U S PHYSICAL THERAPY INC /NV (USPH) Business

ITEM 1. BUSINESS

GENERAL

U.S. Physical Therapy, Inc. through its subsidiaries (“we”, “us”, “our”, or the “Company”), operates its business through two reportable business segments. Our
physical therapy operations segment consists of physical therapy, speech therapy and occupational therapy clinics and home-care physical and speech therapy practices that provide pre- and post-operative care and treatment for a variety
of orthopedic-related disorders, sports-related injuries, and rehabilitation of injured workers. Services provided by the industrial injury prevention services (“IIP”) segment include onsite services for clients’ employees including
injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of IIP is contracted with and paid for directly by employers,
including a number of Fortune 500 companies. IIP is performed through industrial sports medicine professionals with specialized training related to the musculoskeletal system.

We were re-incorporated in April 1992 under the laws of the State of Nevada and have operating subsidiaries organized in various states in the form of limited
partnerships, limited liability companies and wholly-owned corporations. This description of our business should be read in conjunction with our financial statements and the related notes contained in Item 8 in this Annual Report on
Form 10-K.

Our principal executive offices are located at 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042. Our telephone number is (713) 297-7000. Our
website is www.usph.com.

Acquisitions of Businesses and Interests

During the last three years, we completed the acquisitions of the following clinic practices and IIP businesses detailed below:

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Besides the multi-clinic acquisitions referenced in the table above, during 2025, 2024, and 2023 we
purchased the assets and businesses of fourteen, eight and nine physical therapy clinics, respectively, which were tucked into larger partnerships in separate transactions.

Our strategy is to continue acquiring outpatient physical therapy practices, develop outpatient physical therapy clinics as satellites in existing partnerships,
manage outpatient physical therapy clinics owned by third parties, and continue acquiring companies that provide or serve the Company’s industrial injury prevention services sector.

We repurchased 81,322 of our own shares of common stock for total consideration of $5.6 million on the open market in the three months ended December 31, 2025.

We are in the process of implementing a new enterprise resource planning (“ERP”) system designed to support certain human resources and accounting functions. The
implementation is intended to enhance system integration, standardize processes, and improve operational efficiency and reporting capabilities. We expect to continue the phased implementation of the ERP system over time while
maintaining existing systems and controls during the transition.

OUR OPERATING SEGMENTS

Our reportable segments include the physical therapy operations segment and the IIP segment. Also included in the physical therapy operations segment are revenues from management
contract services and other services, which include services we provide on-site, such as athletic trainers for schools.

Physical Therapy Operations

Our physical therapy operations segment primarily operates through subsidiary clinic partnerships (“Clinic Partnerships”), in which we generally serve as the
general partner or managing member of the Clinic Partnerships. Our equity interests generally range from 65% to 75% (with an overall range of 30%-99%) in the Clinic Partnerships.  For the vast majority of the Clinic Partnerships, the
managing healthcare practitioner is a physical therapist who owns, directly or indirectly, the remaining limited partnership interest in most of the clinics.

Some of the Clinic Partnerships serve as management services organizations which manage and provide staffing and a variety
of administrative services to hospitals, hospital systems and physical therapy provider entities in which we do not have an ownership interest. These Clinic Partnerships similarly are owned collectively by us and one or more
physical therapists who are involved in the management of the operations.  To a lesser extent, the Company operates some clinics through wholly-owned subsidiaries (hereinafter referred to as “Wholly-Owned Facilities”). In
addition, we have developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more
than one clinic location.

Our Clinics

We owned and/or managed 780 clinics in 44 states on December 31, 2025. Our highest concentration of clinics is in the following states: Texas, Tennessee,
Michigan, New York, Virginia, Oregon, Florida, Pennsylvania, Georgia, Maryland, Idaho, Missouri, Arizona, Alabama, Connecticut, South Carolina, and Wyoming. Included in these clinics, are 34 hospital and/or physician owned physical
therapy practices as of December 31, 2025, that we manage through management contracts.  We continue to grow this aspect of our business, as our Clinic Partnerships pursue strategic affiliations with hospitals and hospital systems in
their respective local markets.  Pursuant to these contractual arrangements, the Clinic Partnerships provide the hospital providers with a variety of administrative, staffing and management-related services, and in some cases the use of
clinic premises and equipment. These arrangements involve one or more fees paid by the hospital provider to the particular Clinic Partnership in return for the performance of such services under those arrangements.

