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Risks Related to our Business and Industry
−Removed: • We face numerous risks related to the COVID-19 PHE, which could individually or in the aggregate have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
−Removed: • Changes to reimbursement rates and rules and other aspects of Medicare and Medicaid could have a material, adverse effect on our revenues, financial condition and results of operations, including the reductions to reimbursement proposed in the 2023 calendar year physician fee schedule and changes to data reporting and measurement standards.
−Removed: • Our revenue could be impacted by a shift to value-based reimbursement models, such as PDPM, and changes to existing reimbursement models.
+Added: • We face numerous risks related to the COVID-19 PHE and its anticipated expiration on May 11, 2023, which could individually or in the aggregate have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
+Added: • Changes to reimbursement rates, rules and other aspects of Medicare and Medicaid, including reductions of the FMAP, could have a material, adverse effect on our revenues, financial condition and results of operations, including the reductions to reimbursement in the 2023 calendar year physician fee schedule and changes to data reporting, measurement and evaluation standards.
+Added: • Our revenue could be impacted by changes to existing reimbursement models.
• Reforms to the U.S.
−Removed: healthcare system, including the ACA and its expansion under new laws such as the IRA and future legislation, continue to impose new requirements upon us and may increase our costs or lower our reimbursements, which could materially impact our business.
+Added: healthcare system, including new regulations under the ACA, its proposed disclosure requirements and its expansion under new laws, continue to impose new requirements upon us and may increase our costs or lower our reimbursements, which could materially impact our business.
• Changes to the U.S.
healthcare system, including the Medicare program, may have unforeseen consequences for our business, including, but not limited to a loss of revenue, reduction of services covered by Medicare, limits on out-of-pocket expenses we may charge and other spending cuts that affect us in order to offset limitations on patient expenses for other medical services, such as the limitation on out-of-pocket expenses for prescription drugs.
−Removed: • The recent U.S.
−Removed: Presidential and Congressional elections and upcoming midterm elections in 2022, may result in significant changes to the regulatory framework, enforcements, and reimbursements.
−Removed: • Changes to the ACA and related uncertainty could have material impacts on our business.
+Added: • The changes in Congress due to recent midterm elections in 2022 and actions in anticipation of the 2024 Presidential election, may result in significant changes to the regulatory framework, enforcements, and reimbursements in our industry.
• We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs.
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• Future cost containment initiatives undertaken by third-party payors may limit our revenue and profitability.
−Removed: • Changes in Medicare reimbursements, including implementation of Medicare funds sequestration, for physician and non-physician services could impact reimbursement for medical professionals, which could have a negative effect on our business, financial condition or results of operations.
+Added: • Changes in Medicare reimbursements for physician and non-physician services could impact reimbursement for medical professionals, which could have a negative effect on our business, financial condition or results of operations.
• We may be subject to increased investigation and enforcement activities related to HIPAA violations if we fail to adopt and maintain business procedures and systems designed to protect the privacy, security and integrity of patients’ individual health information.
• Security breaches and other cyber-security incidents could violate security laws and subject us to significant liability.
−Removed: • If we are not fully reimbursed for all services for which each facility bills through consolidated billing, our revenue, financial condition and results of operations could be adversely affected.
+Added: • If our independent operating subsidiaries are not fully reimbursed for all services for which each facility bills through consolidated billing, our revenue, financial condition and results of operations could be adversely affected.
• Increased competition for, or a shortage of, nurses and other skilled personnel could increase our staffing and labor costs and subject us to monetary fines resulting from a failure to maintain minimum staffing requirements, or may affect reimbursement.
−Removed: • Annual caps and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
−Removed: • Increased scrutiny of our billing practices by the Office of the Inspector General or other regulatory authorities may result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.
+Added: • Annual caps, uncertainty regarding reimbursement and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
+Added: • Increased scrutiny of our billing practices by the OIG or other regulatory authorities may result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.
• State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of healthcare facilities could impair our ability to expand our operations, or could result in increased competition.
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• The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.
−Removed: • We lease the majority of our affiliated facilities, and risks associated with leased property, could adversely affect our business, financial position or results of operations.
+Added: • The risks associated with leased property where our operating subsidiaries operate could adversely affect our business, financial position or results of operations.
• Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our operating subsidiaries and cause us to lose facilities or experience foreclosures.
−Removed: • Move-in and occupancy rates may remain unpredictable even after the COVID-19 pandemic is over.
−Removed: • A housing downturn could decrease demand for senior living services.
+Added: • Move-in and occupancy rates may remain unpredictable even after the COVID-19 pandemic is over and the PHE expires.
+Added: • A continued housing slowdown or housing downturn could decrease demand for senior living services.
• As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
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• We may need additional capital to fund our operating subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.
−Removed: • The condition of the financial markets, including recent and expected future increases to the federal funds rate and consumer price index, could limit the availability of debt and equity financing sources to fund the capital and liquidity requirements of our business, as well as negatively impact or impair the value of our current portfolio of cash, cash equivalents and investments.
+Added: • The condition of the financial markets, including recent and expected future increases to the federal funds rate, inflation and the consumer price index, could limit the availability of debt and equity financing sources to fund the capital and liquidity requirements of our business, as well as negatively impact or impair the value of our current portfolio of cash, cash equivalents and investments.
• Delays in reimbursement may cause liquidity problems.
+Added: • The continued use and growth of managed care organizations may contribute to delays or reductions in our reimbursement, including Managed Medicaid.
• Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.
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Liabilities of any one or more of our subsidiaries could be imposed upon us or our other subsidiaries.
−Removed: • We may incur operational difficulties or be exposed to claims and liabilities as a result of the separation of Pennant, including if the Spin-Off is not tax-free for U.S.
+Added: • We may be exposed to liabilities as a result of the separation of Pennant, including if the spin-off is not tax-free for U.S.
federal income tax purposes.
−Removed: • We may not achieve some or all of the anticipated benefits of the Spin-Off, which may adversely affect our business.
−Removed: • The Spin-Off and related transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
• Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.
+Added: • Standard Bearer's failure to qualify as a REIT may cause it to be subject to U.S.
+Added: federal income tax.
+Added: Additionally, legislative or other actions affecting REITs could have a negative effect on Standard Bearer.
Risks Related to Ownership of our Common Stock
2 unchanged sentences
Risks Related to Our Business and Industry
−Removed: We face numerous risks related to the COVID-19 PHE, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
−Removed: The extent to which the COVID-19 PHE will continue impacting our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, ongoing federal and state vaccination programs and requirements, additional or modified government actions, the severity of various variants, efficacy of vaccinations and the ongoing actions to contain the virus or treat its impact, among others.
−Removed: Effective on October 13, 2022, HHS's PHE was extended through at least January 11, 2023.
−Removed: HHS has reported it will provide at least sixty (60) days' advance notice prior to the end of the PHE, but has not yet provided any notice whether it would further renew the PHE on January 11, 2023, or allow the PHE to expire at that time.
−Removed: Some of the risks of COVID-19 are being mitigated as a result of the federal vaccination program, including vaccinations and vaccine booster injections of nursing facility staff and residents, but there remains uncertainty as to when the PHE will end and what changes will be made to HHS’s emergency response to reflect the evolving and endemic nature of COVID-19, analogous to seasonal spikes in influenza cases.
+Added: We face numerous risks related to the COVID-19 PHE and its anticipated expiration on May 11, 2023, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
+Added: The extent to which the COVID-19 PHE and its termination will continue impacting our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the waivers and flexibilities that may be retained through legislation or rule-making at the federal level over the next 12 months, future waves of COVID-19 variants and their severity, ongoing federal and state vaccination programs and requirements and the efficacy of vaccinations and the ongoing actions to contain the virus or treat its impact, among others.
+Added: Some of the risks of COVID-19 are being mitigated as a result of the federal vaccination program, including vaccinations and vaccine booster requirements of nursing facility staff and residents, but there remains uncertainty as to what changes will be made to HHS’s emergency response to reflect the evolving and endemic nature of COVID-19, analogous to seasonal spikes in influenza cases and the final details for unwinding the PHE's Emergency Waivers and other administrative flexibilities at the federal and state levels.
+Added: Additionally, the expiration of the Emergency Waivers and other flexibilities allowed under the COVID-19 PHE create the risk of non-compliance and delays in operation as more attention is required to ensure that our operations comply with applicable laws and regulations.
As discussed in Item 2., under Government Regulation , federal, state and local regulators have implemented new regulations and waived existing regulations to promote care delivery during the COVID-19 PHE.
While the majority of these changes are beneficial by reducing regulatory burdens, these accommodations may also have an adverse effect through increased legal and operational costs related to compliance and monitoring.
−Removed: Additionally, most of the accommodations are limited in duration and tied to the PHE declaration, thus there may be significant operational change requirements on short notice.
−Removed: By June 30, 2022, sixteen of the Emergency Waivers relevant to SNFs and LTC facilities had expired pursuant to CMS's April 7, 2022 memorandum announcing the phased expiration of those Emergency Waivers.
+Added: Additionally, most of the accommodations are limited in duration and tied to the PHE declaration, thus there may be significant operational change requirements on short notice, in addition to the complexity and cost of monitoring which waivers and flexibilities are reinstated or retained (and for what duration) by legislative and regulatory activities other than the PHE's expiration.
+Added: In 2022, 16 of the Emergency Waivers relevant to SNFs and LTC facilities expired.
Also, the reinstatement of waived state and federal regulations may not occur simultaneously, requiring heightened monitoring to ensure compliance.
Other factors from the continuation of the COVID-19 pandemic that could have an adverse effect on our business, financial condition, liquidity, results of operations and prospects, include:
−Removed: • potential for permanent government regulations and restrictions to combat COVID-19;
−Removed: • increased strain on employees and resources caused by different waves of COVID-19 variants with different infection and effects, affecting employee availability and capacity to work;
+Added: • potential for permanent or periodic government regulations and restrictions to combat COVID-19;
+Added: • increased strain on employees and resources caused by different waves of COVID-19 variants with different infection and effects, affecting employee availability and capacity to work, and lack of federal resources previously available to aid such employee absences for illness with COVID-19;
• reduced occupancy as a result of concerns of residents and their families related to COVID-19 transmissibility within LTC settings, as well as due to government-imposed orders;
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• regulations that require all of our workers to be fully vaccinated, including receiving vaccination boosters, against COVID-19 as a condition of participating in the Medicare and Medicaid programs.
+Added: • complexity, uncertainty and potential state-by-state rulemaking arising from the expiration of the COVID-19 PHE and expiration of Emergency Waivers.
The extent and duration of the impact of the COVID-19 pandemic on our stock price is uncertain, our stock price may be more volatile, and our ability to raise capital could be impaired.
Our revenue could be impacted by federal and state changes to reimbursement and other aspects of Medicare.
−Removed: We derived 27.6% and 27.7% of our service revenue from the Medicare programs for the three and nine months ended September 30, 2022, respectively, and 26.6% and 27.9% for the three and nine months ended September 30, 2021, respectively.
+Added: We derived 28.1% and 29.4% of our service revenue from the Medicare programs for the three months ended March 31, 2023 and 2022, respectively.
In addition, many other payors may use published Medicare rates as a basis for reimbursements.
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• changes in methodology for patient assessment and/or determination of payment levels;
−Removed: • changes in staff requirements (i.e.
