What changed in this filing

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Item 1A. Risk Factors

2023-10-25 compared with 2023-07-27 · 145 added, 83 removed, 702 unchanged (25% of the section changed)

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Risks Related to our Business and Industry

• We face numerous risks related to the COVID-19 PHE's expiration and surrounding wind-down and uncertainty, which could individually or in the aggregate have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

• The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.

• Reforms to the U.S.

healthcare system, including new regulations under the ACA, continue to impose new requirements upon us that could materially impact our business.

• 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, enforcement, and reimbursements in our industry.

healthcare system, including new regulations under the ACA, potential federal and state standards for minimum nurse staffing levels, continue to impose new requirements upon us that could materially impact our business.

• The changes in Congress due to midterm elections in 2022 and actions in anticipation of the 2024 Presidential election, may result in significant changes to the regulatory framework, enforcement, 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, loss of licensure, the imposition of fines and sanctions.

• Public and government calls for increased enforcement efforts toward SNFs, potential rulemaking that may result in enhanced enforcement and penalties, and new guidance for surveyors regarding the review of SNFs and enforcement of their Requirements of Participation, could result in increased scrutiny by state and federal survey agencies, including sanctions that could negatively affect our financial condition and results of operations.

• Anticipated federal minimum staffing mandates may adversely affect our labor costs, ability to maintain desired levels of patient or resident capacity, and profitability.

• CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.

• Federal minimum staffing mandates may adversely affect our labor costs, ability to maintain desired levels of patient or resident capacity, and profitability.

• Future cost containment initiatives undertaken by third-party payors may limit our revenue and profitability.

• 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.

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Risks Related to Our Business and Industry

We face numerous risks related to the COVID-19 PHE’s expiration and surrounding wind-down and uncertainty, which could individually or in the aggregate have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

The extent to which the COVID-19 PHE's termination will affect our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

There remains uncertainty as to what changes will be made to HHS’s emergency response requirements for our SNFs and senior living facilities in order to better respond to the issues experienced during the COVID-19 PHE.

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 implemented new regulations and waived existing regulations to promote care delivery during the COVID-19 PHE, which ended as of May 11, 2023.

The ending of the Emergency Waivers and wind-down of other flexibilities may require and continue to require operational change requirements on short notice.

The reinstatement of waived state and federal regulations has not occurred simultaneously, requiring heightened monitoring to ensure compliance.

To the extent COVID-19 is endemic in nature, we and our independent operating subsidiaries may face continued challenges from ongoing infection control and emergency preparedness requirements made part of state laws or regulations.

Additionally, the long-term effects of the COVID-19 pandemic may include long-term decline in demand for care in SNFs and senior living facilities, which will be borne out only through time.

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.

The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.

We derived 27.1% and 27.6% of our service revenue from the Medicare programs for the three and six months ended June 30, 2023, respectively, and 26.2% and 27.7% for the three and six months ended June 30, 2022, respectively.

We derived 25.4% and 26.8% of our service revenue from the Medicare programs for the three and nine months ended September 30, 2023, respectively, and 27.6% and 27.7% for the three and nine months ended September 30, 2022, respectively.

In addition, many other payors may use published Medicare rates as a basis for reimbursements.

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This decrease takes into account the expiration of the 2.5% statutory payment increase for 2023, the addition of a 1.25% statutory payment increase for 2024, a 0% conversion factor update, and a 2.17% budget-neutrality adjustment.

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, but also proposed new quality measures to take effect in fiscal years 2024 through 2027 that assess staff turnover, discharge success, res-hospitalization, and resident falls with injuries, which may adversely affect revenues obtained through the Medicare program.

As this is a proposed rule, the final rule to be issued later this year may contain different and lower calculations, and may result in a reduction in compensation paid under this fee schedule.

Additionally, CMS’s proposed replacement of the SNF 30-day all-cause readmission measure with the SNF 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.

On July 31, 2023, the CMS released its final rule for the SNF PPS for fiscal year 2024 which will increase payments by a net 4.0% in FY 2024 relative to FY 2023.

The final rule includes updates to the SNF Quality Reporting Program and SNF Value-based Purchasing Program that assess staff turnover, discharge success, res-hospitalization, and resident falls with injuries, which may adversely affect revenues obtained through the Medicare program.

The final rule may result in an increase in payments relative to FY 2023 depending on the performance of our individual operating subsidiaries as evaluated by CMS.