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The table that follows presents historical information regarding the number of clinics operated by the Company during the periods indicated.

Clinic Count Roll Forward (1)

Our typical clinic occupies 1,000 to 7,000 square feet of leased space in an office building or shopping center. There are 21 clinics occupying space in the range
of over 7,000 square feet to 16,500 square feet. We attempt to lease ground level space for our patients’ ease of access to clinics.

Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of national purchasing, negotiated third-party payor
contracts, centralized support services and management practices. Under a management agreement, we provide a variety of support services to each clinic, including supervision of site selection, construction, clinic design and equipment
selection, establishment of accounting systems and billing procedures and training of office support personnel, processing of accounts payable, non-clinical operational direction, auditing of regulatory compliance, payroll, benefits
administration, accounting services, legal services, quality assurance and marketing support.

We provide services at our clinics on an outpatient basis and generally charge for treatment on a per procedure basis. Medicare patients are charged based on
prescribed time increments and Medicare billing standards. In addition, our clinics will develop, when appropriate, individual maintenance and self-management exercise programs to be continued after treatment. We continually assess the
potential for developing new services and expanding the methods of providing existing services in the most efficient manner while providing high quality patient care.

Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment plan specific to the injury as
prescribed by the patient’s physician. The treatment plan may include a number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs, iontophoresis, education on
management of daily life skills and home exercise programs. A clinic’s business primarily comes from referrals by local physicians.

Patient Care Providers and Staffing

Typical minimum staff at a clinic consists of a licensed physical therapist and an office manager. As patient visits grow, staffing may also include
additional physical therapists, occupational therapists, therapy assistants, aides, exercise physiologists, athletic trainers and office personnel. Therapy services are performed under the supervision of a licensed therapist.

We continue to seek to attract employment of physical therapists who have established relationships with physicians and other referral sources by offering these
therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by us, the prior owners typically continue as
employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations.

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Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majority interest, enters into a multi-year
employment agreement for a term of up to five years with their Clinic Partnership. Each agreement typically provides for a covenant not to compete during the period of his or her employment and for up to two years thereafter. Under each
employment agreement, the therapist partner receives a base salary and may receive a bonus based on the net revenues or profits generated by their Clinic Partnership or specific clinic. In the case of Clinic Partnerships, the therapist
partner receives earnings distributions based upon their ownership interest. Upon termination of employment, we typically have the right to purchase the therapist’s partnership interest in Clinic Partnerships. For those Clinic
Partnerships we created in connection with an acquisition, our partner also has the right to cause us to purchase their interest upon termination of their employment, generally after a set holding period.

In connection with most of our acquired clinics, in the event that a limited non-controlling interest partner’s employment ceases and certain requirements are met
as detailed in the respective limited partnership agreements, the Company has a call right (the “Call Right”) and the selling entity or individual has a put right (the “Put Right”) with respect to the partner’s limited partnership
interests. The Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. In addition, certain of these selling entities or individuals have the right to exercise
some or all of their Put Right as of a specified anniversary date, in addition to having such rights upon termination of employment. The purchase price of the partner’s limited partnership interest upon exercise of the Put Right or the
Call Right is calculated at a predetermined multiple of earnings performance as detailed in the respective agreements.