−Removed: requiring all workers to be vaccinated against COVID-19 and receive booster injections for those vaccinations) as a condition of payment or eligibility for Medicare reimbursement (See also, Item 2., under Government Regulation );
+Added: • changes in staff requirements (i.e., requiring all workers to be vaccinated against COVID-19 and receive booster injections for those vaccinations) as a condition of payment or eligibility for Medicare reimbursement (See also, Item 2., under Government Regulation );
• the reduction or elimination of annual rate increases, or the end of the reduced payments deferment (See also, Item 2., under Government Regulation );
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Among the important statutory changes that are being implemented by CMS are provisions of the IMPACT Act.
−Removed: This law imposes a stringent timeline for implementing benchmark quality measures and data metrics across post-acute care providers (long stay hospitals, inpatient rehabilitation facilities, skilled nursing facilities (SNFs), and home health agencies).
+Added: This law imposes a stringent timeline for implementing benchmark quality measures and data metrics across post-acute care providers (long stay hospitals, inpatient rehabilitation facilities, SNFs, and home health agencies).
The enactment also mandates specific actions to design a unified payment methodology for post-acute providers.
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Reductions in reimbursement rates or the scope of services being reimbursed could have a material, adverse effect on our revenue, financial condition and results of operations or even result in reimbursement rates that are insufficient to cover our operating costs.
+Added: Congress’s budgetary planning has also resulted in a difficulty to financially forecast, as the CAA 2023 and its provision of additional funds for Medicare resulted in a conversion factor greater than $33.89, which is larger than the conversion factor of $33.06 contemplated in the calendar year 2023 PFS final rule.
+Added: While either conversion factor is a reduction from 2022’s PFS and conversion factor exceeding $34, this difference of more than $0.80 may be significant to our operations and planning, and its addition through legislative action only after CMS issued the calendar year 2023 PFS final rule impairs our ability to make accurate financial forecasts and predictions.
+Added: Under the fiscal year 2024 SNF PPS proposed rule published on April 4, 2023, Medicare Part A reimbursement for SNFs may increase by as much as 3.7% in the next fiscal year.
+Added: This is, however, a proposed rule and the final rule to be issued later this year may contain different and lower calculations, and may ultimately result in a reduction in compensation paid under this fee schedule.
+Added: Additionally, the proposed rule set forth four new proposed quality measures to begin taking effect in fiscal year 2024 through fiscal year 2027, addressing issues such as staff turnover, discharge success, the hospitalization of long-stay residents, and residents who fall while sustaining major injuries.
+Added: These new measures may adversely affect and reduce the compensation our independent operating facilities earn from Medicare for performing their services if they fail to adequately satisfy each of these quality measures.
+Added: Additionally, CMS’s proposed replacement of the SNF 30-day all-cause readmission measure with the skilled nursing facility within stay potentially reasonable readmissions standard beginning in fiscal year 2025 may also reduce the compensation our independent operating subsidiaries may receive under the SNF VBP program.
Loss of Medicare reimbursement entirely would also have a material adverse effect on our revenue.
−Removed: Medicare may rescind our certification and terminate its payor agreements if not all of our employees are fully vaccinated consistent with CMS's interim final rule (IFR) requiring vaccination of SNF employees, which the United States Supreme Court has allowed enforcement of as of January 13, 2022 and by March 21, 2022 for certain states.
−Removed: Failure to comply with the CMS IFR in all states by their applicable deadlines stated by CMS may result in fines and other sanctions imposed by CMS.
−Removed: In addition, within California, Washington and Colorado, if our employees are not fully vaccinated as required by those states’ vaccination mandates, we could incur a deficiency that could endanger our Medicaid certification and participation status for certain locations within those states where employees have not been vaccinated.
−Removed: In addition, California has also required employees to receive at least one booster dose of the COVID-19 vaccine by March 1, 2022 in order to comply with its State Public Health Officer Order requiring vaccination of SNF employees.
+Added: Medicare may rescind our certification and terminate its payor agreements if not all of our employees are fully vaccinated consistent with CMS's IFR requiring vaccination of SNF employees, which has applied to all states since March 21, 2022 and will not immediately end upon expiration of the COVID-19 PHE anticipated on May 11, 2023.
+Added: Although we could incur a deficiency that could endanger our Medicaid certification and participation status for certain locations in states that maintain state-based vaccination requirements for healthcare workers, the remaining states that had healthcare worker vaccine mandates have moved to rescind or terminate those mandates, or allowed them to expire by March 31, 2023.
+Added: On March 3, 2023, California’s State Public Health Officer announced the rescission of the state’s original August 2021 order requiring vaccination of workers in healthcare settings, as amended to require booster shots and other requirements that evolved over time, effective April 3, 2023.
+Added: Washington state also terminated its state vaccination requirement for healthcare workers with the expiration of the state's COVID-19 state of emergency in late 2022 (although employees of certain Washington state agencies will remain subject to vaccination requirements as a condition of state employment).
+Added: Other states where we operate, such as Colorado, have allowed their COVID-19 vaccinations to expire, or did not impose such mandates for the state’s healthcare workers.
Any penalty, suspension, termination, or other sanction under any state’s Medicaid program could lead to reciprocal and commensurate penalties being imposed under the Medicare program, up to termination or rescission of our Medicare participation and payor agreements as noted above.
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A significant portion of reimbursement for skilled nursing services comes from Medicaid.
−Removed: In fact, Medicaid is our largest source of revenue, accounting for 46.1% and 45.8% of our revenue for the three and nine months ended September 30, 2022, respectively, and 47.0% and 45.7% for the three and nine months ended September 30, 2021, respectively.
+Added: In fact, Medicaid is our largest source of revenue, accounting for 45.2% and 44.0% of our revenue for the three months ended March 31, 2023 and 2022, respectively.
Medicaid is a state-administered program financed by both state funds and matching federal funds.
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Any discontinuance or reduction in federal matching of provider tax-related Medicaid expenditures could have a significant and adverse effect on states' Medicaid expenditures, and as a result could have a material and adverse effect on our business, financial condition or results of operations.
−Removed: Our revenue could be impacted by a shift to value-based reimbursement models, including PDPM, and changes to existing reimbursement models.
+Added: Upcoming changes to Medicaid reimbursement and FMAP may affect our revenues.
+Added: The CAA 2023 contains provisions that will wind down and end increased FMAP payments provided for by FFCRA, as well as provide for the disenrollment of Medicaid beneficiaries who have participated in the program since early in the COVID-19 pandemic.
+Added: In the first quarter of 2023, the FMAP increase CMS provides to the States will remain elevated by 6.2%, but will decline for the remaining quarters in 2023, at 5% in the second quarter, 2.5% in the third quarter, and 1.5% in the fourth quarter before increased FMAP spending ends entirely.
+Added: Previously, the FMAP funding was dependent on the termination of the PHE.
+Added: The ultimate amount of funding from each state will vary substantially based on that states’ policies.
+Added: This may result in reductions in Medicaid spending by states where we operate, causing reductions in rates, and delays or withholding of payment for our operating subsidiaries’ services and effect our operating subsidiaries’ ability to profitably perform their services.
+Added: CMS’s ability to further reduce these declining FMAP payments to states may create further pressure on Medicaid agencies and their payments for our services in states where we operate.
+Added: The CAA 2023 also grants CMS the authority to impose fines, penalties, and other sanctions upon states that do not comply with this law’s requirements for the unwinding of increased FMAP payments.
+Added: As a result, these reductions may impose further burdens on the Medicaid programs in states where we operate, which may result in reduced payments.
+Added: Additionally, beginning on April 1, 2023, states may begin disenrolling Medicaid beneficiaries.
+Added: CMS guidance regarding disenrollment of beneficiaries and a return to historical renewal, enrollment, and eligibility determination practices permits states up to 14 months to initiate and process traditional Medicaid renewals, including the eligibility and enrollment process.
+Added: The allowance of disenrollment and return to traditional Medicaid renewal processes, which will include pre-COVID eligibility determinations, may result in a reduction of the number of Medicaid beneficiaries and may result in a reduction of our current and potential patient population.
+Added: As a result, there may be fewer current or potential patients able to pay for our operating subsidiaries’ services, and increased competition for Medicaid beneficiaries able to provide reimbursement for those services.
+Added: Our revenue could be impacted by changes to existing reimbursement models.
As discussed in more detail in Item 2., under Government Regulation , CMS implemented a final rule in October 2019 to replace the existing case-mix classification system, Resource Utilization Groups, Version IV, with a new case-mix classification system, PDPM, that focuses more on the clinical condition of the patient and less on the volume of services provided.
CMS may make future adjustments to reimbursement levels as it continues to monitor the impact of PDPM on patient outcomes and budget neutrality.
−Removed: As included in the proposed rule, CMS could remove the entire parity calculated adjustment and this would cause a drastic reduction in payments.
−Removed: In addition, the Administration continues to study the nursing home industry and for HHS to issue proposed rules based on those studies, including changes to SNF-VBP Program, may also adversely affect our reimbursement.
−Removed: The Administration continues to act on the issues identified in its February 28, 2022 fact sheet and further regulation is expected regarding LTC and SNF reimbursement.
−Removed: On July 29, 2022, CMS released the FY 2023 SNF PPS final rule, which elected to defer the SNF 30-Day All-Cause Readmission Measure (SNFRM) as part of performance scoring for fiscal year 2023, although the SNFRM will still be reported without affecting SNF payment.
+Added: CMS could remove the entire parity calculated adjustment and this would cause a drastic reduction in payments.
+Added: In addition, the Biden-Harris Administration continues to study the nursing home industry and for HHS to issue proposed rules based on those studies, including changes to SNF-VBP Program, may also adversely affect our reimbursement.
+Added: The Biden-Harris Administration continues to act on the issues identified in its February 28, 2022 fact sheet and further regulation is expected regarding LTC and SNF reimbursement.
+Added: CMS elected to defer the SNF 30-Day All-Cause Readmission Measure (SNFRM) as part of performance scoring for fiscal year 2023, as detailed in CMS's March 2023 FAQ for the SNF-VBP program, although the SNFRM will still be reported without affecting SNF payment.
This final rule also provided for the SNF-VBP program expansion beyond the use of its single, all-cause hospital readmission measure to determine payment, with the inclusion of measures beginning in fiscal year 2026 for SNF healthcare associated infections requiring hospitalization (SNF HAI) and total nursing hours per resident day measures.
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Applicable to our business, as discussed in greater detail in Item 2., under Government Regulation , the ACA has resulted in significant changes to our operations and reimbursement models for services we provide.
−Removed: CMS continues to issue rules to implement the ACA.
+Added: CMS continues to issue rules to implement the ACA, including most recently, new rules regarding the implementation of the anti-discrimination provisions and proposed rules requiring the disclosure of SNF ownership, organization, management and the identity of the real property owners from which the SNF leases or subleases its operating space.
Courts continue to interpret and apply the ACA’s provisions.
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However, any material changes to the ACA or its implementing regulations may negatively impact our operations.
−Removed: Similarly, the proposed Nursing Home Improvement Act may have an impact on our business due to the proposed two percent decrease in payments to SNFs, as well as the staffing and reporting requirements contained within the bill.
−Removed: This bill primarily creates penalties such as reduced reimbursement and monetary penalties for submitting inaccurate cost reports or staffing data.
−Removed: If passed in its current form, however, this bill would provide participating states with a temporary enhanced federal Medicaid match to fund improvements in nursing home workforce and care.
+Added: Similarly, the Nursing Home Improvement Act proposed during the prior Congress may be re-introduced in the future and could ultimately have an impact on our business due to the proposed two percent decrease in payments to SNFs, as well as the staffing and reporting requirements contained within the bill.