The final rule will also replaces the SNF 30-day All-cause Readmission measure with the SNF Within Stay Potentially Reasonable Readmissions standard beginning in fiscal year 2025, which may also reduce the compensation our independent operating subsidiaries may receive under the SNF VBP program.

As discussed in more detail in Item 2., under Government Regulation , CMS implemented a final rule in October 2019 implementing a new case-mix classification system, PDPM, that focuses on the clinical condition of the patient.

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A significant portion of reimbursement for skilled nursing services comes from Medicaid.

In fact, Medicaid is our largest source of revenue, accounting for 46.0% and 45.6% of our revenue for the three and six months ended June 30, 2023, respectively, and 47.2% and 45.7% for the three and six months ended June 30, 2022, respectively.

In fact, Medicaid is our largest source of revenue, accounting for 46.7% and 46.0% of our revenue for the three and nine months ended September 30, 2023, respectively, and 46.1% and 45.8% for the three and nine months ended September 30, 2022, respectively.

Medicaid is a state-administered program financed by both state funds and matching federal funds.

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The CAA 2023 provided for the wind-down and termination of increased FMAP payments under the FFCRA, and also provided for the disenrollment of Medicaid beneficiaries who have participated in the program since early in the COVID-19 pandemic.

CMS’s increased FMAP payments shall decline from 6.2% to 5% in the second quarter of 2023, 2.5% in the third quarter, and 1.5% in the fourth quarter before CMS’s increased FMAP spending ends entirely.

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.

CMS’s increased FMAP payments declined from 6.2% to 5% in the second quarter of 2023, 2.5% in the third quarter, and shall decline 1.5% in the fourth quarter before CMS’s increased FMAP spending ends entirely.

The CAA 2023 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.

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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.

CMS has caused a “half-dozen states” to discontinue their Medicaid redeterminations as of July 19, 2023.

CMS is concerned that states are terminating people without definitively establishing their eligibility due to state residents not receiving eligibility forms or understanding instructions.

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The efficacy of the ACA is the subject of much debate among members of Congress and the public and it has been the subject of extensive litigation before numerous courts, including the United States Supreme Court, with varying outcomes — some expanding and others limiting the ACA.

In the event that the ACA is repealed or any elements of the ACA that are beneficial to our business materially amended or changed, such as provisions regarding the health insurance industry, reimbursement and insurance coverage by payers, our business, operating results and financial condition could be harmed.

In the event that the ACA is repealed or any elements of the ACA that are beneficial to our business are materially amended or changed, such as provisions regarding the health insurance industry, reimbursement and insurance coverage by payers, our business, operating results and financial condition could be harmed.

Thus, the future impact of the ACA on our business is difficult to predict and its continued uncertain future may negatively impact our business.

However, any material changes to the ACA or its implementing regulations may negatively impact our operations.

While it is not possible to predict whether and when any such changes will occur, specific proposals discussed during and after the election, including a repeal or material amendment of the ACA, could harm our business, operating results and financial condition.

While it is not possible to predict whether and when any such changes will occur, specific proposals discussed during and after the midterm election in 2022, including a repeal or material amendment of the ACA, could harm our business, operating results and financial condition.

The ACA continues to be a salient political topic and proposed changes to it may become the subject of campaign promises, litigation, administrative action, or legislation leading up to or following the 2024 Presidential election.

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.

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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.

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.

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, which is more invasive and comprehensive than the ownership information already disclosed through Medicare's Nursing Home Compare website.

Refer to Item 2., under Government Regulation, for additional information and may be adverse to our business interests and detrimental to our operations, revenue, and profitability.

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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.

The changes in Congress due to recent U.S.

The changes in Congress due to the most recent U.S.

midterm elections in 2022 and actions in anticipation of the 2024 Presidential election may result in significant changes to regulatory framework, enforcements and reimbursements.

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.

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.

The most recent midterm elections in 2022 and resulting change in control of the House of Representatives could result in significant changes in, and has resulted in uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid.

Democratic proposals for Medicare for All or significant expansion of Medicare, could significantly impact our business and the healthcare industry if implemented, although the implementation of such proposals remains unlikely under the political party currently holding a majority within the House of Representatives.

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.

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.

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.

As both political parties begin their Presidential primaries and next congressional elections in 2024, 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.

Based on the IRA and inflationary pressures in the economy, the ACA and affordability of healthcare generally may be a campaign issue and lead to promises, administrative action, or legislation that could adversely affect our business.

As a result, future legislation may be proposed or passed that may adversely affect our business, operating results and financial condition.

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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.

