What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-19 · 327 added, 189 removed, 311 unchanged (62% of the section changed)

1 unchanged sentence

together with its consolidated subsidiaries.

As of February 1, 2020, we are the largest operator of senior living communities in the United States based on total capacity, with 743 communities in 45 states and the ability to serve approximately 65,000 residents.

As of December 31, 2020, we are the largest operator of senior living communities in the United States based on total capacity, with 726 communities in 43 states and the ability to serve approximately 64,000 residents.

We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry.

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Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer.

We believe there are significant opportunities to deliver stockholder value as we execute on our strategy to achieve this goal.

We continue to execute our core operational strategy that we initiated in early 2018, and we believe successful execution on that strategy provides the best opportunity for us to create stockholder value.

We have supplemented our operational strategy with initiatives intended to complement and enhance our core operational efforts and to position us for future growth and success as we encounter changes and trends in demographics, technology, and healthcare delivery methods.

We believe there are significant opportunities to create and deliver stockholder value as we execute on our strategy to achieve this goal.

Our refined strategy is focused on these priorities:

Continued Operational Improvement and Simplification.

We are focused on our core senior living communities and intend to continue to drive improvements in our senior living portfolio by winning locally.

• Continued Operational Improvement and Efficiency.

We are focused on our core senior living communities and intend to continue to drive operational improvements.

Through our "win locally" initiative, we intend to provide choices for high quality care and personalized service by caring associates while leveraging our industry-leading scale and experience.

Such efforts include improvements to our sales and marketing process, prioritizing communities with the most opportunities for improvement, and ensuring that our communities are ready for new competition.

We also continue to focus on attracting, engaging, developing, and retaining the best associates by maintaining a compelling value proposition in the areas of compensation, leadership, career development, and meaningful work.

We believe engaged associates lead to an enhanced resident experience, lower turnover, and, ultimately, improved operations.

Such efforts include optimizing our sales and marketing processes, prioritizing communities with the most opportunities for growth, and ensuring that our communities and their programming are competitive in the market.

We also continue to focus on attracting, engaging, developing, and retaining the best associates by maintaining a compelling value proposition in the areas of leadership, career development, and meaningful work.

We believe engaged associates lead to lower turnover, improved operations, and ultimately an enhanced resident experience that drives accelerated growth.

To sharpen our focus on our core senior living operations, we are (and have been) executing on initiatives to reduce the complexity of our business and to ensure appropriate risk-reward tradeoffs in our highly regulated product lines.

Such initiatives include exiting our entry fee CCRC business and continuing to optimize our management services business.

Such initiatives include exiting substantially all our entry fee CCRC business in 2020 (which also significantly reduced the number of skilled nursing facilities we operate) and continuing to optimize our management services business.

• Senior Living Portfolio.

Since initiating our operational turnaround strategy in early 2018, we have continued our portfolio optimization initiative through which we have disposed of owned and leased communities and restructured leases.

Such transactions have included restructuring our leases with our three largest landlords, sales of 36 owned communities, and dispositions of substantially all of our interests in unconsolidated ventures (including our equity interests in 14 entry fee CCRCs).

As we emerge from our disposition phase, we intend to (i) increase our ownership percentage in our senior housing portfolio through acquiring leased or managed communities and exiting underperforming leases when possible, (ii) expand our footprint and services in core markets where we have, or can achieve, a clear leadership position, (iii) formalize and execute an ongoing capital recycling program, including opportunistically selling certain communities to invest in expansion of our existing communities and the acquisition or development of newer communities with lower capital expenditure needs, and (iv) pivot back to portfolio growth through targeted development, investment, and acquisition opportunities such as de novo development and selective acquisitions of senior living communities and operating companies.

We will continue to invest in our development capital expenditures program through which we expand, renovate, reposition, and redevelop selected existing senior living communities where economically advantageous.

For 2020, we expect to continue to pursue non-development capital expenditures at higher-than-typical amounts, but at significantly less than 2019 amounts.

2021, we expect our annual community-level capital expenditures to be between $2,000 and $2,500 per weighted average unit.

Such transactions have included restructuring our leases with our three largest landlords, sales and conveyance of owned communities, and dispositions of substantially all of our remaining ownership interests in unconsolidated ventures, including our entry fee CCRC venture with Healthpeak Properties, Inc.

("Healthpeak").

As we move forward in 2021, we intend to continue to (i) expand our footprint and services in core markets where we have, or can achieve, a clear leadership position, (ii) execute an ongoing capital recycling program through acquiring leased or managed communities and exiting underperforming owned assets or leases when possible, and (iii) pivot back to portfolio growth through targeted development, investment, and acquisition opportunities.

• Expansion of Healthcare and Service Platform.

Our vision is to enable those we serve to live well by offering the most integrated and highest-quality healthcare and wellness platform in the senior living industry.

We intend to pilot a more integrated healthcare service model in certain markets in 2020.

We also intend to pursue initiatives designed to accelerate growth in our healthcare services business, primarily by growing our hospice and home health business lines, and to grow our private duty business.

Such initiatives may include further acquisitions of hospice agencies or certificates of need in our geographic footprint, further expansion of our services to seniors living outside our communities, implementation of improvements to our sales and marketing efforts associated with our healthcare services business, and pursuit of additional or expanded relationships with managed care providers.

We believe the successful execution of these initiatives will increase our revenues and improve the results of operations of our Health Care Services segment and that the overall implementation of our integrated healthcare strategy will benefit our core senior housing business by increasing move-ins, improving resident health and wellbeing, and increasing our average length of stay and occupancy.

Our vision is to enable those we serve to live well by offering our residents the highest-quality healthcare and wellness platform in the senior living industry.

We intend to further integrate our healthcare service model in certain markets in 2021.

We also intend to pursue initiatives designed to accelerate growth in our healthcare services offered to residents within our communities and private duty services business.

Such initiatives may include implementation of improvements to our sales and marketing efforts associated with our healthcare services, pursuit of additional or expanded relationships with managed care providers, and further development of healthcare relationships to capitalize on growth opportunities.

We believe the successful execution of these initiatives and our healthcare strategy will drive incremental revenue by increasing move-ins, improving resident health and wellbeing, and as a result extend residents' average length of stay and increase occupancy.

We also believe that we will improve the results of operations as we further develop as a partner of choice for healthcare service or payor organizations seeking to provide services within our communities and/or improve health outcomes at an overall lower cost of care.

• Driving Innovation and Leveraging Technology.

We are engaged in a variety of innovation initiatives and over time plan to pilot and test new ideas, technologies, and operating models in order to enhance our residents' experience, improve outcomes, and increase average length of stay and occupancy.

With our technology platform, we also expect to identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to partner with third parties.

We are engaged in a variety of innovation initiatives and over time plan to pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience, improve outcomes, and increase average length of stay and occupancy.

With our technology platform, we also expect to identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third parties.

Recent Developments

Community Portfolio

Since launching our core operational strategy in February 2018, we have executed on the initiative to optimize our community portfolio through dispositions of owned and leased communities and restructuring leases.

We undertook this initiative to simplify and streamline our business, increase the quality and durability of our cash flow, improve our liquidity, reduce our debt and lease leverage, and increase our ownership in our consolidated community portfolio.

Such activities included our transactions with Ventas, Inc.

("Ventas") and Welltower Inc.

("Welltower") announced during 2018 and our transactions with Healthpeak Properties, Inc.

("Healthpeak") (f/k/a HCP, Inc.) announced on October 1, 2019.

As a result of these initiatives and other lease restructuring, expiration and termination activity, and other transactions, since January 1, 2018 through February 1, 2020 we have:

restructured our triple-net lease portfolios with our three largest lessors;

terminated our triple-net lease obligations on an aggregate of 99 communities;

acquired 32 formerly-leased or managed communities;

disposed of an aggregate of 36 owned communities generating $288.3 million of proceeds, net of related debt and transaction costs;

sold substantially all of our ownership interests in unconsolidated ventures, including our entry fee CCRC venture;

reduced our management of communities on behalf of former unconsolidated ventures and third parties.

As of February 1, 2020, we owned 356 communities, representing a majority of our consolidated community portfolio, and leased 307 communities.

We also managed 77 communities on behalf of third parties and three communities for which we have an equity interest.

The charts below show the foregoing changes in our portfolio from January 1, 2018 to February 1, 2020.

During the remainder of the year ending December 31, 2020 , we expect to close on the dispositions of three owned communities ( 495 units) classified as held for sale as of December 31, 2019 and the termination of our lease obligation on three communities ( 205 units) for which we have provided notice of non-renewal.

We also anticipate terminations of certain of our management arrangements with third parties as we transition to new operators our management on certain former unconsolidated ventures in which we sold our interest and our interim management on formerly leased communities.

The closings of the various pending and expected transactions are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.

However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information about the foregoing transactions and their impact on our results of operations.

COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted, and likely will continue to adversely impact the senior living industry and our business.

Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.

We continue to serve and care for seniors at our communities and their homes through the pandemic.

A significant portion of our corporate support associates have worked from home since March 2020.

The health and wellbeing of our residents, patients, and associates is and has been our highest priority.

We initiated our COVID-19 preparation efforts in January 2020.

Our response efforts center on infection prevention and control protocols, including following requirements and guidance of federal, state, and local governments and agencies, including the U.S.

Centers for Disease Control and Prevention ("CDC") and U.S.

Centers for Medicare & Medicaid Services ("CMS").

We have enhanced and reinforced training our associates in such protocols and continue to actively monitor government requirements and guidance and adapt our policies, procedures, and response efforts when applicable.

Upon confirmation of positive COVID-19 exposure at a community, we take actions intended to minimize further exposure, including associates' adhering to personal protection protocols, isolating residents or finding placement in an alternate care setting to best address their care needs, and in some cases, restricting new resident admissions, as directed by local health authorities.

Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days.

These restrictions were in place across our portfolio for the three months ended June 30, 2020.

We have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed positive COVID-19 cases.

Under this framework, we began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements and guidance allowed, which easing may have included permitting outdoor, and in some cases, indoor visits with families, reduced capacity or socially distanced communal dining, limited communal activities programming, and in-person prospective resident visits.

Although we are hopeful that administration of the vaccine to our residents and associates will enable us to further ease restrictions at our communities, those restrictions may continue for some time, and we may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities.

In April 2020, we proactively commenced a resident and associate testing program for our communities.

We undertook the program to identify positive, including asymptomatic, individuals, to better understand how our infection protocols are working, to help minimize the exposure to residents and associates of someone known to be COVID-19 positive, and in some cases to comply with state and local testing requirements.

In July 2020, we completed baseline testing at all of our communities,

and we have continued testing residents and associates at many of our communities.

We also continue to utilize rapid point of care antigen test kits supplied by the U.S.

Department of Health and Human Services ("HHS") at those of our communities with Clinical Laboratory Improvement Amendments ("CLIA") waivers.

Our testing program has accumulated approximately 320,000 test results.

Approximately 1.2% of our residents were known to have current COVID-19 positive test results on February 22, 2021.

Further testing, whether undertaken proactively, as a result of regulatory requirements, or at the direction of state or local health authorities, may result in significant additional expense, additional temporary restrictions on move-ins at affected communities, continued need for isolating positive residents, increased use of personal protective equipment ("PPE") by our associates, and increased employee-related costs.

In December 2020, two COVID-19 vaccines received emergency use authorization from the U.S.

Food and Drug Administration.

We elected to work with CVS Health Corporation, with whom we have a longstanding relationship to provide flu shot clinics in our communities, to administer vaccinations on site to our eligible residents and associates through the Pharmacy Partnership for Long-Term Care Program offered through the CDC.

Our work to prepare for and host vaccine clinics includes extensive planning, gathering insurance information, obtaining consents, scheduling appointments, holding educational sessions with residents, families, and associates and detailed coordination of traffic flow and observation areas.

We hosted our first clinics on December 18, 2020 and by January 22, 2021 had hosted over 500 community vaccine clinics.

As of February 22, 2021, first dose vaccine clinics had been completed for residents and associates at 100% of our communities and approximately 85% of our communities have had second dose vaccine clinics.

The pandemic, including the related restrictions at our communities, have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities.

We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time.

In response to these developments, we have redesigned our sales process to include virtual tours, video engagement, and outdoor prospective resident meetings, enhanced and adapted our marketing programs to address the social distancing environment, and sought to strengthen our relationships with referral sources.

During the third quarter of 2020, we returned to using in-person prospective resident visits for a majority of our communities.

However, several large markets continue with virtual-only prospective resident visits as of December 31, 2020.

We have placed restrictions on move-ins at our communities when circumstances warrant, including at the direction of state or local health authorities.

Although these restrictions began to ease considerably in August 2020, restrictions on move-ins escalated throughout the fourth quarter of 2020 due to the resurgence of the virus.

At the end of the second, third, and fourth quarters of 2020, 86%, 98%, and 89% of our communities, respectively, were accepting new move-ins.

As of February 22, 2021, 97% of our communities were accepting new move-ins.

We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents.

The pandemic, including the related restrictions at our communities, began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels.

The year-over-year decrease in monthly move-ins of our same community portfolio has moderated from 64.2% in April 2020 to 26.5% in December 2020.

Our consolidated senior housing portfolio's weighted average occupancy has declined in each month of the pandemic, from 82.7% in March 2020 to 71.5% in December 2020, and was 70.0% in January 2021.

We estimate that the pandemic, including the related restrictions at our communities, resulted in $281.1 million of lost resident fee revenue for the year ended December 31, 2020, including $228.5 million of lost resident fee revenue in our consolidated senior housing portfolio.

Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19.

Our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in a 14.6% year-over-year decline in home health average daily census for the year ended December 31, 2020.

We expect home health average daily census to continue to gradually recover sequentially with increased elective medical procedures and hospital discharges and senior housing occupancy.

We estimate that the pandemic, including the related restrictions at our communities, resulted in $52.6 million of lost resident fee revenue for the Health Care Services segment for the year ended December 31, 2020 .

Facility operating expense for the year ended December 31, 2020 includes $125.5 million of incremental direct costs to prepare for and respond to the pandemic, including costs for:

acquisition of additional PPE, medical equipment, and cleaning and disposable food service supplies;

enhanced cleaning and environmental sanitation;

increased employee-related costs, including labor, workers compensation, and health plan expense;

increased expense for general liability claims;

and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs may continue to be substantial.

We also recorded non-cash impairment charges in our operating results of $105.6 million for the year ended December 31, 2020 for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

We have taken, and continue to take, actions to enhance and preserve our liquidity in response to the pandemic.

During the year ended December 31, 2020, we completed our financing plans in the regular course of business, including refinancing substantially all of our 2020 and 2021 maturities.

In addition, on August 31, 2020, we terminated our $250 million revolving credit facility and obtained $266.9 million of non-recourse mortgage financing on 16 communities, most of which had secured the credit facility prior to its termination.

During the year ended December 31, 2020, we accepted $109.8 million of cash for grants under the Public Health and Social Services Emergency Fund ("Provider Relief Fund") and $87.5 million of accelerated/advanced Medicare payments, and we deferred $72.7 million of the employer portion of social security payroll taxes.

These programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below.

We also delayed or canceled a number of elective capital expenditure projects, resulting in an approximate $67 million reduction to our pre-pandemic full-year 2020 capital expenditure plans, and suspended repurchases under our existing share repurchase program.

On July 26, 2020, we restructured our 120 community triple-net master lease with Ventas, Inc.

("Ventas") in a multipart transaction.

The components included, among other things, reducing our initial annual minimum rent to $100 million, representing a reduction of approximately $86 million over the twelve months ending June 30, 2021, and removal of the prior requirements that we satisfy financial covenants and maintain a security deposit with Ventas.

We paid a $119.2 million one-time cash lease payment to Ventas in connection with our lease restructuring transaction effective July 26, 2020.

As of December 31, 2020, our total liquidity was $575.5 million, consisting of $380.4 million of unrestricted cash and cash equivalents, $172.9 million of marketable securities, and $22.2 million of availability on our secured credit facility.

We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, seeking further government-sponsored financial relief related to the COVID-19 pandemic, and completing the pending sale of 80% of the equity in our Health Care Services segment.

There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate.

The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things.

The impacts to us of certain provisions of the CARES Act are summarized below.

• During the year ended December 31, 2020, we accepted $109.8 million of cash for grants from the Provider Relief Fund under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

The accepted grants were made available pursuant to the following distributions from the Provider Relief Fund:

• $101.7 million pursuant to General Distributions, with the aggregate amount ultimately determined based on a percentage of our year-over-year changes in patient care revenue and certain operating and other expenses for the first and second quarters of 2020.

• $4.6 million pursuant to the Skilled Nursing Facility Targeted Distribution, which generally related to our certified skilled nursing facilities.

• $3.5 million pursuant to the Nursing Home Infection Control Distribution, including incentive payments, which related to our skilled nursing care provided through our CCRCs.

Grants received from the Provider Relief Fund are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse.

The permissible uses of grants from the Nursing Home Infection Control Distribution are further limited to certain infection control expenses.

The program requires us to report to HHS on our use of the grants, and our reporting is subject to audit.

During the year ended December 31, 2020, we recognized $109.8 million of the grants as other operating income based upon our estimates of our satisfaction of the conditions of the grants during such period.

HHS continues to evaluate future allocations of, and regulation and guidance regarding, grants made under the Provider Relief Fund.

We intend to pursue additional funding that may become available.

However, there can be no assurance that we will qualify for, or receive, grants in the amount we expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify.