+Added: This proposed bill primarily created penalties such as reduced reimbursement and monetary penalties for submitting inaccurate cost reports or staffing data.
+Added: If reintroduced to Congress and passed in the same form it was previously introduced, however, this bill would provide participating states with a temporary enhanced federal Medicaid match to fund improvements in nursing home workforce and care.
This match would last six years, and states would be responsible for showing CMS that Medicaid reimbursement increases were used to increase worker wages and yield new training resources and opportunities for nursing home staff.
−Removed: While it is difficult to determine whether the Nursing Home Improvement Act will be amended prior to adoption, or even passed into law, if passed, this bill may negatively impact our business, with the scope and nature of its consequences unknown.
−Removed: However, based on recent statements by the Administration in its February 28, 2022 fact sheet and President Biden’s March 1, 2022 State of the Union Address, HHS and CMS are being instructed to study the nursing home industry, specifically with regard to staffing levels, and the Administration has called for greater oversight of LTC and SNF facilities—including greater penalties for non-compliance with federal laws and regulations.
−Removed: On April 11, 2022, the CMS issued a proposed rule that requested information to be used for study and potential rulemaking consistent with the Administration’s February 28, 2022 fact sheet.
−Removed: Based upon this activity, HHS and CMS are expected to issue new rules that may subject our business to greater oversight, increase penalties that the Government may seek to impose upon us, and impose additional conditions and measurements to the reimbursement we receive from Medicare and Medicaid.
−Removed: On June 29, 2022, CMS published guidance to surveyors for consistently evaluating Phase 2 and 3 Requirements of Participation for LTC facilities, addressing topics including infection control, resident safety, arbitration of disputes, nurse staffing and mental health disorders.
−Removed: On July 29, 2022, CMS requested additional information that is expected to be used in creating additional regulations regarding staffing and operations in the future.
−Removed: These anticipated regulations, consistent with the Administration’s prior statements, may affect our business, its operations, and its profitability.
+Added: While it is difficult to determine whether the Nursing Home Improvement Act or an identical bill will even be reintroduced, if ultimately signed into law, this bill may negatively impact our business, with the scope and nature of its consequences unknown.
+Added: Statements that the Biden-Harris Administration made beginning in February of 2022 and subsequently, indicate that HHS and CMS are studying the nursing home industry, specifically with regard to staffing levels, and evaluating potentially greater oversight of LTC and SNF facilities—including larger penalties for non-compliance with federal laws and regulations.
+Added: On April 11, 2022, CMS issued a proposed rule that requested information to be used for study and potential rulemaking.
+Added: Based upon this information-gathering and subsequent study, HHS and CMS are expected to issue new rules that may subject our business to greater oversight, increase penalties that the Government may seek to impose upon us, and impose additional conditions and measurements upon the reimbursement we receive from Medicare and Medicaid.
+Added: In addition, CMS has published guidance to surveyors for consistently evaluating requirements of participation for LTC facilities, addressing topics including infection control, resident safety, arbitration of disputes, nurse staffing and mental health disorders.
+Added: Surveyors' use of these additional Requirements of Participation to evaluate our affiliated facilities may increase our costs of compliance and subject us to additional fines and penalties for alleged non-compliance.
+Added: The OIG has added SNFs and nursing homes to its 2023 work plan and recently published results of a study finding that nursing homes are insufficiently prepared for emergencies, calling for enhanced survey activity of LTC facilities in order to increase emergency preparedness.
+Added: According to the OIG’s published study, CMS concurs with some of the OIG’s findings and recommendations.
+Added: CMS has also requested additional information from the public and industry participants that is expected to be used by HHS and CMS in creating additional regulations regarding staffing and operations of SNFs and LTC facilities in the future.
+Added: These anticipated regulations, consistent with the Administration’s prior statements, may adversely affect our business, its operations, and its profitability.
+Added: On February 13, 2023, CMS issued a proposed rule that, if finalized and implemented, would require SNFs to disclose certain information regarding their ownership and managerial relationships.
+Added: Refer to Item 2., under Government Regulation for additional information.
+Added: If finalized, these disclosure requirements may impose additional research and reporting obligations upon us in our operations.
+Added: Additionally, the information we disclose to CMS under this rule if it is finalized may be used for future rulemaking or administrative actions, including adversary proceedings, that may be adverse to our business interests and detrimental to our operations, revenue, and profitability.
We cannot predict what effect future reforms to the U.S.
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However, it is possible these new laws may lower reimbursement or increase the cost of doing business and adversely affect our business.
−Removed: The results of recent U.S.
−Removed: Presidential and Congressional elections and upcoming midterm elections in 2022 may result in significant changes to regulatory framework, enforcements and reimbursements.
−Removed: The most recent Presidential and Congressional elections in the United States and upcoming midterm elections in 2022, could result in significant changes in, and uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid.
−Removed: Democratic proposals for Medicare for All or significant expansion of Medicare, could significantly impact our business and the healthcare industry if implemented.
−Removed: Additionally, Congress’s passage of the IRA in August of 2022, which expanded upon and continued certain provisions of the ACA, indicates that additional legislative changes to the ACA may be forthcoming depending on the outcomes of the November 2022 mid-term elections.
−Removed: Further, if proposed policies specific to nursing facilities are implemented, these may result in significant regulatory changes, increased survey frequency and scope, and increased penalties for non-compliance.
+Added: The changes in Congress due to recent U.S.
+Added: midterm elections in 2022 and actions in anticipation of the 2024 Presidential election may result in significant changes to regulatory framework, enforcements and reimbursements.
+Added: The most recent midterm elections in 2022 and resulting change in control of the House of Representatives could result in significant changes in, and uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid.
+Added: Democratic proposals for Medicare for All or significant expansion of Medicare, could significantly impact our business and the healthcare industry if implemented, although unlikely under the political party holding a current majority within the House of Representatives.
+Added: Additionally, Congress’s passage of the IRA in August of 2022, which expanded upon and continued certain provisions of the ACA indicates that additional legislative changes to the ACA may be forthcoming.
+Added: If proposed policies specific to nursing facilities are implemented, these may result in significant regulatory changes, increased survey frequency and scope, and increased penalties for non-compliance.
+Added: As both political parties prepare for their Presidential primaries and next congressional elections, each of them may seek to introduce or pass legislation that would either expand or reduce the scope of the ACA as a credential for future campaigning.
+Added: As a result, future legislation may be proposed or passed that may adversely affect our business, operating results and financial condition.
We continually monitor these developments in order to respond to the changing regulatory environment impacting our business.
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A number of lawsuits have been filed challenging various aspects of the ACA and related regulations.
−Removed: In addition, the efficacy of the ACA is the subject of much debate among members of Congress and the public.
+Added: In addition, the ACA may be affected by both the recently completed midterm elections and forthcoming Presidential and Congressional elections in 2024.
Cases challenging the ACA or related rules have had inconsistent outcomes - some expand the ACA while others limit the ACA.
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The uncertainty as to the future of the ACA may negatively impact our business, as will any material changes to the ACA.
−Removed: Presidential and Congressional elections in the United States and the upcoming midterm elections of 2022 could result in significant changes to, and uncertainty with respect to, legislation, regulation, implementation or repeal of the ACA, and other federal health program policy that could significantly impact our business and the healthcare industry.
−Removed: Congress’ passage of the IRA in August of 2022, which expanded upon and continued certain provisions of the ACA, indicates that additional legislative changes to the ACA may be forthcoming regardless of the outcome of the November 2022 mid-term elections.
In the event that legal challenges are successful or the ACA is repealed or materially amended, particularly any elements of the ACA that are beneficial to our business or that cause changes in the health insurance industry, including reimbursement and coverage by private, Medicare or Medicaid payers, our business, operating results and financial condition could be harmed.
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In addition, even if the ACA is not amended or repealed, the President and the executive branch of the federal government, as well as CMS and HHS have a significant impact on the implementation of the provisions of the ACA, and a new administration could make changes impacting the implementation and enforcement of the ACA, which could harm our business, operating results and financial condition.
+Added: We have already seen this with regulatory activity promulgating rules regarding anti-discrimination under Section 1557 of the ACA and most recently proposed rulemaking requiring the disclosure of SNF ownership and service providers under Section 6101 of the ACA.
If we are slow or unable to adapt to any such changes, our business, operating results and financial condition could be adversely affected.
We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines, and/or the loss of our right to participate in Medicare and Medicaid programs.
−Removed: As a result of our participation in the Medicaid and Medicare programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations.
−Removed: We are subject to regulatory reviews relating to Medicare services, billings and potential overpayments resulting from Recovery Audit Contractors, Zone Program Integrity Contractors, Program Safeguard Contractors, Unified Program Integrity Contractors, Supplemental Medical Review Contractors and Medicaid Integrity Contractors programs, (collectively referred to as Reviews), in which third party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare programs.
−Removed: As discussed above, the Administration has called for HHS and CMS to increase the scrutiny of these audits and has requested those agencies adopt rules that would impose greater penalties upon non-compliant LTC and SNF operators and CMS issued its first proposed rule seeking information regarding these priorities on April 11, 2022.
+Added: As a result of our participation in the Medicaid and Medicare programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with the rules associated with these programs and related applicable laws and regulations.
+Added: We are subject to regulatory reviews relating to Medicare services, billings and potential overpayments resulting from the actions of Recovery Audit Contractors, Zone Program Integrity Contractors, Program Safeguard Contractors, Unified Program Integrity Contractors, Supplemental Medical Review Contractors and Medicaid Integrity Contractors programs, (collectively referred to as Reviews), in which third party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Federal and State programs.
+Added: As discussed above, the Biden-Harris Administration has called for HHS and CMS to increase the level of scrutiny in these audits and has requested those agencies to adopt rules that would impose greater penalties upon non-compliant LTC and SNF operators.
+Added: On February 17, 2023, CMS most recently updated the survey resources that CMS and state surveyors use in evaluating LTC facilities’ compliance with federal Requirements for Participation, incorporating recent changes to CMS’s methods for surveying infection control procedures.
+Added: This change is demonstrative of the frequent changes made by CMS and state survey agencies to the evaluated criteria and potential bases for notices of deficiency that must be corrected upon pains of potential fines, penalties, or other sanctions, up to termination of Medicare or Medicaid participation, or even expulsion from participating in those programs.
On June 29, 2022, CMS announced updated guidance for Phase 2 and 3 of the requirements of participation.
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(3) mental health and substance abuse disorders;
−Removed: (4) nurse staffing and reporting of payrolls to evaluate staffing sufficiency;
+Added: (4) nurse staffing and reporting of payroll to evaluate staffing sufficiency;
(5) residents’ rights (including visitation);
(6) potential inaccurate diagnoses or assessments;
−Removed: (7) prescription and use of pharmaceuticals;
−Removed: (8) infection control and prevention;
+Added: (7) prescription and use of pharmaceuticals, including psychotropics and drugs that act like psychotropics;
+Added: (8) infection prevention and control;
(9) arbitration of disputes between facilities and residents;
−Removed: (10) psychosocial outcomes and their severity;
−Removed: and (11) the timeliness and completion of state investigations to improve consistency in standards among various states.
−Removed: CMS’s new guidance could result in more aggressive and stringent surveys, and potential fines, penalties, sanctions, or administrative actions taken against our operating subsidiaries or affiliated facilities.