The CMS announced a new nationwide audit the “SNF 5-Claim Probe & Educate Review”, in which the Medicare Administrative Contractors will review five claims from each of the facilities to check for compliance with PDPM billings, which could result in individual claim payment denials if errors are identified.

CMS announced a new nationwide audit the “SNF 5-Claim Probe & Educate Review” in which the Medicare Administrative Contractors will review five claims from each of the facilities to check for compliance with PDPM billings, which could result in individual claim payment denials if errors are identified.

All facilities that are not undergoing TPE reviews, or have not recently passed a TPE review, will be subject to the nationwide audit.

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Ongoing failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare decertification.

As of June 30, 2023 and through the filing date of this report, 37 of our independent operating subsidiaries had reviews scheduled, on appeal, or in a dispute resolution process, either pre- or post-payment.

As of September 30, 2023 and through the filing date of this report, 41 of our independent operating subsidiaries had reviews scheduled or in process, either pre- or post-payment.

We anticipate that these reviews could increase in frequency in the future.

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and the medical necessity of rendered services.

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.

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.

We fully cooperated with the U.S.

Department of Justice.

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.

On May 31, 2018, we received a Civil Investigative Demand (CID) from the U.S.

Department of Justice (DOJ) stating that it is investigating our company to determine whether we have violated the False Claims Act (FCA) or the Anti-Kickback Statute (AKS) with respect to the relationships between certain of our SNFs and persons who served as medical directors.

As a general matter, our operating entities maintain policies and procedures to promote compliance with the FCA, the AKS, and other applicable regulatory requirements.

We fully cooperated with the DOJ.

In April 2020, we were advised that the DOJ declined to intervene in any subsequent action filed by a relator in connection with the subject matter of this investigation.

If we should agree to a settlement of claims or obligations under Medicare statutes, the FCA, or similar federal or state statutes and related regulations, our business, financial condition and results of operations and cash flows could be materially and adversely affected, and our stock price could be adversely impacted.

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• adequacy and quality of healthcare services;

• qualifications and vaccination (including boosting) of healthcare and support personnel;

• qualifications of healthcare and support personnel;

• state-specified and potential federal mandates for specific nurse staffing levels;

• quality and maintenance of medical equipment and facilities;

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While we do not believe we are in violation of these prohibitions, we cannot assure you that governmental officials charged with the responsibility for enforcing these prohibitions will not assert that we are violating the provisions of such laws and regulations.

Our company is currently aware of a claim filed by an individual related to allegations that certain of our affiliated SNFs may have violated the FCA or the AKS with respect to the relationships between certain SNFs and persons who served as medical directors, advisory board participants or other referral sources.

Our company is currently aware of litigation filed by an individual related to allegations that certain of our affiliated SNFs may have violated the FCA or the AKS with respect to the relationships between certain SNFs and persons who served as medical directors.

While our operating entities maintain policies and procedures to promote compliance with the FCA, the AKS, and other applicable regulatory requirements, we cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact on our company.

On September 1, 2023, CMS issued a proposed rule setting forth proposed minimum nurse staffing requirements for SNFs.

As discussed in more detail in Item 2., under Government Regulation , this proposed rule contains three primary staffing proposals:

1) minimum nurse staffing standards of 0.55 HPRD for RNs and 2.45 HPRD for NAs;

2) a requirement to have a RN on-site 24 hours per day, seven days per week;

and 3) requirements for enhanced facility assessments.

The proposed rule features a staggered implementation of these requirements, with potential accommodations for facilities that can demonstrate financial hardship and a delayed implementation schedule for rural facilities.

Within this proposed rule, CMS also seeks comments about other staffing models, including alternate, higher standards for imposing staffing minimums, which will have a potentially adverse effect on our operations and profitability, the extent of which currently is not known.

We are unable to predict the future course of federal, state and local regulation or legislation, including as it pertains to Medicare, Medicaid, or fraud and abuse laws, and how they are enforced.

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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.

CMS’s proposed rules requiring disclosure of ownership, management and the owners of real property lessors or sublessors, heighten this risk.

CMS’s proposed rules requiring disclosure of ownership, management and the owners of real property lessors or sublessors, which are greater and more intrusive than existing disclosure requirements heighten this risk.

Our failure to comply with applicable legal and regulatory requirements in any single facility could negatively impact our financial condition and results of operations.

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We have received notices of potential sanctions and remedies based upon alleged regulatory deficiencies from time to time, and such sanctions have been imposed on some of our affiliated facilities.