• During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act.

Approximately $75.2 million related to our Health Care Services segment and the remainder related to our CCRCs segment.

Under the program, we requested acceleration/advancement of 100% of our Medicare payment amount for a three-month period.

The Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020, amended the repayment terms for accelerated/advanced payments.

As amended, recoupment of accelerated/advanced payments will begin one year after payments were issued.

Payments will be recouped at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months.

Any outstanding balance of accelerated/advanced payments will be due following such recoupment period.

Pursuant to the Purchase Agreement (as defined below) we expect to repay the then outstanding balance of such accelerated/advance payments related to our Health Care Services segment at the closing of the sale of 80% of our equity in our Health Care Services segment.

• Under the CARES Act, we have elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020.

One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022.

As of December 31, 2020, we have deferred payment of $72.7 million under the program.

• The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefited our Health Care Services segment.

This suspension had a favorable impact of $4.0 million on the segment’s resident fee revenue for the year ended December 31, 2020.

The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, extended the sequestration suspension through March 31, 2021.

• We are eligible to claim the employee retention tax credit for certain of our associates under the CARES Act.

The refundable tax credit for 2020 is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee.

We estimate that we will be eligible to claim tax credits of approximately $10 million for 2020.

The credit was modified and extended for wages paid from January 1, 2021 through June 30, 2021 by the Consolidated Appropriations Act, 2021, and we are assessing our eligibility to claim such credit.

There can be no assurance that we will qualify for, or receive, tax credits in the amount we expect.

In addition to the grants described above, we have received and recognized $5.9 million of other operating income from grants from other government sources.

We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth.

The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease;

the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets;

the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups;

government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief;

perceptions regarding the safety of senior living communities during and after the pandemic;

changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand;

the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19;

changes in the acuity levels of our new residents;

the disproportionate impact of COVID-19 on seniors generally and those residing in our communities;

the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses;

the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents;

increased regulatory requirements, including unfunded, mandatory testing;

increased enforcement actions resulting from COVID-19;

government action that may limit our collection or discharge efforts for delinquent accounts;

and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.

2021 Pending Sale of Health Care Services

On February 24, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with affiliates of HCA Healthcare, Inc.

(“HCA Healthcare”), providing for the sale of 80% of our equity in our Health Care Services segment for a

purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment, which were $75.2 million and $8.2 million, respectively, as of December 31, 2020.

We expect our net cash proceeds at the closing will be approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement.

The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser.

The closing of the sale transaction is anticipated to occur in the late first half or early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement.

Pursuant to the Purchase Agreement, at closing of the transaction, we will retain a 20% equity interest in the business.

Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements and that our interest in the joint venture will be accounted for under the equity method of accounting.

We anticipate that the sale transaction will utilize a portion of our federal net operating loss carryforwards to offset the expected taxable gain on such transaction.

Community Portfolio Optimization

During 2020, we continued execution on our portfolio optimization initiative through which we have disposed of owned and leased communities and restructured leases.

Such activities during 2020 included restructuring our lease arrangements with Ventas announced on July 27, 2020 and closing the multi-part transaction with Healthpeak announced on October 1, 2019.

As a result of these initiatives and other lease restructuring, expiration, and termination activity, and other transactions, during the year ended December 31, 2020 we:

• Terminated our triple-net lease obligations on an aggregate of 32 communities, including through the acquisition of 27 formerly leased communities;

• Disposed of an aggregate of seven owned communities;

• Sold substantially all of our remaining ownership interests in unconsolidated ventures, including our entry fee CCRC venture with Healthpeak;

• Reduced our management of communities on behalf of former unconsolidated ventures and third parties, representing a net reduction of 25 managed communities during the year.

Summaries of these transactions, and their impact on our results of operations are set forth in "Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations." See also Note 4 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for more information about the transactions.

As of December 31, 2020, we owned 350 communities, representing a majority of our consolidated community portfolio, leased 301 communities, and managed 75 communities.

The charts below show the foregoing changes in our portfolio from December 31, 2019 to December 31, 2020.

During the year ending December 31, 2021, we expect to close on the dispositions of three owned communities (249 units) classified as held for sale as of December 31, 2020 and terminations of a substantial portion of our management arrangements.

The closings of the various pending and expected transactions are, or will be, subject to the satisfaction of various closing

conditions, including (where applicable) the receipt of regulatory approvals.

There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Capital Expenditures

During 2018, we completed an intensive review of our community-level capital expenditure needs with a focus on ensuring that our communities are in appropriate physical condition to support our strategy and determining what additional investments are needed to protect the value of our community portfolio.

Our total community-level capital expenditures were $238.7 million for 2019, which was an increase of $97.7 million from 2018, and $34.8 million of which was reimbursed by our lessors.

In the aggregate, we expect our full-year 2020 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $190 million, which includes a decrease of approximately $50 million in our community-level capital expenditures relative to 2019, as we have completed a significant portion of the major building infrastructure projects identified in our 2018 review.

Our total community-level capital expenditures were $140.1 million for 2020, which was a decrease of $98.6 million from 2019, and $27.8 million of which was reimbursed by our lessors.

The decrease in community-level capital expenditures was partially due to our approximate $48 million reduction to our pre-pandemic full-year 2020 community-level capital expenditure plans as we delayed or canceled a number of elective capital expenditure projects in response to the pandemic.

In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $140 million.

In addition, we expect our full-year 2021 development capital expenditures to be approximately $10 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities.

We anticipate that our 2020 capital expenditures will be funded from cash on hand, cash flows from operations, reimbursements from lessors, and, if necessary, amounts drawn on our secured credit facility.

We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors.

The Senior Living Industry

The senior living industry has undergone dramatic growth in the last 25 years, marked by the emergence of assisted living communities in the mid-1990s, and it remains highly fragmented with numerous local and regional operators.

According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), there were more than 2,400 local and regional senior housing operators as of December 31, 2019 , of which more than 90% operated five or fewer communities.

According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), there were approximately 2,500 local and regional senior housing operators as of December 31, 2020, of which more than 90% operated five or fewer communities.

We are one of a limited number of large operators that provide a broad range of community locations and service level offerings at varying price levels.

Beginning in 2007, the senior housing industry was affected negatively by the downturn in the general economy, which resulted in a near halt in construction of new communities.

The industry experienced a slow recovery in occupancy and rate growth beginning in 2010 according to NIC.

In more recent years, as the economy has improved and demographic trends favorable to the

industry have drawn nearer, the industry has attracted increased investment resulting in increased construction and development of new senior housing supply.

New openings of senior housing communities and oversupply have subjected the senior housing industry to increased competitive pressures.

The industry has attracted additional investment resulting in increased construction and development of new senior housing supply.

New community openings have subjected the senior housing industry to oversupply and increased competitive pressures.

Data from NIC shows that industry occupancy began to decrease starting in 2016 as a result of new openings and oversupply.

During and since 2016, we have experienced an elevated rate of competitive new openings, with significant new competition opening in many markets, which has adversely affected our occupancy, revenues, results of operations, and cash flow.

Elevated rates of competitive new openings and pressures on our occupancy and rate growth continued through 2019.

On an industry basis, data from NIC shows that net absorption of units, a marker of demand, for the third quarter of 2019 was the highest single quarter since 2006.

Projections from NIC, as applied to our product mix, suggest that annual absorption will be around equilibrium with new supply during 2020.

We believe that a number of trends will contribute to the continued growth of the senior living industry in coming years.

As a result of scientific and medical breakthroughs over the past 30 years, seniors are living longer.

Due to demographic trends, and continuing advances in science, nutrition, and healthcare, the senior population will continue to grow, and we expect the demand for senior housing and healthcare services to continue to increase in future years.

In 2020, competitive new openings remained elevated, but declined from 2019.

Beginning in early 2020, the COVID-19 pandemic resulted in additional occupancy pressure for our industry.

NIC data shows that seniors housing occupancy decreased for three consecutive quarters between March 31, 2020 and December 31, 2020, with nearly all markets falling to record low occupancy by the fourth quarter of 2020.

The primary market of the senior living industry is individuals age 80 and older.

According to United States Census data, that group's population is projected to increase by nearly 50% to a population of 20 million by 2030.

Senior housing penetration, the total number of senior housing units divided by households headed by someone 75 years old or older, continues to be approximately 11%.

We believe the senior living industry has been and will continue to be impacted by several other trends.

Due to demographic trends, and continuing advances in science, nutrition, and healthcare, the senior population will continue to grow.

US Census projections suggest that, starting in 2022, there will be nearly one million new potential residents per year, and we believe that demand for senior care will increase as a result.

As seniors are living longer and this segment of the population rapidly grows, so will the number living with Alzheimer's disease and other dementias and the burden of chronic diseases and conditions.

