint ventures primarily driven by theopening and preopening costs of two hospitals in Colorado. Preopening expenses peaked in the three months ended September 30,2016 and we expect preopening expenses will decline materially going forward, with only one additional hospital opening in2017.

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Revenue

Patient Service Revenue

Patient service revenue decreased by $31.1 million, or 30.7%, to $70.2 million for the three months ended September 30,2016 from $101.3 million for the three months ended September 30, 2015. The decrease was primarily attributable to thedeconsolidation of our Dallas/Fort Worth locations due to the THR joint venture and softer patient volumes in our non-HOPDmarkets.

Provision for Bad Debt

Our provision for bad debt decreased by $9.5 million to $8.4 million for the three months ended September 30, 2016,from $17.9 million for the three months ended September 30, 2015. This decrease was primarily attributable to thedeconsolidation of our Dallas/Fort Worth locations due to the THR joint venture.

Net Patient Service Revenue

As a result of the factors described above, our net patient service revenue decreased by $21.5 million, or 25.8%, to$61.8 million for the three months ended September 30, 2016, from $83.3 million for the three months ended September 30,2015.

Management and Contract Services Revenue

Management and contract services revenue was $23.6 million for the three months ended September 30, 2016 comparedto $4.9 million for the three months ended September 30, 2015. The increase is a result of our management and contract servicesagreement associated with our joint venture agreements, which increased due to the addition of the joint venture with THR inMay 2016 and the revenue generated from the expansion of the number of equity method facilities from 42 to 61.

Equity in (Loss) Earnings of Unconsolidated Joint Ventures

Equity in (loss) earnings of joint ventures consists of our ownership interest, which ranges from 49.0% to 50.1%, ofearnings generated from our non-controlling equity investments. Our equity in earnings of unconsolidated joint venturesdecreased by $13.0 million to a loss of $8.5 million for the three months ended September 30, 2016 from earnings ofapproximately $4.5 million for the three months ended September 30, 2015. The net loss is primarily driven by the costsassociated with the opening of two hospitals in Colorado associated with our UCHealth joint venture and rebranding costs of ourfacilities in the Dallas/Fort Worth market to Texas Health Resources.

Operating Expenses

Salaries, Wages and Benefits

Salaries, wages and benefits increased by $9.2 million to $64.6 million for the three months ended September 30, 2016,from $55.4 million for the three months ended September 30, 2015. This increase was primarily attributable to an increase of$13.2 million for physician labor, as we provide physician services to each facility, whether owned or managed, $3.8 million dueto continued efforts to support new facility growth, $0.6 million in stock compensation, partially offset by a decrease of $8.4million related to the deconsolidation of our Dallas/Fort Worth locations due to the THR joint venture.

General and Administrative

General and administrative expenses increased by $1.2 million to $15.1 million for the three months ended September30, 2016, from $13.9 million for the three months ended September 30, 2015. This increase was primarily attributable to $1.2million in costs related to outsourcing billing and collections to a third party revenue cycle company,

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$0.8 million in additional facility utilities and insurance expenses, $1.7 million in legal and accounting expenses, $0.3 million intravel expenses associated with increased headcount and the opening of new facilities outside of the Dallas/Fort Worth market,$1.2 million in write-offs of terminated real-estate deals and $0.6 million in other corporate expenses, partially offset byreductions of $1.5 million in marketing costs which are now borne by our joint venture partners, $1.1 million in costs associatedwith the 2015 secondary offerings which did not recur in the current period, and $2.0 million related to the deconsolidation of ourDallas Fort/Worth locations due to the THR joint venture.

Other Operating Expenses

Other operating expenses decreased by $4.2 million to $9.0 million for the three months ended September 30, 2016,from $13.2 million for the three months ended September 30, 2015. This decrease was primarily due to reductions of $5.6 millionin costs attributable to the deconsolidation of our Dallas/Fort Worth locations due to the THR joint venture and $0.9 million inpatient care and supply costs, partially offset by increases of $2.2 million in lease costs for buildings and medical equipment and$0.1 million in building and medical equipment maintenance.

Depreciation and Amortization

Depreciation and amortization expenses decreased by $1.6 million to $2.7 million for the three months ended September30, 2016, from $4.3 million for the three months ended September 30, 2015. This decrease was primarily attributable to thedeconsolidation of assets attributable to joint ventures.

Other Income (Expense)

Interest Expense

Interest expense primarily consists of interest on our Senior Secured Credit Facility. Our interest expense decreased by$1.8 million to $2.0 million for the three months ended September 30, 2016, compared to $3.8 million for the three months endedSeptember 30, 2015. This decrease was primarily attributable to lower borrowing rates as a result of refinancing our SeniorSecured Credit Facility in October 2015.

(Loss) Income Before (Benefit) Provision for Income Taxes

As a result of the factors described above, we recorded a loss before benefit for income taxes of $16.5 million for thethree months ended September 30, 2016, compared to net income of $2.3 million for the three months ended September 30, 2015.

(Benefit) Provision for Income Taxes

For the three months ended September 30, 2016, we recorded an income tax benefit of $4.8 million, which consists of $4.4million of federal income tax benefit and Texas margin tax benefit of $0.4 million. Our effective tax rate for the three monthsended September 30, 2016 and the comparable period in 2015 was 42.1% and 38% respectively. Our tax rate is affected byrecurring items such as permanent differences and state and local income taxes. The change in rate is mostly attributable to anincrease in state and local taxes for 2016.

Net (Loss) Income

As a result of the factors described above, we recorded a net loss of $11.7 million for the three months ended September30, 2016, compared to net income of $1.5 million for the three months ended September 30, 2015.

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Nine months ended September 30, 2016 Compared to Nine months ended September 30, 2015

The following table summarizes our results of operations for the nine months ended September 30, 2016 and 2015 ( inthousands ):

Nine months ended September 30, Percentage of Change from prior net patient period service revenue

2016 2015 $ % 2016 2015Statement of Operations Data: Revenue Patient service revenue $ 305,057 $ 301,519 $ 3,538 1.2 % Provision for bad debt (52,084) (50,365) (1,719) 3.4 Net patient service revenue 252,973 251,154 1,819 0.7 100.0 % 100.0 %Management and contract services revenue 45,331 8,098 37,233 459.8 17.9 3.2 Total net operating revenue 298,304 259,252 39,052 15.1 117.9 103.2 Equity in (loss) earnings of unconsolidated joint ventures (3,521) 7,470 (10,991) (147.1) (1.4) 3.0 Operating expenses: Salaries, wages and benefits 193,525 155,424 38,101 24.5 76.5 61.9 General and administrative 44,398 35,701 8,697 24.4 17.6 14.2 Other operating expenses 36,098 36,998 (900) (2.4) 14.3 14.7 Depreciation and amortization 10,477 13,538 (3,061) (22.6) 4.1 5.4 Total operating expenses 284,498 241,661 42,837 17.7 112.5 96.2 Income from operations 10,285 25,061 (14,776) (59.0) 4.1 10.0 Other income (expense): Gain on contribution to joint venture 185,336 24,250 161,086 664.3 73.3 9.7 Interest expense (5,672) (10,925) 5,253 (48.1) (2.2) (4.3)

Total other income 179,664 13,325 166,339 1,248.3 71.0 5.3 Income before provision for income taxes 189,949 38,386 151,563 394.8 75.1 15.3 Provision for income taxes 45,623 7,617 38,006 499.0 18.0 3.0 Net income $ 144,326 $ 30,769 $ 113,557 369.1 % 57.1 % 12.3 %

Overall

Our results for the nine months ended September 30, 2016 reflect a 15.1% increase in net operating revenue to$298.3 million and net income of $144.3 million compared to net income of $30.8 million for the nine months ended September30, 2015. The net income is primarily attributable to a $39.0 million increase in net operating revenue, coupled with an increasein gain on contribution of joint ventures of $161.0 million recognized on our change of control of previously owned freestandingfacilities to a joint venture with THR, which is offset by increases of $42.8 million in operating expenses related to our growthinitiatives and preopening costs for one new hospital in our Houston market. In addition, earnings in unconsolidated joint venturesdecreased by $11.0 million from earnings of $7.5 million to a loss of $3.5 million mainly driven by the preopening costsassociated with two new hospitals in Denver and Colorado Springs, Colorado associated with our joint venture with UCHealth.Preopening expenses peaked in the nine months ended September 30, 2016 and we expect preopening expenses will declinematerially going forward, with only one additional hospital opening in 2017.

Revenue

Patient Service Revenue

Patient service revenue increased by $3.6 million, or 1.2%, to $305.1 million for the nine months ended September 30,2016 from $301.5 million for the nine months ended September 30, 2015. This increase was primarily

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attributable to the impact of patient volumes from new consolidated freestanding facilities, partially offset by the deconsolidationof our Dallas/Fort Worth locations due to the THR joint venture.

Provision for Bad Debt

Our provision for bad debt increased by $1.7 million to $52.1 million for the nine months ended September 30, 2016,from $50.4 million for the nine months ended September 30, 2015. This increase was primarily attributable to bad debtsassociated with revenue generated from the expansion of the number of consolidated freestanding facilities, partially offset by thedeconsolidation of our Dallas/Fort Worth locations due to the THR joint venture.

Net Patient Service Revenue

As a result of the factors described above, our net patient service revenue increased by $1.8 million, or 0.7%, to$253.0 million for the nine months ended September 30, 2016, from $251.2 million for the nine months ended September 30,2015.

Management and Contract Services Revenue

Management and contract services revenue was $45.3 million for the nine months ended September 30, 2016 comparedto $8.1 million for the nine months ended September 30, 2015. The increase is a result of the management and contract servicesagreements associated with our joint venture agreements, which increased due to the addition of the joint venture with UCHealthin April 2015, THR in May 2016 and the increase in the number of equity method facilities from 42 to 61.

Equity in (Loss) Earnings of Unconsolidated Joint Ventures

Equity in (loss) earnings of joint ventures consists of our ownership interest, which ranges from 49.0% to 50.1%, ofearnings generated from our non-controlling equity investments. Our equity in earnings of unconsolidated joint venturesdecreased by $11.0 million to a loss of $3.5 million for the nine months ended September 30, 2016 from earnings ofapproximately $7.5 million for the nine months ended September 30, 2015. The net loss is primarily driven by the costsassociated with opening two hospitals in Colorado associated with our UCHealth joint venture and rebranding all of our facilitiesin the Dallas/Fort Worth markets to Texas Health Resources.

Operating Expenses

Salaries, Wages and Benefits

Salaries, wages and benefits increased by $38.1 million to $193.5 million for the nine months ended September 30,2016, from $155.4 million for the nine months ended September 30, 2015. This increase was primarily attributable to an increaseof $37.9 million for physician labor, which includes both owned and managed facilities as we provide physician services to eachfacility, $20.4 million due to continued efforts to support new facility growth, $1.8 million in stock compensation charges,partially offset by a decrease of $22.0 million related to the deconsolidation of salaries attributable to joint ventures.

General and Administrative

General and administrative expenses increased by $8.7 million to $44.4 million for the nine months ended September 30,2016, from $35.7 million for the nine months ended September 30, 2015. This increase was primarily attributable to $4.8 millionin costs related to outsourcing billing and collections to a third party revenue cycle company, $3.7 million in additional facilityutilities and insurance expenses, $4.0 million in legal and accounting expenses, $0.6 million in travel expenses associated withincreased headcount and the opening of new facilities outside of the Dallas/Fort Worth market, $1.2 million in write-offs ofterminated real-estate deals and $2.8 million in other corporate expenses, partially offset by reductions of $2.1 million inmarketing costs which were included in our earnings in the previous period and are now borne by our joint venture partners, $1.5million in costs associated with the secondary

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offerings in the current period compared to the prior year and $4.8 million related to the deconsolidation of costs attributable tojoint ventures.

Other Operating Expenses

Other operating expenses decreased by $0.9 million to $36.1 million for the nine months ended September 30, 2016,from $37.0 million for the nine months ended September 30, 2015. This decrease was primarily due to $13.4 million in thedeconsolidation of costs attributable to joint ventures, partially offset by increases of $10.0 million in additional lease costs forbuildings and medical equipment at new and existing facilities and $1.6 million in building and equipment maintenance for newand existing facilities and an increase of $0.9 million in patient care and supply costs for new and existing facilities.

Depreciation and Amortization

Depreciation and amortization expenses decreased by $3.0 million to $10.5 million for the nine months ended September30, 2016, from $13.5 million for the nine months ended September 30, 2015. This decrease was primarily attributable to thedeconsolidation of costs attributable to joint ventures and a decrease in capital expenditures on new facility construction as weshifted toward third-party developers to fund all new construction.

Other Income (Expense)

Gain on Contribution to Joint Venture

The Company recorded a gain of $185.4 million for the nine months ended September 30, 2016 as a result of thecontribution and change of control of previously owned freestanding facilities to the joint venture with THR. This gain is net of a$9.6 million reduction of the goodwill related to the business associated with the facilities contributed to the joint venture.

Interest Expense

Interest expense primarily consists primarily of interest on our Senior Secured Credit Facility. Our interest expensedecreased by $5.2 million to $5.7 million for the nine months ended September 30, 2016, compared to $10.9 million for the ninemonths ended September 30, 2015. This decrease was primarily attributable to lower borrowing rates as a result of refinancingour Senior Secured Credit Facility in October 2015.

Income Before Provision for Income Taxes

As a result of the factors described above, we recorded income before provision for income taxes of $189.9 million forthe nine months ended September 30, 2016, compared to $38.4 million for the nine months ended September 30, 2015.

Provision for Income Taxes

For the nine months ended September 30, 2016, we recorded income tax expense of $45.6 million, which consists of$45.1 million of deferred federal income tax expense and state tax expense of $0.5 million. Our effective tax rate for the ninemonths ended September 30, 2016 and the comparable period in 2015 was 42.1% and 38% respectively. Our tax rate is affectedby recurring items such as permanent differences and state and local income taxes. The change in rate is mostly attributable to anincrease in state and local taxes for 2016.

Net Income

As a result of the factors described above, we recorded net income of $144.3 million for the nine months endedSeptember 30, 2016, compared to net income of $30.8 million for the nine months ended September 30, 2015.

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Liquidity and Capital Resources

Overview

We rely on cash flows from operations, the New Facility and the MPT Agreements (each as described below) as ourprimary sources of liquidity.