We have had affiliated facilities placed on special focus facility status in the past, continue to have some facilities on this status currently and other operating subsidiaries may be identified for such status in the future.

We currently have no facilities placed on special focus facility status.

Anticipated federal minimum staffing mandates may adversely affect our labor costs, ability to maintain desired levels of patient or resident capacity, and profitability.

The SNF industry is awaiting an anticipated proposal to be issued by the Biden-Harris Administration, through CMS, regarding a proposed minimum staffing standard.

Originally, this proposed rule was expected by or before April 1, 2023, but as of the filing date of this report, the expected timing for its publication is not currently known.

While the full effect of federal staff level minimums is not fully known at this time and cannot be ascertained without a final rule that will specify the required number of staff for the Company’s operating subsidiaries to comply with such a regulation, we expect that such a mandate will have adverse financial consequences upon our business.

Depending on the requirements of such a mandate, we may be required to hire substantially more staff members, particularly nurse practitioners, registered nurses, licensed practical nurses and nursing aides than currently staffed.

We have had affiliated facilities placed on SFF status in the past and other operating subsidiaries may be identified for such status in the future.

We currently have one facility placed on SFF status.

CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.

As discussed in discussed in greater detail in Item 2., under Government Regulation , in October of 2022 CMS updated the SFF program with the intent to reduce the amount of time a SNF spends as an SFF and increase the number of nursing homes that progress through the SFF program.

On September 27, 2023, CMS published technical corrections to this program to clarify certain details of the SFF program updates and how they are to be implemented by each state survey agency (SA).

As noted in the October 2022 revisions to the SFF program, a priority in revising the SFF program was to address “yo-yo” noncompliance of SNFs that would graduate from the SFF program only to later see their compliance and quality measures regress after graduation, potentially requiring readmission to the SFF program.

Among the measures implemented to avoid this issue of “yo-yo” noncompliance was a three-year lookback period for facilities that graduate from the SFF program to ensure that the quality and compliance improvements achieved through the SFF program were sustained.

Facilities that graduate from the SFF program but continue to demonstrate poor compliance as evidenced by any SA’s survey, such as for actual harm, substandard quality of care, or immediate jeopardy deficiencies, may be subject to enhanced enforcement by CMS, up to and including termination from the Medicare and/or Medicaid programs.

This three-year lookback for sustained improvements by facilities that graduate the SFF program poses risk for our independent operating facilities, specifically those that may be subject to the SFF program or that have been subject to the SFF program in the past.

As of September 30, 2023, we have three facilities graduated from the SFF program within the past three years.

First, for SNFs that are selected by CMS for participation in the SFF program, or which currently are in the SFF program, even graduation from the program is no longer an assurance that the SNF will be able to continue its operations.

Even one survey with a significant compliance deficiency, such as actual harm or an immediate jeopardy deficiency, may result in CMS—acting solely within its discretion—terminating the SNF’s Medicare or Medicaid participation, likely triggering the termination of other payor contracts and rendering the facility economically unviable.

Second, and relatedly, for SNFs that have graduated from the SFF program, they are subject to a three-year period of enhanced scrutiny where adverse findings by a SA and a single survey’s finding of poor compliance may result in CMS discretionarily terminating that facility’s Medicare and/or Medicaid participation, which would likely cause other payors to terminate their agreements with the facility as well.

As a result, the financial and manpower resources needed for graduation from the SFF program may be for nothing if, in the three years following graduation from the SFF program, a SNF receives a poor survey result and permits CMS to impose fines and penalties up to the termination of the facility’s Medicare and Medicaid participation.

As discussed above, Medicare and Medicaid represent significant sources of payment for our independently operating subsidiaries.

Any of our facilities’ loss of a Medicare or Medicaid contract would significantly harm the financial performance of that facility.

Additionally, if CMS perceived there to be common upstream ownership of multiple facilities that were participants in or graduates of the SFF program, CMS may seek to take enforcement actions against those other facilities due to their common ownership based on another facility’s deficiencies after graduating the SFF program, with CMS imposing penalties up to and potentially including termination of those SNFs’ participation in the Medicare and/or Medicaid programs.

Federal minimum staffing mandates may adversely affect our labor costs, ability to maintain desired levels of patient or resident capacity, and profitability.

On September 1, 2023, CMS issued a proposed rule setting forth proposed minimum nurse staffing requirements for SNFs.

As discussed in more detail in Item 2., under Government Regulation , this proposed rule contains three primary staffing proposals:

1) minimum nurse staffing standards of 0.55 HPRD for RNs and 2.45 HPRD for NAs;

2) a requirement to have a RN on-site 24 hours per day, seven days per week;

and 3) requirements for enhanced facility assessments.