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There is a growing consumer awareness among seniors and their families concerning the types of services provided by senior living operators, which has further contributed to the demand for senior living services.

In recent years, the high level of new openings, as well as lower levels of unemployment generally, have contributed to wage pressures and increased competition for community leadership and personnel.

In recent years, the high level of new openings, nursing and caregiver shortages due to the pandemic, lower levels of unemployment, and implementation of higher minimum wages generally have contributed to wage pressures and increased competition for community leadership and personnel.

We continue to address new competition by focusing on operations with the objective to ensure high customer satisfaction, retain key leadership, and actively engage district and regional management in community operations;

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and evaluating current community position relative to competition and repositioning if necessary (e.g., services, amenities, programming, and price).

Like other companies, our financial results may be negatively impacted by increasing salaries, wages, and benefits costs for our associates.

Typically the industry has reduced the impact of wage increases by implementing price increases, although there can be no assurance that such costs can be covered each year.

Higher costs of food, utilities, insurance, and real estate taxes may also have a negative impact on our financial results.

Challenges in our industry include increased state and local regulation of the assisted living, memory care, and skilled nursing sectors, which has led to an increase in the cost of doing business.

Like other companies, our financial results may be negatively impacted by increasing salaries, wages, and benefits costs for our associates, particularly if such costs cannot be covered by implementing price increases.

Higher costs of food, utilities, equipment and supplies, insurance, and real estate taxes may also have a negative impact on our financial results.

The COVID-19 pandemic has presented significant challenges to our industry, as outlined above.

Additional challenges in our industry include increased state and local regulation of the assisted living, memory care, and skilled nursing sectors, which has led to an increase in the cost of doing business.

The regulatory environment continues to intensify in the number and types of laws and regulations affecting us, accompanied by increased enforcement activity by state and local officials.

In addition, there continue to be various federal and state legislative and regulatory proposals to implement cost containment measures that would limit payments to healthcare providers in the future.

We cannot predict what action, if any, Congress will take on reimbursement policies of the Medicare or Medicaid programs or what future rule changes the Centers for Medicare & Medicaid Services ("CMS") will implement.

Changes in the reimbursement rates, such as the recent implementation of Patient Driven Payment Model ("PDPM") and Patient-Driven Groupings Model ("PDGM"), or methods or timing of government reimbursement programs could adversely affect our revenues, results of operations, and cash flow.

We cannot predict what action, if any, Congress will take on reimbursement policies of the Medicare or Medicaid programs or what future rule changes CMS will implement.

Changes in the reimbursement rates or methods or timing of government reimbursement programs could adversely affect our revenues, results of operations, and cash flow.

The senior living industry is highly competitive.

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Consequently, we may encounter competition that could limit our ability to attract and retain residents and associates, raise or maintain resident fees, and expand our business, which could have a material adverse effect on our occupancy, revenues, results of operations, and cash flows.

Due to the industry's low occupancy levels, certain competitors may price aggressively in order to capture market share.

Our major publicly-traded senior housing competitors are Capital Senior Living Corporation and Five Star Senior Living, Inc.

Our major private senior housing competitors include Holiday Retirement, Life Care Services, LLC, Atria Senior Living Inc., Senior Lifestyle Corp., and Sunrise Senior Living, LLC, as well as a large number of not-for-profit entities.

Over the long term we plan to evaluate and, where opportunities arise, pursue development, investment, and acquisition opportunities such as selective acquisitions of senior living communities and operating companies.

Over the long term we plan to evaluate and, where opportunities arise, pursue development, investment, and acquisition opportunities.

The market for acquiring and/or operating senior living communities is highly competitive, and some of our present and potential senior living competitors have, or may obtain, greater financial resources than us and may have a lower cost of capital.

In addition, several publicly-traded and non-traded real estate investment trusts ("REITs") and private equity firms have similar objectives as we do, along with greater financial resources and/or lower costs of capital than we are able to obtain.

Partially as a result of tax law changes enacted through REIT Investment Diversification and Empowerment Act ("RIDEA"), we now compete more directly with the various publicly-traded healthcare REITs for the acquisition of senior housing properties, the largest of which are Healthpeak, Ventas, and Welltower.

Brookdale Senior Living Inc.

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The table below shows the number of communities and units within each of our senior housing and Management Services segments as of December 31, 2020.

% of Total Units

Average Number of Units per Community

Communities Units % of Total Units Average Number of Units per Community

Independent Living 68 12,534 19.9 % 184

Assisted Living and Memory Care 563 35,126 55.7 % 62

CCRCs 20 5,322 8.4 % 266

Management Services 75 10,129 16.0 % 135

Total 726 63,111 100.0 % 87

For the year ended December 31, 2020, we generated 81.9% of our resident fee revenue from private pay customers, 14.5% from government reimbursement programs (primarily Medicare) and 3.6% from other payor sources.

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The table below shows the percentage of our resident fee and management fee revenue attributable to each of our segments for the year ended December 31, 2020.

Segments (in thousands)

Resident Fee and Management Fee Revenue

(in thousands) Resident Fee and Management Fee Revenue % of Total

Independent Living $ 512,598 17.0 %

Assisted Living and Memory Care 1,691,276 55.9 %

CCRCs 321,883 10.6 %

Health Care Services 366,810 12.1 %

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Independent Living Communities

Our independent living communities are primarily designed for middle to upper income seniors who desire a change in lifestyle within a residential environment to live life to the fullest.

A number of our independent living residents relocate to one of our communities in order to be in a metropolitan area that is closer to their adult children.

The majority of our independent living communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services.

Our independent living communities are primarily designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts of ownership.

Some of our independent living residents choose to relocate to a community in a metropolitan area that is closer to their adult children.

While the number varies depending upon the particular community, as of December 31, 2020 approximately 80% of all of the units at our independent living communities were independent living units, with the balance of the units licensed for assisted living and memory care.

Our independent living communities generally are large multi-story buildings averaging 184 units with extensive common areas and amenities.

Our independent living communities are generally large multi-story buildings averaging 184 units with extensive common areas and amenities to support the lifestyle preferences of more independent seniors.

Residents may choose from studio, one-bedroom, and two-bedroom units, depending upon the specific community.

Each independent living community provides residents with basic services such as dining service options, 24-hour emergency response, housekeeping, and recreational activities.

Most of these communities also offer custom tailored concierge and personal assistance/private duty services at an additional charge, which may include medication reminders, check-in, transportation, shopping, escort, and companion services.

Each independent living community provides residents with basic services such as dining service options, 24-hour emergency response, housekeeping, education and wellness programs, and recreational activities.

Most of these communities also offer custom tailored concierge and personal assistance/private duty services at an additional charge, which may include medication reminders, daily check-in, transportation, shopping, escort, and companion services.

In addition to the basic services, our independent living communities that include assisted living also provide residents with personal care and convenience service options to provide assistance with ADLs.

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Residents in our independent living communities are able to maintain their residency for an extended period of time due to the range of service options available (not including skilled nursing).

Residents with cognitive or physical frailties and higher level service needs are accommodated with supplemental services in their own units or, in certain communities, are cared for in a more structured and supervised environment on a separate wing or floor.

Residents with cognitive or physical frailties and higher level service needs can often be accommodated with supplemental services in their own units or, in certain communities, are cared for in a more structured and supervised environment on a separate wing or floor.

These communities also generally have a dedicated assisted living staff and separate assisted living dining rooms and activity areas.

Assisted Living and Memory Care Communities

Our assisted living and memory care communities offer housing and 24-hour assistance with ADLs to mid-acuity and frail elderly residents.

Our assisted living and memory care communities offer housing and 24-hour assistance with ADLs for mid-acuity and frail elderly residents.

Residents typically enter an assisted living or memory care community due to a relatively immediate need for services that may have been triggered by a medical event.

Our assisted living and memory care communities include both freestanding, multi-story communities with more than 50 beds, and smaller, freestanding, single story communities.

Depending upon the specific location, the community may include (i) private studio, one-bedroom, and one-bedroom deluxe apartments, or (ii) individual rooms for one or two residents in wings or "neighborhoods" scaled to a single-family home, which includes a living room, dining room, patio or enclosed porch, laundry room, and personal care area, as well as a caregiver work station.

We also provide memory care services at freestanding memory care communities that are specially designed for residents with dementia, including Alzheimer's disease and other forms of cognitive impairment.

Our assisted living and memory care communities include both freestanding, multi-story communities with more than 50 beds, as well as smaller, freestanding, single story communities.

Although building layouts will vary depending on specific location, the community may include (i) private studio, one-bedroom, and one-bedroom deluxe apartments, or (ii) individual rooms for one or two residents in wings or "neighborhoods" scaled to a single-family home, that would include a living room, dining room, patio or enclosed porch, laundry room, and personal care area, as well as a caregiver work station.

We also provide memory care services at freestanding memory care communities that are specifically designed for residents with dementia, including Alzheimer's disease and other forms of cognitive impairment.