Our primary cash needs are capital expenditures on new facilities, compensation of our personnel, purchases of medicalsupplies, facility leases, equipment rentals, marketing initiatives, service of long-term debt and any payments made under a taxreceivable agreement we entered into upon the consummation of our initial public offering, which provides for the paymentfrom time to time by us to the Unit holders of Adeptus Health LLC of 85% of the amount of the benefits, if any, that we deemedto realize as a result of increases in tax basis and certain other tax benefits related to exchanges of LLC Units pursuant to theexchange agreement, including tax benefits attributable to payments under the tax receivable agreement. These paymentobligations are obligations of Adeptus Health Inc.; however, payments to LLC Unit holders will only be paid as tax benefits forthe Company are realized. For purposes of the tax receivable agreement, the benefit deemed realized by Adeptus Health Inc. willbe computed by comparing its actual income tax liability (calculated with certain assumptions) to the amount of such taxes thatwe would have been required to pay had there been no increase to the tax basis of the assets of Adeptus Health LLC as a resultof the exchanges and had Adeptus Health Inc. not entered into the tax receivable agreement.

As of September 30, 2016, our principal sources of liquidity included cash of $6.1 million and funds available underour Senior Secured Credit Facility line of credit of $15.8 million, net of $10.2 million for outstanding letters of credit, subject tomeeting certain debt covenants. As of September 30, 2016, we also had $59.0 million available under the MPT Agreements.

At September 30, 2016, our cash position was $6.1 million, as compared to $16.0 million at December 31, 2015. For thenine months ended September 30, 2016, net cash used in operating activities was $37.3 million, as compared to net cash providedby operating activities of $5.1 million for the comparable period in the prior year. Our liquidity and cash flow from operationsduring the nine months ended September 30, 2016 were negatively impacted by our funding of the working capital requirementsrelated to the opening of two hospitals, which has led to the increase in the Other receivables and current assets balance on ourconsolidated balance sheets from $17.1 million at December 31, 2014 to $31.5 million at December 31, 2015 and $78.9 million atSeptember 30, 2016. Each joint venture agreement contains provisions regarding repayment of amounts owed under thesereceivables, prior to the distributions of profits, as well as other funding mechanisms. An additional factor contributing to thenegative impact on liquidity and cash flow from operations is the significant lengthening of collection cycles on accountsreceivable (as evidenced by the increase in days of sales outstanding, or DSO, from 54 days in the third quarter of 2015 to 119days in the third quarter of 2016) stemming from the outsourcing of billing and collection for our services to a third-partyprovider in October 2015, which was driven by the need to ensure compliance with ICD-10 medical coding requirements.Although collections have been delayed, the Company believes it will be able to collect at historical levels. We have addedadditional internal and external resources to aid in bringing down our DSO metric, shortening our revenue and cash conversioncycle, and enhancing our ability to receive the appropriate level of reimbursement from payors in a timely manner with a view torestoring our historical cash collection results. Although accounts receivable are currently deemed collectable, if they continue toage significantly bad debt expense could materially increase.

We have taken interim measures to strengthen our balance sheet, as follows:

· On November 1, 2016, we entered into amendments under the New Facility to add $25.0 million of additionalavailability under the term loan portion of the facility and $5.0 million of additional availability under therevolving credit portion of the facility, on top of the $20.0 million of incremental availability under therevolving credit portion of the facility secured in an amendment entered into on August 12, 2016 See Note 17 (Subsequent Events ).

· On November 7, 2016, we issued $21.9 million of Series A Preferred Stock to funds affiliated with SterlingPartners, co-founders Rick Covert, the vice chairman of the Company’s board of directors,

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and Dr. Jack Novak, and Thomas S. Hall, the Company’s chief executive officer pursuant to a securitiespurchase agreement dated as of November 7, 2016. See Note 17 ( Subsequent Events ).

In addition, we have taken additional steps that we believe will contribute to our achieving longer-term financialflexibility and returning to being cash flow positive and profitability, as follows:

· We have engaged Goldman Sachs to explore various financing alternatives to assist us in our efforts to achieve,subject to market conditions, a comprehensive refinancing of our existing indebtedness that provides us withadditional financial flexibility.

· We have added additional internal and external resources to aid in bringing down our DSO metric, shorteningour revenue and cash conversion cycle, and enhancing our ability to receive the appropriate level ofreimbursement from payors with a view to restoring our historical cash collection percentage levels.

· We have plans to engage in negotiations with the health system partners in our joint ventures to share theworking capital requirements of the joint ventures.

· We anticipate that the majority of our development activity with new health system partners going forward willbe executed under the partner model represented by our partner services agreement with Ochsner HealthSystem. We believe that this partner model will allow us to grow at an accelerated rate without the significantdemands for capital experienced in in the past under our joint venture arrangements.

· We are actively evaluating planned openings of facilities with a view to matching our development activity toavailable capital resources.

We cannot assure that we will be successful in consummating a refinancing of our indebtedness on acceptable terms orat all. The other measures described above may not result in our realizing the anticipated benefits. Any of such events wouldhave a material adverse effect on our business, financial condition, results of operations and cash flows.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands ):

Nine months ended September 30, 2016 2015Net cash (used in) provided by operating activities $ (37,283) $ 5,120Net cash used in investing activities (6,440) (2,468)Net cash provided by financing activities 33,763 41,656Net (decrease) increase in cash $ (9,960) $ 44,308

Net Cash from Operating Activities

Net cash used by operating activities increased by $42.4 million to $37.3 million for the nine months ended September30, 2016, from $5.1 million provided by operating activities for the same period in 2015. This increase was primarily attributableto funding the working capital requirements related to the opening of three hospitals in the second half of the year, as well aslonger collection cycles on receivables stemming from collection issues at our third party billing and collections vendor.

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Net Cash from Investing Activities

Net cash used in investing activities increased by $3.9 million to $6.4 million for the nine months ended September 30,2016, from $2.5 million used by investing activities for the same period in 2015. This increase was primarily attributable to ourinvestment in the development activity associated with our joint ventures with Ochsner Health System and Mount Carmel HealthSystem, partially offset by proceeds from the sale of property and equipment in 2015 which did not recur in the current period.

Net Cash from Financing Activities

Net cash provided by financing activities decreased by $7.9 million to $33.8 million for the nine months endedSeptember 30, 2016, from $41.7 million for the same period in 2015. This decrease results primarily from the reduction inoutstanding debt due to payments of principal which began in December 2015 and the timing of prepayments against ourrevolving debt in the current period compared to prior period.

Off Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships,such as entities often referred to as structured finance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose arrangements. We leasecertain medical facilities and equipment under various non-cancelable operating leases. See "—Obligations and Commitments—Operating Lease Obligations."

As a result of our strategy of partnering with leading healthcare providers, we do not own a controlling interest in ourfacilities in Colorado, Arizona and Dallas/Fort Worth. At September 30, 2016, we accounted for these joint ventures under theequity method. Our ownership percentage ranges from 49.0% to 50.1% in each joint venture at September 30, 2016.

As described above, our unconsolidated joint ventures are structured as limited liability corporations. These jointventures do not provide financing, liquidity, or market or credit risk support for us.

Obligations and Commitments

The following is a summary of our contractual obligations as of September 30, 2016 ( in thousands ):

Total 3 months 1-

3 years 3-5 years More than 5

yearsLong-term debt obligations 163,555 1,817 16,957 144,781 $ -Capital lease obligations 415 22 172 172 49Operating lease obligations 1,012,245 20,122 157,772 131,269 703,082Total 1,176,215 21,961 174,901 276,222 703,131

(1) Includes amounts representing interest.

Senior Secured Credit Facility

On October 31, 2013, we entered into a Senior Secured Credit Facility (the “Facility”) for a $75.0 million term loanwhich matured on October 31, 2018. The Facility included an additional $165.0 million delayed draw term loan commitment,which expired in April 2015 and a $10.0 million revolving commitment that matured on October 31, 2018. All of our assets werepledged as collateral under the Facility. The borrowings under the Facility was used by us to provide financing for workingcapital, capital expenditures and for new facility expansion and replaced an existing credit facility.

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On June 11, 2014, we amended the Facility to, among other things, provide for a borrowing under the delayed draw termloan in an aggregate principal amount of up to $75.0 million, $60.0 million in principal amount of which was used to makespecified distributions and up to $10.0 million in principal amount which was used to repay certain revolving loans. On June 11,2014, we drew $75.0 million and made the $60.0 million dividend distribution on June 24, 2014.

On April 20, 2015, we amended the Facility to, among other things, increase the maximum aggregate amount permittedto be funded by MPT under the MPT Agreements to $500.0 million. In April 2015, we drew $30.0 million on the delayed drawterm loan prior to its expiration.

Borrowings under the Facility bore interest, at our option, at a rate equal to an applicable margin over (a) a base ratedetermined by reference to the highest of (1) the prime rate, (2) the federal funds effective rate plus 0.50% and (3) LIBOR for aninterest period of one month plus 1%, or (b) LIBOR for the applicable interest period. The margin for the Facility was 6.50% inthe case of base rate loans and 7.50% in the case of LIBOR loans. The Facility included an unused line fee of 0.50% per annumon the revolving commitment and delayed draw term loan commitment, a draw fee of 1.0% of the principal amount of eachborrowing on the delayed draw term loan and an annual Agency fee of $0.1 million. The Company repaid the total outstandingbalance in October 2015.

On October 6, 2015, we entered into a new Senior Secured Credit Facility (the “New Facility”) for a $125.0 million termloan and a $50.0 million revolving facility. The New Facility matures on October 6, 2020. The revolving credit facility includes asub-limit of $15.0 million for letters of credit and a sub-limit of $5.0 million for swing line loans. In addition, the New Facilitycontains an option to borrow up to an additional $50.0 million under certain conditions. All of the assets of the Company’ssubsidiaries are pledged as collateral under the New Facility, and such subsidiaries guarantee the New Facility. Borrowings underthe New Facility replace our existing credit facility and will be used by us to provide financing for working capital and capitalexpenditures.

Borrowings under the New Facility bear interest, at our option, at a rate equal to an applicable margin over (a) a baserate determined by reference to the highest of (1) the prime rate, (2) the federal funds effective rate plus 0.50% and (3) LIBOR foran interest period of one month plus 1%, or (b) LIBOR for the applicable interest period. The applicable margin for the NewFacility ranges, based on our consolidated net leverage ratio, from 2.25% to 3.00% in the case of base rate loans and from 3.25%to 4.00% in the case of LIBOR loans. The New Facility includes an unused line fee ranging, based on our consolidated netleverage ratio, from 0.40% to 0.50% per annum on the revolving commitment.

On August 12, 2016, the Company amended the New Facility to increase availability under the revolving credit portionof that facility to $70.0 million.

We had $15.8 million available under the revolving commitment at September 30, 2016, subject to certain debtcovenants. During the nine months ended September 30, 2016, we made mandatory principal payments under the New Facility of$4.7 million.

The New Facility contains a number of significant negative covenants. Such negative covenants, among other things andsubject to certain exceptions, restrict Adeptus Health, Inc. and its subsidiaries’ ability to incur additional indebtedness, makeguarantees and enter into hedging agreements; create liens on assets; engage in mergers or consolidations; transfer assets; paydividends and distributions; change the nature of our business; make investments, loans and advances, including acquisitions;engage in certain transactions with affiliates; amend certain material agreements, including the MPT Agreements andorganizational documents; enter into certain joint ventures; enter into certain restrictive agreements and make certain changes toour accounting practices. In addition, the New Facility contains financial covenants that, among other things, require us tomaintain a consolidated net leverage ratio of at most 4.50 to 1.00 as of September 30, 2016 (decreasing to 3.25 to 1.00 as of June30, 2020); a consolidated fixed charge coverage ratio of at least 1.25 to 1.00; and a minimum Non-MPT Facility EBITDA as ofthe end of any fiscal quarter of not less than $40.0 million. The financial covenant calculations are based on Adeptus Health Inc.and its subsidiaries as a consolidated group. In addition, the New Facility includes certain limitations on intercompanyindebtedness. The affirmative covenants, negative covenants, and financial covenants, are measured on a quarterly basis and, asof September 30, 2016, we were in compliance with all covenant requirements.

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On November 1, 2016, the Company entered into further amendments to its New Facility to add $25.0 million ofadditional availability under the term loan portion of the facility and $5.0 million of additional availability under the revolvingcredit portion of the facility, on top of the $20.0 million of incremental availability under the revolving credit portion of thefacility secured in an amendment entered into on August 12, 2016.

The applicable margin for the incremental amount of the term loan shall be 4.25% per annum in the case of anyEurodollar rate loan and 3.25% per annum in the case of any base rate loan, provided that the applicable margin shall increase byan additional .50% per annum on the first day of each month after the effective date of the incremental term loan amendment,commencing on January 1, 2017. Up to $15.0 million of First Drawing shall be available on Initial Drawing Date not earlier thanDecember 1, 2016, but prior to December 31, 2016, and up to $10.0 million of the Second Drawing shall be available on theSecond Drawing Date not earlier than December 15, 2016, but prior to January 14, 2017, in each case, on the terms andconditions set forth in the incremental term loan amendment to the Senior Secured Credit Facility. Funding of the First Drawingis subject to, among other conditions, (i) administrative agent’s receipt of satisfactory evidence not later than December 1, 2016that the Company has established a system of cash flow reporting pursuant to which the Company shall furnish to theadministrative agent a Cash Flow Forecast, such Cash Flow Forecast to have been established and provided to the lenders, (ii) theCompany shall have retained and made available to the lenders a liquidity consultant by no later than December 1, 2016, (iii) theCompany shall have received at least $27.5 million in net proceeds from an issuance of non-cash pay preferred stock and (iv) noloan party shall have incurred or contracted to incur indebtedness that is guaranteed by a subsidiary that is not a guarantor underthe credit facility or secured by a lien on any assets not constituting collateral for the incremental term loans or the collateral thatranks pari passu with, or senior to, the liens that secure the indebtedness under the credit facility. Funding of the Second Drawingis subject to the same conditions applicable to the First Drawing, plus the following additional conditions: (i) the administrativeagent and the lenders under the incremental term loan shall be reasonably satisfied that the results of any Cash Flow Forecast thathas been delivered for each of the four weeks preceding the Second Drawing Date shall not vary by more than 15% with respectto the results of any other Cash Flow Forecast delivered during such time, (ii) the administrative agent and the lenders under theincremental term loan shall be reasonably satisfied that the Cash Flow Forecast delivered on the Friday immediately prior to theSecond Drawing reflects a positive 13-week cash balance forecast and (iii) the administrative agent and lenders shall havereceived satisfactory evidence that the borrower under the incremental term loan has at least $50.0 million cash on hand at thetime of (but without giving effect to) the Second Drawing, and, to the extent any such cash shall have been received fromproceeds of any issuance of any indebtedness, the ratio of (x) the aggregate principal amount of proceeds received from theissuance of any and all equity interests subsequent to the effective date of the incremental term loan amendment to the creditfacility to (y) the aggregate principal amount of proceeds received from the issuance of all such indebtedness subsequent to theeffective date of the incremental term loan amendment to the credit facility shall be at least 1.35:1.00. The Company will also payto the lenders providing the incremental term loan under the New Facility certain customary fees, including a ticking fee in anamount equal to 0.50% multiplied by the aggregate amount of incremental term loans, that will be payable beginning on January1, 2017 and the first day of each month thereafter. To the extent the all-in-yield paid to the lenders providing the incrementalterm loans exceeds the all-in-yield paid to the other lenders by more than 0.50% the applicable margin on the loans of such otherlenders shall increase by such excess. All other material terms of the New Facility remain the same.