While the full effect of these proposed federal staff level minimums is not fully known at this time, likely will be studied by industry groups in the coming weeks and months to submit responsive comments while awaiting a final rule, and cannot be ascertained without a final rule that will specify the required number of staff for the Company’s operating subsidiaries to comply with such a regulation, we expect that such a mandate will have adverse financial consequences upon our business.

Depending on the requirements of a final mandate and the time period over which its requirements are phased in, we may be required to hire substantially more staff members, particularly nurse practitioners, registered nurses, licensed practical nurses and nursing aides than currently staffed.

Additionally, a federal mandate of this nature would place similar pressure on our competitors and result in sudden, expanded demand for nursing staff across the SNF industry.

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Under the proposed CY 2024 PFS, reductions in payment and conditions imposed in exchange for higher payments may impose operational requirements and working conditions that further detract from and reduce our financial performance.

Similarly, new final rules concerning the PACE program and the information it will collect may adversely affect the risk-adjusted reimbursement.

Similarly, new final rules concerning the PACE program and the information it will collect from our operating subsidiaries may adversely affect the risk-adjusted reimbursement.

The extent to which the COVID-19 PHE's termination will affect our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

The ending of the Emergency Waivers and wind-down of other flexibilities may require and continue to require operational change requirements on short notice.

The reinstatement of waived state and federal regulations has not occurred simultaneously, requiring heightened monitoring to ensure compliance.

Additionally, the long-term effects of the COVID-19 pandemic may include long-term decline in demand for care in SNFs and senior living facilities, which will be borne out only through time.

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.

We may be subject to increased investigation and enforcement activities related to HIPAA violations.

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Healthcare businesses are increasingly the target of cyberattacks whereby hackers disrupt business operations or obtain protected health information, often demanding large ransoms.

In 2023, the healthcare sector saw a 30% increase in the average weekly number of cyber attacks.

At the end of the first quarter of 2023, the healthcare sector saw a 60% increase in the average weekly number of cyberattacks over 2021.

Our business is dependent on the proper functioning and availability of our computer systems and networks.

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We compete with various healthcare service providers, including other skilled nursing providers, in retaining and attracting qualified and skilled personnel.

We operate one or more affiliated SNFs in the states of Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

With the exception of Utah, which follows federal regulations, each of these states has established minimum staffing requirements for facilities operating in that state.

Our affiliated SNFs are located in the states of Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

All states follow the current federal regulation relative to staffing, which establishes that SNFs are required to staff to meet the needs of the residents present in the facility.

In addition, California has established minimum staffing requirements for facilities operating in that state.

Failure to comply with these requirements can, among other things, jeopardize a facility's compliance with the conditions of participation under relevant state and federal healthcare programs.

If a facility is determined to be out of compliance with these requirements, it may be subject to a notice of deficiency, a citation, or a significant fine or litigation risk, with penalties including the suspension of patient admissions and the termination of Medicaid participation, or the suspension, revocation or non-renewal of the SNF's license.

If federal or state governments were to materially change the way compliance with the minimum staffing standard is calculated or enforced, our labor costs could increase and the current shortage of healthcare workers could impact us more significantly.

On September 1, 2023, CMS published a long-awaited proposed rule setting forth proposed SNF minimum staffing requirements at the federal level.

In relevant part, these proposed federal standards require 1) minimum nurse staffing standards of 0.55 HPRD for RNs and 2.45 HPRD for NAs;

and 2) a requirement to have a RN on-site 24 hours per day, seven days per week.

This proposed rule contains numerous other provisions discussed in more detail in Item 2., under Government Regulation .

Comments are still being submitted for this proposed rule, and the substance of both the comments and any revisions to the later-issued final rule setting forth minimum staffing requirements may influence the effect that this rule has on our business and its financial performance.

Nonetheless, for the federal government or any state government to materially change the way compliance with the minimum staffing standard is calculated or enforced, our labor costs could increase and the current shortage of healthcare workers could impact us more significantly.

The broader labor market where we compete is in a state of disequilibrium where the needs of businesses such as ours outstrip the supply of available and willing workers.

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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.

Federal laws and regulations, including the proposed minimum nurse staffing levels if they are made final, 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.

Proposed legislation, such as the previously proposed Nursing Home Improvement Act and the proposed HCBS Access Act, may make it more expensive to compete for, hire, and retain nursing staff, if passed into law in substantially the same form as previously introduced to Congress.