Our freestanding memory care communities have approximately 20 to 70 beds and some are part of a campus-like setting which includes a freestanding assisted living community.

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These communities include 110 freestanding memory care communities with 4,279 units included in our Assisted Living and Memory Care segment.

All residents at our assisted living and memory care communities are eligible to receive the basic care level, which includes ongoing health assessments, three meals per day and snacks, 24-hour staff assistance, coordination of special diets planned by a registered dietitian, assistance with coordination of physician care, social and recreational activities, housekeeping, and personal laundry services.

In some locations we offer our residents exercise programs and programs designed to address issues associated with early stages of Alzheimer's disease and other dementias.

All residents at our assisted living and memory care communities are eligible to receive the basic care level, which includes ongoing health assessments, three meals per day and snacks, coordination of special diets planned by a registered dietitian, 24-hour staff assistance, assistance with medical care coordination, education and wellness programs, social and recreational activities providing socialization and engagement, housekeeping, and personal laundry services.

In some locations, we offer our residents exercise programs and programs designed to address needs associated with early stages of Alzheimer's disease and other dementias.

For an additional cost at these communities, we offer higher levels of personal care services to residents who are more physically frail or require more frequent or intensive physical assistance or increased personal care and supervision due to cognitive impairments.

As a result of their progressive decline in cognitive abilities, residents at our memory care units typically require higher levels of personal care and services than in assisted living and therefore pay higher monthly service fees.

Specialized services include assistance with ADLs, behavior management, and an activities program, the goal of which is to provide a normalized environment that supports residents' remaining functional abilities.

Our CCRCs are large communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health.

Most of our CCRCs have independent living, assisted living, and skilled nursing available on one campus or within the immediate area, and some also include memory care services.

Our CCRCs residents are generally senior citizens who are seeking a community that offers a broad continuum of care so that they can age-in-place.

These residents generally first enter the community as a resident of an independent living unit and may later move into an assisted living or skilled nursing area as their needs change.

As a result of their progressive cognitive decline, residents at our memory care units typically require higher levels of personal care and services than in assisted living and therefore pay higher monthly service fees.

Our CCRCs are large communities that offer a variety of living arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs.

Most of our CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus or within the immediate area.

Our CCRC residents are generally seniors who are seeking a community that offers a broad continuum of care that will enable them to age in place.

Generally, these residents will initially enter the community as an independent living resident and may, at a later time, advance into an assisted living or skilled nursing area as their needs change.

Our Healthcare Services Offerings

Through our Health Care Services segment we currently provide home health, hospice, and outpatient therapy services, as well as education and wellness programs, to residents of many of our communities and to seniors living outside of our communities.

Through our Health Care Services segment we currently provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities.

As of December 31, 2020, our Health Care Services segment platform included networks in 28 states with the ability to provide home health services to approximately 60% of our units, hospice services to approximately 25% of our units, and outpatient therapy to approximately 20% of our units.

Skilled nursing and inpatient healthcare services provided in our skilled nursing units are included in the CCRCs segment.

During the year ended 2019 , we generated approximately 50% of our Health Care Services segment revenue from residents at our communities and approximately 50% from our patients outside our communities.

The Health Care Services segment does not include the skilled nursing and inpatient healthcare services

provided in our skilled nursing units, which are included in our CCRCs segment.

During the year ended December 31, 2020, we generated approximately 45% of our Health Care Services segment revenue from residents at our communities and approximately 55% from our patients outside our communities.

As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the late first half or early second half of 2021.

Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements.

The home health services we provide include skilled nursing, physical therapy, occupational therapy, speech language pathology, home health aide services, and social services as needed.

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Our outpatient therapy services include physical therapy, occupational therapy, speech language pathology services, and other specialized therapy.

The majority of our home health, hospice, and outpatient therapy services are reimbursed by government reimbursement programs, primarily Medicare, and non-covered services are paid directly by residents from private pay sources.

Our education and wellness programs focus on wellness and physical fitness to allow residents to maintain maximum independence.

These services provide many continuing education opportunities for seniors and their families through health fairs, seminars, and other consultative interactions.

We believe that our integrated healthcare services offerings are unique among senior housing operators and that we have a significant advantage over our senior housing competitors with respect to providing such services because of our established infrastructure, scale, and experience.

Management Services

As of December 31, 2019 , we managed 17 communities for which we have an equity interest and 83 communities on behalf of third parties, which represented approximately 25% of our senior housing capacity.

The table below shows the type and number of communities and units contained in our Management Services segment as of December 31, 2019 and the percentage of our management fee revenue attributable to such community types for the year ended December 31, 2019 .

Community Type

% of Total Units

Management Fees

% of Total Management Fees

Independent living

Assisted living and memory care

Effective January 31, 2020, we terminated our management agreements with respect to 14 entry fee CCRCs (6,383 units) pursuant to the agreements entered into with Healthpeak on October 1, 2019.

As of December 31, 2020, we managed 72 communities (9,202 units) on behalf of third parties and three communities (927 units) for which we have an equity interest, which represented approximately 16% of our senior housing capacity.

Under our management arrangements, we receive management fees, which are generally determined by an agreed upon percentage of gross revenues (as defined in the management arrangement), as well as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners.

A majority of our management arrangements as of December 31, 2019 are interim management arrangements entered into in connection with prior lease terminations that may be terminated by either party on short notice and without any reason, have a remaining term of approximately one year or less, or may be terminated by the owner within the next year.

During 2021, we expect terminations of a substantial portion of our management arrangements.

Generally either party to our management arrangements may terminate upon the occurrence of an event of default caused by the other party, generally subject to cure rights.

Several long-term agreements also provide for early termination rights of the owner which may in some cases require an early termination fee.

Termination, early or otherwise, or non-renewal of, or renewal on less-favorable terms, of our management arrangements could cause an unexpected loss in revenues and would negatively impact our results of operations and cash flows.

During the year ended December 31, 2019 , approximately 54% of our management fees revenue was derived from services provided to entities in which Healthpeak held an interest, including 38% of our management fees revenue derived from services provided to our unconsolidated entry fee CCRC venture with Healthpeak of which we sold our interest in 14 of 16 communities effective January 31, 2020.

Competitive Strengths

We believe our national network of senior living communities and healthcare services networks are well positioned to benefit from the future growth and increasing demand in the industry.

We believe our national network of senior living communities and healthcare services networks are well positioned to benefit from the future growth in the industry.

Some of our most significant competitive strengths are:

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• Geographically diverse, high-quality, purpose-built communities .

• Ability to provide a broad spectrum of care .

Given our diverse mix of independent living, assisted living and memory care communities, and CCRCs, as well as our healthcare services offerings, we are able to meet a wide range of our residents' and patients' needs.

Given our diverse mix of independent living, assisted living and memory care communities, and CCRCs, as well as our healthcare services offerings, through our clinical team and high-quality relationships with providers, we are able to meet a wide range of our residents' and patients' needs.

We believe that we are one of the few companies in the senior living industry with this capability and the only company that does so at scale on a national basis.

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• Significant experience in providing healthcare services .

Through our Health Care Services segment, we provide a range of home health, hospice, outpatient therapy, education, wellness, and other services to residents of certain of our communities and to seniors outside our communities, which we believe is a distinct competitive difference among senior housing operators.

We have significant experience in providing these services and expect to increase revenues as we expand our offerings of

these services to additional residents and seniors living outside of our communities.

As of February 1, 2020, we serve over 20,000 patients.

Through our Health Care Services segment, we currently provide, and following the closing of our transaction with HCA Healthcare, the venture will provide a range of home health, hospice, and outpatient therapy services in certain of our communities.

Additionally, through our clinical team, we provide education, wellness, and other services to residents, which we believe is a distinct competitive difference among senior housing operators.

We have significant experience in providing these services and expect to expand our offerings of these services to additional residents.

• The size of our business allows us to realize cost and operating efficiencies while continuing a local-community focus .

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We intend to utilize our expertise and size to capitalize on economies of scale resulting from our national platform and to enhance our residents' and patients' experiences.

We believe that our geographic footprint and centralized infrastructure provide us with a significant operational advantage over local and regional operators of senior living communities.

We believe that our geographic

footprint and centralized infrastructure provide us with a significant operational advantage over local and regional operators of senior living communities.

Our senior housing business has typically experienced some seasonality, which we experience in certain regions more than others, due to weather patterns, geography, and higher incidence and severity of flu and other illnesses during winter months.

Although our seasonal pattern varies from year to year, our average monthly occupancy generally begins to decline sequentially in the fourth quarter of the year, and we generally expect average monthly occupancy to begin to increase towards the end of the second quarter each year.

Although our seasonal pattern varies from year to year and occupancy patterns have been affected by the COVID-19 pandemic, historically our average monthly occupancy has generally begun to decline sequentially in the fourth quarter of the year, and we have generally expected average monthly occupancy to begin to increase towards the end of the second quarter each year.