Capital Lease Obligations

Assets under capital leases totaled approximately $0.4 million as of September 30, 2016, and were included within themedical equipment component of net property and equipment. Accumulated Depreciation associated with these capital leaseassets totaled approximately $16,000 as of September 30, 2016.

Operating Lease Obligations

We lease certain medical facilities and equipment under various non-cancelable operating leases. In June 2013, weentered into a Master Funding and Development Agreement (the “Initial MPT Agreement”) with an affiliate of MedicalProperties Trust (“MPT) to fund future facilities.

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In July 2014, the Company entered into an additional Master Funding and Development Agreement (the “AdditionalMPT Agreement” and, together with the Initial MPT Agreement, the “MPT Agreements”) with MPT to fund future newfreestanding emergency rooms and hospitals. This agreement is separate from and in addition to our Initial MPT Agreement. Allmaterial terms remain consistent with the Initial MPT Agreement.

Pursuant to the MPT Agreements, as amended, MPT will acquire parcels of land, fund the ground-up construction ofnew freestanding emergency room facilities and lease the facilities to us upon completion of construction. Under the terms of theMPT Agreement, MPT is required to fund all hard and soft costs, including the project purchase price, closing costs and pursuitcosts for the assets relating to the construction of a fixed number of facilities with a maximum aggregate funding of$500.0 million, of which, $59.0 million remained uncommitted as of September 30, 2016. Each completed project will be leasedfor an initial term of 15 years, with three five-year renewal options. We follow the guidance in Accounting StandardsCodification, or ASC, 840, Leases , and ASC 810, Consolidation , in evaluating the lease as a build-to-suit lease transaction todetermine whether we would be considered the accounting owner of the facilities during the construction period.

In addition to the MPT Agreements, the Company has entered into similar agreements with certain developers to fundand lead the development efforts on the construction of future facilities. As of September 30, 2016, the Company had totalreceivables of $10.7 million from the lessor to the MPT Agreements and certain developers for soft costs incurred for facilitiescurrently under development.

We lease approximately 80,000 square feet for our corporate headquarters. Lease expense associated with this lease was$0.9 million for the nine months ended September 30, 2016.

We have sublease agreements with the joint ventures in Arizona, Colorado and Dallas/Fort Worth under which theCompany subleases certain freestanding emergency room facilities, ground leases and equipment leases to the joint ventures.Under these agreements, the Company received $14.4 million, $3.6 million, $27.4 million and $6.8 million during the three andnine months ended September 30, 2016 and 2015, respectively, as rental income which is accounted for as a reduction of rentexpense.

Capital Expenditures

Our current plans for our business contemplate capital expenditures to expand our operations. The MPT Agreements willbe used to fund a significant portion of our new facilities. We typically incur approximately $0.2 million in capital expendituresrelated to each MPT-funded facility. Facilities funded under the MPT Agreements will be operating leases and thus notconsidered a capital expenditure.

The table below provides our total capital expenditures for the period ( in thousands ):

Nine months ended September 30, 2016 2015Leasehold improvements $ 252 $ 1,681Computer equipment 1,904 1,614Medical equipment 1,549 172Office equipment 1,207 1,449 $ 4,912 $ 4,916

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requiresan entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods

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or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomeseffective. The new standard is effective for the Company on January 1, 2018. Early application is permitted to the originaleffective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method.The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financialreporting.

In February 2015, the FASB issued ASU No. 2015-02, “ Consolidation: Amendments to the Consolidation Analysis”(Topic 810) . This standard modifies existing consolidation guidance for reporting organizations that are required to evaluatewhether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years and interim periods within thoseyears beginning after December 15, 2015 and requires either a retrospective or a modified retrospective approach to adoption.Early adoption is permitted. The Company adopted amendments under ASU 2015-02 retrospectively on January 1, 2016. Theadoption of the standard did not have an impact on the Company’s condensed consolidated financial statements as there was nochange to the entities currently consolidated by the Company.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," (Subtopic835-30) which changes the presentation of debt issuance costs in financial statements. ASU No. 2015-03 requires an entity topresent such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization ofthe costs will continue to be reported as interest expense. ASU No. 2015-03 is effective for annual reporting periods beginningafter December 15, 2015. We retrospectively adopted the provisions of ASU 2015-03 as of January 1, 2016. As if December 31,2015, $3.7 million of debt issuance costs were reclassified in the consolidated balance sheet from other long-term assets to long-term debt, less current portion. The adoption of ASU 2015-03 impacted the presentation of our consolidated financial position andhad no impact on our results of operations, or cash flows.

In November 2015, the FASB issued ASU No. 2015-17, which amended the balance sheet classification requirementsfor deferred income taxes to simplify their presentation in the statement of financial position. The ASU requires that deferred taxliabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for fiscalyears beginning after December 31, 2016, with early adoption permitted. The Company early adopted the provisions of this ASUfor the presentation and classification of its deferred tax assets at December 31, 2015 and has reflected the change on theconsolidated balance sheet for all periods presented.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) . This new standard establishes acomprehensive new lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to leaseclassification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liabilitywith a corresponding right-of-use asset for leases with a lease term of more than twelve months. The standard is effective forinterim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard requires amodified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliestcomparative period presented in the financial statements, but it does not require transition accounting for leases that expire priorto the date of initial application. We are evaluating the impact of the new standard on our consolidated financial statements.

In March 2016, FASB issued ASU 2016-09 “ Improvements to Employee Share-Based Payment Accounting” (Topic718) . This new standard simplifies several aspects of the accounting for share-based payment transactions, including the incometax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Thisstandard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption ispermitted. The Company is currently assessing the potential impact of the new standard on our consolidated financial statements.

Critical Accounting Policies

Our application of critical accounting policies require our management to make certain assumptions about matters thatare uncertain at the time the accounting estimate is made, where our management could reasonably use

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different estimates, or where accounting changes may reasonably occur from period to period, and in each case could have amaterial effect on our financial statements.

For a discussion of our critical accounting estimates, see the Part II., Item 7. “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” and the audited consolidated financial statements and the notes thereto includedin the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There have been no materialchanges in our critical accounting policies since December 31, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market risks related to changes in variable interest rates. As of September 30, 2016, we had$163.6 million of indebtedness (excluding capital leases) which is at variable interest rates. We have not engaged in hedgingactivity related to the New Credit Facility nor do we use leveraged financial instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that suchinformation is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and our ChiefFinancial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures,no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d - 15(e) under the Exchange Act), as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of such date, ourdisclosure controls and procedures were not effective due to the material weakness described in Managements’ Annual Report onInternal Control Over Financial Reporting as reported in our Annual Report on Form 10-K at December 31, 2015.

Changes in Internal Control Over Financial Reporting

During the period ended September 30, 2016, our management was engaged in the implementation of remediationefforts to address the material weakness that was identified in our Annual Report on Form 10-K for the year ended December 31,2015. These remediation efforts were designed both to address the identified weakness and to enhance our overall financialreporting control environment. The Company is implementing controls over the completeness and accuracy of revenuetransaction data exchanged with the third-party provider. In addition, the Company plans to obtain an appropriate annual internalcontrol report from the third-party service organization utilized in coding and billing payors for the year ended December 31,2016. This report will not be available until the fourth quarter of 2016, and as such, the material weakness cannot be fullyremediated until that time.

Other than the controls related to the material weakness described above, there were no changes in our internal controlover financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On October 27, 2016, a purported securities class action complaint was filed by the Oklahoma Law EnforcementRetirement System against the Company in the United States District Court for the Eastern District of Texas. The complaint alsonames as defendants, among others, the members of the Company’s board of directors, Sterling Partners and the joint book-running managers in the Company’s secondary public offering of shares of its Class A common stock completed in July 2015 (the“SPO”). The lawsuit is purportedly filed on behalf of all persons similarly situated and alleges material misstatements andomissions in the registration statement relating to the SPO and in the Company’s SEC filings and other corporate reports andpublic announcements in violation of the federal securities laws. The action seeks rescission of the SPO and an award of the costsand attorneys’ fees, accountants’ fees and experts’ fees of the litigation on behalf of all purchasers of the Company’s shares ofClass A common stock in the SPO under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The action alsoseeks monetary damages and an award of the costs and attorneys’ fees, accountants’ fees and experts’ fees of the litigation onbehalf of open market purchasers of the Company’s shares of Class A common stock between April 23, 2015 and November 16,2015 under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgatedthereunder. Management believes that the Company has meritorious defenses and intends to defend this lawsuit vigorously.

From time to time, we are party to various legal proceedings that have arisen in the normal course of conductingbusiness. While, we do not believe the results of these proceedings, individually or in the aggregate, will have a material adverseeffect on our business, financial condition, results of operations or liquidity, litigation is subject to inherent uncertainties.

Item 1A. Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the risks and uncertainties that webelieve could materially affect our business, financial condition or future results and are most important for you to consider arediscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The risk factors set forth in Part I, “Item 1A. Risk Factors – Risks Related to Healthcare Regulation” in our Annual Report onForm 10-K for the fiscal year ended December 31, 2015 are incorporated by reference in this Quarterly Report on Form 10-Q forthe three and nine months ended September 30, 2016, and all references to “our facilities” and “our hospitals” in such risk factorsare amended to read “facilities and hospitals owned and/or operated by us or through unconsolidated joint ventures or managedby us under partner services agreements”. Additional risks and uncertainties which are not presently known to us, which wecurrently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may alsomaterially and adversely affect any of our business, financial position or future results.

Our actual operating results may differ significantly from the guidance we provide to the market

From time to time we release guidance in our quarterly earnings releases, quarterly earnings conference call, orotherwise, regarding our future performance that represent our management’s estimates as of the date of release. Projections arebased upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject tosignificant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and arebased upon specific assumptions with respect to future business decisions, some of which will change. We generally statepossible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are notintended to represent that actual results could not fall outside of the suggested ranges. The principal reason that we releaseguidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not acceptany responsibility for any projections or reports that may be published by analysts.

Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidancefurnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate ofwhat management believes is realizable as of the date of release. If the estimates of what

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management believes is realizable change significantly from the guidance expressed earlier in the year, our guidance for the yearis adjusted as appropriate. For example, on November 1, 2016, we lowered our guidance for 2016 Adjusted EBITDA from therange of $110 million to $115 million provided on July 21, 2016 to a range of $70 million to $80 million, which caused our shareprice to decline significantly. Actual results may vary from our guidance and the variations may be material, which could causeour share price to decline significantly. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, ourguidance in making an investment decision in respect of our shares of Class A common stock. Any failure to successfullyimplement our growth strategy and operating initiatives could result in the actual operating results being different from ourguidance, and such differences may be adverse and material and may cause volatility in the trading prices of our Class A commonstock.

Our stock price has been and will likely continue to be volatile.

Our stock price may fluctuate in response to a number of events and factors in addition to recent events, such asquarterly operating results; changes in our financial projections provided to the public or our failure to meet those projections; thepublic's reaction to our press releases, other public announcements and filings with the SEC; significant transactions, or newservices by us or our competitors; changes in financial estimates and recommendations by securities analysts; media coverage ofour business and financial performance; the operating and stock price performance of, or other developments involving, othercompanies that investors may deem comparable to us; trends in our industry; any significant change in our management; andgeneral economic conditions. Broad fluctuations in the market and in our industry may adversely affect the price of our stock,regardless of our operating performance. Volatility in our stock price also impacts the value of our equity compensation, whichaffects our ability to recruit and retain employees. In addition, we may become subject to securities class action litigation as aresult of volatility in the market price of our stock. Securities litigation against us could result in substantial costs and divert ourmanagement’s attention from other business concerns, which could harm our business. If we fail to meet expectations related tofuture growth, profitability, or other market expectations, our stock price may decline significantly, which could have a materialadverse impact on investor confidence and employee retention. A sustained decline in our stock price and market capitalizationcould lead to impairment charges.

A pending securities class action complaint may result in significant costs and expenses and could have a material adverseeffect on our business, financial condition, results of operations or cash flows.

As further described in Part II, Item 1, “Legal Proceedings” of this Form 10-Q, on October 27, 2016, a purportedsecurities class action complaint was filed by the Oklahoma Law Enforcement Retirement System against the Company in theUnited States District Court for the Eastern District of Texas. The complaint also names as defendants, among others, themembers of the Company’s board of directors, Sterling Partners and the joint book-running managers in the Company’ssecondary public offering of shares of its Class A common stock completed in July 2015 (the “SPO”). The lawsuit is purportedlyfiled on behalf of all persons similarly situated and alleges material misstatements and omissions in the registration statementrelating to the SPO and in the Company’s SEC filings and other corporate reports and public announcements in violation of thefederal securities laws. The action seeks rescission of the SPO and an award of the costs and attorneys’ fees, accountants’ feesand experts’ fees of the litigation on behalf of all purchasers of the Company’s shares of Class A common stock in the SPO underSections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The action also seeks monetary damages and an award ofthe costs of attorneys’ fees, accountants’ fees and experts’ fees of the litigation on behalf of open market purchasers of theCompany’s shares of Class A common stock between April 23, 2015 and November 16, 2015 under Section 10(b) and 20(a) ofthe Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The outcome of the litigation and any other related lawsuits is subject to inherent uncertainties, and the actual costassociated with the action will depend upon many unknown factors. We expect to incur significant professional fees and othercosts in defending against the action. If we do not prevail in the action or any other related litigation, we may be required to pay asignificant amount of monetary damages that may be in excess of our insurance coverage. Any judgment against us could have amaterial adverse effect on our business, financial condition, results of operations or cash flows. In addition, our Board ofDirectors, management and employees may expend a substantial amount of time on the action, diverting resources and attentionthat would otherwise be directed toward our operations and

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implementation of our business strategy, all of which could materially adversely affect our business, financial condition, results ofoperations or cash flows even if the Company ultimately prevails.