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Turnover rates and the magnitude of the shortage of nurses or other trained personnel vary substantially from facility to facility, and may adversely affect those facilities' quality ratings based on data reported to CMS.

In addition, if we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations could be harmed.

In addition, state laws regarding minimum wage increases, such as California’s minimum wage increases for both health care and fast-food workers, may intensify competition for unskilled labor in both skilled and unskilled settings.

For skilled workers within the skilled care market where we operate, the costs of skilled labor, which are already greater than unskilled labor, could increase further.

Similarly, the increased minimum wage of unskilled labor will not only increase the cost of unskilled labor, but may also have effects that dissuade workers from training to join the skilled workforce to earn higher wage growth, resulting in a smaller pool of available skilled workers and further increased competition—and higher wages—for them.

If we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations could be harmed.

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.

Of specific concern has been CMS's efforts to lower Medicare Part B reimbursement rates for outpatient therapy services in 2021, 2022, and 2023.

Of specific concern has been CMSs efforts to lower Medicare Part B reimbursement rates for outpatient therapy services in 2021, 2022, and 2023.

Such cost-containment measures and ongoing payment changes could have an adverse effect on our revenue.

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As with the bill that increases the cap of non-economic damages for medical malpractice litigation, California’s influence on other states may result in this legislation becoming a model for other states and having similar, potentially adverse effects within those jurisdictions as well.

More recently, California’s legislature has proposed, including but not limited to, proposed or potential bills related to increasing the minimum wage for workers, spending requirements and increased disclosure.

As discussed in Item 2., Government Regulation , bills would create new and costly obligations on our independent operating subsidiaries if they became law and if enacted, bills would adversely affect our business, operations, and profitability.

As another example, Texas passed a bill which partially restored Medicaid state relief funding for SNFs through August 31, 2023, it also considered regulation, which contained direct care spending requirements and ownership, similar to proposed federal rulemaking discussed in Item 2., Government Regulation .

While this bill provides financial relief to our independent operating subsidiaries in Texas, other proposed bills may impose the same regulatory requirements and limitations inherent in both the proposed legislation in other states and the federally proposed rule requiring disclosure of such information in applications and change-of-ownership disclosures, which may adversely affect our business, operations, and profitability.

More recently, California’s legislature has proposed bills related to increasing the minimum wage for workers, spending requirements and increased disclosure.

As discussed in Item 2., Government Regulation , these proposed bills would create new and costly obligations on our independent operating subsidiaries if they became law and if enacted, would adversely affect our business, operations, and profitability.

As another example, Texas passed a bill which partially restored Medicaid state relief funding for SNFs through August 31, 2023, while it also considered legislation that contained direct care spending requirements and ownership, similar to proposed federal rulemaking discussed in Item 2., Government Regulation .

While this bill provided financial relief to our independent operating subsidiaries in Texas, other proposed bills may impose the same regulatory requirements and limitations inherent in both the proposed legislation in other states and the federally proposed rule requiring disclosure of such information in applications and change-of-ownership disclosures, which may adversely affect our business, operations, and profitability.

Changes to federal and state employment-related laws and regulations could increase our cost of doing business.

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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.

On September 1, 2023, CMS published a long-awaited proposed rule setting forth proposed SNF minimum staffing requirements at the federal level.

In relevant part, these proposed federal standards require 1) minimum nurse staffing standards of 0.55 HPRD for RNs and 2.45 HPRD for NAs;

and 2) a requirement to have a RN on-site 24 hours per day, seven days per week.

This proposed rule contains numerous other provisions discussed in more detail in Item 2., under Government Regulation .

Any implementation of this proposed rule, however, is likely to increase demand for labor, including skilled caregivers, increase our costs, and may adversely affect our financial performance.

The compliance costs associated with these laws and evolving regulations could be substantial.

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We may be required, among other things, to change our marketing techniques to comply with these requirements.

In addition, we are required to operate our affiliated facilities in compliance with applicable fire and safety regulations, building codes and other land use regulations and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from time to time.

In addition, our affiliated facilities are required to operate in compliance with applicable fire and safety regulations, building codes and other land use regulations and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from time to time.

Like other healthcare facilities, our affiliated SNFs are subject to periodic surveys or inspections by governmental authorities to assess and assure compliance with regulatory requirements.

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We generally receive higher reimbursement rates for high acuity patients, and payors reimburse us at different rates.

For the three and six months ended June 30, 2023, 73.1% and 73.2%, of our revenue was provided by government payors that reimburse us at predetermined rates, respectively.