Sources of Revenue

Payor sources for physical therapy operations are primarily managed care programs, commercial health insurance, Medicare/Medicaid and workers’ compensation
insurance. Commercial health insurance, Medicare and managed care programs generally provide coverage to patients utilizing our clinics after payment by the patients of normal deductibles and co-insurance payments. Workers’ compensation
laws generally require employers to provide, directly or indirectly through insurance, costs of medical rehabilitation for their employees from work-related injuries and disabilities and, in some jurisdictions, mandatory vocational
rehabilitation, usually without any deductibles, co-payments or cost sharing. Treatments for patients who are parties to personal injury cases are generally paid from the proceeds of settlements with insurance companies or from
favorable judgments. If an unfavorable judgment is received, collection efforts are generally not pursued against the patient and the patient’s account is written-off against established reserves. Bad debt reserves relating to all
receivable types are regularly reviewed and adjusted as appropriate. With respect to our management and administrative services agreements with hospitals, hospital systems, physicians and physical therapy providers, our revenue comes
from the fees that are paid to us by those provider entities, as those entities are responsible for billing and collecting their respective third party payors for those patient care services.

The following table shows our payor mix for the periods presented.

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Our physical therapy business depends to a significant extent on our relationships with commercial health insurers, health maintenance organizations, preferred
provider organizations and workers’ compensation insurers. In some geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferred provider plans to obtain payments. Failure to obtain
or maintain these approvals would adversely affect financial results.

Medicare

During the year ended December 31, 2025, approximately 40.1% of our visits and 35.8% of our net patient revenue was from patients with Medicare or Medicaid
program coverage. To receive Medicare reimbursement, a facility (Medicare Certified Rehabilitation Agency) or the individual therapist (Physical/Occupational Therapist in Private Practice) must meet applicable participation conditions
set by the Department of Health and Human Services (“HHS”) relating to the type of facility, equipment, recordkeeping, personnel and standards of medical care, and also must comply with all state and local laws. HHS, through Centers for
Medicare & Medicaid Services (“CMS”) and designated agencies, periodically inspects or surveys clinics/providers for approval and/or compliance.  Failure of our subsidiaries to obtain or maintain certifications as Medicare providers
or failure to enroll as a group of physical/occupational therapists in a private practice could adversely affect financial results.

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). Outpatient rehabilitation providers may
enroll in Medicare as institutional outpatient rehabilitation facilities (i.e., rehab agencies) or individual physical or occupational therapists in private practice. The majority of our clinicians are enrolled as individual physical or
occupational therapists in private practice while the remaining balance of providers are reimbursed through enrolled rehab agencies.

For calendar years 2021, 2022, 2023 and 2024, the MPFS had decreases in Medicare reimbursement of approximately 3.5%, 0.75%, 2.0% and 1.8%, respectively. The MPFS
for 2025 resulted in a decrease in Medicare reimbursement for therapy services by approximately 1.5%  as compared to the reimbursement rates in effect for most of 2024. For 2026, the Medicare reimbursement for therapy services is
expected to increase by approximately 1.75% as compared to the reimbursement rates for 2025.

In the final 2020 MPFS rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the physical therapist
assistant (“PTA”) provides skilled therapy alongside the physical therapist, an identification of the PTA’s participation (as denoted by a “CQ modifier”) is not required. Also, when the same service (code) is furnished separately by the
physical therapist and PTA, CMS applies the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service. For dates of service on and after January 1, 2022, CMS pays for physical
therapy and occupational therapy services provided by PTAs and occupational therapist assistants (“OTAs”) at 85% of the otherwise applicable Part B payment amount. CMS allows a timed service to be billed without a CQ (for PTA’s) or CO
(for OTA’s) modifier when a PTA or OTA participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the
physical therapist or occupational therapist provides more minutes than the 15-minute midpoint.

The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years and requires automatic reductions
in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. The Bipartisan Budget Act of 2018 extended the 2% reductions to Medicare
payments through fiscal year 2027.

Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to
adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Therapists eligible to
participate in MIPS include only those therapists who are enrolled with Medicare as private practice providers and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation
agencies. Less than 2% of our therapist providers currently participate in MIPS. Under the MIPS requirements, a provider’s performance is assessed according to established performance standards each year and then is used to determine an
adjustment factor that is applied to the professional’s payment for the corresponding payment year. For those therapist providers who participated in MIPS during 2020 through 2025, the resulting average payment adjustment was an
increase of 1%.  The 2026 adjustment for those therapist providers who participated in MIPS during 2024 is expected to remain at an average increase of approximately 1%.