The potential for additional litigation or other proceedings could adversely affect us, require significant managementtime and attention, result in significant legal expenses or damages, and cause our business, financial condition, results ofoperations or cash flows to suffer.

We and current and former members of our senior management may in the future be subject to additional litigation orgovernmental proceedings relating to the matters that led to the securities litigation described in the previous risk factor as well asthe decline in the price of our shares of Class A common stock following the reduction of our Adjusted EBITDA guidance for2016 on November 1, 2016. Subject to certain limitations, we are obligated to indemnify our current and former officers anddirectors in connection with any such lawsuits or governmental proceedings and related litigation or settlement amounts.Regardless of the outcome, these lawsuits and any other litigation or governmental proceedings that may be brought against us orour current or former officers and directors could be time-consuming, result in significant expense and divert the attention andresources of our management and other key employees. An unfavorable outcome in any of these matters could exceed coverageprovided under potentially applicable insurance policies. Any such unfavorable outcome could have a material adverse effect onour business, financial condition, results of operations, or cash flows. Further, we could be required to pay damages or have otherremedies imposed against us, or our current or former directors or officers, which could harm our reputation, business, financialcondition, results of operations or cash flows.

Our ability to borrow under the incremental term loan pursuant to the amendment to our New Facility entered intoon November 1, 2016 is subject to a number of conditions. If we are unable to meet those conditions, we will be unable todraw down funds under the incremental term loan, which would have material adverse effect on our business, financialcondition, and results of operations or cash flows.

On November 1, 2016, the Company entered into further amendments under its New Facility to add $25.0 million ofadditional availability under the term loan portion of the facility and $5.0 million of additional availability under the revolvingcredit portion of the facility, on top of the $20.0 million of incremental availability under the revolving credit portion of thefacility secured in an amendment entered into on August 12, 2016.

Up to $15.0 million of the First Drawing shall be available on the Initial Drawing Date not earlier than December 1,2016, but prior to December 31, 2016, and up to $10.0 million of the Second Drawing shall be available on the Second DrawingDate not earlier than December 15, 2016, but prior to January 14, 2017, in each case, on the terms and conditions set forth in theincremental term loan amendment to the New Facility. Funding of the First Drawing is subject to, among other conditions, (i)administrative agent’s receipt of satisfactory evidence not later than December 1, 2016 that the Company has established a systemof cash flow reporting pursuant to which the Company shall furnish to the administrative agent a Cash Flow Forecast, such CashFlow Forecast to have been established and provided to the lenders, (ii) the Company shall have retained and made available tothe lenders a liquidity consultant by no later than December 1, 2016, (iii) the Company shall have received at least $27.5 millionin net proceeds from an issuance of non-cash pay preferred stock and (iv) no loan party shall have incurred or contracted to incurindebtedness that is guaranteed by a subsidiary that is not a guarantor under the credit facility or secured by a lien on any assetsnot constituting collateral for the incremental term loans or the collateral that ranks pari passu with, or senior to, the liens thatsecure the indebtedness under the credit facility. Funding of the Second Drawing is subject to the same conditions applicable tothe First Drawing, plus the following additional conditions: (i) the administrative agent and the lenders under the incrementalterm loan shall be reasonably satisfied that the results of any Cash Flow Forecast that has been delivered for each of the fourweeks preceding the Second Drawing Date shall not vary by more than 15% with respect to the results of any other Cash FlowForecast delivered during such time, (ii) the administrative agent and the lenders under the incremental term loan shall bereasonably satisfied that the Cash Flow Forecast delivered on the Friday immediately prior to the Second Drawing reflects apositive 13-week cash balance forecast and (iii) the administrative agent and lenders shall have received satisfactory evidence thatthe borrower under the incremental term loan has at least $50.0 million cash on hand at the time of (but without giving effect to)the Second Drawing, and, to the extent any such cash shall have been received from proceeds of any issuance of anyindebtedness, the ratio of (x) the aggregate principal amount of proceeds received from the issuance of any and all equity interestssubsequent to the effective date of the

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incremental term loan amendment to the credit facility to (y) the aggregate principal amount of proceeds received from theissuance of all such indebtedness subsequent to the effective date of the incremental term loan amendment to the credit facilityshall be at least 1.35:1.00.

While we expect to be able to meet the conditions to borrowing the First Drawing of $15.0 million on the First DrawingDate, we cannot assure you that we will be able to satisfy the conditions to borrowing the First Drawing of $15.0 million on theFirst Drawing Date or the Second Drawing of $10.0 million on the Second Drawing Date. If we are unable to meet the conditionsto drawing, we will be unable to draw down the initial $15.0 million and/or the remaining $10.0 million under the incrementalterm loan, which would have material adverse effect on our business, financial condition, and results of operations or cash flows.

We have recently experienced a significant decline in our cash position, liquidity and cash flow from operations. If the recentmeasures that we have taken to strengthen our balance sheet and generate free cash flow are not successful or we experienceadditional declines in the future, we may have insufficient cash and liquidity to service our debt, operating expenses and otherobligations. Any such event would have a material adverse effect on our business and financial condition.

At September 30, 2016, our cash position was $6.1 million, as compared to $16.0 million at December 31, 2015. For thenine months ended September 30, 2016, net cash used in operating activities was $37.3 million, as compared to net cash providedby operating activities of $5.1 million for the comparable period in the prior year. Our liquidity and cash flow from operationsduring the nine months ended September 30, 2016 were negatively impacted by several factors:

· Our funding of the working capital needs at our joint ventures;

· Significant lengthening of collection cycles on accounts receivable (as evidenced by the increasein days of sales outstanding, or DSO, from 54 days in the third quarter of 2015 to 119 days inthe third quarter of 2016) stemming from the outsourcing of billing and collection for ourservices to a third-party provider in October 2015;

· Lower than expected patient volumes in the third quarter of 2016;

· Higher than expected working capital requirements related to the opening of two hospitals within jointventures, which has led to the increase in the Other receivables and current assets balance on our consolidatedbalance sheets from $17.1 million at December 31, 2014 to $31.5 million at December 31, 2015 and $78.9million at September 30, 2016; and

· Significant pre-opening expenses associated with the opening of several new hospitals and freestanding ERs.

Although we have taken certain actions to address each of these recent issues as described under “—Liquidity andCapital Resources—Overview”, we cannot assure you that any such actions will be successfully completed or that we will realizethe anticipated benefits of any such actions. In addition, we cannot assure you that we will not experience liquidity or cash flowdeclines in the future as a result of these or other factors. Any of such events would have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows.

Recent changes in our management and board of directors may lead to instability and may negatively affect our business.

On September 7, 2016, the Company announced the intention of Thomas S. Hall to retire from his positions as chairmanof the board of directors and chief executive officer of the Company. The Company further announced at that time that, in orderto ensure an orderly transition, Mr. Hall would continue to serve as chief executive officer until the earlier of mid-2017 or theappointment of his successor and would remain as chairman until the Company’s 2017 annual meeting, at which time he wouldnot stand for reelection. The Board of Directors established a search committee to

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identify Mr. Hall’s successor and retained an executive search firm to assist in the process. On November 1, 2016, the Companyannounced the appointment by the board of directors of Gregory W. Scott, a director since 2013, as chairman of the board,effective immediately, succeeding Mr. Hall in that position. On November 8, 2016, the Company announced the appointment ofMr. Scott as interim chief executive officer effective immediately, following the resignation of Thomas S. Hall from that position. In addition, the Company announced that Mr. Scott will step down from his position as chairman of the audit committee, withStephen M. Mengert replacing Mr. Scott in that role, and that the board of directors has appointed Jeffery S. Vender to serve as amember of the Audit Committee.

On July 28, 2016, the Company announced that Frank R. Williams, Jr. had joined its executive leadership as executivevice president and chief financial officer, succeeding Timothy L. Fielding in that position.

We cannot be certain that the changes in management and our board of directors will not negatively affect our businessin the future or that additional changes in management will not occur. Our senior management team is critical to the overallmanagement of the Company and they also play a key role in maintaining our culture and setting our strategic direction. Ourfuture success depends in part upon the continued service of key members of our senior management team. To the extent there isa delay in appointing a new CEO or if we were to lose the services of other key personnel, the Company’s business could benegatively impacted.

We may become subject to negative publicity and/or litigation as a result of customers that utilize our facilities for non-acutecare that is more economically provided in a different healthcare setting, such as an urgent care center or physician’s office. Such publicity could have a material adverse effect on our business, financial condition, results of operations or cash flows .

Certain patients may not appreciate the distinction between free standing emergency rooms such as ours and otherhealthcare settings. As a result, some patients may utilize our facilities for non-acute care that is more economically provided in adifferent healthcare setting. Adeptus complies with applicable patient notification laws that require freestanding emergencyfacilities to post a notice of fees in a conspicuous place. Some states, however, do not require such patient notification. Ifpatients do not read the posted notifications or are in states where such notifications are not required, we may experiencecustomer dissatisfaction arising from bills in line with emergency room level care, rather than what the customer may see in otherhealthcare settings. In turn, this may result in complaints, negative publicity and/or litigation that could have a material adverseeffect on our business, financial condition, results of operations or cash flows.

Our business depends on numerous complex information systems, and any failure to successfully maintain these systems orimplement new systems could materially harm our operations.

We depend on complex, integrated information systems and standardized procedures for operational and financialinformation and our billing operations. We may not have the necessary resources to enhance existing information systems orimplement new systems where necessary to handle our increased patient volume and changing needs. Furthermore, we mayexperience unanticipated delays, complications and expenses in implementing, integrating and operating our systems. Anyinterruptions in operations during periods of implementation would adversely affect our ability to properly allocate resources andprocess billing information in a timely manner, which could result in customer dissatisfaction and delayed cash flow. In addition,our technology systems, or a disruption in the operation of such systems, could be subject to physical or electronic break-ins, andsimilar disruptions from unauthorized tampering. Our systems also interface with and rely on third-party systems. Although wemonitor and routinely test our security systems and processes and other measures designed to protect the security and availabilityof our data, our information technology and infrastructure have been, and will likely continue to be, subject to computer viruses,attacks by hackers, or breaches due to employee error or malfeasance. Third parties to whom we outsource certain of ourfunctions, or with whom our systems interface, are also subject to the risks outlined above and may not have or use appropriatecontrols to protect confidential information. Though we have insurance against some cyber-risks and attacks, it may not besufficient to offset the impact of a material loss event. The failure to successfully implement and maintain operational, financialand billing information systems could have an adverse effect on our ability to obtain new business, retain existing business andmaintain or increase our profit margins

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We are subject to the data privacy, security and breach notification requirements of HIPAA and other data privacy andsecurity laws and standards, and the failure to comply with these rules or standards, or allegations that we have failed to do so,can result in civil or criminal sanctions or enhanced liabilities.

HIPAA required HHS to adopt standards to protect the privacy and security of certain health-related information. TheHIPAA privacy regulations contain detailed requirements concerning the use and disclosure of individually identifiable healthinformation and the grant of certain rights to patients with respect to such information by “covered entities.” As a provider ofhealthcare who conducts certain electronic transactions, each of our facilities is considered a covered entity under HIPAA. Wehave taken actions to comply with the HIPAA privacy regulations and believe that we are in substantial compliance with thoseregulations. These actions include the creation and implementation of policies and procedures, staff training, execution ofHIPAA-compliant contractual arrangements with certain service providers and various other measures. Ongoing implementationand oversight of these measures involves significant time, effort and expense. In addition to the privacy requirements, HIPAAcovered entities must maintain certain administrative, physical, and technical security standards to protect the integrity,confidentiality and availability of certain electronic health-related information received, maintained, or transmitted by coveredentities or their business associates. We have taken actions in an effort to be in compliance with these security regulations andbelieve that we are in substantial compliance, however, a security incident that bypasses our information security systems causingan information security breach, loss of protected health information or other data subject to privacy laws or a material disruptionof our operational systems could result in a material adverse impact on our business, along with fines. Ongoing implementationand oversight of these security measures involves significant time, effort and expense.

The Health Information Technology for Economic and Clinical Health Act, or HITECH, as implemented in part by anomnibus final rule published in the Federal Register on January 25, 2013, further requires that patients be notified of anyunauthorized acquisition, access, use, or disclosure of their unsecured protected health information, or PHI, that compromises theprivacy or security of such information. HHS has established the presumption that all unauthorized uses or disclosures ofunsecured protected health information constitute breaches unless the covered entity or business associate establishes that there isa low probability the information has been compromised. HITECH and implementing regulations specify that such notificationsmust be made without unreasonable delay and in no case later than 60 calendar days after discovery of the breach. If a breachaffects 500 patients or more, it must be reported immediately to HHS, which will post the name of the breaching entity on itspublic website. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media.If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS of such breaches at leastannually. These breach notification requirements apply not only to unauthorized disclosures of unsecured PHI to outside thirdparties, but also to unauthorized internal access to or use of such PHI.

HITECH significantly expanded the scope of the privacy and security requirements under HIPAA and increasedpenalties for violations. Currently, violations of the HIPAA privacy, security and breach notification standards may result in civilpenalties ranging from $100 to $50,000 per violation, subject to a cap of $1.5 million in the aggregate for violations of the samestandard in a single calendar year. The amount of penalty that may be assessed depends, in part, upon the culpability of theapplicable covered entity or business associate in committing the violation. Some penalties for certain violations that were not dueto “willful neglect” may be waived by the Secretary of HHS in whole or in part, to the extent that the payment of the penaltywould be excessive relative to the violation. HITECH also authorized state attorneys general to file suit on behalf of residents oftheir states. Applicable courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.HITECH also mandates that the Secretary of HHS conduct periodic compliance audits of a cross-section of HIPAA coveredentities and business associates. Every covered entity and business associate is subject to being audited, regardless of the entity’scompliance record. States may impose more protective privacy restrictions in laws related to health information and may affordindividuals a private right of action with respect to the violation of such laws. Both state and federal laws are subject tomodification or enhancement of privacy protection at any time. We are subject to any federal or state privacy-related laws that aremore restrictive than the privacy regulations issued under HIPAA. These statutes vary and could impose additional requirementson us and more severe penalties for disclosures of health information. Texas, Colorado and Arizona each have privacy regulationsthat impose requirements and restrictions in addition to those under HIPAA. If we fail to comply with HIPAA or similar statelaws, including laws addressing data confidentiality, security or breach notification, we could incur substantial monetary penaltiesand our reputation. In addition, states may also impose restrictions related to the confidentiality of

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personal information that is not considered “protected health information” under HIPAA. Such information may include certainidentifying information and financial information of our patients. Theses state laws may impose additional notificationrequirements in the event of a breach of such personal information. Failure to comply with such data confidentiality, security andbreach notification laws may result in substantial monetary penalties.