−Removed: On September 22, 2022, CMS issued an IFR addressing nursing home visitation including the use of masks and face coverings in connection with visitations to combat the transmission of COVID-19 and testing of nursing home staff and residents regardless of COVID-19 vaccination status.
+Added: (10) psychosocial outcomes and related severity;
+Added: and (11) the timeliness and completion of state investigations to improve consistency in the application of standards among various states.
+Added: The application of CMS’s new guidance could result in more aggressive and stringent surveys, and potential fines, penalties, sanctions, or administrative actions taken against our independent operating subsidiaries.
Private pay sources also reserve the right to conduct audits.
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• an obligation to refund amounts previously paid to us pursuant to the Medicare or Medicaid programs or from private payors, in amounts that could be material to our business;
−Removed: • state or federal agencies imposing fines, penalties and other sanctions on us;
+Added: • state or federal agencies imposing fines, penalties or other sanctions on us;
• temporary or permanent loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks;
• an increase in private litigation against us;
−Removed: • damage to our reputation in various markets.
−Removed: In 2004, our Medicare administrative contractors began to conduct selected reviews of claims previously submitted by and paid to some of our affiliated facilities.
−Removed: While we have always been subject to post-payment audits and reviews, more intensive “probe reviews” appear to be a permanent procedure with our fiscal intermediaries.
−Removed: All findings of overpayment from CMS contractors are eligible for appeal through the CMS defined continuum.
+Added: • damage to our reputation in the geographies served by our independent operating subsidiaries.
+Added: Medicare administrative contractors conduct selected reviews of claims previously submitted by and paid to some of our independent operating entities.
+Added: Although we have always been subject to post-payment audits and reviews, more intensive “probe reviews” performed in recent years appear to be a regular procedure with our fiscal intermediaries.
+Added: All findings of overpayment from CMS contractors are eligible for appeal through the CMS defined processes and procedures.
With the exception of rare findings of overpayment related to objective errors in Medicare payment methodology or claims processing, we utilize all defenses reasonably available to us to demonstrate that the services provided meet all clinical and regulatory requirements for reimbursement.
−Removed: In cases where claim and documentation review by any CMS contractor results in repeated poor performance, an operation can be subjected to protracted oversight.
+Added: In cases where claim and documentation review by any CMS contractor results in repeated unsatisfactory results, an operation can be subjected to protracted regulatory oversight.
This oversight may include repeat education and re-probe, extended pre-payment review, referral to recovery audit or integrity contractors, or extrapolation of an error rate to other reimbursement outside of specifically reviewed claims.
Sustained failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare decertification.
−Removed: As of September 30, 2022 and since, 27 of our independent operating subsidiaries had reviews scheduled, on appeal, or in a dispute resolution process, either pre- or post-payment.
+Added: As of March 31, 2023 and through the filing date of this report, 17 of our independent operating subsidiaries had reviews scheduled, on appeal, or in a dispute resolution process, either pre- or post-payment.
We anticipate that these reviews could increase in frequency in the future.
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On May 31, 2018, we received a Civil Investigative Demand (CID) from the DOJ stating that it is investigating our company to determine whether we have violated the FCA or the Anti-Kickback Statute with respect to the relationships between certain of our SNFs and persons who served as medical directors, advisory board participants or other referral sources.
−Removed: The CID covered the period from October 3, 2013 through 2018 and was limited in scope to ten of our Southern California SNFs.
−Removed: In October 2018, the Department of Justice made an additional request for information covering the period of January 1, 2011 through 2018, relating to the same topic.
As a general matter, our operating entities maintain policies and procedures to promote compliance with the FCA, the Anti-Kickback Statute, and other applicable regulatory requirements.
−Removed: We are fully cooperating with the U.S.
+Added: We fully cooperated with the U.S.
Department of Justice.
−Removed: In April 2020, the Company was advised that the U.S.
+Added: In April 2020, we were advised that the U.S.
Department of Justice declined to intervene in any subsequent action filed by a relator in connection with the subject matter of this investigation.
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Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged civil violations and may also include our assumption of specific procedural and financial obligations going forward under a corporate integrity agreement or other arrangement with the government.
−Removed: If the government or court were to conclude that errors and deficiencies constitute criminal violations, concluded that such errors and deficiencies resulted in the submission of false claims to federal healthcare programs, or if it were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we and certain of our officers might face potential criminal charges and civil claims, administrative sanctions and penalties for amounts that could be material to our business, results of operations and financial condition.
−Removed: In addition, we or some of the key personnel of our operating subsidiaries could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare.
−Removed: If any of our affiliated facilities is decertified or loses its licenses, our revenue, financial condition or results of operations would be adversely affected.
−Removed: In addition, the report of such issues at any of our affiliated facilities could harm our reputation for quality care and lead to a reduction in the patient referrals of our operating subsidiaries and ultimately a reduction in occupancy at these facilities.
−Removed: Also, responding to auditing and enforcement efforts diverts material time, resources and attention from our management team and our staff, and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail on the underlying claim.
+Added: If the government or a court were to conclude that errors and deficiencies constitute criminal violations and/or that such errors and deficiencies resulted in the submission of false claims to federal healthcare programs, or were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we and certain of our officers might face potential criminal charges and civil claims, administrative sanctions and penalties for amounts that could be material to our business, results of operations and financial condition.
+Added: In addition, we or some of the key personnel of our independent operating subsidiaries could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare.
+Added: If any of our independently operated subsidiary facilities is decertified or loses its licenses, our revenue, financial condition or results of operations would be adversely affected.
+Added: In addition, the report of such issues at any of our independently operated subsidiary facilities could harm our reputation for quality care and lead to a reduction in the patient referrals to and ultimately a reduction in occupancy at these facilities.
+Added: Also, responding to auditing and enforcement efforts diverts material time, resources and attention away from our management team and our staff, and could have a materially detrimental impact on our results of operations during and after any such investigation or proceedings, regardless of whether we prevail on the underlying claim.
We are subject to extensive and complex laws and government regulations.
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• qualifications and vaccination (including boosting) of healthcare and support personnel;
−Removed: • quality of medical equipment;
+Added: • quality and maintenance of medical equipment and facilities;
• confidentiality, maintenance and security issues associated with medical records and claims processing;
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These laws and regulations are subject to frequent change.
−Removed: As noted above, the Administration has called upon HHS and CMS to study and propose new rules regarding staffing requirements and reimbursement for the nursing home industry, including tying reimbursement to staffing levels, salary, benefits, and retention and CMS issued its first proposed rule seeking information regarding these priorities on April 11, 2022.
−Removed: The guidance CMS published on June 29, 2022 to surveyors addressed topics including infection control, resident safety, arbitration of disputes, nurse staffing, and mental health disorders.
−Removed: This new guidance could result in enhanced scrutiny by state surveyors and a potential increase in fines, penalties, sanctions, or administrative actions against our independent operating subsidiaries or affiliated facilities.
−Removed: On September 22, 2022, CMS issued an IFR addressing nursing home visitation including the use of masks and face coverings in connection with visitations to combat the transmission of COVID-19 and testing of nursing home staff and residents regardless of COVID-19 vaccination status.
+Added: As noted above, the Biden-Harris Administration has called upon HHS and CMS to study and propose new rules regarding staffing requirements and reimbursement for the nursing home industry, including tying reimbursement to staffing levels, salary, benefits, and retention.
+Added: CMS's guideline and sanction addressed topics including infection control, resident safety, arbitration of disputes, nurse staffing, and mental health disorders.
+Added: In addition, CMS's new guidance including the use of masks and face coverings in connection with visitations to combat the transmission of COVID-19, testing of nursing home staff and residents regardless of COVID-19 vaccination status and verifying vaccination of all SNF and LTC facility staff could result in enhanced scrutiny by state surveyors and a potential increase in fines, penalties, sanctions, or administrative actions against our independent operating subsidiaries.
+Added: The recently proposed CMS rule over ownership transparency discussed above may provide an additional basis for further investigation, administrative action and ultimately fines, penalties, or sanctions if finalized.
We believe that such regulations may increase in the future and we cannot predict the ultimate content, timing or impact on us of any healthcare reform legislation.
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As CMS turns its attention to enhancing enforcement activities towards LTC facilities, as discussed in Item 2., under Government Regulation , state survey agencies will have more accountability for their survey and enforcement efforts.
−Removed: The Administration’s fact sheet regarding enhanced penalties against SFFs, discussed in greater length within that section, represents further federal calls for oversight and penalties for low-ranked and underperforming LTC facilities.
−Removed: This fact sheet precedes greater focus by CMS in obtaining oversight over SFFs, even after they improve, and subjecting them to more exacting and regular oversight.
+Added: The Biden-Harris Administration’s fact sheet regarding enhanced penalties against SFFs, discussed in greater length within that section, represents further federal calls for oversight and penalties for low-ranked and underperforming LTC facilities.
+Added: This fact sheet precedes greater focus by CMS in obtaining oversight over SFFs, and continuing that oversight even after those SFFs improve, and subjecting them to more exacting and routine oversight.
The likely result may be more frequent surveys of our affiliated facilities, with more substantial penalties, fines and consequences if they do not perform well.
−Removed: For low-performing facilities in the SFF program, the standards for successfully emerging from that program will be higher and measured over a longer period of time, prolonging the risks of monetary penalties, fines and potential suspension or exclusion from the Medicare and Medicaid programs.
+Added: For low-performing facilities in the SFF program, the standards for successfully emerging from that program and not being subject to ongoing and enhanced government oversight will be higher and measured over a longer period of time, prolonging the risks of monetary penalties, fines and potential suspension or exclusion from the Medicare and Medicaid programs.
As discussed in Item 2., under Government Regulation, from time to time in the ordinary course of business, we receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys.
The focus of these deficiency reports tends to vary from year to year and state to state.
+Added: Based on its October 2022 guidance, CMS and its state surveyors will place greater emphasis on COVID-19 vaccination reporting and will potentially assess penalties for failing to comply with vaccination administration and reporting obligations.
+Added: This October 2022 guidance was updated on February 17, 2023, when CMS most recently updated the survey resources that CMS and state surveyors use in evaluating LTC facilities’ compliance with federal Requirements for Participation, incorporating recent changes to CMS’s methods for surveying infection control procedures.
+Added: Additionally, the recently proposed CMS rule over ownership transparency may provide an additional basis for further investigation, administrative action, and ultimately fines, penalties, or sanctions if finalized.
+Added: Both this proposed rule and potential further rulemaking may result in new survey criteria, including disclosures required for new enrollment or upon revalidation, that can serve the basis for fines, penalties, or sanctions that would adversely affect our business.
Although most inspection deficiencies are resolved through an agreed-upon plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified facility, which could result in the imposition of fines, imposition of a license to a conditional or provisional status, suspension or revocation of a license, suspension or denial of payment for new admissions, loss of certification as a provider under state or federal healthcare programs, or imposition of other sanctions, including criminal penalties.
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Revocation of a license at a given facility could therefore impair our ability to obtain new licenses or to renew, or maintain, existing licenses at other facilities, which may also trigger defaults or cross-defaults under our leases and our credit arrangements, or adversely affect our ability to operate or obtain financing in the future.
+Added: CMS’s proposed rules requiring disclosure of ownership, management and the owners of real property lessors or sublessors, heighten this risk and if finalized, will require the additional disclosure of information that may be used to investigate, sanction, or otherwise adversely affect related entities.