For the three and nine months ended September 30, 2023, 72.1% and 72.8%, 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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If there were a significant increase in the number of these claims against us or an increase in amounts owing should plaintiffs be successful in their claims, this could have a material adverse effect to our business, financial condition, results of operations and cash flows.

We are subject to potential lawsuits under the FCA and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare or Medicaid) or other payor.

Under the qui tam or "whistleblower" provisions of the FCA, a private individual with knowledge of fraud or potential fraud may bring a claim on behalf of the federal government and receive a percentage of the federal government's recovery.

Due to these whistleblower incentives, qui tam lawsuits have become more frequent.

For example, and despite the decision of the DOJ to decline to participate in litigation based on the subject matter of its CID issued on May 31, 2018, the involved qui tam relator has moved forward with the lawsuit and is pursuing claims that we allegedly violated the FCA and/or the AKS.

We are vigorously defending this lawsuit, but the costs of defense may be significant given the nature of the allegations and the date range contemplated by the complaint.

Beyond our skilled nursing business, we engage in numerous ancillary businesses through one or more of our subsidiaries.

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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.

During the six months ended June 30, 2023, we expanded our operations through a combination of long-term leases, with the addition of 19 stand-alone skilled nursing operations.

During the nine months ended September 30, 2023, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases , with the addition of 24 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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Many facilities we have historically acquired were underperforming financially and had clinical and regulatory issues prior to and at the time of acquisition.

Even where we have improved operating subsidiaries and patient care at affiliated facilities that we have acquired, we still may face post-acquisition regulatory issues related to pre-acquisition events.

Even where we have improved operating subsidiaries and patient care at facilities that we have acquired, we still may face post-acquisition regulatory issues related to pre-acquisition events.

These may include, without limitation, payment recoupment related to our predecessors' prior noncompliance, the imposition of fines, penalties, operational restrictions or special regulatory status.

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In July of 2022, CMS updated the scoring measures used for SNFs to include six dimensions of staffing and turnover, which may adversely affect the rating of our facilities on the Nursing Home Compare website.

In July 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding its calculation of the staff turnover measure and publishing an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings within its state.

This change made it more competitive to obtain a five-star rating, and more difficult to maintain such a rating once achieved.

Only 10% of nursing facilities can receive a five-star rating in the state where it operates.

The July 2023 change also increases the pressure on our independent operating subsidiaries to obtain a smaller number of available five-star ratings, as lower ratings may make it more difficult to attract prospective residents to receive our services.

In September 2023, CMS announced that it will update the staffing level case-mix adjustment methodology and freeze four of the quality measures used in the Nursing Home Five-Star Quality Rating System beginning with the April 2024 refresh of the Nursing Home Compare website data.

In July 2024, CMS will change the staffing case-mix adjustment methodology to a model based on PDPM.

The Nursing Home Compare website will then begin posting staffing level measures that use this methodology.

CMS will revise the staffing rating thresholds to maintain the same distribution of points for staffing measures that will be affected by this freeze and replacement.

Further, CMS will penalize SNFs that submit erroneous data, or fail to submit data, by awarding them the lowest possible rating on that measure.

We may be significantly affected if any of our independent operating subsidiaries fail to submit information for the MDS in 2024, or if CMS deems their MDS submissions to be erroneous.

In addition to the uncertainty created by coming changes to CMS’s five-star ratings that currently are unknown, the potential negative consequences of freezing unfavorable data may adversely affect our star rating and negatively impact our ability to attract residents.

Providing quality patient care is the cornerstone of our business.

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• we acquire especially troubled operations or facilities that present unattractive risks to current or prospective insurers;

• insurers choose to stop operating or offering policies in certain states due to changes in economic conditions or laws;

• insurers tighten underwriting standards applicable to us or our industry;

• insurers or reinsurers are unable or unwilling to insure us or the industry at historical premiums and coverage levels.

If any of these potential circumstances were to occur, our insurance carriers may require us to significantly increase our self-insured retention levels or pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages.

If any of these potential circumstances were to occur, our insurance carriers may cancel or not renew our policies, or require us to significantly increase our self-insured retention levels or pay substantially higher premiums for the same or reduced coverage for insurance, including workers compensation, property and casualty, automobile, employment practices liability, directors and officers liability, employee healthcare and general and professional liability coverages.

In some states, the law prohibits or limits insurance coverage for the risk of punitive damages arising from professional liability and general liability claims or litigation.