We accept payments from patients at the facilities where we provide services using payment cards (credit cards anddebit cards) and cash. We rely on third parties to provide payment processing services, including the processing of credit cardsand debit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services. We arealso subject to payment card association operating rules, including data security rules, certification requirements and rulesgoverning payment card and electronic funds transfers, such as the PCI –DSS standard. If we fail to comply with these rules orrequirements, or if its data security systems are breached or compromised, we may be liable for card issuing banks’ costs, besubject to fines and higher transaction fees, and lose its ability to accept credit and debit card payments from customers, processelectronic funds transfers, or facilitate other types of online payments. While we are currently compliant with PCI-DSS version3.1, these requirements may change over time and we may be required to expend resources to comply with the latest version ofPCI-DSS.

Federal and state enforcement of the Clinical Laboratory Improvement Amendments of 1988 and corresponding stateregulations may impair our ability to provide required laboratory service and create licensing or regulatory issues in somefacilities .

Our hospitals and free standing emergency room facilities each contain on - site laboratories and must hold certainfederal, state and local licenses, certifications and permits to operate the on-site laboratories. Our on-site laboratories are subjectto the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”). Our laboratories are certified by CLIA as either waiveror accreditation laboratories. CLIA requires such on-site laboratories to be certified by the federal government and mandatescompliance with various operational, personnel, facilities administration, quality and proficiency testing requirements intended toensure that testing services are accurate, reliable and timely. CLIA certification also is a prerequisite to be eligible to bill state andfederal health care programs, as well as many private insurers, for laboratory testing services.

In addition , CLIA requires each certified laboratory to enroll in an approved proficiency testing program if it performstesting in any category for which proficiency testing is required. Such laboratories must periodically test specimens received froman outside proficiency testing organization and then must submit the results back to that organization for evaluation. A laboratorythat fails to achieve a passing score on a proficiency test may lose its right to perform testing in the category at issue. Further,failure to comply with other proficiency testing regulations, such as the prohibition on referral of a proficiency testing specimento another laboratory for analysis, can result in suspension, limitation, or revocation of the referring laboratory’s CLIAcertification, revocation of the laboratory’s approval to file claims with Medicare or Medicaid, the imposition of civil monetarypenalties, imposition of corrective action plans and onsite monitoring requirements, civil suit for injunctive relief, criminalsanctions including fines and imprisonment, and a bar against the laboratory’s owner and operator from owning or operating anyother laboratories during the period of revocation.

As a condition of CLIA certification, each of our on-site laboratories is subject to survey and inspection every otheryear, in addition to being subject to additional random inspections. The biennial survey is conducted by the Centers forMedicare & Medicaid Services, or CMS, a CMS agent (typically a state agency), or, if the on-site-laboratory is accredited, aCMS-approved accreditation organization. Our on-site laboratories are certified by CLIA and accredited by COLA, which is aCMS-approved accreditation organization. Those laboratories must comply with all CLIA requirements as well as with anyadditional requirements imposed by COLA.

CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law. Insome cases, state licensure programs defer to the federal CLIA program requisites for licensing purposes. In other instances, thestate’s regulations may impose additional obligations. State surveyors may inspect CLIA labs for licensing purposes, as agentsfor CMS to ensure CLIA compliance, or both. Our on-site laboratories are licensed by the appropriate state agencies in the statesin which they operate, if such licensure is required. If an on-site laboratory is out of compliance with federal or state laws orregulations governing laboratories, penalties for violation vary but may

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include suspension, limitation, or revocation of the referring laboratory’s CLIA certification, revocation of the laboratory’sapproval to file claims with Medicare or Medicaid, the imposition of civil monetary penalties, imposition of corrective actionplans and onsite monitoring requirements, civil suit for injunctive relief, criminal sanctions including fines and imprisonment, anda bar against the laboratory’s owner and operator from owning or operating any other laboratories during the period of revocation.

In May 2016, three Houston-area freestanding emergency rooms received notices of noncompliance relating to CLIArequirements. These notices were based upon a voluntary disclosure of technical violations discovered and properly reported byAdeptus. CMS proposed intermediate sanctions and Adeptus expects to resolve the matters through the payment ofadministrative penalties, submission of a corrective action plan and allegation of compliance, and adherence to a directed plan ofcorrection. We believe that we currently operate our laboratories in material compliance with all applicable licensing laws andregulations , but there is a risk that one or more government agencies could take a contrary position. Such occurrences, regardlessof their outcome, could impact our ability to operate one or more facilities.

Recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending couldadversely affect our business model, financial condition or results of operations.

Our results of operations and financial condition could be affected by changes in healthcare spending and policy. Thehealthcare industry is subject to changing political, regulatory and other influences. In March 2010, the President signed thePPACA into law, which made major changes in how healthcare is delivered and reimbursed, and increased access to healthinsurance benefits to the uninsured and underinsured population of the United States. However, certain provisions in the PPACA,such as the establishment of the Independent Payment Advisory Board, could cause us to face reduced reimbursement rates thatwould adversely affect our business model.

The PPACA may also adversely affect payors by increasing their medical cost trends, which could have an effect on theindustry and potentially impact our business and revenue as payors seek to offset these increases by reducing costs in other areas,although the extent of this impact is currently unknown.

It is possible that following the inauguration of President-elect Trump on January 20, 2017, legislation will beintroduced and passed by the Republican-controlled Congress repealing the PPACA in whole or in part and signed into law byPresident Trump, consistent with statements made by him during his presidential campaign indicating his intention to do sowithin a short time following his inauguration. Because of the continued uncertainty about the implementation of the PPACA,including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certaintythe likely impact of the PPACA or its repeal on our business model, prospects, financial condition or results of operations. Wealso anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcaredelivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effectingadditional fundamental changes in the healthcare delivery system. We cannot assure you as to the ultimate content, timing, oreffect of changes, nor is it possible at this time to estimate the impact of any such potential legislation

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

NoneItem 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

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Table of Contents

None.

Item 6. Exhibits

See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, which isincorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

ADEPTUS HEALTH INC. Date: November 9, 2016 /s/ Frank R. Williams Jr. Frank R. Williams Jr. (Chief Financial Officer and Authorized Officer)

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EXHIBIT INDE X

Exhibit Number Exhibit Description

10.1

First Amendment to Credit Agreement dated as of August 12, 2016 among First Choice ER, LLC, Adeptus HealthLLC, the subsidiaries identified therein, Bank of America, N.A., as Administrative Agent, Incremental Lender, andthe other lenders party thereto

10.2 Employment Agreement by and between First Choice ER, LLC and Frank R. Williams, Jr., dated July 26, 2016

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or otherdisclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on themfor that purpose. In particular, any representations and warranties made by us in these agreements or other documents were madesolely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of thedate they were made or at any other time.

67

Exhibit 10.1Published CUSIP Numbers:

Deal: 31947RAD3Revolver: 31947RAE1

Term Loan: 31947RAF8

FIRST AMENDMENT TO

CREDIT AGREEMENT

Dated as of October 6, 2015

among

FIRST CHOICE ER, LLC,as the Borrower,

ADEPTUS HEALTH LLC,

andCERTAIN OF ITS SUBSIDIARIES PARTY HERETO,

as the Guarantors,

BANK OF AMERICA, N.A.,as Administrative Agent, Swing Line Lender and L/C Issuer

and

THE LENDERS PARTY HERETO

BANK OF MONTREALand

SUNTRUST BANK,as Co-Syndication Agents

REGIONS BANK

andFIFTH THIRD BANK,

as Co-Documentation Agents

Arranged By:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,BMO CAPITAL MARKETS CORP.

andSUNTRUST ROBINSON HUMPHREY, INC.,as Joint Lead Arrangers and Joint Bookrunners

EAST\136442819.1

FIRST AMENDMENT

THIS FIRST AMENDMENT (this “ Amendment ”) dated as of August 12, 2016 to the CreditAgreement referenced below is by and among FIRST CHOICE ER, LLC, a Texas limited liability company(the “ Borrower ”), ADEPTUS HEALTH LLC, a Delaware limited liability company (“ Holdings ”), theGuarantors identified on the signature pages hereto, the Lenders identified on the signature pages hereto andBank of America, N.A., in its capacity as Administrative Agent (in such capacity, the “ AdministrativeAgent ”).

W I T N E S S E T H

WHEREAS, credit facilities have been extended to the Borrower pursuant to the Credit Agreement (asamended, modified, supplemented, increased and extended from time to time, the “ Credit Agreement ”)dated as of October 6, 2015 by and among the Borrower, the Guarantors identified therein, the Lendersidentified therein and the Administrative Agent; and

WHEREAS, pursuant to Section 2.16 of the Credit Agreement the Borrower has the right toincrease the Aggregate Revolving Commitments subject to the terms and conditions therein;

WHEREAS, the Borrower has requested an Incremental Revolving Increase; and WHEREAS, each of the Lenders identified on the signature pages hereto (each an “ Incremental

Lender ”) has agreed to increase its Revolving Commitment on the terms and conditions set forth herein. NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration,the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms . Capitalized terms used herein but not otherwise defined herein shall have themeanings provided to such terms in the Credit Agreement.

2. Increase in Aggregate Revolving Commitments . The Aggregate Revolving Commitmentsare increased pursuant to Section 2.16 of the Credit Agreement to $70,000,000. The RevolvingCommitment of each Incremental Lender is increased by the amount set forth opposite such Lender’s nameon Exhibit A attached hereto. Immediately after giving effect to such increase of the Aggregate RevolvingCommitments and the increase of each Incremental Lender’s Revolving Commitment as set forth on ExhibitA attached hereto, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,purchase from (x) the L/C Issuer a risk participation in each outstanding Letter of Credit in an amount equalto the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit and (y) theSwing Line Lender a risk participation in each outstanding Swing Line Loan in an amount equal to theproduct of such Lender’s Applicable Percentage times the amount of such Swing Line Loan. If anyRevolving Loans are outstanding on the date hereof, each Incremental Lender shall make Revolving Loans,the proceeds of which shall be applied by the Administrative Agent to prepay Revolving Loans of theexisting Lenders, in an amount necessary such that after giving effect thereto the outstanding RevolvingLoans are held ratably among all of the Lenders with a Revolving Commitment (based on its ApplicablePercentage of the Aggregate Revolving Commitments set for opposite such Lender’s name on Exhibit Aattached hereto) and the Borrower shall pay any amounts required pursuant to Section 3.05 of the CreditAgreement as a result of any such prepayment of Revolving Loans of existing Lenders.

2EAST\136442819.1

3. Amendments to Credit Agreement . 3.1 In Section 1.01 of the Credit Agreement, the definition of “Aggregate Revolving

Commitments” is amended in its entirety to read as follows: “ Aggregate Revolving Commitments ” means the Revolving Commitments of all the Lenders. Theamount of the Aggregate Revolving Commitments in effect on the effective date of the FirstAmendment to this Agreement is Seventy Million Dollars ($70,000,000). 3.2 Schedule 2.01 to the Credit Agreement (Commitments and Applicable Percentages) is

amended in its entirety to read as set forth on Exhibit A hereto. 4. Conditions Precedent . This Amendment shall become effective as of the date hereof upon

the satisfaction of the following conditions precedent: 4.1 Amendment . Receipt by the Administrative Agent of counterparts of this Amendment

executed by the Borrower, the Guarantors, the Incremental Lenders and the Administrative Agent. 4.2 Opinion of Counsel . Receipt by the Administrative Agent of opinions of legal counsel to

the Loan Parties in form and substance reasonably acceptable to the Administrative Agent, addressed to theAdministrative Agent and each Lender, dated as of the date hereof.

4.3 Certified Resolutions . Receipt by the Administrative Agent of a certificate of each LoanParty dated as of the date hereof signed by a Responsible Officer of such Loan Party certifying and attachingresolutions adopted by the board of directors or equivalent governing body of such Loan Party approvingthis Amendment.

4.4 Closing Certificate . Receipt by the Administrative Agent of a Pro Forma ComplianceCertificate demonstrating that after giving effect to the incurrence of the Incremental Revolving Increase ona Pro Forma Basis (and for purposes of this calculation assuming the Incremental Revolving Increase isfully drawn) (A) the Loan Parties would be in compliance with the financial covenants set forth in Section7.11 of the Credit Agreement recomputed as of the end of the period of the four fiscal quarters most recentlyended for which the Borrower has delivered financial statements pursuant to Section 6.01(a) or (b) of theCredit Agreement and (B) the Consolidated Net Leverage Ratio would not be greater than 0.25 times lessthan the maximum Consolidated Net Leverage Ratio permitted under Section 7.11 of the Credit Agreementas of the end of the period of the four fiscal quarters most recently ended for which the Borrower hasdelivered financial statements pursuant to Section 6.01(a) or (b) of the Credit Agreement.

4.5 Fees . Receipt by the Administrative Agent and the Incremental Lenders of any fees

required to be paid on or before the Closing Date.

4.6 Attorney Costs . The Borrower shall have paid all fees, charges and disbursements ofcounsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) tothe extent invoiced prior to or on the date hereof, plus such additional amounts of such fees, charges anddisbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred orto be incurred by it through the closing proceedings (provided that such estimate shall not thereafterpreclude a final settling of accounts between the Borrower and the Administrative Agent).

5. Amendment is a “Loan Document” . This Amendment is a Loan Document and allreferences to a “Loan Document” in the Credit Agreement and the other Loan Documents (including,

3EAST\136442819.1

without limitation, all such references in the representations and warranties in the Credit Agreement and theother Loan Documents) shall be deemed to include this Amendment.