Utility expenses trend seasonally high in the first quarter and third quarter of each year.

Operating expenses, such as labor, food, and supplies also trend higher in the second half of the year compared with the first half due to an increased number of working days.

Facility operating expenses, such as labor, food, and supplies also trend higher in the second half of the year compared with the first half due to an increased number of working days.

Operations Overview

We have implemented intensive standards, policies and procedures, and systems, including detailed staff resources and training materials, which we believe have contributed to high levels of customer service.

We have implemented intensive standards, policies and procedures, and systems, including detailed staff resources and training, which we believe have contributed to high levels of customer service.

Further, we believe our centralized support infrastructure allows our community-based leaders and personnel to focus on resident care and family connections.

Consolidated Corporate Operations Support

We have developed a centralized support infrastructure and services platform, which provides us with a significant operational advantage over local and regional operators of senior living communities.

We have developed a centralized support infrastructure and services platform, which we believe provides us with a significant operational advantage over local and regional operators of senior living communities.

The size of our business also allows us to achieve increased efficiencies with respect to various corporate functions such as procurement, human resources, finance, accounting, legal, information technology, and marketing.

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Each Executive Director receives specialized training from our learning and development associates.

In addition, a portion of each Executive Director's compensation is directly tied to the operating performance of the community and key care and service quality measures.

In addition, a portion of each Executive Director's compensation is directly tied to the operating performance of the community.

We continue to take actions intended to simplify the role of our Executive Directors to allow them to focus on our residents and their families and our associates.

We believe that the quality of our communities, coupled with our competitive compensation philosophy and our ability to provide industry-leading systems and training, has enabled us to attract high-quality, professional community Executive Directors.

We believe that the quality of our communities, coupled with support provided by the regional support infrastructure and our ability to provide industry-leading systems and training, has enabled us to attract high-quality, professional community Executive Directors.

Depending upon the size and type of the community, each Executive Director is supported by key leaders, a Health and Wellness Director (or nursing director), and/or a Sales Director.

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We maintain quality assurance programs at each of our communities through our corporate and regional staff.

Our quality assurance programs are designed to achieve a high degree of resident and family member satisfaction through the care and services that we provide.

Our quality assurance programs are designed to achieve a high degree of resident and family member satisfaction through the care and services that we provide and we have continued to transform our efforts throughout the pandemic through collaboration with our vendors and a combination of remote and in-person visits.

Our quality control measures include, among other things, community inspections conducted by corporate staff on a regular basis.

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To meet the needs of local demand and supply, we create differentiated value through the segmentation of our communities based on price, service offerings, amenities, and programs offered.

As of December 31, 2019 , we had approximately 38,400 full-time employees and approximately 20,000 part-time employees, of which approximately 500 work in our Brentwood, Tennessee headquarters office and approximately 500 work in our Milwaukee, Wisconsin office.

We currently consider our relationship with our employees to be good.

Human Capital Resources

At Brookdale, we are dedicated to enriching the lives of those we serve with compassion, respect, excellence, and integrity.

We know that our success is dependent on attracting, engaging, developing, and retaining the best associates.

As of December 31, 2020, we employed approximately 45,000 associates, 70% of which were full time.

Approximately 900 associates work in or through our Brentwood, Tennessee headquarters and Milwaukee, Wisconsin office, supporting our community- and agency-based associates.

We promote a culture based on servant leadership, where we believe purpose-driven work allows each of us to have a positive impact on the residents, patients, and associates we interact with every day.

Our 2020 associate engagement survey showed that 93% of respondents know how they contribute to our success and 95% have a good understanding of our mission, vision, and cornerstones of passion, courage, partnership, and trust.

We hire associates who we believe make serving seniors their calling, do what is right even when no one is watching, connect with fellow associates and our residents and patients, and treat one another with respect.

Inclusion and Diversity

We are a business of people taking care of people, where our associates do extraordinary things every day as part of their shared commitment to Brookdale’s cornerstones and mission.

To attract and retain associates, we are committed to maintaining a welcoming and inclusive environment where people have an equal chance to grow and succeed.

We support our associates by providing an open door policy, offering training to help our people grow and to understand our commitment to providing a workplace free from discrimination and harassment, consistently enforcing our policies, and maintaining the expectation that all our associates will be treated with dignity and respect.

We also believe that true commitment to creating and fostering an inclusive and diverse workplace is best accomplished by example.

Our Board of Directors has purposefully evolved its gender composition to more closely resemble our customer and employee base, of which the majority are women.

Women now comprise 44% of our Board of Directors.

Over the last two years, we also increased the diversity of our Board of Directors and executive leadership team.

Two of the top three positions are held by women and 14% of our executive officers are racially or ethnically diverse.

Our commitment to diversity is further reflected in our workforce.

As of December 31, 2020, approximately 81% of our associates are women, who comprise approximately 73% of the leadership roles at our communities, agencies, and corporate offices, and approximately 53% of our associates and 12% of our leadership roles are people of color.

Our commitment to developing, retaining, and promoting diverse talent and advancing our inclusion strategy is ongoing.

Talent Acquisition, Development, and Retention:

In order to attract people who want to do challenging yet rewarding work, we offer competitive wages and benefits as well as opportunities to grow a career at Brookdale through mentorship, education, and training opportunities.

We use a variety of recruitment strategies to attract diverse talent to our organization, including partnerships with local and national organizations.

In 2020, we established new nursing school partnerships in Jacksonville, Florida and Denver, Colorado to continue to strengthen our pipeline for caregiver and clinical roles.

Additionally, we launched a new career section on our website to attract veterans and military spouses/partners to join Brookdale.

We offer learning opportunities for our associates when they join Brookdale and throughout the year.

Our newly implemented iLearn platform provides associates access to regulatory training, continuing education courses, and leadership and professional skill courses.

We also offer a tuition reimbursement program for associates to continue to grow their career.

To identify future leaders, we conduct strategic talent reviews regularly to provide senior leaders with visibility into succession for key leadership roles.

We believe the performance of individual communities is correlated to retention of our community leaders.

Our Executive Director (ED) and Health and Wellness Director (HWD) combined annual retention at our same community portfolio has remained around 70%.

Total Rewards

We consider offering a competitive total rewards program an important aspect of being an employer of choice.

Both full-time and part-time associates may participate in our 401(k) retirement savings plan with an opportunity for a matching contribution, our associate stock purchase plan, and other benefit plans.

We provide full-time associates additional benefits, including paid time off ("PTO") and holidays as well as adoption benefits.

In 2020, over 50% of eligible full-time associates participated in our medical and dental insurance plans.

We also recognize that there may be a time when associates need financial assistance due to extraordinary circumstances such as a fire, a tornado or hurricane, or the pandemic.

Our Associate Compassion Fund provides this type of assistance for associates in need.

In 2020, approximately $1.8 million of donations of PTO by our associates were provided directly to associates in need, approximately $0.3 million of which was donated by our senior leadership team to specifically support those associates affected by COVID-19.

Industry Regulation

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Some of the laws and regulations that impact our industry include:

state and local laws impacting licensure, protecting consumers against deceptive practices, and

generally affecting the communities' management of property and equipment and how we otherwise conduct our operations, such as fire, health, and safety laws and regulations, and privacy laws;

state and local laws impacting licensure, protecting consumers against deceptive practices, and generally affecting the communities' management of property and equipment and how we otherwise conduct our operations, such as fire, health, safety, and privacy laws and regulations;

federal and state laws governing Medicare and Medicaid, which regulate allowable costs, pricing, quality of services, quality of care, food service, resident rights (including abuse and neglect) and fraud;

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and resident rights and responsibilities.

In several of the states there are different levels of care that can be provided based on the level of licensure.

Several of the states in which we operate, or intend to operate, assisted living and memory care communities, home health and hospice agencies, and/or skilled nursing facilities require a certificate of need before the community or agency can be opened or the services at an existing community can be expanded.

In several of the states in which we operate there are different levels of care that may be provided based on the level of licensure.

Several of the states in which we operate, or intend to operate, assisted living and memory care communities, home health and hospice agencies, and/or skilled nursing facilities require a certificate of need before the community or agency may be opened or the services at an existing community may be expanded.

Senior living communities may also be subject to state and/or local building, zoning, fire, and food service codes and must be in compliance with these local codes before licensing or certification may be granted.

These laws and regulatory requirements could affect our ability to expand into new markets and to expand our services and communities in existing markets.

Unannounced surveys or inspections may occur annually or bi-annually, or following a regulator's receipt of a complaint about the provider.

From time to time in the ordinary course of business, we receive survey reports from state regulatory bodies resulting from such inspections or surveys.

Unannounced surveys or inspections may occur annually or bi-annually, or following a regulator's receipt of a complaint about a provider.