If state or federal regulators were to determine, formally or otherwise, that one facility's regulatory history ought to impact another of our existing or prospective facilities, this could also increase costs, result in increased scrutiny by state and federal survey agencies, and even impact our expansion plans.
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Trade publications within the healthcare industry have reported on the trend of payors using the No Surprises Act as a means to force re-negotiation of reimbursement rates for providers and facilities, and this trend has led to ongoing litigation between these providers and/or facilities against payors.
−Removed: Although the services provided in our business generally are outside the scope of the No Surprises Act, subsequent rulemaking and potentially aggressive behaviors by payors may pose a risk to our business.
+Added: Although the services provided in our business generally are outside the scope of the No Surprises Act, subsequent rulemaking and potentially aggressive behaviors by payors may post a risk to our business.
We are continuing our efforts to develop our non-Medicare and non-Medicaid sources of revenue and any changes in payment levels from current or future third-party payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.
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On February 9, 2018, the BBA was signed into law, which provides for the repeal of all therapy caps retroactively to January 1, 2018.
−Removed: The law also reduced the monetary threshold that triggers a manual medical review (MMR), in certain instances (from $3,700 to $3,000).
−Removed: The reduction in the MMR threshold will likely result in increased number of reviews, which could in turn have a negative effect on our business, financial condition or results of operations.
+Added: The law also reduced the monetary threshold that triggers a manual medical review (MMR), in certain instances through 2028.
+Added: The reduction in the MMR threshold will likely result in increased number of reviews for the foreseeable future, which could in turn have a negative effect on our business, financial condition or results of operations.
+Added: Similarly, new final rules concerning the PACE program and the information it will collect may adversely affect the risk-adjusted reimbursement.
We may be subject to increased investigation and enforcement activities related to HIPAA violations.
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We must comply with these state privacy laws to the extent that they are more protective of healthcare information or provide additional protections not afforded by HIPAA.
+Added: The regulations enacting HIPAA periodically change and the last proposed change was issued in late 2022 to more closely align the information disclosure provisions of 42 C.F.R.
+Added: Part 2 with HIPAA’s Privacy Rule.
+Added: This proposed rulemaking may be made final in 2023 and, if adopted as proposed, may require our operating subsidiaries to modify certain policies, procedures and practices regarding the disclosure of residents’ information.
If we fail to comply with these state and federal laws, we could be subject to criminal penalties, civil sanctions, litigation, and be forced to modify our policies and procedures.
1 unchanged sentence
In addition to breaches of protected patient information, under HIPAA and the 21st Century Cures Act (Cures Act), healthcare entities are also required to afford patients with certain rights of access to their health information.
−Removed: Recently, the Office of Civil Rights, the agency responsible for HIPAA enforcement, has targeted investigative and enforcement efforts on violations of patients’ rights of access, imposing significant fines for violations largely initiated from patient complaints.
+Added: Recently, the Office for Civil Rights, the agency responsible for HIPAA enforcement, has targeted investigative and enforcement efforts on violations of patients’ rights of access, imposing significant fines for violations largely initiated from patient complaints.
If we fail to comply with our obligations under HIPAA, we could face significant fines.
2 unchanged sentences
Healthcare businesses are increasingly the target of cyberattacks whereby hackers disrupt business operations or obtain protected health information, often demanding large ransoms.
+Added: In 2021 alone, the healthcare sector saw a 45% increase in ransomware attacks, with the average cost to remediate being over $1 million per incident.
Our business is dependent on the proper functioning and availability of our computer systems and networks.
+Added: From 2016 to 2021, ransomware attacks on healthcare organizations doubled.
+Added: In 2022, ransomware attacks and other attacks on data security continued, with increasing sophistication due to mass iterations and optimization in prior years.
While we have taken steps to protect the safety and security of our information systems and the patient health information and other data maintained within those systems, we cannot assure you that our safety and security measures and disaster recovery plan will prevent damage, interruption or breach of our information systems and operations.
−Removed: Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect, we may be unable to anticipate these techniques or implement adequate preventive measures.
−Removed: In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of our information systems.
+Added: Additionally, we cannot control the safety and security of our information held by third-party vendors with whom we contract.
+Added: Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect, we (or third-party vendors) may be unable to anticipate these techniques or implement adequate preventive measures.
+Added: In addition, hardware, software or applications we (or third-party vendors) develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security of information systems.
Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deceiving our employees or contractors.
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We also license certain third-party software to support our operations and information systems.
−Removed: Our inability, or the inability of third-party software providers, to continue to maintain and upgrade our information systems and software could disrupt or reduce the efficiency of our operations.
+Added: Our inability, or the inability of third-party vendors, to continue to maintain and upgrade information systems and software could disrupt or reduce the efficiency of our operations.
In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency of our operations.
−Removed: A cyber-attack or other incident that bypasses our information systems security could cause a security breach which may lead to a material disruption to our information systems infrastructure or business and may involve a significant loss of business or patient health information.
−Removed: If a cyber-attack or other unauthorized attempt to access our systems or facilities were to be successful, it could result in the theft, destructions, loss, misappropriation or release of confidential information or intellectual property, and could cause operational or business delays that may materially impact our ability to provide various healthcare services.
−Removed: Any successful cyber-attack or other unauthorized attempt to access our systems or facilities also could result in negative publicity which could damage our reputation or brand with our patients, referral sources, payors or other third parties and could subject us to a number of adverse consequences, the vast majority of which are not insurable, including but not limited to disruptions in our operations, regulatory and other civil and criminal penalties, fines, investigations and enforcement actions (including, but not limited to, those arising from the SEC, Federal Trade Commission, Office of Civil Rights, the OIG or state attorneys general), fines, private litigation with those affected by the data breach, loss of customers, disputes with payors and increased operating expense, which either individually or in the aggregate could have a material adverse effect on our business, financial position, results of operations and liquidity.
+Added: A cyber-attack or other incident that bypasses our information systems security could cause a security breach which may lead to a material disruption to our information systems infrastructure or business, significant costs to remediate (e.g., payment to cyber attackers to recover our data) and may involve a significant loss of business or patient health information.
+Added: If a cyber-attack or other unauthorized attempt to access our systems or facilities were to be successful, it could result in the theft, destruction, loss, misappropriation or release of confidential information or intellectual property, and could cause operational or business delays that may materially impact our ability to provide various healthcare services.
+Added: Any successful cyber-attack or other unauthorized attempt to access our systems or facilities also could result in negative publicity which could damage our reputation or brand with our patients, referral sources, payors or other third parties and could subject us to a number of adverse consequences, the vast majority of which are not insurable, including but not limited to significant payment to cyber attackers to recover data, disruptions in our operations, regulatory and other civil and criminal penalties, fines, investigations and enforcement actions (including, but not limited to, those arising from the SEC, Federal Trade Commission, Office of Civil Rights, the OIG or state attorneys general), fines, private litigation with those affected by the data breach, loss of customers, disputes with payors and increased operating expense, which either individually or in the aggregate could have a material adverse effect on our business, financial position, results of operations and liquidity.
We may not be fully reimbursed for all services for which each facility bills through consolidated billing, which could adversely affect our revenue, financial condition and results of operations.
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The broader labor market where we compete is in a unique state of disequilibrium where the needs of businesses such as ours outstrip the supply of available and willing workers.
−Removed: There is additional upward pressure on wages from different industries and more generally due to the reported rate of inflation for the preceding 12 months.
+Added: There is additional upward pressure on wages from different industries and more generally due to the reported rate of inflation.
Some of these industries compete with us for labor and others that do not, which makes it difficult to make significant hourly wage and salary increases due to the fixed nature of our reimbursement under insurance contracts as well as Medicare and Medicaid, in addition to our increasing variable costs.
−Removed: Due to the limited supply of qualified applicants who seek or are willing to accept employment, these broader concerns, as well as those specific to both forthcoming federal COVID-19 vaccination mandates and existing state mandates, may increase our labor costs or lead to potential staffing shortages, reduced operations to comply with applicable laws and regulations, or difficulty complying with those laws and regulations at current operational levels.
+Added: Due to the limited supply of qualified applicants who seek or are willing to accept employment, these broader concerns, may increase our labor costs or lead to potential staffing shortages, reduced operations to comply with applicable laws and regulations, or difficulty complying with those laws and regulations at current operational levels.
Federal laws and regulations may increase our costs of maintaining qualified nursing and skilled personnel, or make it more difficult for us to attract or retain qualified nurses and skilled staff members.
−Removed: The proposed Nursing Home Improvement Act, if passed into law in substantially the same form as the proposed bill, may increase our responsibility to provide nursing coverage and the costs associated with that increased coverage.
−Removed: The Administration’s February 28, 2022 fact sheet regarding the nursing home industry demonstrates its desire to have HHS and CMS study staffing level requirements and to tie Medicare and Medicaid reimbursement to the salary, benefits, and retention of staff.
−Removed: On July 29, 2022, CMS requested information regarding LTC staffing level requirements.
−Removed: On June 29, 2022, CMS published guidance to surveyors addressing topics that specifically include nurse staffing and collection of payroll data to evaluate appropriate staffing levels.
−Removed: On September 22, 2022, CMS issued an IFR addressing the use of masks and face coverings by staff and testing of nursing home staff and residents regardless of COVID-19 vaccination status.
+Added: The previously proposed Nursing Home Improvement Act, if passed into law in substantially the same form as the bill introduced in the previous Congress, may increase our responsibility to provide nursing coverage and the costs associated with that increased coverage.
+Added: Additionally, increased funds or other resources made available for alternative care-giving careers, such as those proposed in the HCBS Access Act, may make it more expensive for us to compete for talent who may wish to pursue other care-based careers.
+Added: There has been an increase in the Biden-Harris Administration's desire to have HHS and CMS study staffing level requirements for the nursing home industry and to tie Medicare and Medicaid reimbursement to the salary, benefits, and retention of staff.
+Added: CMS has published guidance to surveyors addressing topics that specifically include nurse staffing and collection of payroll data to evaluate appropriate staffing levels, requiring the use of masks and face coverings by staff and testing of nursing home staff and residents regardless of COVID-19 vaccination status, emphasizing the scope of information to be gathered from and reported by facilities, including SNFs and LTC facilities and emphasizing the penalties for non-compliance, as well as the obligations of facilities seeking to demonstrate their corrective actions.
These requirements may also increase our operating costs and require additional compensation to be paid to employees in the form of wages and benefits.
We are monitoring our facilities for potential effects from CMS's IFR requiring employees of Medicare and Medicaid-participating medical facilities to be vaccinated, which may cause disruption to our affiliated facilities’ nursing staff and may additionally disrupt our operations if affected personnel decline to be vaccinated and replacement staffing cannot be located.
−Removed: On November 5, 2021, CMS issued the IFR discussed under Item 2, Government Regulations, requiring all eligible staff to receive their first dose of a two-dose primary vaccination series by December 5, 2021 and the second dose of a two-dose primary vaccination series by January 4, 2022.
−Removed: CMS’s enforcement of this IFR was temporarily blocked in certain states pending appeal to the United States Supreme Court.
−Removed: On January 13, 2022, the United States Supreme Court entered an order allowing CMS’s enforcement of the IFR and its vaccination requirements by March 15, 2022 for our operating subsidiaries in Arizona, Idaho, Iowa, Kansas, Nebraska, South Carolina and Utah and by February 28, 2022 for all of our other operating subsidiaries except those in Texas (which, as discussed below, is now subject to the IFR).