6. Representations and Warranties; No Default . Each Loan Party represents and warrants tothe Administrative Agent and each Lender that after giving effect to this Amendment, (a) the representationsand warranties of each Loan Party contained in Article V of the Credit Agreement or any other LoanDocument, or which are contained in any document furnished at any time under or in connection herewith ortherewith, are true and correct in all material respects on and as of the date hereof, except to the extent thatsuch representations and warranties specifically refer to an earlier date, in which case they are true andcorrect in all material respects as of such earlier date, and (b) no Default exists.

7. Reaffirmation of Obligations . Each Loan Party (a) acknowledges and consents to all of

the terms and conditions of this Amendment, (b) affirms all of its obligations under the Loan Documentsand (c) agrees that this Amendment and all documents, agreements and instruments executed in connectionwith this Amendment do not operate to reduce or discharge such Loan Party’s obligations under the LoanDocuments.

8. Reaffirmation of Security Interests . Each Loan Party (a) affirms that each of the Liens

granted in or pursuant to the Loan Documents are valid and subsisting and (b) agrees that this Amendmentand all documents, agreements and instruments executed in connection with this Amendment do not in anymanner impair or otherwise adversely affect any of the Liens granted in or pursuant to the Loan Documents. 9. No Other Changes . Except as modified hereby, all of the terms and provisions of the LoanDocuments shall remain in full force and effect. 10. Counterparts; Delivery . This Amendment may be executed in counterparts (and by differentparties hereto in different counterparts), each of which shall constitute an original, but all of which whentaken together shall constitute a single contract. Delivery of an executed counterpart of this Amendment byfacsimile or other electronic imaging means shall be effective as an original. 11. Governing Law . This Amendment shall be deemed to be a contract made under, and for allpurposes shall be construed in accordance with, the laws of the State of New York.

[SIGNATURE PAGES FOLLOW]

4EAST\136442819.1

IN WITNESS WHEREOF , the parties hereto have caused this First Amendment to be duly executed as ofthe date first above written. BORROWER: FIRST CHOICE ER, LLC, a Texas limited liability

company By: /s/ Thomas S. HallName: Thomas S. HallTitle: Chief Executive Officer

GUARANTORS: ADEPTUS HEALTH LLC, a Delaware limitedliability company By: /s/ Thomas S. HallName: Thomas S. HallTitle: Chief Executive Officer

OPFREE LICENSING LP, a Texas limited partnershipOPFREE RE INVESTMENTS, LTD., a Texas limited

partnership By: ECC MANAGEMENT, LLC, a Texas limited liability

company, general partner of each of the foregoingcompanies

By: FIRST CHOICE ER, LLC, a Texas limited liability

company, sole member of each of the foregoingcompanies

By: /s/ Thomas S. HallName: Thomas S. HallTitle: Chief Executive Officer

EAST\136442819.1

GUARANTORS CONTINUED:ADEPTUS HEALTH COLORADO HOLDINGS LLC, a

Texas limited liability companyADEPTUS HEALTH MANAGEMENT LLC, a Texas

limited liability companyADEPTUS HEALTH PHOENIX HOLDINGS LLC, a

Texas limited liability companyADEPTUS HEALTH VENTURES LLC, a Texas limited

liability companyADPT DFW HOLDINGS LLC, a Texas limited liability

companyADPT HOUSTON HOLDINGS LLC, a Texas limited

liability companyADPT NEW ORLEANS HOLDINGS LLC, a Texas limited

liability companyADPT-CO MPT HOLDINGS LLC, a Texas limited liability

companyADPT-CO RE HOLDINGS LLC, a Texas limited liability

companyFIRST TEXAS HOSPITAL CY-FAIR LLC , a Texas

limited liability companyFTH HOUSTON PARTNERS LLC, a Texas limited

liability company By: /s/ Thomas S. HallName: Thomas S. HallTitle: Chief Executive Officer

EAST\136442819.1

GUARANTORS CONTINUED:CINCO RANCH MEDICAL CENTER LLC, a Texas

limited liability companyCONVERSE MEDICAL CENTER LLC, a Texas limited

liability companyCREEKSIDE FOREST MEDICAL CENTER LLC, a Texas

limited liability companyHELOTES MEDICAL CENTER LLC, a Texas limited

liability companyNORTHWEST HARRIS COUNTY MEDICAL CENTER

LLC, a Texas limited liability companyVICTORY LAKES MEDICAL CENTER LLC, a Texas

limited liability company By: FIRST CHOICE ER, LLC, a Texas limited liability

company, manager of each of the foregoing companies By: /s/ Thomas S. HallName: Thomas S. HallTitle: Chief Executive Officer

EAST\136442819.1

GUARANTORS CONTINUED:AJNH MEDICAL CENTER LLC, a Texas limited liability

companyALVIN MEDICAL CENTER LLC, a Texas limited liability

companyAUSTIN BRODIE MEDICAL CENTER LLC, a Texas

limited liability companyBRIAR FOREST-ELDRIDGE MEDICAL CENTER LLC,

a Texas limited liability companyBRUSHY CREEK MEDICAL CENTER LLC, a Texas

limited liability companyCENTER STREET DP MEDICAL CENTER LLC, a Texas

limited liability companyCOLONIAL LAKES MEDICAL CENTER LLC, a Texas

limited liability companyCONROE MEDICAL CENTER LLC, a Texas limited

liability companyCOPPERWOOD MEDICAL CENTER LLC, a Texas

limited liability companyCULEBRA-TEZEL MEDICAL CENTER LLC, a Texas

limited liability companyEAGLES NEST MEDICAL CENTER LLC, a Texas limited

liability companyEAST PFLUGERVILLE MEDICAL CENTER LLC, a

Texas limited liability companyECC MANAGEMENT, LLC, a Texas limited liability

companyFCER MANAGEMENT, LLC, a Texas limited liability

companyFRIENDSWOOD MEDICAL CENTER LLC, a Texas

limited liability company By: FIRST CHOICE ER, LLC, a Texas limited liability



EAST\136442819.1

GUARANTORS CONTINUED:GLEANNLOCH FARMS MEDICAL CENTER LLC, a

Texas limited liability companyHILLIARD MEDICAL CENTER LLC, a Texas limited

liability companyHOUSTON 9520 JONES MEDICAL CENTER LLC, a

Texas limited liability companyKATY ER CENTER LLC, a Texas limited liability

companyKINGWOOD MEDICAL CENTER LLC, a Texas limited

liability companyKUYKENDAHL MEDICAL CENTER LLC, a Texas

limited liability companyLA PORTE MEDICAL CENTER LLC, a Texas limited

liability companyLAKEWOOD FOREST MEDICAL CENTER LLC, a

Texas limited liability companyLEAGUE CITY MEDICAL CENTER LLC, a Texas limited

liability companyLOUETTA MEDICAL CENTER LLC, a Texas limited

liability company By: FIRST CHOICE ER, LLC, a Texas limited liability



EAST\136442819.1

GUARANTORS CONTINUED:OPFREE, LLC, a Texas limited liability companyPEARLAND PARKWAY MEDICAL CENTER LLC, a

Texas limited liability companyPEARLAND SUNRISE MEDICAL CENTER LLC, a

Texas limited liability companyPFLUGERVILLE MEDICAL CENTER LLC, a Texas

limited liability companyPOTRANCO MEDICAL CENTER LLC, a Texas limited

liability companyROSENBERG MEDICAL CENTER LLC, a Texas limited

liability companySAN ANTONIO NACOGDOCHES MEDICAL CENTER

LLC, a Texas limited liability companySIENNA PLANTATION MEDICAL CENTER LLC, a

Texas limited liability companySSH MEDICAL CENTER LLC, a Texas limited liability

companySTERLING RIDGE MEDICAL CENTER LLC, a Texas

limited liability companySUMMERWOOD MEDICAL CENTER LLC, a Texas

limited liability companyWATERSIDE MEDICAL CENTER LLC, a Texas limited

liability companyWILDERNESS-HARDY OAK MEDICAL CENTER LLC,

a Texas limited liability company By: FIRST CHOICE ER, LLC, a Texas limited liability



EAST\136442819.1

GUARANTORS CONTINUED:NATIONAL MEDICAL PROFESSIONALS OF

ARIZONA LLC, an Arizona limited liability company By: /s/ James M. MuzzarelliName: James M. Muzzarelli, M.D.Title: President

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ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as AdministrativeAgent

By: /s/ Darleen R. DiGraziaName: Darleen R. DiGraziaTitle: Vice President

INCREMENTAL LENDER: BANK OF AMERICA, N.A.

By: /s/ Mark HardisonName: Mark HardisonTitle: Senior Vice President

EAST\136442819.1

$ $ $$ $$ $$ $$ $

$ $

$ $

$ $

$ $ $

EXHIBIT A

Revolving Commitments and Applicable Percentages for Revolving Commitments

(after giving effect to the First Amendment to the Credit Agreement)

Lender Original RevolvingCommitment

Commitment toIncremental

Revolving Increase

Revolving Commitment(after giving effect toFirst Amendment)

Applicable Percentage(Revolving Commitmentafter giving effect toFirst Amendment)

Bank of America, N.A. 8,571,428.56 20,000,000.00 28,571,428.56 40.816326514% Bank of Montreal 7,857,142.86 - 7,857,142.86 11.224489800% SunTrust Bank 7,857,142.86 - 7,857,142.86 11.224489800% Regions Bank 7,142,857.14 - 7,142,857.14 10.204081629% Fifth Third Bank 6,428,571.43 - 6,428,571.43 9.183673471% Raymond James Bank,N.A. 5,000,000.00 - 5,000,000.00 7.142857143%

LegacyTexas Bank 4,285,714.29 - 4,285,714.29 6.122448986% Goldman Sachs BankUSA 2,857,142.86 - 2,857,142.86 4.081632657%

Total 50,000,000.00 20,000,000.00 70,000,000.00 100.000000000%

EAST\136442819.1

Execution VersionExhibit 10.2

EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the “ Agreement ”) is dated as of July 26, 2016, by andbetween Adeptus Health Inc., a Delaware corporation (the “ Company ”), and Frank Williams (“Employee ”).

PRELIMINARY RECITALS A. The Company is engaged in the business of indirectly owning, operating and managingfreestanding emergency room facilities and general acute care hospital facilities (together with allrelated activities incident thereto, the “ Business ”); B. The Company desires to employ Employee, and Employee desires to be employed by theCompany, as Chief Financial Officer and Executive Vice President of the Company on the terms andconditions contained herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the partieshereinafter set forth and other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged, the parties hereto agree as follows:

ARTICLE I Employment

1.1. Engagement of Employee . The Company agrees to employ Employee as ChiefFinancial Officer and Executive Vice President, and Employee accepts such employment by theCompany, for the period beginning August 1, 2016 (the “ Effective Date ”) and ending on August1, 2018 (such period, the “ Initial Period ”), provided that on expiration of the Initial Period thisAgreement shall automatically renew in successive one-year periods (each, a “ Renewal Period ,”and together with the Initial Period, the “ Employment Period ”) unless the Company or Employeeprovides, at least ninety (90) days before the end of the then-current Initial Period or Renewal Period,notice to the other of its or his intent not to renew the Agreement. Notwithstanding anything to thecontrary contained herein, the Employment Period is subject to termination pursuant to Article IIIbelow.

1.2. Duties and Powers . During the Employment Period, Employee will have suchresponsibilities, duties and authorities, and will render such services or act in such other capacity forthe Company and its affiliates as the Company’s Chief Executive Officer (“ CEO ”) may from timeto time direct. Employee will devote Employee’s best efforts, energies and abilities and Employee’sfull business time, skill and attention (except for permitted vacation periods and reasonable periods ofillness or other incapacity) to the business and affairs of the Company, and shall perform the dutiesand carry out the responsibilities assigned to Employee to the best of Employee’s ability and in adiligent, trustworthy, businesslike and efficient manner for the purpose of advancing the Company’sobjectives. Employee acknowledges that Employee’s duties and responsibilities will requireEmployee’s full‑time business efforts and agrees that during the Employment Period Employee willnot engage in any other business activity or have any business pursuits or interests unless (a) theCompany first delivers to Employee written approval of such

EAST\126731563.1 7/26/16

activities, pursuits or interests; and (b) such activities, pursuits or interests do not conflict with thebusiness of the Company Group (defined below) or interfere with the performance of Employee’sduties hereunder. Employee may serve on charitable, non-profit or educational board of directorsprovided that such opportunities do not interfere with normal business activities. Such additionalactivities must be reviewed and approved by Chairman of the Company’s Board of Directors (the “Board ”) and CEO.

1.3. No Violation . Employee represents and warrants that: (a) the execution of thisAgreement by Employee and the performance by Employee of Employee’s duties as an employee ofthe Company will not violate, conflict with or result in a breach or default under any agreements,arrangements or understandings to which Employee is or was a party, or by which Employee is orwas bound, (b) the performance of Employee’s duties as an employee of the Company will not belimited, restricted or impaired in any manner as a result of any agreements, arrangements orunderstandings to which Employee is or was a party, and (c) Employee has not taken and is not inpossession of any property or information belonging to any third party that he was not or is notpermitted to take or possess, and he will not use or disclose such property or information while anemployee of the Company.

ARTICLE II Compensation

2.1. Base Salary . During the Employment Period, the Company will pay Employee abase salary at the rate of $475,000 per annum (which annual base salary, as modified from time totime in accordance with this Section 2.1 , shall be referred to herein as the “ Base Salary ”), payablein regular installments in accordance with the Company’s general payroll practices for salariedemployees. If the Employment Period is terminated pursuant to Section 3 (subject to any severanceprovisions in Section 3.3 ), Employee’s Base Salary for any partial year will be prorated based uponthe number of days elapsed in such year during which services were actually performed byEmployee. The Company shall perform an annual review of Employee’s Base Salary based on theperformance of Employee’s duties and the Company’s other compensation policies; provided thatany increase in the Base Salary shall require approval of the CEO and the Board or the CompensationCommittee of the Board (the “ Compensation Committee ”). Any proposed decrease in base salaryshall be reviewed in advance with Employee and must be approved by Employee, the CEO and theBoard.