Other states where we operate have experienced a withdrawal of insurers from the marketplace due to prior losses, or are at risk of insurers leaving the market due to changes in the law that make it difficult for those insurers to operate within the state.

Coverage for punitive damages is also excluded under some insurance policies.

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For these and other reasons, our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance.

If a successful claim is made against us and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted.

successful claim is made against us and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted.

Further, because our self-insurance reimbursements under our general and professional liability and workers compensation programs applies on a per claim basis, there is no limit to the maximum number of claims or the total amount for which we could incur liability in any policy period.

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Our affiliated facilities located in Arizona, California, and Texas account for the majority of our total revenue.

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.

As a result of this concentration, the conditions of local economies, changes in governmental rules, presence and participation of insurers, 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.

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 .

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These acts of nature may cause disruption to us, the employees of our operating subsidiaries and our affiliated facilities, which could have an adverse impact on the patients of our operating subsidiaries and our business.

In order to provide care for the patients of our operating subsidiaries, we are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our affiliated facilities, and the availability of employees to provide services at our affiliated facilities.

If the delivery of goods or the ability of employees to reach our affiliated facilities were interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on our affiliated facilities and our business.

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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.

As of June 30, 2023, we leased 211 of our 290 affiliated facilities.

As of September 30, 2023, we leased 213 of our 295 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 Credit Facility has a borrowing capacity of up to $600.0 million in aggregate principal amount.

As of June 30, 2023 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility.

As of September 30, 2023 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility.

Twenty-three of our subsidiaries have mortgage loans insured with the Department of Housing and Urban Development (HUD) for an aggregate amount of $151.1 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

The terms of the mortgage loans range from 25- to 35-years.

We also have one outstanding promissory note with an aggregate principal amount of approximately $2.4 million as of June 30, 2023.

We also have one outstanding promissory note with an aggregate principal amount of approximately $2.3 million as of September 30, 2023.

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.

In addition, we had $2.7 billion of future operating lease obligations as of June 30, 2023.

In addition, we had $2.7 billion of future operating lease obligations as of September 30, 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.

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.

Because our term loans, 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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As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.

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.

We lease 30 of our properties to third party operators.

In the future, we might expand our leasing property portfolio to additional tenants.

We have very limited control over the success or failure of our tenants’ and operators’ businesses and, at any time, a tenant or operator may experience a downturn in its business that weakens its financial condition.

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If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.

We rely significantly on appropriate referrals from physicians, hospitals and other healthcare providers in the communities in which we deliver our services to attract appropriate residents and patients to our affiliated facilities.

We rely significantly on appropriate referrals from hospitals, physicians, and other healthcare providers in the communities in which we deliver our services to attract appropriate residents and patients to our affiliated facilities.

Our referral sources are not obligated to refer business to us and may refer business to other healthcare providers.

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treasury securities.

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 2022, which has continued at a comparable rate in 2023, investments in these types of financial instruments pose risks arising from liquidity and credit concerns.

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 2022, which has continued at a slightly slower rate in 2023 that still exceeds target inflation, 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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federal income tax as a regular corporation and could face substantial tax liability.

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.

Standard Bearer currently operates, and intends to continue to operate, in a manner that allows it to qualify to be taxed as a REIT for U.S.

federal income tax purposes.

Standard Bearer intends to elect to be taxed as a REIT for U.S.

Standard Bearer elected to be taxed as a REIT for U.S.

federal income tax purposes beginning with its taxable year ended December 31, 2022.

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federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.

Department of the Treasury (the “Treasury”).

Department of the Treasury (Treasury).

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.

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federal income tax consequences to Standard Bearer or its investors of such qualification.

For instance, the “Tax Cuts and Jobs Act” (the “Act”) significantly changed the U.S.

For instance, the Tax Cuts and Jobs Act (TCJA) significantly changed the U.S.

federal income tax laws applicable to businesses and their owners, including REITs and their shareholders.

Technical corrections or other amendments to the Act or administrative guidance interpreting the Act may be forthcoming at any time.

We cannot predict the long-term effect of the Act or any future law changes on REITs or their shareholders.

Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time.

We cannot predict the long-term effect of the TCJA or any future law changes on REITs or their shareholders.

Changes to the U.S.

federal tax laws and interpretations thereof, whether under the Act or otherwise, could adversely affect an investment in our stock.

federal tax laws and interpretations thereof, whether under the TCJA or otherwise, could adversely affect an investment in our stock.

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.

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

What changed 10-Q

Item 1A. Risk Factors