Similar state-level requirements in the states where our affiliated SNFs operate, whether such requirements are passed by statute, regulation, or executive order, may result in a shortage or inability to obtain nurses and skilled staff.
−Removed: As noted above, California, Washington, and Colorado have all mandated vaccinations for workers in health care facilities that include nursing homes.
−Removed: These administrative mandates precede, may be more restrictive than and are not likely to be preempted by CMS's IFR.
−Removed: As of July 14, 2022, Colorado’s Board of Health allowed its emergency rule requiring all healthcare workers be vaccinated against COVID-19 to expire, other than those working within Medicare and Medicaid-certified facilities.
−Removed: On October 11, 2021, Texas issued an executive order banning the practice of mandating vaccination, including by private employers.
−Removed: On January 20, 2022, the United States District Court for the Northern District of Texas dismissed the State of Texas’s lawsuit against CMS’s enforcement of the IFR’s vaccine mandate upon the request of the State of Texas.
−Removed: The District Court’s dismissal of the Texas's lawsuit ended the court’s injunction against CMS’s enforcement of the IFR's vaccine mandate in Texas.
−Removed: Since January 20, 2022, CMS has been empowered to enforce the IFR in Texas and required compliance with its vaccination requirements by March 21, 2022.
+Added: While federal litigation over the COVID-19 vaccination IFR has concluded, federal enforcement of this IFR appears to remain an enforcement priority and could subject our affiliated SNFs to scrutiny and potential fines, penalties, and other consequences for non-compliance up to and including suspension or termination of their authorization to operate.
+Added: State survey authorities that are tasked with enforcing their own state’s mandate have similar powers to screen for compliance and impose fines and penalties for non-compliance, including suspension or termination of operating licenses.
Increased competition for, or a shortage of, nurses or other trained personnel, or general ongoing inflationary pressures may require that we enhance our pay and benefits packages to compete effectively for such personnel.
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In addition, if we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations effectively could be harmed.
−Removed: Additionally, turnover in nursing staff, particularly among registered nurses, may adversely affect us and the ratings of the facilities we operate under the new five-star measurement formulation used by the Nursing Home Compare website beginning in July of 2022.
+Added: Additionally, turnover in nursing staff, particularly among registered nurses, may adversely affect us and the ratings of the facilities we operate under the new five-star measurement formulation used by the Nursing Home Compare website, when quality measure thresholds were increased, making it more difficult for our affiliated SNFs to obtain the highest scores.
Annual caps and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.
As discussed in detail in Item 2., under Government Regulation , sub-heading Part B Rehabilitation Requirements, several government actions have been taken in recent years to try and contain the costs of rehabilitation therapy services provided under Medicare Part B, including the MPPR, institution of annual caps, mandatory medical reviews for annual claims beyond a certain monetary threshold, and a reduction in reimbursement rates for therapy assistant claim modifiers.
−Removed: Of specific concern has been CMS's decision to lower Medicare Part B reimbursement rates for outpatient therapy services by 9%, beginning in January 1, 2021.
+Added: Of specific concern has been CMS's decision to lower Medicare Part B reimbursement rates for outpatient therapy services by 9%, beginning on January 1, 2021.
+Added: These reductions continued in 2022 and 2023, even though the final reduction after the CAA 2023 deferred the PAYGO sequestration and resulted in a larger conversion factor ($33.88) than the calendar year 2023 PFS final rule provided ($33.06).
Such cost-containment measures and ongoing payment changes could have an adverse effect on our revenue.
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As discussed in greater detail in Item 2., under Government Regulation , Civil and Criminal Fraud and Abuse Laws and Enforcement, the OIG regularly conducts investigations regarding certain payment or compliance issues within various healthcare sectors.
−Removed: Following these investigation, the OIG publishes reports, in part, to educate involved stakeholders and signal future enforcement focus.
+Added: Following these investigations, the OIG publishes reports, in part, to educate involved stakeholders and signal future enforcement focus.
Reports published in 2019 and 2020 demonstrate the OIG’s increased scrutiny on post-hospital SNF care and continues to identify SNF compliance as an issue in its 2021 and 2022 semi-annual reports to Congress.
+Added: The OIG’s January 2023 published study regarding SNF emergency preparedness and the need for further oversight and addition of SNF emergency readiness to its 2023 work plan, indicate that SNFs in particular are potential targets for more robust scrutiny and examination by regulators.
This may impact the SNF industry by motivating additional reviews and stricter compliance in the areas outlined in the recent reports, expending material time and resources.
−Removed: Recent publications and statements by the Administration have also called for greater scrutiny of SNF and LTC facilities based on OIG's 2022 findings that these facilities did not implement appropriate infection control measures during the COVID-19 pandemic, and calling for more authorities to impose penalties and other remedies on facilities that violate federal laws and regulations.
+Added: Recent publications and statements by the Biden-Harris Administration have also called for greater scrutiny of SNF and LTC facilities based on OIG's 2022 findings that these facilities did not implement appropriate infection control measures during the COVID-19 pandemic, and calling for more authorities to impose penalties and other remedies on facilities that violate federal laws and regulations.
Additionally, OIG reports published in 2010 and 2015 show the OIG’s concerns related to the billing practices of SNFs based on Medicare Part A claims and financial incentives for facilities to bill for higher levels of therapies, even when not needed by patients.
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Each of these priorities could signal an increased focus on compliance with the Requirements of Participation and other laws and regulations applicable to SNF and LTC facilities.
+Added: OIG updated its website regarding nursing homes in November of 2022 to note that an additional purpose of OIG’s mission was to support the federal monitoring of nursing homes to mitigate risks to residents.
+Added: In March of 2023, the OIG updated its work plan to focus on state survey agency processes for overseeing nursing home preparedness.
+Added: The purpose of this emphasis is to devote more attention to how nursing homes’ emergency preparedness is evaluated by state survey agencies, how CMS can assist those survey agencies in this task and the challenges and opportunities found in the methods and practices state survey agencies use to evaluate nursing home emergency preparedness.
Our business model, like those of some other for-profit operators, is based in part on seeking out higher-acuity patients whom we believe are generally more profitable, and over time our overall patient mix has consistently shifted to higher-acuity and higher-resource utilization patients in most facilities we operate.
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Newly enacted legislation in the States where our independently operating entities are located may impact the volume of cases filed and the overall cost of those cases from a defense and indemnity standpoint.
−Removed: For example, AB 35 in the State of California was recently signed into law, which increases the cap of noneconomic damages awarded to plaintiffs who are successful in medical malpractice litigation.
−Removed: The cap increases from $250K to $350K beginning on January 1, 2023, with incremental increases over the following 10 years until the cap reaches a maximum of $750K.
−Removed: In wrongful death cases, the cap increases from $250K to $500K on January 1, 2023, with incremental increases over the following 10 years until the cap reaches a maximum of $1M.
+Added: For example, AB 35 in the State of California was recently signed into law, which increases the cap of non-economic damages awarded to plaintiffs who are successful in medical malpractice litigation.
+Added: The cap increases from $0.25 million to $0.35 million beginning on January 1, 2023, with incremental increases over the following 10 years until the cap reaches a maximum of $0.75 million.
+Added: In wrongful death cases, the cap increases from $0.25 million to $0.5 million on January 1, 2023, with incremental increases over the following 10 years until the cap reaches a maximum of $1 million.
Due to the influence of California on other states, other jurisdictions where we operate may enact similar laws and increase their current limits on damages in medical malpractice litigation depending on the outcomes of upcoming elections.
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Our operating subsidiaries are subject to a variety of federal and state employment-related laws and regulations, including, but not limited to, the U.S.
−Removed: Fair Labor Standards Act which governs such matters as minimum wages, overtime and other working conditions, the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act, regulations of the EEOC, regulations of the Office of Civil Rights, regulations of state Attorneys General, family leave mandates and a variety of similar laws enacted by the federal and state governments that govern these and other employment law matters.
−Removed: On November 5, 2021, OSHA issued an ETS requiring employers with more than 100 employees to have employees who were not fully vaccinated to complete weekly testing to prove they were not infected with COVID-19 to remain in the workforce, which the United States Supreme Court blocked enforcement of on January 13, 2022 after nationwide litigation over the ETS.
−Removed: The uncertain environment regarding these mandates and potential attempts to enforce similar mandates in 2022 is one we are monitoring, as it represents a risk of uncertainty to the Company that may result in limitations on staff availability, disruption caused by staff departure, potential claims under the ADA and other laws and potential government sanctions which could cause disruptions to the operations of our subsidiaries, limit our ability to grow and otherwise adversely affect our business and financial results.
−Removed: Furthermore, the Administration has requested HHS and CMS study and issue proposed rules regarding the sustainability of care-based careers, including improving access to training, increasing the attractiveness of compensation in care-based positions, and improving the retention and career progression of care workers.
−Removed: The Administration has sought proposed rules that tie some of these issues, such as wages and retention, to Medicare reimbursement for facilities.
+Added: Fair Labor Standards Act which governs such matters as minimum wages, overtime and other working conditions, the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act, regulations of the EEOC, regulations of the Office of Civil Rights, regulations of state attorney generals, family leave mandates and a variety of similar laws enacted by the federal and state governments that govern these and other employment law matters.
+Added: On November 17, 2022, a coalition of 22 states formally called on the Biden-Harris Administration to withdraw its vaccine mandate for healthcare workers and all related guidance.
+Added: To date, the Biden-Harris Administration has not taken such action and, while the COVID-19 PHE is anticipated to end in May of 2023, CMS’s IFR requiring vaccination of Medicare-participating healthcare facilities is expected to remain in effect after the PHE’s expiration and could be made permanent through full rulemaking.
+Added: Other than this petition, the uncertain environment regarding COVID-19 vaccination mandates and potential attempts to enforce similar mandates in 2022 appear to have concluded, with many states withdrawing or rescinding their healthcare vaccination mandates, or allowing such mandates to expire.
+Added: At present, there is no nationally significant litigation concerning such mandates.
+Added: Nonetheless, the possibility of future or related action regarding COVID-19 vaccination mandates is one we are monitoring, as it represents a risk of uncertainty to us that may result in limitations on staff availability, disruption caused by staff departure, potential claims under the ADA and other laws and potential government sanctions which could cause disruptions to the operations of our subsidiaries, limit our ability to grow and otherwise adversely affect our business and financial results.
+Added: Furthermore, the Biden-Harris Administration has requested HHS and CMS study and issue proposed rules regarding the sustainability of care-based careers, including improving access to training, increasing the attractiveness of compensation in care-based positions, and improving the retention and career progression of care workers.
+Added: The Biden-Harris Administration has sought proposed rules that tie some of these issues, such as wages and retention, to Medicare reimbursement for facilities.
+Added: Other pending legislation, such as the HCBS Access Act, indicate a legislative priority of providing funding for care-based careers that may impact our pool of desired workers, whether by making funding available for their training, or providing funding to competing care career paths and increasing the costs of wages and benefits to compete against those alternate paths.
Rising operating costs due to labor shortages, greater compensation and incentives required to attract and retain qualified personnel and higher-than-usual inflation on items including energy, utilities, food and other goods used in our facilities and the costs for transporting these items could increase our cost and decrease our profits.
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In the process of acquiring or transferring operating assets, our operations must receive change of ownership approvals from state licensing agencies, Medicare and Medicaid as well as third party payors.
−Removed: The Administration has requested HHS and CMS issue proposed rules that may increase the scrutiny placed on companies that operate, directly or indirectly, multiple SNF and LTC facilities, and may subject our licensing and approval process to additional scrutiny or delays if such proposals are codified into regulations.