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Under the Middle-Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures
during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate
$3,700 threshold is applied to the Occupational Therapy. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directed CMS to modify the manual medical review process such that those reviews will no longer apply to all
claims exceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate.

The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely but reduces the threshold to $3,000 through December 31, 2027. For 2028, the
threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such
subsequent year.

CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS for calendar year 2011. The MPPR applied to all
outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit
(“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for
the same patient, regardless of whether those therapy services are furnished in separate sessions. In 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient
was reduced by 50%.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from
Medicare that sufficiently compensate us for our services or, in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue,
financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business,
financial condition and results of operations.

Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We
believe that we are in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material
effect on our financial statements as of December 31, 2025. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties,
and exclusion from the Medicare program.

Marketing

We focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internal medicine physicians, podiatrists,
occupational medicine physicians and general practitioners. In marketing to the physician community, we emphasize our commitment to quality patient care and regular communication with physicians regarding patient progress. We employ
personnel to assist clinic directors in developing and implementing marketing plans for the physician community and to assist in establishing relationships with health maintenance organizations, preferred provider organizations, case
managers and insurance companies.

Industrial Injury Prevention Services

Services provided in the IIP segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional
capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their
contractors. IIP is performed through industrial sports medicine professionals with specialized training related to the musculoskeletal system.

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In 2017, we acquired a 55% interest in an initial IIP business. In 2018, we acquired a 65% interest in another business in the IIP sector and then combined the
two businesses.  After the combination, we owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). In 2019, we acquired 100% of a third provider of industrial injury prevention services.
The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including
onsite at eleven client locations. The business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76%. In 2021, we acquired a company that specializes in return-to-work and
ergonomic services, among other offerings and contributed those assets to Briotix Health. On October 31, 2023, we made an acquisition and purchased 100% of an additional IIP business and contributed its assets to Briotix Health. As part
of the October 2023 Acquisition, we also acquired a 55% interest in an ergonomics software business. In April 2024, we acquired 100% of an IIP business and contributed its assets to Briotix Health. Subsequent to the abovementioned
acquisitions and the purchases and sales of the redeemable non-controlling interests of the limited partners, our ownership in Briotix Health is approximately 92%.

On November 30, 2021, we acquired an approximate 70% interest in another leading provider of IIP services. The founders and owners retained the remaining
interest.

FACTORS INFLUENCING DEMAND FOR PHYSICAL THERAPY SERVICES

We believe that the following factors, among others, influence the growth of outpatient physical therapy services:

REGULATION AND HEALTHCARE REFORM

Numerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into which we may expand have laws requiring
facilities employing health professionals and providing health-related services to be licensed and, in some cases, to be owned by licensed physical therapists. Our therapists and/or clinics, however, are required to be licensed, as
determined by the state in which they provide services. Failure to obtain or maintain any required approvals or licenses could have a material adverse effect on our business, financial condition and results of operations.

Fraud and Abuse and Competition Regulations

Various federal and state laws regulate financial relationships among providers of healthcare services. These laws include the federal Anti-Kickback Statute, Section 1128B(b) of the
Social Security Act (42 U.S.C. § 1320a-7b(b)) (the “Fraud and Abuse Law”), which prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for (i) the referral of
individuals for the furnishing of any item or service for which payment may be made, in whole or in part, under a Federal health care program, including Medicare and Medicaid, or (ii) the purchasing, leasing, ordering, or arranging for,
or recommending the purchasing, leasing, or ordering of, any good, facility, service or item for which payment may be made, in whole or in part, under a Federal health care program. Violations of the Fraud and Abuse Law may result in
significant criminal and civil penalties, including fines, imprisonment, exclusion from participation in federal health care programs, and liability under the federal False Claims Act and other laws.  Various federal and state laws also
regulate collaboration among providers of healthcare services. These laws include the Sherman Act, (15 U.S.C. § 1 et seq.), the Clayton Act (15 U.S.C. § 12 et
seq.), and the Federal Trade Commission Act, 42 U.S.C. § 45 et seq.) together, (the “Antitrust Laws”), all of which prohibit various forms of unfair competition involving actual or
potential competitors. Violation of these laws can result in significant criminal and civil penalties, including fines and imprisonment We believe that our business procedures and business arrangements comply with these laws.  However,
the Fraud and Abuse Law and Antitrust Laws are broadly interpreted and the full extent of their specific application to specific facts and arrangements to which we are a party is uncertain and difficult to predict.