From time to time in the ordinary course of business, we receive survey reports from state or federal regulatory bodies resulting from such inspections or surveys.

Most inspection deficiencies are resolved through a plan of corrective action relating to the community's operations, but the reviewing agency may have the authority to take further action against a licensed or certified community or agency, which could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal and/or state reimbursement programs, or imposition of other sanctions, including criminal penalties.

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If regulatory requirements increase, whether through enactment of new laws or regulations or changes in the enforcement of existing rules, including increased enforcement brought about by advocacy groups, in addition to federal and state regulators, our operations could be adversely affected.

Any adverse finding by survey and inspection officials may serve as the basis for false claims lawsuits by private plaintiffs and may lead to investigations under federal and state laws, which may result in civil and/or criminal penalties against the community or individual.

finding by survey and inspection officials may serve as the basis for false claims lawsuits by private plaintiffs and may lead to investigations under federal and state laws, which may result in civil and/or criminal penalties against the community or individual.

There are various extremely complex federal and state laws governing a wide array of referrals, relationships, and arrangements and prohibiting fraud by healthcare providers, including those in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Balanced Budget Act of 1997 expanded the penalties for healthcare fraud.

With respect to our participation in

federal healthcare reimbursement programs, the government or private individuals acting on behalf of the government may bring an action under the False Claims Act alleging that a healthcare provider has defrauded the government and seek treble damages for false claims and the payment of additional monetary civil penalties.

With respect to our participation in federal healthcare reimbursement programs, the government or private individuals acting on behalf of the government may bring an action under the False Claims Act alleging that a healthcare provider has defrauded the government and seek treble damages for false claims and the payment of additional monetary civil penalties.

The False Claims Act allows a private individual with knowledge of fraud to bring a claim on behalf of the federal government and earn a percentage of the federal government's recovery.

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Similar state laws vary from state to state.

Violation of any of these laws can result in loss of licensure, citations, sanctions, and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid programs, which may also cause us to default under our loan and lease agreements and/or trigger cross-defaults.

We are also subject to certain federal and state laws that regulate financial arrangements by healthcare providers, such as the Federal Anti-Kickback Law, the Stark laws, and certain state referral laws.

Violation of any of these laws can result in loss of licensure, citations, sanctions, and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid programs, which may also cause us to default under our debt and lease documents and/or trigger cross-defaults.

We are subject to certain federal and state laws that regulate financial arrangements by healthcare providers, such as the Federal Anti-Kickback Law, the Stark laws, and certain state referral laws.

The Federal Anti-Kickback Law makes it unlawful for any person to offer or pay (or to solicit or receive) "any remuneration ...

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Authorities have interpreted this statute very broadly to apply to many practices and relationships between healthcare providers and sources of patient referral.

If we were to violate the Federal Anti-Kickback Law, we may face criminal penalties and civil sanctions, including fines and possible exclusion from government reimbursement programs, which may also cause us to default under our loan and lease agreements and/or trigger cross-defaults.

If we were to violate the Federal Anti-Kickback Law, we may face criminal penalties and civil sanctions, including fines and possible exclusion from government reimbursement programs, which may also cause us to default under our debt and lease documents and/or trigger cross-defaults.

Adverse consequences may also result if we violate federal Stark laws related to certain Medicare and Medicaid physician referrals.

While we endeavor to comply with all laws that regulate the licensure and operation of our senior living communities, it is difficult to predict how our revenues could be affected if we were subject to an action alleging such violations.

We are also subject to federal and state laws designed to protect the confidentiality of patient health information.

While we endeavor to comply with all laws that regulate the licensure and operation of our business, it is difficult to predict how our revenues could be affected if we were subject to an action alleging such violations.

We are subject to federal and state laws designed to protect the confidentiality of patient health information.

The United States Department of Health and Human Services has issued rules pursuant to HIPAA relating to the privacy of such information.

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These legislative and regulatory developments will impact the design and operation of our business and our privacy and security efforts.

We are subject to federal and state laws, regulations and executive orders relating to healthcare providers’ response to the COVID-19 pandemic.

These requirements vary based on provider type and jurisdiction but generally include mandatory requirements for testing of residents and/or staff, implementation of infection control standards and procedures, imposition of restrictions on new admissions or readmissions of residents, requiring screening of all persons entering a community, imposition of restrictions or limitations on who and how residents may be visited, and imposition of mandatory notification requirements to residents, families, staff, and regulatory bodies related to positive COVID-19 cases.

Enhanced or additional penalties may apply for violation of such requirements.

Medicare and Medicaid Programs

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Medicare reimbursement for home health and skilled nursing services is subject to fixed payments under the Medicare prospective payment systems.

Advisory Commission ("MedPAC"), a commission chartered by Congress to advise it on Medicare payment issues, recommends payment policies to Congress for a variety of Medicare payment systems.

In accordance with Medicare laws, CMS makes annual adjustments to Medicare payment rates in many prospective payment systems under what is commonly known as a "market basket update." Each year, the Medicare Payment Advisory Commission ("MedPAC"), a commission chartered by Congress to advise it on Medicare payment issues, recommends payment policies to Congress for a variety of Medicare payment systems.

Congress is not obligated to adopt MedPAC recommendations and based on previous years, there can be no assurance that Congress will adopt MedPAC's recommendations in any given year.

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Our costs to respond to and defend any such audits, reviews, and investigations may be significant and are likely to increase in the current enforcement environment, and any resulting sanctions or criminal, civil, or regulatory penalties could have a material adverse effect on our business, financial condition, results of operations, and cash flow.

The Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act

To help fund the expansion of healthcare coverage to previously uninsured people, the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act of 2010 (collectively, the "Affordable Care Act"), which became law in 2010, provides for certain reforms to the healthcare delivery and payment system aimed at increasing quality and reducing costs.

As it relates to our business, the Affordable Care Act provides for reductions to the annual market basket updates for home health and hospice agencies and additional annual "productivity adjustment" reductions to the annual market basket payment update as determined by CMS for skilled nursing facilities (beginning in federal fiscal year 2012), hospice agencies (beginning in federal fiscal year 2013), and home health agencies (beginning in federal fiscal year 2015).

These reductions have, and could in the future, result in lower reimbursement than the previous year.

The Affordable Care Act also provides for new transparency, reporting, and certification requirements for skilled nursing facilities.

Furthermore, the Affordable Care Act mandates changes to home health and hospice benefits under Medicare.

For home health, the Affordable Care Act mandates creation of a value-based purchasing program, development of quality measures, a decrease in home health reimbursement beginning with federal fiscal year 2014 that was phased-in over a four-year period, a reduction in the outlier cap, and reinstatement of a 3% add-on payment for home health services delivered to residents in rural areas on or after April 1, 2010 and before January 1, 2016.

The Affordable Care Act also requires the Secretary of Health and Human Services ("HHS") (the "Secretary") to test different models for delivery of care, some of which would involve home health services.

It also requires the Secretary to establish a national pilot program for integrated care for patients with certain conditions, bundling payment for acute hospital care, physician services, outpatient hospital services, and post-acute care services, which would include home health.

The Affordable Care Act further directed the Secretary of HHS to rebase payments for home health, which resulted in a decrease in home health reimbursement that began in 2014 and was phased-in over a four-year period.

The Secretary is also required to conduct a study to evaluate costs and quality of care among efficient home health agencies regarding access to care and treating Medicare beneficiaries with varying severity levels of illness and to provide a report to Congress.

Potential efforts in the Congress to alter, amend, repeal, or replace the Affordable Care Act, or to fail to fund various aspects of the Affordable Care Act, create additional uncertainty about the ultimate impact of the Affordable Care Act on us and the healthcare industry.

The healthcare reforms and changes resulting from the Affordable Care Act, as well as other similar healthcare reforms, including any potential change in the nature of services we provide, the methods or amount of payment we receive for such services, and the underlying regulatory environment, could adversely affect our business, revenues, results of operations, and cash flows.

The Improving Medicare Post-Acute Care Transformation Act of 2014

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The IMPACT Act also includes provisions impacting Medicare-certified hospices, including increasing survey frequency to once every 36 months, imposing a medical review process for facilities with a high percentage of stays in excess of 180 days, and updating the annual aggregate Medicare payment cap.

The Medicare Access and CHIP Reauthorization Act of 2015

The Medicare Access and CHIP Reauthorization Act of 2015 ("MACRA") became law in 2015.

The legislation, among other things, permanently replaced the sustainable growth rate formula previously used to determine updates to Medicare fee schedule payments with quality and value measurements and participation in alternate payment models;

extended the Medicare Part B outpatient therapy cap exception process until December 31, 2017;

extended the 3% add-on payment for home health services delivered to residents in rural areas until December 31, 2017;

and set payment updates for post-acute providers at 1% after other adjustments required by the Affordable Care Act for 2018.