+Added: The Biden-Harris Administration has requested HHS and CMS issue proposed rules that may increase the scrutiny placed on companies that operate, directly or indirectly, multiple SNF and LTC facilities, and may subject our licensing and approval process to additional scrutiny or delays if such proposals are codified into regulations.
If there are any delays in receiving regulatory approvals from the applicable federal, state or local government agencies, or the inability to receive such approvals, such delays could result in delayed or lost reimbursement related to periods of service prior to the receipt of such approvals, which could negatively impact our cash position.
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Changes in the acuity level of patients we attract, as well as our payor mix among Medicaid, Medicare, private payors and managed care companies, significantly affect our profitability because we generally receive higher reimbursement rates for high acuity patients and because the payors reimburse us at different rates.
−Removed: For the three and nine months ended September 30, 2022, 73.7% and 73.5%, of our revenue was provided by government payors that reimburse us at predetermined rates, respectively.
+Added: For the three months ended March 31, 2023 and 2022, 73.3% and 73.4%, of our revenue was provided by government payors that reimburse us at predetermined rates, respectively.
If our labor or other operating costs increase, we will be unable to recover such increased costs from government payors.
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This trend has led to ongoing litigation between these providers and/or facilities against payors and it may adversely affect us as well.
−Removed: On November 5, 2021, CMS issued the IFR discussed under Item 2, Government Regulations , subheading Coronavirus requiring all eligible staff to be fully vaccinated against COVID-19.
−Removed: CMS has been empowered to enforce the IFR nationwide and require compliance with its vaccination requirements by March 21, 2022.
+Added: On November 5, 2021, CMS issued the IFR discussed under Item 2., Government Regulation , subheading Coronavirus requiring all eligible staff to be fully vaccinated against COVID-19.
+Added: CMS has been empowered to enforce the IFR nationwide and require compliance with its vaccination requirements since March 21, 2022.
In the event we or our affiliated facilities do not comply with the IFR, our Medicare and Medicaid agreements could be terminated and the termination of those agreements may lead to other payors terminating their agreements with us or our affiliated facilities and operating subsidiaries, which would materially and adversely affect our business, financial condition and results of operations.
−Removed: In addition to the IFR, the Administration has requested HHS and CMS conduct studies about additional requirements pertaining to staffing, data reporting, employee compensation and retention, and resident experience that may result in a reduction of our revenue from Medicare and Medicaid.
−Removed: CMS issued its first proposed rule seeking information regarding these priorities on April 11, 2022.
−Removed: These study results may result in additional conditions of participation within those programs.
+Added: In addition to the IFR, the Biden-Harris Administration has requested HHS and CMS conduct studies about additional requirements pertaining to staffing, data reporting, employee compensation and retention, and resident experience that may result in a reduction of our revenue from Medicare and Medicaid.
+Added: CMS issued its first proposed rule seeking information regarding these priorities in 2022 and subsequently published requests for information from the public in the Federal Register to aid in ongoing or future studies and anticipated rulemaking.
+Added: The CMS proposed rule regarding disclosure of significant information regarding their ownership, operations, management and the owners of real property leased or subleased by our operating subsidiaries, may result in additional conditions of participation within those programs.
We are subject to litigation that could result in significant legal costs and large settlement amounts or damage awards.
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Congress has repeatedly considered, without passage, a bill that would require, among other things, that agreements to arbitrate nursing home disputes be made after the dispute has arisen rather than before prospective patients move in, to prevent nursing home operators and prospective patients from mutually entering into a pre-admission pre-dispute arbitration agreement.
−Removed: This bill, known as the Fairness in Nursing Home Arbitration Act, was introduced in the House of Representatives as a H.R.
−Removed: 5326 in 2019 and H.R.
−Removed: 2812 in 2021;
−Removed: neither bill made it out of the committees to which it was referred for discussion to be voted on by the entire House of Representatives.
−Removed: We use arbitration agreements, which have generally been favored by the courts, to streamline the dispute resolution process and reduce our exposure to legal fees and excessive jury awards.
−Removed: CMS has identified these arbitration agreements as an area for further review and on June 29, 2022 issued guidance to state surveyors regarding arbitration agreements and their requirements under federal regulations, with non-compliance potentially resulting in fines and other sanctions.
+Added: This bill, known as the Fairness in Nursing Home Arbitration Act, was introduced in the House of Representatives in 2021;
+Added: as of December 31, 2022, the bill and its analogue introduced in the Senate never made it out of the committees to which they were referred for discussion.
+Added: This legislation or comparable bills have not yet been introduced in the current session of Congress, which commenced at the beginning of 2023.
+Added: Our independently operating subsidiaries use arbitration agreements, which have generally been favored by the courts, to streamline the dispute resolution process and reduce our exposure to legal fees and excessive jury awards.
+Added: CMS has identified these arbitration agreements as an area for further review and issued guidance to state surveyors regarding arbitration agreements and their requirements under federal regulations, with non-compliance potentially resulting in fines and other sanctions.
If we are not able to secure pre-admission arbitration agreements, our litigation exposure and costs of defense in patient liability actions could increase, our liability insurance premiums could increase, and our business may be adversely affected.
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If we are unable to accomplish any of these objectives at the operating subsidiaries we acquire, we will not realize the anticipated benefits and we may experience lower than anticipated profits, or even losses.
−Removed: During the nine months ended September 30, 2022, we expanded our operations through a combination of long-term leases and real estate purchases, with the addition of eleven stand-alone skilled nursing operations and one campus operation.
−Removed: In addition, we added five senior living operations that were transferred from Pennant, three of which are part of campuses operated by our affiliated operating subsidiaries.
+Added: During the three months ended March 31, 2023, we expanded our operations through a combination of long-term leases, with the addition of 19 stand-alone skilled nursing operations.
This growth has placed and will continue to place significant demands on our current management resources.
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The ratings are available on a consumer-facing website, Nursing Home Compare.
−Removed: In cases of acquisitions, the previous operator's clinical ratings are included in our overall Five-Star Quality Rating.
+Added: In cases of acquisitions, the previous operator's clinical ratings are included in our overall Five-Star Quality Rating and the rating may not reflect the improvements we were able to make until it is recalculated.
Based on CMS guidance issued in June of 2022, it is expected that more data will be collected by CMS and ultimately reported on the Nursing Home Compare website.
Similarly, due to CMS's June 2022 guidance, we expect CMS will seek to make the data reported on the Nursing Home Compare website more readily accessible and understandable for consumers.
+Added: In January of 2023, CMS updated the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide, explaining that it will seek to collect certain data regarding schizophrenia to be included in each reporting facility’s star rating, with significant reductions, including an automatic one-star reduction from the final score for a period of six months, for inaccurately reporting or failing to report schizophrenia-related data.
CMS continues to increase quality measure thresholds, making it more difficult to achieve upward and five-star ratings.
+Added: Most recently, CMS increased its quality measure thresholds in October of 2022, making it more difficult for facilities to obtain or maintain four- and five-star ratings.
+Added: As of January 2023, the increasing standards for four- and five-star ratings can be evaluated from the star rating cut point table for that month’s refresh of the Nursing Home Care Compare website data, disclosing the points needed for each star rating within every state.
+Added: CMS has indicated that it will increase these quality measure thresholds every six months.
CMS acknowledges that some facilities may see a decline in their overall five-star rating absent any new inspection information.
+Added: This is relevant to our business because the five-star ratings of our affiliated facilities may decline even as their quality measures remain unchanged, or even if their quality measures improve.
This change could further affect star ratings across the industry.
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As a result of this concentration, the conditions of local economies, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our revenue, costs and results of operations.
−Removed: Moreover, since over 20% of our affiliated facilities are located in California, we are particularly susceptible to revenue loss, cost increase or damage caused by natural disasters such as electrical power shortages, fires, earthquakes or mudslides.
+Added: Moreover, since over 24% of our affiliated facilities are located in California, we are particularly susceptible to revenue loss, cost increase or damage caused by natural disasters such as electrical power shortages, fires, earthquakes or mudslides, or increased liabilities that may arise from regulations as discussed within Item 2., under Government Regulation .
In addition, our affiliated facilities in Iowa, Nebraska, Kansas, South Carolina, Washington and Texas are more susceptible to revenue loss, cost increases or damage caused by natural disasters including hurricanes, tornadoes and flooding.
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We continue to maintain our right to inform the employees of our operating subsidiaries about our views of the potential impact of unionization upon the workplace generally and upon individual employees.
−Removed: With one exception, to our knowledge the staff at our affiliated facilities that have been approached to unionize have uniformly rejected union organizing efforts.
−Removed: Forthcoming proposed rules from HHS and CMS, which, based on the Administration's statements, are anticipated within the next year, may increase the likelihood of employee unionization.
+Added: Historically, the staff at our affiliated facilities that have been approached to unionize have uniformly rejected union organizing efforts.
+Added: Forthcoming proposed rules from CMS, which, based on the Biden-Harris Administration's executive orders discussed under Government Regulation in Item 2., as well as potential legislation such as the HCBS Access Act aimed toward providing more resources to those considering care-based careers, may increase the likelihood of employee unionization due to increased emphasis on care-based careers in SNFs and LTC facilities.
If employees decide to unionize, our cost of doing business could increase, and we could experience contract delays, difficulty in adapting to a changing regulatory and economic environment, cultural conflicts between unionized and non-unionized employees, strikes and work stoppages, and we may conclude that affected facilities or operations would be uneconomical to continue operating.
Because we lease the majority of our affiliated facilities, we are subject to risks associated with leased real property, including risks relating to lease termination, lease extensions and special charges, any of which could adversely affect our business, financial position or results of operations.
−Removed: As of September 30, 2022, we leased 182 of our 259 affiliated facilities.
+Added: As of March 31, 2023, we leased 211 of our 290 affiliated facilities.
Most of our leases are triple-net leases, which means that, in addition to rent, we are required to pay for the costs related to the property (including property taxes, insurance, and maintenance and repair costs).
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Our Amended Credit Agreement provides for a Revolving Credit Facility with borrowing capacity of up to $600.0 million in aggregate principal amount.
−Removed: As of October 24, 2022, we have no outstanding borrowings under our Revolving Credit Facility.
+Added: As of March 31, 2023 and through the filing date of this report, we had no outstanding borrowings under our Revolving Credit Facility.
Twenty-three of our subsidiaries have mortgage loans insured with Department of Housing and Urban Development (HUD) for an aggregate amount of $152.7 million, which subjects these subsidiaries to HUD oversight and periodic inspections.
The terms of the mortgage loans range from 25- to 35-years.
−Removed: We also have two outstanding promissory notes with an aggregate principal amount of approximately $3.0 million as of September 30, 2022.
−Removed: The term of the notes are 10 months and 12 years.
+Added: We also have one outstanding promissory note with an aggregate principal amount of approximately $2.6 million as of March 31, 2023.
+Added: The term of the note is 12 years.
Because this mortgage loan is insured with HUD, our borrower subsidiary under the loan is subject to HUD oversight and periodic inspections.
−Removed: In addition, we had $2.1 billion of future operating lease obligations as of September 30, 2022.
+Added: In addition, we had $2.8 billion of future operating lease obligations as of March 31, 2023.
We intend to continue financing our operating subsidiaries through mortgage financing, long-term operating leases and other types of financing, including borrowings under our lines of credit and future credit facilities we may obtain.