2.2. Discretionary Bonus . Subject to the terms of this Section 2.2: (a) following the endof each fiscal year, the Board or the Compensation Committee, in its sole discretion, may elect tocause the Company to award to Employee a cash bonus for such year equal to 75% of the BaseSalary (the “ Target Bonus ”) if the Board or Compensation Committee determines certainperformance targets (which shall be established and adjusted from time to time by the Board or theCompensation Committee) have been achieved; and (b) in recognition of Employee’s employment infiscal year 2016, Employee shall be eligible for the full Target Bonus, and no less than 50% of theTarget Bonus (that is, 37.5% of the Base Salary). Notwithstanding any provision to the contrary,Employee must be employed by the Company on the date any bonus is paid in order for Employee tobe eligible to receive such bonus.

2 EAST\126731563.1 7/26/16

2.3. Equity-Based Compensation – Initial Grant . Employee shall be awarded an initialgrant of the Company’s restricted stock with a value equal to $1,000,000 (as determined at the closeof trading on the New York Stock Exchange on the Effective Date) to vest over a three-year periodfollowing the Effective Date, pursuant to the Adeptus Health Inc. 2014 Omnibus Incentive Plan (the“ Plan ”) and subject to the current plan design and to the terms of a Restricted Stock Grant Notice tobe executed by Employee and the Company.

2.4. Reimbursement of Expenses; Lodging Expenses . Employee currently resides inState of Connecticut and will be commuting to the Company headquarters in Lewisville, Texas. TheCompany shall reimburse Employee for all reasonable expenses incurred by Employee whileperforming Employee’s duties under this Agreement, including, without limitation commutingexpenses, provided that each such reimbursement shall be subject to the Company’s policies andreceipt by the Company of corroborating documentation reasonably satisfactory to theCompany. The Company shall reimburse Employee for his actual documented temporary housingand out-of-pocket living expenses for the twelve (12) month period immediately following theEffective Date.

2.5. Relocation Benefits : Employee shall entitled to receive a total aggregate amountnot to exceed $100,000 with respect to the reimbursement of relocation expenses incurred byEmployee. Reimbursement will be made for actual expenses with reasonable supportingdocumentation. If Employee voluntarily terminates within the first twelve (12) months, Employeewill be responsible for reimbursing the Company on a pro-rata basis all monies paid on Employee’sbehalf with regard to relocation expenses.

2.6. Benefits . In addition to the Base Salary payable to Employee hereunder, Employeewill be eligible for certain benefits provided to similarly situated employees during the EmploymentPeriod, unless otherwise altered by the Board with respect to all management employees of theCompany, and in all cases subject to the controlling provisions of the applicable plan governing suchbenefits (collectively, the “ Benefits ”):

(a) hospitalization, disability, life and health insurance, to the extent offered bythe Company and subject to the Company’s policies in effect from time to time, and in amountsconsistent with Company policy, for all management employees, as reasonably determined by theBoard;

(b) 20 days of paid time off each year in accordance with Company policy for allmanagement employees;

(c) reimbursement for reasonable out-of-pocket business expenses incurred byEmployee in the ordinary course of Employee’s duties, subject to the Company’s policies in effectfrom time to time with respect to travel, entertainment and other expenses, including, withoutlimitation, requirements with respect to reporting and documentation of such expenses;

(d) other benefit arrangements to the extent made generally available by theCompany to its management employees; and

(e) eligibility to receive stock appreciation rights, stock options, restricted stock,restricted stock units, other stock-based awards or performance compensation awards under

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the Adeptus Health Inc. 2014 Omnibus Incentive Plan or equivalent plan (collectively, a “ Plan”) subject to (i) the determination of the Board or the Compensation Committee to grant such award,(ii) the terms of the applicable Plan, and (iii) the terms of an award agreement.

2.7. Taxes . All compensation payable to Employee hereunder is stated in gross amountand shall be subject to all applicable withholding taxes, other normal payroll and any other amountsrequired by law to be withheld.

ARTICLE III Termination

3.1. Termination By the Company or Death of Employee . This Agreement and theEmployment Period (i) shall automatically terminate upon Employee’s death, and (ii) may beterminated by the Company without notice for Cause, without Cause, or by reason of Employee’sPermanent Disability.

“ Cause ” as used herein means the occurrence of any of the following events:

(a) a material breach by Employee of any of the terms and conditions of thisAgreement, provided that if such breach is capable of cure the Company shall give Employee writtennotice of the breach and provide Employee a reasonable period (not to exceed thirty (30) days) tocure the breach to Company’s reasonable satisfaction, and provided further, for the avoidance ofdoubt, that no breach of Article IV shall be capable of cure;

(b) Employee’s material and willful failure or willful refusal to substantiallyperform Employee’s duties or the Company’s directives to Employee;

(c) Employee’s failure to comply with any of the written guidelines, policies orprocedures promulgated by the Company, provided that if such failure is capable of cure Companyshall give Employee written notice of the failure and provide Employee a reasonable period (not toexceed thirty (30) days) to cure the failure to the Company’s reasonable satisfaction;

(d) the determination by the Board in the exercise of its reasonable judgment thatEmployee has committed an act or acts constituting a felony or other act involving dishonesty,misconduct, fraud, breach of fiduciary duty or duty of loyalty, or misappropriation against theCompany Group or any customer, employee or vendor of the Company Group; or

(e) conviction of, or plea of nolo contendere to, a felony or crime involving moralturpitude other than an infraction for driving under the influence of alcohol.

“ Permanent Disability ” as used herein shall mean the Employee’s entitlement to receive long-termdisability benefits under the Company's long-term disability plan or, in the absence of such aplan, Employee’s inability to perform, with or without reasonable accommodation, by reason ofphysical or mental incapacity, the essential functions of Employee’s position. The Board shalldetermine, according to the facts then available, whether and when a Permanent Disability hasoccurred. Such determination shall not be arbitrary or unreasonable, and shall be final and binding onthe parties hereto.

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3.2. Termination by Employee . Employee has the right to terminate Employee’semployment under this Agreement at any time, for any or no reason, upon thirty (30) days’ writtennotice to the Company.

3.3. Compensation After Termination .

(a) Subject to Section 3.3(b) hereof, or except as may be specifically required bylaw, if the Employment Period is terminated for any reason, including (i) expiration of theEmployment Period as a result of Employee exercising Employee’s right to not renew the Agreementunder Section 1.1, (ii) by the Company for Cause or due to the death or Permanent Disability ofEmployee under Section 3.1 , or (iii) by Employee under Section 3.2 , then the Company shall haveno further obligations to Employee except for the right to receive reimbursement of expenses andpayment of Employee’s Base Salary accrued through the date of such termination or expiration (suchreimbursement and payment, the “ Accrued Amounts ”), and the Company shall continue to haveall other rights available hereunder (including, without limitation, all rights under Article IV hereof)at law or in equity.

(b) Subject to Section 3.3(c) hereof, if the Employment Period is terminated as aresult of Company exercising Company’s right to not renew the Agreement under Section 1.1, by theCompany without Cause and not due to Permanent Disability under Section 3.1 , or if Employeeterminates his employment for Good Reason, then: (i) Employee shall be entitled to receive theAccrued Amounts; and (ii) subject to the conditions hereinafter set forth, Employee shall be entitledto receive as severance compensation, the following (collectively, the “ Severance Pay ”): (A)continued payment of Employee’s then-current monthly Base Salary hereunder for a period oftwelve (12) months (such time period to be hereinafter referred to as the “ Severance Period ”),payable in regular installments in accordance with the Company’s general payroll practices forsalaried employees; (B) the bonus, if any, to which Employee would have been entitled underSection 2.2 hereof at the end of the year during which the termination without Cause occurs had suchtermination not occurred, which bonus shall be (1) prorated based on the amount of time thatEmployee was employed by the Company during the year (not including the Severance Period) forwhich such bonus is being calculated, and (2) determined and paid to Employee contemporaneouslywith the determination and payment of bonuses for similarly situated employees of the Company;and (C) continuation of the welfare benefits described in Section 2.3(a) for the Severance Period, tothe extent permissible under the terms of the relevant benefit plans.

“ Good Reason ” as used herein shall mean, without duplication, a resignation byEmployee occasioned by any of the following events or conditions: (i) a material failure by theCompany to pay Employee the Base Salary and/or benefits to which Employee is entitled hereunder; (ii) a material reduction in Employee’s duties, responsibilities or authority without Employee’s priorwritten consent, or (iii) a material reduction in Employee’s Base Salary (as set forth in Section 2.1 )and/or Employee’s title, unless such reduction in Base Salary and/or title is based on a Companyaction affecting all executive employees of the Company; provided, however, that in order for anyevent or condition described above to constitute Good Reason hereunder, Employee must:

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(A) give the Company written notice within thirty (30) days after Employeefirst has actual knowledge of the event or condition, which written noticeidentifies the event or condition and explains why Employee believes thatit constitutes Good Reason;

(B) (1) provide the Company thirty (30) days from the date of service of thenotice described in sub-clause (A) above to cure such event or condition,and (2) terminate Employee’s employment only if such event or conditionremains uncured by the Company as of the end of such 30-day period; and

(C) in any case terminate Employee’s employment with the Company withinninety (90) days after Employee first has actual knowledge of the initialexistence of such event or condition.

(a) Employee’s right to receive any payments or benefits (other than the AccruedAmounts) under Section 3.3(b) hereunder is conditioned upon: (i) Employee executing anddelivering to the Company an irrevocable written separation agreement and general release of allclaims, in form and substance acceptable to the Company, which shall contain, among other things, ageneral release by Employee of all known and unknown claims of any sort Employee may haveagainst the Company, Adeptus Health Inc., Adeptus Health, LLC, a Delaware limited liabilitycompany, Adeptus Health Ventures, LLC, a Texas limited liability company, First Choice ER, LLC,a Texas limited liability company, all parents, subsidiaries, members, joint ventures and affiliates ofthe aforementioned entities (collectively the “ Company Group ”) and all employees, officers,directors, agents, attorneys and shareholders of the Company Group; (ii) Employee’s compliancewith such separation agreement and general release, and (iii) Employee’s continued compliance withall of Employee’s obligations which survive termination of this Agreement, including, withoutlimitation, those described in Article IV below. The payments and benefits under Section 3.3(b) areintended to be in lieu of all other payments (other than the Accrued Amounts) to which Employeemight otherwise be entitled in respect of Employee’s termination without Cause or for Good Reason. Except as provided in Article III, the Company shall have no further obligations hereunder orotherwise with respect to Employee’s employment from and after the date of termination ofemployment with the Company for any reason (the “ Termination Date ”), and the Company shallcontinue to have all other rights available hereunder (including, without limitation, all rightshereunder (including, without limitation, all rights under Article IV hereof)) at law or in equity.

3.4. Special Tax Payments .

(a) If any payments or benefits owed to Employee (including, without limitation,any payment, compensation or benefits received in connection with a change in control of theCompany or the Executive's termination of employment, whether pursuant to the terms of thisAgreement, the Plan or any other plan, arrangement or agreement, or otherwise) (collectively, “280G Payments ”) constitute “parachute payments” within the meaning of Section 280G of theInternal Revenue Code of 1986 (the “ Code ”) and would, but for this section, be subject to the excisetax imposed under Section 4999 of the Code (the “ Excise Tax ”), then before any 280G Payment ismade, a calculation shall be made comparing (i) the Net Benefit (defined below) to the

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Executive of the 280G Payments after payment of the Excise Tax to (ii) the Net Benefit to theExecutive if the 280G Payments are reduced to the extent necessary to avoid application of the ExciseTax. The Company shall reduce the 280G Payments to the minimum extent necessary to ensure thatno portion of the 280G Payments is subject to the Excise Tax only if the amount calculated undersubsection (i) above is less than the amount under subsection (ii). “ Net Benefit” shall mean thepresent value of the 280G Payments less of all federal, state, local, foreign income, employment, andexcise taxes. Any reduction made pursuant to this section shall be made in a manner determined bythe Company that is consistent with the requirements of Section 409A.

(b) All calculations to be made under this Section 3.4 will initially be made, atthe Company’s expense, by the Company’s independent public accountant (the “ Accounting Firm”). The Accounting Firm shall provide detailed supporting legal authorities, calculations anddocumentation both to the Company and Employee.

3.5. Code Section 409A . The parties intend this Agreement to be either exempt from orcompliant with Section 409A of the Code, as amended, and the regulations promulgated thereunder(“ Section 409A ”), and this Agreement will be interpreted and administeredaccordingly. Notwithstanding any provision to the contrary, neither the Company, the Board, norany of their delegates or agents shall have any liability for any negative tax consequences toEmployee under Section 409A, nor shall they have any obligation to prevent, minimize, or make agross-up payment to offset any such negative consequences. To the extent any payment or benefitunder this Agreement is subject to Section 409A, the following conditions will apply:

(a) The parties designate each payment as a separate payment.

(b) Any reimbursement or in-kind benefit is subject to all of the followingconditions: (i) any amount provided in one taxable year has no effect on the amount eligible to beprovided in another taxable year, unless permitted under Section 409A; (ii) any reimbursement willbe made no later than the end of the year after the year in which the expense is incurred; and (iii) theright to any amount cannot be liquidated or exchanged for another benefit. Any tax gross-uppayment will be paid by December 31 of the year after the year in which the Employee pays theunderlying taxes.

(c) To the extent a termination of employment triggers a payment, a change inthe time and form of payment, or both, the term “termination of employment,” or words to that effectused in this Agreement, means the Employee’s “separation from service” (as defined under Section409A).

(d) Any amount payable within the six-month period after the Employee’sseparation from service as a “specified employee” (as defined under Section 409A) of the Companywill accumulate without interest and be paid on the first payday after the end of the six-month periodor, if earlier, within ten business days after the appointment of a personal representative or executorof the estate after the Participant’s death.

(e) Any severance payment will be paid on or beginning on the first payday afterthe end of any period during which the Employee may revoke a general release of claims thatbecomes effective no later than 60 days after the Employee’s separation from service, except that

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if the period during which the Employee has discretion to sign or revoke the release includes portionsof two tax years of the Employee, the payment will be made in the later year, regardless of when theEmployee actually delivers the signed release to the Company.