As part of federal budget legislation that became law on February 9, 2018, the Medicare Part B cap on outpatient therapy services was permanently repealed effective January 1, 2018.

Home Health Claim Review Demonstrations

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The pre-claim review is a process through which a request for provisional affirmation of coverage is submitted for review before a final claim is submitted for payment.

CMS began the pre-claim review demonstration in Illinois in August 2016, which CMS paused in April 2017.

CMS began the

pre-claim review demonstration in Illinois in August 2016, which CMS paused in April 2017.

The pre-claim review demonstration resulted in increased administrative costs and reimbursement delays for our Illinois home health agency.

In December 2018, CMS indicated it was continuing the process for obtaining approval under the Paperwork Reduction Act of a 5-year Medicare claim review demonstration for Illinois, which would be further expanded to Florida, Texas, North Carolina, and Ohio.

To allow home health agencies to transition to the PDGM, effective January 1, 2020, CMS announced in October 2019 that it is rescheduling the implementation of the Home Health Review Choice Demonstration ("RCD") for the remaining states of Texas, North Carolina, and Florida.

The demonstration is expected to begin in Texas on March 2, 2020.

Following the start of the demonstration in Texas, the demonstration is expected to begin in North Carolina and Florida on May 4, 2020.

CMS will monitor the transition to PDGM and assess the need for any change to this date.

Under this RCD as currently proposed, providers would have an initial choice of three options for review:

The Home Health Review Choice Demonstration ("RCD") was implemented on June 1, 2019 in Illinois and September 30, 2019 in Ohio.

To allow home health agencies to transition to the Patient-Driven Grouping Model ("PDGM"), CMS announced in October 2019 that it was rescheduling the implementation of the RCD for the remaining states of Texas, North Carolina, and Florida.

The demonstration began in Texas on March 2, 2020, and in North Carolina and Florida on August 31, 2020.

CMS has stated that they will monitor the transition to PDGM and assess the need for any changes.

Under the RCD, as currently proposed, providers have an initial choice of three options for review:

pre-claim review, post-payment review, or minimal post-payment review with a 25% payment reduction for all home health services.

We derive a significant portion of our home health revenue from these states.

If implemented, the claim review demonstrations could adversely affect our revenue, results of operations, and cash flows.

The implementation of the RCD has adversely affected our revenue, results of operations, and cash flows.

Home Health Value-Based Purchasing

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Bonuses and penalties began in 2018 with the maximum of plus or minus 3% and are scheduled to grow to plus or minus 8% by 2022.

Payment adjustments are calculated based on performance in 20 measures which include current Quality of Patient Care and Patient Satisfaction star measures, as well as measures based on submission of data to a CMS web portal.

Payment adjustments are calculated based on performance in three process measures, nine outcome measures, five patient satisfaction measures, and three agency self-reported measures.

During the year ended December 31, 2020, our home health revenue declined approximately 1% due to HHVBP and we expect an additional decline of approximately 1% during 2021.

The Bipartisan Budget Act of 2018

The Bipartisan Budget Act of 2018 (the "BBA"), enacted in February 2018, includes several provisions impacting Medicare reimbursement to home health, hospice, and outpatient therapy providers.

With respect to home health providers, the BBA (1) will base payment on a 30-day episode of care beginning January 1, 2020, coupled with annual determinations by CMS to ensure budget neutrality (including taking into account provider behavior), (2) will eliminate retroactive payment adjustments based upon the level of therapy services required beginning January 1, 2020, (3) extends the 3% add-on payment for home health services provided to residents in rural areas beginning January 1, 2018, coupled with a reduction and phase out of such add-on payment

over the following four fiscal years, and (4) will establish a market basket update of 1.5% for the year beginning January 1, 2020.

With respect to hospice providers, the BBA establishes a new payment policy related to early discharges to hospice care from hospitals.

This policy imposed a financial penalty on hospitals for each early discharge to hospice care beginning October 1, 2018.

With respect to outpatient therapy providers, the BBA permanently repeals the Medicare Part B outpatient therapy cap effective January 1, 2018 and continues the targeted medical review process with a reduction of the applicable threshold triggering such review to $3,000 effective January 1, 2018.

With respect to home health providers, the BBA (1) bases payment on a 30-day episode of care beginning January 1, 2020, coupled with annual determinations by CMS to ensure budget neutrality (including taking into account provider behavior), (2) eliminated retroactive payment adjustments based upon the level of therapy services required beginning January 1, 2020, (3) extended the 3% add-on payment for home health services provided to residents in rural areas beginning January 1, 2018, coupled with a reduction and phase out of such add-on payment over the following four fiscal years, and (4) established a market basket update of 1.5% for the year beginning January 1, 2020.

With respect to hospice providers, the BBA established a new payment policy related to early discharges to hospice care from hospitals, which imposes a financial penalty on hospitals for each early discharge to hospice care beginning October 1, 2018.

With respect to outpatient therapy providers, the BBA permanently repealed the Medicare Part B outpatient therapy cap effective January 1, 2018 and continued the targeted medical review process with a reduction of the applicable threshold triggering such review to $3,000 effective January 1, 2018.

CMS Final Rule 1689-FC for Medicare Home Health Prospective Payment

In July 2018, CMS issued proposed payment changes for Medicare home health providers for 2019 and 2020.

For 2020, CMS estimated that the net impact of the payment provisions of the proposed changes will result in an increase of 1.3% in reimbursement to home health providers and finalized the methodology used to determine the rural add-on payment for 2020 through 2022 as well as regulations text changes regarding certifying and recertifying patient eligibility for Medicare home health services and remote patient monitoring.

Based on the CMS final rule published in September, 2019, beginning in fiscal year 2021 (as amended by the CARES Act), CMS estimated that the net impact of the payment provisions of the proposed changes would result in an increase of 1.3% in reimbursement to home health providers and finalized the methodology used to determine the rural add-on payment for 2020 through 2022 as well as regulations text changes regarding certifying and recertifying patient eligibility for Medicare home health services and remote patient monitoring.

Additionally, the proposed rule includes changes to the home health prospective payment system ("HHPPS") case-mix adjustment methodology through the use of a new PDGM for home health payments.

This change affects home health services beginning on or after January 1, 2020 and also includes a change in the unit of payment from 60-day episodes of care to 30-day episodes of care.

This change affected home health revenue beginning on or after January 1, 2020 and also includes a change in the unit of payment from 60-day episodes of care to 30-day episodes of care.

Pandemic-Related Legislation

The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020.

The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, extended the sequestration suspension through March 31, 2021.

During the year ended December 31, 2020, we received $ 87.5 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act.

Under the program, we requested acceleration/

advancement of 100% of our Medicare payment amount for a three-month period.

The Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020, amended the repayment terms for accelerated/advanced payments.

As amended, recoupment of accelerated/advanced payments will begin one year after payments were issued.

Payments will be recouped at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months.

Any outstanding balance of accelerated/advanced payments will be due following such recoupment period.

Environmental Matters

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These environmental laws set forth the management requirements for such waste, as well as related permit, record-keeping, notice, and reporting obligations.

Each of our communities has an agreement with a waste management company for the proper disposal of all infectious medical waste.

The use of such waste management companies does not immunize us from alleged violations of such medical waste laws for operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed.

Our communities' engagement of waste management companies for the proper disposal of all infectious medical waste does not immunize us from alleged violations of such medical waste laws for operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed.

Any finding that we are not in compliance with environmental laws could adversely affect our business, financial condition, results of operations, and cash flow.

Federal regulations require building owners and those exercising control over a building's management to identify and warn, via signs and labels, their employees and certain other employers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings.

The regulations

also set forth employee training, record-keeping requirements, and sampling protocols pertaining to asbestos-containing materials and potential asbestos-containing materials.

The regulations also set forth employee training, record-keeping requirements, and sampling protocols pertaining to asbestos-containing materials and potential asbestos-containing materials.

Significant fines can be assessed for violation of these regulations.

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Federal, state, and local laws and regulations also govern the removal, encapsulation, disturbance, handling, and/or disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a building.

Such laws may impose liability for improper handling or a release to the environment of asbestos-containing materials and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.

operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.

The presence of mold, lead-based paint, contaminants in drinking water, radon, and/or other substances at any of the communities we own or may acquire may lead to the incurrence of costs for remediation, mitigation, or the implementation of an operations and maintenance plan.

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We are unable to predict the future course of federal, state, and local environmental regulation and legislation.

Changes in the environmental regulatory framework (including legislative or regulatory efforts designed to address climate change, such as the proposed "cap and trade" legislation) could have a material adverse effect on our business.

Changes in the environmental regulatory framework (including legislative or regulatory efforts designed to address climate change) could have a material adverse effect on our business.

Because environmental laws vary from state to state, expansion of our operations to states where we do not currently operate may subject us to additional restrictions on the manner in which we operate our communities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business