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The Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services has promulgated regulatory “safe harbors” that describe certain payment and business
practices that will not be treated as violations of the Fraud and Abuse Law if all applicable conditions are satisfied. Failure to qualify for a safe harbor does not necessarily mean an arrangement is unlawful; however, arrangements
that do not fully satisfy an applicable safe harbor may be subject to increased scrutiny by enforcement authorities under a facts and circumstances analysis.  In addition, several states have enacted laws similar to the Fraud and Abuse
Law, which may be more restrictive.

The OIG also has issued special fraud alerts, advisory opinions and special advisory bulletins that provide guidance regarding practices that may raise compliance risks. For example,
OIG guidance has addressed arrangements involving the rental of space from referral sources, expressing concern that rental payments could be used to disguise improper remuneration. We lease clinic space in certain instances from
referring physicians and other providers and have implemented compliance procedures designed to structure such leases, to the extent practicable, in a manner consistent with applicable regulatory guidance, including the space rental
safe harbor.

In addition, a 2003 OIG Special Advisory Bulletin addresses certain “contractual joint venture” arrangements that may be viewed as suspect where a health care provider (the “Owner”)
expands into a related line of business by contracting with an existing provider (referred to therein as the “manager/supplier”)to furnish substantially all of the operational and administrative services for that business while the
Owner retains the economic benefit associated with its patient referrals. According to the OIG, such arrangements may present heightened risk under the Fraud and Abuse Law if the Owner’s return is tied, directly or indirectly, to the
volume or value of referrals, or if the arrangement effectively allows a referral source to profit from a new service line without assuming commensurate operational risk. These arrangements are also subject to the Antitrust Laws and
must be assessed in terms of market dynamics and the impact on horizontal competition as well as the provider’s negotiating position with other parties, such as third-party payors.

Due to the nature of our business, certain of our management, administrative services, licensing and professional services arrangements with hospitals, physician practices and other
providers may share characteristics identified by the OIG as potentially higher risk. We endeavor to structure these arrangements to comply with applicable law and guidance, including through the use of written agreements, commercially
reasonable terms, and compensation that we believe to be consistent with fair market value, as supported, in certain circumstances, by opinions from qualified third-party valuation firms. Similar diligence is used to ensure antitrust
compliance. Notwithstanding these efforts, there can be no assurance that a governmental authority would agree with our assessment or would not determine that any particular arrangement constitutes a prohibited contractual joint venture
or otherwise violates the Fraud and Abuse Law (or its respective state law counterparts), the federal False Claims Act, or the Antitrust Laws.

Although the business of managing and supporting hospital-owned and physician-owned physical therapy operations is subject to extensive regulation, many of our arrangements do not fit
squarely within existing regulatory safe harbors. Guidance from courts and regulatory agencies regarding the application of Fraud and Abuse Laws to management and services arrangements continues to evolve, and the interpretation of
these laws remains uncertain. If any of our arrangements were found to violate applicable fraud and abuse laws or regulations, we could be subject to substantial civil or criminal penalties, damages, exclusion from participation in
federal health care programs, reputational harm, and other adverse consequences, which could materially and adversely affect our business, financial condition, results of operations and cash flows. There is similar risk associated with
violating the Antitrust Laws.

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Stark Law

Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health
services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several
exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy and occupational therapy services are among the “designated health
services”. Further, the Stark Law has application to our management contracts with individual physicians and physician groups, as well as any other financial relationship between us and referring physicians, including medical advisor
arrangements and clinic lease arrangements. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not
just Medicare and Medicaid) patients. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians and hospitals, as well as marketing and other
activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law or any similar state laws, our financial results and operations could be adversely affected. Penalties for violations include
denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.