ARTICLE IV Restrictive Covenants

4.1. Employee’s Acknowledgment . Employee acknowledges that:

(a) the Company is and will be engaged in the Business during the EmploymentPeriod and thereafter;

(b) Employee is one of a limited number of persons who will be developing theBusiness;

(c) Employee will occupy a position of trust and confidence with the Companyafter the date of this Agreement, and during such period and Employee’s employment under thisAgreement, Employee will become familiar with the Company’s trade secrets and with otherproprietary and confidential information concerning the Company and the Business;

(d) the agreements and covenants contained in this Article IV are essential toprotect the Company and the goodwill of the Business and are a condition precedent to the Companyentering into this Agreement;

(e) Employee’s employment with the Company has special, unique andextraordinary value to the Company and the Company would be irreparably damaged if Employeewere to provide services to any person or entity in violation of the provisions of this Agreement;

(f) for purposes of this Article IV , the term “ Company ” shall include theCompany Group; and

(g) The covenants of this Article IV are supported by adequate consideration,including, without limitation: new employment with the Company; access to the Company’sConfidential Information (defined below), customers, and goodwill; the post-terminationcompensation provided at Section 3.3 ; and eligibility for bonus compensation and benefits.

4.2. Non-Compete . Employee hereby agrees that for a period commencing on the datehereof and ending on the Termination Date (regardless of the reason for termination), and thereafter,through the later of (a) the period ending on the first anniversary of the Termination Date or (b) theperiod ending at the conclusion of the Severance Period (collectively, the “ Restrictive Period ”),Employee shall not, directly or indirectly, in an executive or managerial capacity, as employee, agent,consultant, stockholder, director, co-partner or in any other individual or representative capacity,own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultantor advisor to, render services for (alone or in association with any person, firm, corporation or entity),or otherwise assist any person or entity (other than the Company) that engages in or owns, invests in,operates, manages or controls any venture or enterprise that directly or indirectly engages or proposesto engage in any element of the Business anywhere within a 100-mile radius of Lewisville, TX orwithin a 100-mile radius of

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any municipality in which the Company on the Termination Date engages in any element of theBusiness (the “ Territory ”); provided, however, that nothing contained herein shall be construed toprevent Employee from investing in the stock of any competing corporation listed on a nationalsecurities exchange or traded in the over‑the‑counter market, but only if Employee is not involved inthe business of said corporation and if Employee and Employee’s associates (as such term is definedin Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in effect on the datehereof), collectively, do not own more than an aggregate of 3% of the stock of suchcorporation. With respect to the Territory, Employee specifically acknowledges that the Companyoperates the Business throughout the United States.

4.3. Interference with Customer Relationships . Without limiting the generality of theprovisions of Section 4.2 hereof, Employee hereby agrees that, during the Restrictive Period,Employee will not directly or indirectly (a) Solicit any Customer (defined below) for the purpose ofsecuring business or contracts related to any element of the Business, or (b) encourage any present orfuture customer or patient of the Company or any of its affiliated practices or facilities to terminate orotherwise alter his, her or its relationship with the Company or such affiliated practice or facility;provided, however, that nothing contained herein shall be construed to prohibit or restrict Employeefrom soliciting business from any such parties on behalf of the Company in performance ofEmployee’s duties as an employee of the Company required under and as specifically contemplatedby Section 1.2 above. The term “ Customer ” means any client or customer of the Company withwhom Employee has had contact in the two years before the Termination Date. The term “ Solicit ”means: (x) to make any comments or engage in any conduct that would influence a decision tocontinue doing business with the Company or with a third party, regardless of how contact isinitiated; or (y) to make any comments or engage in any conduct that would influence a decision tocontinue an employment or contracting relationship with the Company or accept such a relationshipwith another company, regardless of how contact is initiated.

4.4. Non-solicitation . Other than in the performance of Employee’s duties hereunder,during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent,consultant, stockholder, director, co‑partner or in any other individual or representative capacity,employ or engage, recruit or Solicit for employment or engagement, any person who is or becomesemployed or engaged by the Company during the Restrictive Period.

4.5. Confidential Information . Other than in the performance of Employee’s dutieshereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain instrictest confidence, and shall not, without the prior written consent of the Company, furnish, makeavailable or disclose to any third party or use for the benefit of Employee or any third party, anyConfidential Information. As used in this Agreement, “ Confidential Information ” shall mean anyinformation relating to the business or affairs of the Company or the Business, including, but notlimited to, any technical or non-technical data, formulae, compilations, programs, devices, methods,techniques, designs, processes, procedures, improvements, models, manuals, financial data,acquisition strategies and information, information relating to operating procedures and marketingstrategies, and any other proprietary information used by the Company in connection with theBusiness, irrespective of its form; provided, however, that Confidential Information shall not includeany information which is in the public domain or becomes known in the industry

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through no wrongful act on the part of Employee. Employee acknowledges that the ConfidentialInformation is vital, sensitive, confidential and proprietary to the Company.

4.6. Inventions and Discoveries .

(a) Employee understands and agrees that all inventions, discoveries, ideas,improvements, whether patentable, copyrightable or not, pertaining to the Business of the Companyor relating to the Company’s actual or demonstrably anticipated research, development or inventions(collectively, “ Inventions and Discoveries ”) that result from any work performed by Employeesolely or jointly with others for the Company which Employee, solely or jointly with others,conceives, develops, or reduces to practice during the course of Employee’s employment with theCompany, are the sole and exclusive property of the Company. Employee will promptly disclose allsuch matters to the Company and will assist the Company in obtaining legal rights in Inventions andDiscoveries. Employee hereby assigns, on behalf of Employee, Employee’s executors, legalrepresentatives and assignees, the Inventions and Discoveries to the Company, its successors andassigns.

(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREETHAT SECTION 4.6(a) SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FORWHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OFTHE COMPANY WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON EMPLOYEE’SPERSONAL TIME, UNLESS (A) THE INVENTION RELATED (I) TO THE BUSINESS OF THECOMPANY OR (II) TO THE COMPANY’S ACTUAL OR DEMONSTRABLY ANTICIPATEDRESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS FROM ANY WORKPERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANYFURTHER ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TOANY INVENTIONS OR WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIORTO THE EFFECTIVE DATE.

(c) EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS READ THISSECTION 4.6 AND FULLY UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPONEMPLOYEE AND HAS RECEIVED A DUPLICATE COPY OF THIS AGREEMENTFOR EMPLOYEE’S RECORDS.

4.7. Blue‑Pencil . If any arbitrator or court of competent jurisdiction shall at any timedeem the duration of any covenant set forth in this Article IV (collectively, “ Restrictive Covenants”) too lengthy, the Territory too extensive, or any other provision overly broad or burdensome, theother provisions of this Article IV shall nevertheless stand, the Restrictive Period herein shall bedeemed to be the longest period permissible by law under the circumstances, the Territory hereinshall be deemed to comprise the largest territory permissible by law under the circumstances, and theAgreement shall otherwise be modified and enforced as necessary to impose the maximum restrictionpermitted by law.

4.8. Remedies . Employee acknowledges and agrees that the Restrictive Covenants arereasonable and necessary for the protection of the Company’s business interests, that irreparableinjury will result to the Company if Employee breaches any of the terms of said RestrictiveCovenants, and that in the event of Employee’s actual or threatened breach of any such Restrictive

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Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that inthe event of any actual or threatened breach by Employee of any of the Restrictive Covenants, theCompany shall be entitled to immediate temporary and permanent injunctive and other equitablerelief, without bond and without the necessity of showing actual monetary damages. Nothingcontained herein shall be construed as prohibiting the Company from pursuing any other remediesavailable to it for such breach or threatened breach, including the recovery of any damages which it isable to prove. Employee shall be liable for all attorney’s fees that the Company reasonably incurs inenforcing the Restrictive Covenants.

4.9. Covenant Not to Disparage . During the Restrictive Period and thereafter, Employeeand the Company shall not disparage, denigrate or derogate in any way, directly or indirectly, anyindividual or entity within the Company Group (collectively, the “ Protected Parties ”), nor shallEmployee and the Company disparage, denigrate or derogate in any way, directly or indirectly,Employee’s experience with any Protected Party, or any actions or decisions made by any ProtectedParty.

4.10. Government Communications . Nothing in this Agreement shall limit Employee’sexercise of any rights to communicate or file claims with any government agency.

4.11. Restrictive Period . The Restrictive Period shall be extended for a period of timeequal to any time period during which Employee is in violation of this Article IV .

ARTICLE V Miscellaneous

5.1. Notices . Any notice provided for in this Agreement must be in writing and must beeither (a) personally delivered, (b) mailed by registered or certified first class mail, prepaid withreturn receipt requested or (c) sent by a recognized overnight courier service, to the recipient at theaddress below indicated:

To the Company: Adeptus Health2941 S Lake VistaLewisville, TX 75067Attention: Thomas S. Hall

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with a copy to: Adeptus Health2941 S Lake VistaLewisville, TX 75067Attention: Timothy Mueller, General CounselTo Employee:

at Employee’s home address then on file with the Company and to Employee’sattorney of record, Wayne Outten, at the business address then on file with theCompany,

or such other address or to the attention of such other person as the recipient party shall havespecified by prior written notice to the sending party. Any notice under this Agreement will bedeemed to have been given (x) on the date such notice is personally delivered, (y) three (3) days afterthe date of mailing if sent by certified or registered mail, or (z) one (1) day after the date such noticeis delivered to the overnight courier service if sent by overnight courier.

5.2. Severability . Whenever possible, each provision of this Agreement will beinterpreted in such manner as to be effective and valid under applicable law, but if any provision ofthis Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable lawor rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any otherprovision or any other jurisdiction, but this Agreement will be reformed, construed and enforced insuch jurisdiction as if such invalid, illegal or unenforceable provision had never been containedherein.

5.3. Entire Agreement . This Agreement, those documents expressly referred to hereinand other documents of even date herewith embody the complete agreement and understandingamong the parties and supersede and preempt any prior understandings, agreements orrepresentations by or among the parties, written or oral, which may have related to the subject matterhereof in any way.

5.4. Counterparts . This Agreement may be executed on separate counterparts, each ofwhich is deemed to be an original and all of which taken together constitute one and the sameagreement.

5.5. Successors and Assigns . This Agreement is intended to bind and inure to the benefitof and be enforceable by Employee and the Company and their respective successors and permittedassigns. Employee may not assign any of Employee’s rights or obligations hereunder without thewritten consent of the Company.

5.6. No Strict Construction . The language used in this Agreement will be deemed to bethe language chosen by the parties hereto to express their mutual intent, and no rule of strictconstruction will be applied against any party hereto.

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5.7. Amendments and Waivers . Any provision of this Agreement may be amended orwaived only with the prior written consent of the Company and Employee.

5.8. Governing Law . This Agreement shall be construed and enforced in accordancewith, and all questions concerning the construction, validity, interpretation and performance of thisAgreement shall be governed by, the laws of the State of Texas, without giving effect to provisionsthereof regarding conflict of laws. The parties acknowledge that the Company’s headquarters arelocated in Texas and that Employee’s employment has a substantial relationship to Texas.

5.9. Income Tax Treatment . Employee and the Company acknowledge that it is theintention of the Company to deduct all amounts paid under this Agreement as ordinary and necessarybusiness expenses for income tax purposes. Employee agrees and represents that Employee will treatall such amounts as ordinary income for income tax purposes, and should Employee report suchamounts as other than ordinary income for income tax purposes, Employee will indemnify and holdthe Company harmless from and against any and all taxes, penalties, interest, costs and expenses,including reasonable attorneys’ and accounting fees and costs, which are incurred by Companydirectly or indirectly as a result thereof.

5.10. CONSENT TO JURISDICTION . THE COMPANY AND EMPLOYEE HEREBYCONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATEDWITHIN THE COUNTY OF DENTON, STATE OF TEXAS AND IRREVOCABLY AGREETHAT SUBJECT TO THE COMPANY’S ELECTION, ALL ACTIONS OR PROCEEDINGSARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCHCOURTS. EMPLOYEE ACCEPTS FOR EMPLOYEE AND IN CONNECTION WITHEMPLOYEE’S PROPERTIES, GENERALLY AND UNCONDITIONALLY, THENONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANYDEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUNDBY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.

5.11. WAIVER OF JURY TRIAL . THE PARTIES HERETO HEREBY WAIVE THEIRRESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASEDUPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEMRELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THERELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES HERETO ALSO WAIVEANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FORTHIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER ISINTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BEFILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THISAGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORTCLAIMS, BREACH OF DUTY CLAIMS, DISCRIMINATION CLAIMS, AND ALL OTHERCOMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO ACKNOWLEDGETHAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESSRELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERINGINTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVERIN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHERWARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER

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WITH THEIR RESPECTIVE LEGAL COUNSEL, AND THAT EACH KNOWINGLY ANDVOLUNTARILY WAIVES THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWINGCONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANINGTHAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVERSHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS ORMODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS ORAGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THEEVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENTTO A TRIAL BY THE COURT.

5.12. Survival . The provisions of Article III and Article IV shall survive termination ofEmployee’s employment with the Company and expiration of this Agreement.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year firstabove written. COMPANY : Adeptus Health By: /s/ Thomas S. Hall Thomas S. HallChairman and Chief Executive Officer EMPLOYEE : /s/ Frank WilliamsFrank Williams

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Exhibit 31.1

Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Gregory W. Scott, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2016 of Adeptus Health Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading 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 presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered 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 occurredduring the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controlover financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarizeand report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant's internal control over financial reporting.

By: /s/ Gregory W. Scott Gregory W. Scott Chairman and Interim Chief Executive Officer (Principal Executive Officer) November 9, 2016

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Frank R. Williams Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2016 of Adeptus Health Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading 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 presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered 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 occurredduring the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controlover financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarizeand report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant's internal control over financial reporting.

NoBy: /s/ Frank R. Williams Jr. Frank R. Williams Jr. Chief Financial Officer (Principal Financial Officer) November 9, 2016

Exhibit 32.1

Exhibit 32.1CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Adeptus Health Inc. (the "Company") for the quarterly period

ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, GregoryW. Scott, Chairman and Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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 the Company. By: /s/ Gregory W. Scott Gregory W. Scott Chairman and Interim Chief Executive Officer (Principal Executive Officer) November 9, 2016

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, orotherwise adopting the signature that appears in typed form within the electronic version of this written statement required bySection 906, has been provided to the Company and will be retained by the Company and furnished to the Securities andExchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C.Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 32.2

Exhibit 32.2CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Adeptus Health Inc. (the "Company") for the quarterly period

ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank R.Williams Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, 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 the Company. Nov By: /s/ Frank R. Williams Jr. Frank R. Williams Jr. Chief Financial Officer (Principal Financial Officer) November 9, 2016

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, orotherwise adopting the signature that appears in typed form within the electronic version of this written statement required bySection 906, has been provided to the Company and will be retained by the Company and furnished to the Securities andExchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C.Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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