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Further, because our mortgages and operating leases generally contain cross-default and cross-collateralization provisions, a default by us related to one facility could affect a significant number of other facilities and their corresponding financing arrangements and operating leases.
−Removed: Because our term loans, promissory notes, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk.
+Added: Because our term loans, a promissory note, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk.
Our ability to make payments of principal and interest on our indebtedness and to make lease payments on our operating leases depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operating subsidiaries, many of which are beyond our control.
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Occupancy levels at SNFs are likely to remain vulnerable to the effects of COVID-19 even after the pandemic is over.
−Removed: Facilities experiencing decreases in move-in rates in 2021 cite resident or family member concerns as the basis for such decreases.
+Added: Facilities experiencing decreases in move-in rates cite resident or family member concerns as the basis for such decreases.
These and other similar concerns may continue to impact our ability to attract new residents and our ability to retain existing residents.
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Seniors often use the proceeds of home sales to fund their admission to senior living facilities.
−Removed: A downturn in the housing markets, including reductions in sales prices caused by increasing mortgage interest rates, could adversely affect seniors’ ability to afford our resident fees and entrance fees.
+Added: A downturn in the housing markets, including reductions in sales prices caused by increasing mortgage interest rates, economic uncertainty, recession, or a reduction in activity in the market for residential real estate, could adversely affect seniors’ ability to afford our resident fees and entrance fees.
If national or local housing markets enter a persistent decline, our occupancy rates, revenues, results of operations and cash flow could be negatively impacted.
As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.
−Removed: As part of, and subsequent to, the Spin-Off, we lease 29 of our properties to Pennant’s senior living operations.
+Added: As part of, and subsequent to the spin-off transaction in 2019, we lease 29 of our properties to Pennant’s senior living operations.
In the future, we might expand our leasing property portfolio to additional Pennant operations or other unaffiliated tenants.
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In addition, continued expansion of our business through the acquisition of existing facilities, expansion of our existing facilities and construction of new facilities may require additional capital, particularly if we were to accelerate our acquisition and expansion plans.
−Removed: Financing may not be available to us or may be available to us only on terms that are not favorable, including being subject to interest rates that are higher than those enjoyed in the recent past.
+Added: Financing may not be available to us or may be available to us only on terms that are not favorable, including being subject to interest rates that are higher than those incurred in the recent past.
In addition, some of our outstanding indebtedness and long-term leases restrict, among other things, our ability to incur additional debt.
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treasury securities.
−Removed: As a result of the uncertain domestic and global political, credit and financial market conditions, including the recent significant increase in the federal funds rate, an increase in the Consumer Price Index of seven percent in 2021, which has continued at a comparable or greater rate for the first nine months of 2022 and is expected to continue for the foreseeable future in 2022, investments in these types of financial instruments pose risks arising from liquidity and credit concerns.
+Added: As a result of the uncertain domestic and global political, economic, credit and financial market conditions, including the significant increases in the federal funds rate since 2021, an increase in the Consumer Price Index of 7% in 2021, which has continued at a comparable rate of 6.5% for 2022, investments in these types of financial instruments pose risks arising from liquidity and credit concerns.
Given that future deterioration in the U.S.
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Unanticipated delays in receiving reimbursement from state programs due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital.
+Added: The continued use and growth of managed care organizations (MCOs) may contribute to delays or reductions in our reimbursement, including Managed Medicaid.
+Added: In forty-one states, including some of the largest where we operate, state Medicaid benefits are administered through MCOs.
+Added: Typically, these MCOs manage commercial health and federal Medicare Advantage benefits under a managed care contract.
+Added: Nationally, MCOs cover approximately 57 million and 30 million Medicaid and Medicare Advantage beneficiaries, respectively.
+Added: MCOs may be more aggressive than state Medicaid and federal Medicare agencies in denying claims or seeking recoupment of payments so that their services under these managed contracts are profitable.
+Added: The additional steps created by the use of MCOs in disbursement of funds creates more risk of delayed, reduced, or recouped payments for our independent operating subsidiaries, and additional avenues for risks that include fines and other sanctions, including suspension or exclusion from participation in various programs.
Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.
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The ability of our subsidiaries to make distributions to us will depend substantially on their respective operating results and will be subject to restrictions under, among other things, the laws of their jurisdiction of organization, which may limit the amount of funds available for distribution to investors or stockholders, agreements of those subsidiaries, the terms of our financing arrangements and the terms of any future financing arrangements of our subsidiaries.
−Removed: We may incur operational difficulties or be exposed to claims and liabilities as a result of the separation of Pennant.
−Removed: On October 1, 2019, we distributed all of the outstanding shares of The Pennant Group, Inc.
−Removed: or Pennant, common stock to stockholders in connection with the separation of our home health and hospice business and substantially all of our senior living operations into a separate publicly traded company, or the Spin-Off.
−Removed: In connection with the Spin-Off, we entered into a separation agreement and various other agreements, including a tax matters agreement, an employee matters agreement and transition services agreements.
−Removed: These agreements govern the separation and distribution and the relationship between us and Pennant going forward, including with respect to potential tax-related losses associated with the separation and distribution.
−Removed: They also provide for the performance of services by each company for the benefit of the other for a period of time.
−Removed: The separation agreement provides for indemnification obligations designed to make Pennant financially responsible for many liabilities that may exist relating to its business activities, whether incurred prior to or after the distribution, including any pending or future litigation, but we cannot guarantee that Pennant will be able to satisfy its indemnification obligations.
−Removed: It is also possible that a court would disregard the allocation agreed to between us and Pennant and require us to assume responsibility for obligations allocated to Pennant.
−Removed: Third parties could also seek to hold us responsible for any of these liabilities or obligations, and the indemnity rights we have under the separation agreement may not be sufficient to fully cover all of these liabilities and obligations.
−Removed: Even if we are successful in obtaining indemnification, we may have to bear costs temporarily.
−Removed: In addition, our indemnity obligations to Pennant, including those related to assets or liabilities allocated to us, may be significant.
−Removed: In addition, certain landlords required, in exchange for their consent to the Spin-Off, that our lease guarantees remain in place for a certain period of time following the Spin-Off.
−Removed: These guarantees could result in significant additional liabilities and obligations for us if Pennant were to default on their obligations under their leases with respect to these properties.
−Removed: These risks could negatively affect our business, financial condition or results of operations.
−Removed: The separation of Pennant continues to involve a number of additional risks, including, among other things, the potential that management’s and our employees’ attention will be significantly diverted by the provision of skilled services or that we may incur other operational challenges or difficulties as a result of the separation.
−Removed: Certain of the agreements described above provide for the performance of services by each company for the benefit of the other for a period of time.
−Removed: If Pennant is unable to satisfy its obligations under these agreements, we could incur losses and may not have sufficient resources available for such services.
−Removed: These arrangements could also lead to disputes over rights to certain shared property and over the allocation of costs and revenues for products and operations.
−Removed: Our inability to effectively manage the transition activities and related events could adversely affect our business, financial condition or results of operations.
−Removed: If our Spin-Off fails to qualify as generally tax-free for U.S.
+Added: If the separation of Pennant fails to qualify as generally tax-free for U.S.
federal income tax purposes, we and our stockholders could be subject to significant tax liabilities.
−Removed: The Spin-Off is intended to qualify for tax-free treatment to us and our stockholders for U.S.
+Added: The spin-off in 2019 is intended to qualify for tax-free treatment to us and our stockholders for U.S.
federal income tax purposes.
15 unchanged sentences
The continued ownership of such common stock by our directors and executive officers following the spin-off creates, or may create, the appearance of a conflict of interest when these directors and executive officers are faced with decisions that could have different implications for us and Pennant.
+Added: If Standard Bearer fails to qualify or remain qualified as a REIT, it will be subject to U.S.
+Added: federal income tax as a regular corporation and could face substantial tax liability
+Added: Standard Bearer currently operates, and intends to continue to operate, in a manner that will allows it to qualify to be taxed as a REIT for U.S.
+Added: federal income tax purposes.
+Added: Standard Bearer intends to elect to be taxed as a REIT for U.S.
+Added: federal income tax purposes beginning with its taxable year ended December 31, 2022.
+Added: If Standard Bearer fails to qualify to be taxed as a REIT in any year, it would be subject to U.S.
+Added: federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to its shareholders would not be deductible by it in computing its taxable income.
+Added: Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to its shareholders.
+Added: Unless it was entitled to relief under certain Code provisions, it also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
+Added: Legislative or other actions affecting REITs could have a negative effect on Standard Bearer.
+Added: The rules dealing with U.S.
+Added: federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
+Added: Department of the Treasury (the “Treasury”).
+Added: Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect Standard Bearer's investors or Standard Bearer.
+Added: We cannot predict how changes in the tax laws, including any tax reform called for by the current presidential administration, might affect Standard Bearer or its investors.
+Added: New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect its ability to qualify to be taxed as a REIT or the U.S.
+Added: federal income tax consequences to Standard Bearer or its investors of such qualification.
+Added: For instance, the “Tax Cuts and Jobs Act” (the “Act”) significantly changed the U.S.
+Added: federal income tax laws applicable to businesses and their owners, including REITs and their shareholders.
+Added: Technical corrections or other amendments to the Act or administrative guidance interpreting the Act may be forthcoming at any time.
+Added: We cannot predict the long-term effect of the Act or any future law changes on REITs or their shareholders.
+Added: Changes to the U.S.
+Added: federal tax laws and interpretations thereof, whether under the Act or otherwise, could adversely affect an investment in our stock.
+Added: No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation.
+Added: Accordingly, no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.
+Added: Standard Bearer could fail to qualify to be taxed as a REIT if income it receives from our tenants is not treated as qualifying income.
+Added: Under applicable provisions of the Code, Standard Bearer will not be treated as a REIT unless it satisfies various requirements, including requirements relating to the sources of its gross income.
+Added: Rents received or accrued by it from its tenants will not be treated as qualifying rent for purposes of these requirements if the leases are not respected as true leases for U.S.
+Added: federal income tax purposes and are instead treated as service contracts, joint ventures or other arrangements.
+Added: If the leases are not respected as true leases for U.S.
+Added: federal income tax purposes, Standard Bearer will likely fail to qualify to be taxed as a REIT.
+Added: Even if Standard Bearer remains qualified as a REIT, it may face other tax liabilities that reduce its cash flow.
+Added: Even if Standard Bearer remain qualified for taxation as a REIT, it may be subject to certain U.S.
+Added: federal, state, and local taxes on its income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes.
+Added: For example, Standard Bearer may hold some of its assets or conduct certain of its activities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S.
+Added: federal, state, and local corporate-level income taxes as regular C corporations.
+Added: In addition, it may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis.
+Added: Any of these taxes would decrease cash available for distribution to its shareholders .
Risks Related to Ownership of our Common Stock
34 unchanged sentences
001-33757) filed with the SEC on December 21, 2007)
−Removed: Second Amendment to Third Amended and Restated Credit Agreement, dated as of April 8, 2022, by and among The Ensign Group, Inc.
−Removed: and Truist Bank, as administrative agent, and the lenders party thereto (attached as Exhibit 10.1 to the Company's Current Report on Form 10-Q (File No.
−Removed: 001-33757) filed with the SEC on April 12, 2022).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
11 unchanged sentences
THE ENSIGN GROUP, INC.
−Removed: October 26, 2022 BY:
+Added: April 26, 2023 BY:
/s/ SUZANNE D.
1 unchanged sentence
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.