Corporate Practice of Medicine; Fee-Splitting

We also contract with physician-owned professional corporations, physical therapists owned professional corporations, and hospital and  hospital-affiliated
organizations to deliver our services to them on behalf of their patients. We may also enter into management and/or administrative services agreements with these physician-owned and/or therapist-owned professional corporations, and
hospital-affiliated organizations, pursuant to which we may provide them with staffing, billing, scheduling and a wide range of other services, and they pay us for those services out of the fees they collect from patients and
third-party payors. These contractual relationships will be subject to various state laws, including those of New York, that prohibit fee-splitting or the practice of medicine by lay entities or persons and are intended to prevent
unlicensed persons from interfering with or influencing the licensed physician’s or physical therapist’s professional judgment. In addition, various state laws also generally prohibit the sharing of professional services income with
nonprofessional or business interests. Activities other than those directly related to the delivery of healthcare may be considered an element of the practice of medicine in many states.

State corporate practice of medicine and fee-splitting laws also vary from state to state and are not always consistent among states. In addition, these
requirements are subject to broad powers of interpretation and enforcement by state regulators. Some of these requirements may apply to us even if we do not have a physical presence in the state, based solely on our engagement of a
provider licensed in the state or the provision of telehealth to a resident of the state. Failure to comply could lead to adverse judicial or administrative action against us and/or our providers, civil or criminal penalties, receipt of
cease-and-desist orders from state regulators, loss of provider licenses, the need to make changes to the terms of engagement of our providers that interfere with our business and other materially adverse consequences. While we believe
our arrangements with physician-owned and physical therapist-owned professional corporations, and with hospital-affiliated organizations, are not in conflict with applicable state corporate practice of medicine restrictions, a state or
a court could in the future determine that our arrangements implicate the restrictions on the corporate practice of medicine.

HIPAA

In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”). HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the
healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions. HIPAA also criminalized certain forms of health fraud against all public and private payors.
Additionally, HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health
information. Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII of ARRA, the Health
Information Technology for Economic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for the development of health
information exchange (“HIE”). Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly
expanded the scope of the privacy and security requirements under HIPAA. Most notable are the mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to
business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more
stringent than comparable provisions under HIPAA.

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We believe that our operations comply with applicable standards for privacy and security of protected healthcare information. We cannot predict what negative
effect, if any, HIPAA/HITECH or any applicable state law or regulation will have on our business.

Other Regulatory Factors

Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States. Congress, state legislatures and the
private sector continue to review and assess alternative healthcare delivery and payment systems. Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are
expected to demand only modest increases or reduced costs. For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept
payments that may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private
sector reform may have on our business.

COMPETITION

The healthcare industry, including the physical therapy business and the industrial injury prevention services business, is highly competitive. The physical
therapy business as well as the industrial injury prevention services business are both highly fragmented with no company having a significant market share nationally. We believe that we are one of the largest national outpatient
physical therapy services providers.

Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, and relationships with, and ability to meet
the needs of, referral and payor sources. Our clinics compete, directly or indirectly, with many types of healthcare providers including the physical therapy departments of hospitals, private therapy clinics, physician-owned therapy
clinics, and chiropractors. We may face more intense competition if consolidation of the therapy industry continues.

We believe that our partnership strategy provides us with a competitive advantage. Our clinics are partly owned by therapists who have developed exceptional
reputations in their local communities and these therapist-owners oversee their respective clinic operations helping to ensure the success of the clinics.

ENFORCEMENT ENVIRONMENT

In recent years, federal and state governments have launched several initiatives aimed at uncovering behavior that violates the federal civil and criminal laws
regarding false claims and fraudulent billing and coding practices. Such laws require providers to adhere to complex reimbursement requirements regarding proper billing and coding in order to be compensated for their services by
government payors. Our compliance program requires adherence to applicable law and promotes reimbursement education and training; however, a determination that our clinics’ billing and coding practices are false or fraudulent could have
a material adverse effect on us.

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to
verify our compliance with these programs and applicable laws and regulations. Federal, state and private payors regularly conduct audits of billing and coding practices at our clinics. An adverse inspection, review, audit or
investigation could result in refunding the amounts we have been paid; fines penalties and/or revocation of billing privileges for the affected clinics; the imposition of a corporate integrity agreement; exclusion from participation in
the Medicare or Medicaid programs or one or more managed care payor networks; or damage to our reputation.

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We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and
other governmental programs and third-party payors that contain false or fraudulent information. The federal False Claims Act encourages private individuals to file suits on behalf of the government against healthcare providers such as
us. As such suits are generally filed under seal with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit
until the government has made its determination and the seal is lifted. Violations or alleged violations of such laws, and any related lawsuits, could result in (i) exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, or (ii) significant financial or criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim
could be deemed a separate violation. In addition, many states also have enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.

COMPLIANCE PROGRAM

Our Compliance Program

Our ongoing success depends upon our reputation for quality service and ethical business practices. We operate in a highly regulated environment with many
federal, state and local laws and regulations. We take a proactive interest in understanding and complying with the laws and regulations that apply to our business.

Our Board of Directors (the “Board”) has adopted a Code of Business Conduct and Ethics and a set of Corporate Governance Guidelines to clarify the ethical
standards under which the Board and management carry out their duties. In addition, the Board has created a Compliance Committee of the Board (“Compliance Committee”) whose purpose is to assist the Board in discharging their oversight
responsibilities with respect to compliance with federal and state laws and regulations relating to healthcare.

We have issued a Compliance Manual and created compliance training materials, hand-outs and an on-line testing program. These tools were prepared to ensure that
every employee of our Company and subsidiaries has a clear understanding of our mutual commitment to high standards of professionalism, honesty, fairness and compliance with the law in conducting business. These standards are
administered by our Chief Compliance Officer (“CCO”), who has the responsibility for the day-to-day oversight, administration and development of our compliance program. The CCO, internal and external counsel, management and the
Compliance Committee review our policies and procedures for our compliance program from time to time in an effort to improve operations and to ensure compliance with requirements of standards, laws and regulations and to reflect the
on-going compliance focus areas which have been identified by management, counsel or the Compliance Committee. We also have established systems for reporting potential violations, educating our employees, monitoring and auditing
compliance and handling enforcement and discipline.

Committees

Our Compliance Committee, appointed by the Board, consists of three independent directors. The Compliance Committee has general oversight of our Company’s
compliance with the legal and regulatory requirements regarding healthcare operations, as well as cybersecurity. The Compliance Committee relies on the expertise and knowledge of management, the CCO and other compliance and legal
personnel. The CCO regularly communicates with the Chairman of the Compliance Committee. The Compliance Committee meets at least four times a year or more frequently as necessary to carry out its responsibilities and reports regularly
to the Board regarding its actions and recommendations.

We also have an Internal Compliance Committee, which is comprised of Company leaders in the areas of operations, clinical services, finance, human resources,
legal, information technology and credentialing. The Internal Compliance Committee has the responsibility for evaluating and assessing Company areas of risk relating to compliance with federal and state healthcare laws, and generally to
assist the CCO. The Internal Compliance Committee meets at least four times a year or more frequently as necessary to carry out its responsibilities. In addition, management has appointed a team to address our Company’s compliance with
HIPAA. The HIPAA team consists of a security officer and employees from our legal, information systems, finance, operations, compliance, business services and human resources departments. The team prepares assessments and makes
recommendations regarding operational changes and/or new systems, if needed, to comply with HIPAA.

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Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body composed of a member of our management and the
director/administrator of the clinic. The governing body retains legal responsibility for the overall conduct of the clinic. The members confer regularly and discuss, among other issues, clinic compliance with applicable laws and
regulations. In addition, there are Professional Advisory Committees which serve as Infection Control Committees. These committees meet in the facilities and function as advisors.

We have in place a Risk Management Committee consisting of, among others, the CCO, the Vice President of Human Resources, and other legal, compliance and
operations personnel. This committee reviews and monitors all employee and patient incident reports and provides clinic personnel with actions to be taken in response to the reports.

Reporting Violations

In order to facilitate our employees’ ability to report in confidence, anonymously and without retaliation any perceived improper work-related activities,
accounting irregularities and other violations of our compliance program, we have set up an independent national compliance hotline. The compliance hotline is available to receive confidential reports of wrongdoing Monday through Friday
(excluding holidays), 24 hours a day. The compliance hotline is staffed by experienced third party professionals trained to utilize utmost care and discretion in handling sensitive issues and confidential information. The information
received is documented and forwarded timely to the CCO, who, together with the Compliance Committee, has the power and resources to investigate and resolve matters of improper conduct.

Educating Our Employees

We utilize numerous methods to train our employees in compliance related issues, including an online learning management system. All employees complete a
comprehensive training program comprised of numerous modules relating to our business and proper practices when newly hired and annually thereafter. The directors/administrators also provide periodic “refresher” training for existing
employees and one-on-one comprehensive training with new hires. The corporate compliance group responds to questions from clinic personnel and conducts frequent teleconference meetings, webinars and training sessions on a variety of
compliance related topics.

When a clinic opens, we provide a package of compliance materials containing manuals and detailed instructions for meeting Medicare Conditions of Participation
Standards and other compliance requirements. During follow up training with the director/administrator of the clinic, compliance department staff explain various details regarding requirements and compliance standards. Compliance staff
will remain in contact with the director/administrator while the clinic is implementing compliance standards and will provide any assistance required. All new office managers receive training (including Medicare, regulatory and
corporate compliance, insurance billing, charge entry and transaction posting and coding, daily, weekly and monthly accounting reports) from the training staff at the corporate office. The corporate compliance group will assist in
continued compliance, including guidance to the clinic staff with regard to Medicare certifications, state survey requirements and responses to any inquiries from regulatory agencies.

Monitoring and Auditing Clinic Operational Compliance

We have in place audit programs and other procedures to monitor and audit clinic operational compliance with applicable policies and procedures. We employ
internal auditors who, as part of their job responsibilities, conduct periodic audits of each clinic. Most clinics are audited at least once every 24 months and additional focused audits are performed as deemed necessary. During these
audits, particular attention is given to compliance with Medicare and internal policies, Federal and state laws and regulations, third party payor requirements, and patient chart documentation, billing, reporting, record keeping,
collections and contract procedures. The audits are conducted on site or remotely and include interviews with the employees involved in management, operations, billing and accounts receivable.

Formal audit reports are prepared and reviewed with corporate management and the Compliance Committee. Each clinic director/administrator receives a letter
instructing them of any corrective measures required. Each clinic director/administrator then works with the compliance team and operations to ensure such corrective measures are achieved.

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Handling Enforcement and Discipline

It is our policy that any employee who fails to comply with compliance program requirements or who negligently or deliberately fails to comply with known laws or
regulations specifically addressed in our compliance program should be subject to disciplinary action up to and including discharge from employment. The Compliance Committee, compliance staff, human resources staff and management
investigate violations of our compliance program and impose disciplinary action as considered appropriate.

EMPLOYEES

As of December 31, 2025, we employed approximately 7,294 people nationwide, of which approximately 4,200 were full-time employees. In addition, therapist-owned
outpatient physical therapy practices for which we provide management and/or administrative services employ another 801 employees of which 453 are full-time employees. It is crucial that we continue to attract and retain top talent. To
attract and retain talented employees, we strive to make our corporate office and all our practices and businesses a diverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development,
encouragement to grow and develop their career, all supported by competitive compensation, incentives, and benefits. Our clinical professionals are all licensed and a vast majority have advanced degrees. Our operational leadership teams
have long-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.

We provide competitive compensation and benefits programs to help meet our employees’ needs in the practices and communities in which they serve. These programs
(which can vary by practice and employment classification) include competitive base salaries, incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off,
family leave, education assistance, mental health, and other employee assistance benefits.

We invest resources to develop the talent needed to support our business strategy. Resources include a multitude of training and development programs delivered
internally and externally, online and instructor-led, and on-the-job learning formats.

We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.

AVAILABLE INFORMATION

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our internet website at www.usph.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov.