What changed in this filing

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Item 1. Business

2025-02-05 compared with 2024-02-01 · 285 added, 257 removed, 629 unchanged (46% of the section changed)

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Of the 327 facilities, we operated 231 facilities under long-term lease arrangements and have options to purchase 12 of those 231 facilities.

Our real estate portfolio includes 113 owned real estate properties, which included 83 facilities operated and managed by us, 30 operations leased to and operated by third-party operators, and the Service Center's California location.

Of the 30 real estate operations leased to third-party operators, one senior living facility is located on the same real estate property as a skilled nursing facility that we own and operate.

Our real estate portfolio consists of 129 owned real estate properties, which included 96 facilities operated and managed by us, 33 operations leased to and operated by third-party operators, and the Service Center's California location.

Of the 33 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.

Our Unique Approach and Structure

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We believe that our localized approach encourages prospective patients and referral sources to choose or recommend our local operations.

In addition, our leaders are enabled and motivated to share real-time operating data and otherwise benchmark clinical and operational performance against their peers in order to improve clinical care, enhance patient satisfaction and augment operational efficiencies, promoting the sharing of best practices.

In addition, our leaders share real-time operating data, clinical benchmark and operational performance metrics with their peers in order to improve clinical care, enhance patient satisfaction and augment operational efficiencies, promoting the sharing of best practices.

We organize our independent subsidiaries into portfolio companies, which we believe has enabled us to maintain a local, field-driven organizational structure, attract additional qualified leadership talent, and to identify, acquire, and improve operations at a generally faster rate.

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We believe this organizational structure has improved the quality of our recruiting and will continue to facilitate successful acquisitions.

Since we spun-off our owned real estate properties into a public real estate investment trust (REIT) in 2014, we have continued to expand our real estate portfolio.

Following the real estate spin-off, we have acquired and currently own 113 real estate properties, including 30 real estate properties that are leased to a third parties under triple-net long-term leases.

Real estate investments are part of our strategies to further our mission of dignifying post-acute care in the eyes of the world through thoughtful acquisitions of property and leases that promote healthy long-term operations.

In the past, we have spun-off our owned real estate properties into a public real estate investment trust (REIT).

Currently, we plan to continue to expand our real estate portfolio.

We own 129 real estate properties, including 33 real estate properties that are leased to third parties under triple-net long-term leases.

We manage and operate the remaining real estate properties, including the Service Center's California location.

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Standard Bearer owns and manages our real estate business.

The REIT structure allows us to better demonstrate the growing value of our owned real estate and provide us with an efficient vehicle for future acquisitions of properties that could be operated by our independent subsidiaries or other third parties.

The REIT structure allows us to better demonstrate the growing value of our owned real estate and provides us with an efficient vehicle for future acquisitions of properties that could be operated by our independent subsidiaries or other third parties.

We believe this structure gives us new pathways to growth with transactions we would not have considered in the past.

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The real estate portfolio in Standard Bearer consists of 124 of our 129 owned real estate properties.

During the year ended December 31, 2023, Standard Bearer acquired the real estate of three stand-alone skilled nursing facilities and two campus operations.

Of these additions, the three skilled nursing facilities and one campus operation acquired are operated by the Company's independent subsidiaries .

The remaining campus operation is leased to a third-party operator.

During the year ended December 31, 2024, Standard Bearer acquired the real estate of 11 stand-alone skilled nursing facilities, three stand-alone senior living facilities, and three campus operations.

Of these additions, the 11 skilled nursing facilities and three campus operations acquired are operated by the Company's independent subsidiaries .

The senior living operations are leased to a third-party operator.

For further details on the Standard Bearer REIT, refer to Note 6, Standard Bearer , in Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

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Skilled Services

As of December 31, 2023, our skilled nursing companies provided skilled nursing care at 286 operations, with 30,602 operational beds, in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

As of December 31, 2024, our skilled nursing companies provided skilled nursing care at 316 operations, with 33,547 operational beds, in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

We provide short and long-term nursing care services for patients with chronic conditions, prolonged illness, and the elderly.

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We generate rental revenue primarily by leasing post-acute care properties we acquired to healthcare operators under triple-net lease arrangements, whereby the tenant is solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions.

As of December 31, 2023, our real estate portfolio within Standard Bearer is comprised of 108 real estate properties located in Arizona, California, Colorado, Idaho, Kansas, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

As of December 31, 2024, our real estate portfolio within Standard Bearer is comprised of 124 real estate properties located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

Of these properties, 92 are leased to our independent subsidiaries and 33 are leased to operations wholly-owned and managed by third-party operators.

Of the 30 real estate operations leased to third-party operators, one senior living operation is located on the same real estate property as a skilled nursing facility that we own and operate.

Of the 33 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.

During the year ended December 31, 2024, we generated rental revenues of $95.1 million, of which $78.1 million was derived from our independent subsidiaries, and therefore eliminated in consolidation.

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Our senior living operations comprise approximately 2.1% of our annual revenue.

We generate revenue at these units primarily from private pay sources, with a small portion derived from Medicaid or other state-specific programs.

We generate revenue at these operations primarily from private pay sources, Medicaid and other state-specific programs.

Specifically, during the year ended December 31, 2024, approximately 60% of our senior living revenue was derived from private pay sources.

Ancillary — As of December 31, 2023 , we held a majority membership interest of ancillary operations located in Arizona, California, Colorado, Idaho, Texas, Utah and Washington.

Ancillary — As of December 31, 2024 , our independent subsidiaries operate ancillary services located in Arizona, California, Colorado, Idaho, Texas, Utah and Washington.

We have invested in and are exploring new business lines that are complementary to our existing skilled services and senior living services.

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In years where pricing has been high, we have focused on the integration and improvement of our existing independent subsidiaries while limiting our acquisitions to strategically situated properties.

From January 1, 2013 through December 31, 2023, we acquired 238 facilities, which added 20,485 operational skilled nursing beds and 4,803 senior living units to our independent subsidiaries, including the operations that were contributed in the spin-off to Pennant Group, Inc.

(Pennant) in 2019.

The following table summarizes cumulative skilled nursing and senior living operations, operational skilled nursing beds and senior living unit counts at the end of 2013 and each of the last five years to reflect our growth over a ten-year period and five-year period as a result of the acquisition of these facilities:

2020 2021 2022 2023

From January 1, 2020 through December 31, 2024, we acquired 99 facilities, which added 10,375 operational skilled nursing beds and 834 senior living units to our independent subsidiaries.

The following table summarizes cumulative skilled nursing and senior living operations, operational skilled nursing beds and senior living unit counts for each of the last five years to reflect our growth over a five-year period as a result of the acquisition of these facilities:

Cumulative number of skilled nursing and senior living operations 228 245 271 297 327

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Cumulative number of senior living units 2,254 2,237 3,021 3,121 3,088

(1) Number of operational beds and number of operations for 2019 include operational beds and operations that we no longer operated.

(1) Number of operational beds and number of operations for 2020-2023 include operational beds and operations that we no longer operate.

The number of operations and operational beds do not include the closed facilities beginning in the year of their closures.

(2) Included in the 2013 number of operational units and number of operations are the operational units and senior living operations that we contributed to Pennant in 2019.

In 2019 and forward, the number of operations and operational units do not include operations transferred to Pennant.

We have also invested in new business lines that are complementary to our existing businesses, such as ancillary services.

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• strategically investing in and integrating other post-acute care healthcare businesses.

New Market CEO and New Ventures Programs.

In order to broaden our reach into new markets, and in an effort to provide existing leaders in our company with the entrepreneurial opportunity and challenge of entering a new market and starting a new business, we established our New Market CEO program in 2006.

New Market CEO and New Ventures Programs — In order to broaden our reach into new markets, and in an effort to provide existing leaders in our company with the entrepreneurial opportunity and challenge of entering a new market and starting a new business, we established our New Market CEO program in 2006.

Supported by our Service Center and other resources, a New Market CEO evaluates a target market, develops a comprehensive business plan, and relocates to the target market to find talent and connect with other providers, regulators and the healthcare community in that market, with the goal of ultimately acquiring businesses and establishing an operating platform for future growth.

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OPERATION EXPANSIONS

During the year ended December 31, 2023, we expanded through a combination of long-term leases and real estate purchases, with the addition of 25 stand-alone skilled nursing operations and one campus operation.

Of these additions, Standard Bearer acquired the real estate of three of the stand-alone skilled nursing operations and one campus operation, which were leased back to Ensign's independent subsidiaries.

During the year ended December 31, 2024, we expanded through a combination of long-term leases and real estate purchases, with the addition of 28 stand-alone skilled nursing operations and three campus operations.

Of these additions, Standard Bearer acquired the real estate of 11 of the stand-alone skilled nursing operations and three campus operations, which were leased back to Ensign's independent subsidiaries.

These new operations added a total of 3,030 operational skilled nursing beds and 218 operational senior living units to be operated by our independent subsidiaries.

Additionally, we invested in new ancillary services that are complementary to our existing businesses.

Subsequent to December 31, 2023, we expanded through a long-term lease, with the addition of two stand-alone skilled nursing operations totaling 241 operational skilled nursing beds to be operated by our independent subsidiaries, including one in a new state, Tennessee.

Subsequent to December 31, 2024, we expanded through a combination of a long-term lease and a real estate purchase, with the addition of seven stand-alone skilled nursing operations totaling 682 operational skilled nursing beds to be operated by our independent subsidiaries, including one in a new state, Alabama.

For further discussion of our acquisitions, see Note 7, Operation Expansions in the Notes to the Consolidated Financial Statements.

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On October 1, 2023, a significant change impacting the QM category was a shift in focus from a resident's functional status to their functional abilities and goals, commonly referred to as the Minimum Data Set (MDS) Section G to Section GG.

The transition will result in numerous QM modifications and changes which will impact the Five-Star rating.

As part of this change, starting in April 2024, CMS will freeze the associated new and modified quality measures as part of the transition on the Nursing Home Compare website.

Starting in October 2024, CMS will replace the short-stay functionality QM with the new cross-setting functionality QM, which is used in the SNF Quality Reporting Program (QRP).

The transition resulted in numerous QM modifications and changes which impacted the Five-Star rating.

As part of this change, in April 2024, CMS froze the associated new and modified quality measures as part of the transition on the Nursing Home Compare website.

Starting in October 2024, CMS replaced the short-stay functionality QM with the new cross-setting functionality QM, which is used in the SNF Quality Reporting Program (QRP).

The remaining three measures will continue to be frozen until January 2025 while the data for the equivalent measures are collected.

Therefore, the predictability and movement in the QM ratings during 2024 will not necessarily be consistent with our current quality performance.

In addition, what and how we are measuring the QM will not be consistent with the historical practice and accordingly will be not comparable.

Additionally, beginning in April of 2024, CMS revised the staffing rating methodology to give the lowest possible score for staffing turnover measures to providers who fail to submit staffing data or submit erroneous data.

Therefore, the predictability and movement in the QM ratings will not necessarily be consistent with our current quality performance.

In addition, what and how we are measuring the QM will not be consistent with the historical practice and accordingly will not be comparable.

Therefore, depending on the changes, we may experience periods of time where the number of facilities with 4 or 5-Star ratings decline.

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4 and 5-Star Quality Rated skilled nursing facilities 116 114 113 130 129

Above-Average Ratings — Additionally, despite the fact that Ensign’s acquisition of facilities with 1 or 2-Star ratings skews our company-wide ratings, our mean score on the Five-Star Quality Rating System is 65.4%, which exceeds the national average score of 57.2%.

Above-Average Ratings — As of October 2024, despite the fact that Ensign’s acquisition of facilities with 1 or 2-Star ratings skews our company-wide ratings, our mean score on the Five-Star Quality Rating System is 62.5%, which exceeds the national average score of 56.9%.

Our average cycle 1 health inspections for all of our facilities, which is based on the latest inspections, is 8.1% better than the national average.

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Many of our operations already participate in value-based initiatives and models.

With our focus on quality care and strong clinical outcomes, Ensign is well-positioned to benefit from these outcome-based payment models.

With our focus on quality care and strong clinical outcomes, we are well-positioned to benefit from these outcome-based payment models.

We believe the post-acute industry has been and will continue to be impacted by several other trends.

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In addition, as a result of increased mobility in society, reduction of average family size and the increased number of two-wage earner couples, more residents are looking for alternatives outside the family for their care.

Our business is affected by seasonal fluctuations in occupancy and acuity which are most prominent when comparing the summer and winter months of the calendar year.

REVENUE SOURCES

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Rates are subject to a state’s annual budgetary requirements and funding, statutory and regulatory changes and interpretations and rulings by individual state agencies and State Plan Amendments approved by CMS.

However, given that most states are required to have balanced budgets and Medicaid is frequently their largest program, many states have implemented or might consider implementing various strategies to manage Medicaid expenses.

Medicaid typically covers patients that require standard room and board services and provides reimbursement rates that are generally lower than rates earned from other sources.

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We intend to continue to focus on enhancing our care offerings to accommodate more high acuity patients.

Approximately 87.2% of our Medicaid revenue comes from Arizona, California, Colorado, Texas, Utah and Washington.

In California, the state enacted legislation expanding their Medicaid program, which in recent years has continued to see budget increases, but will see Medicaid spending decrease in the 2023-2024 period.

It is projected that California General Fund spending on California Medicaid will be $225.9 billion for the 2023-2024 budget year, which is a decrease of 3.7% from its 2022-2023 budget estimate.

California also estimates that the 2024-2025 budget year's Medicaid spending will decrease by $0.4 billion to $36.6 billion.

Over the longer term, however, California expects its Medicaid spending to increase, reaching more than $43 billion by the 2027-2028 budget year.

Texas is one of the remaining states that has not expanded Medicaid under the Affordable Care Act.

Texas lawmakers have, in the past, underfunded Medicaid, requiring an infusion of state and federal funds.

Funding for the 2023-2024 Texas biennium includes approximately $144.0 billion in general revenue funds, which is an increase of 10.5% in general funds from the 2022-2023 biennium amounts.

In Arizona, the state enacted legislation expanding their Medicaid program in 2013, but has seen decreased Medicaid enrollments in recent years.

Their 2023 budget for the state Medicaid program included $16.8 billion from the general fund, a decrease of 2.8% from the 2022.

The 2024 budget is expected to increase by 2.0% from 2023 to $17.8 billion.

In Utah, the fiscal year 2022 Medicaid spending was $4.6 billion and the state’s budget for 2023 fiscal year Medicaid spending, which will continue into 2024, is expected to be similar.

We received revenues from Medicaid in all the states in which we operate, with approximately 90% coming from Arizona, California, Colorado, Idaho, Texas, Utah and Washington.

As a result, we are sensitive to potential changes in state-based revenue programs, such as Medicaid, as well as regulatory, economic, environmental, and competitive changes in those states.

While the Medicaid spending of each state reflects its own population size, trends and public health challenges, the broad trend across our largest states in 2024 was either stable or increasing rate growth.

With some states even electing to make the temporary Covid funding part of their long term budgets.

Over the long term, Medicaid spending is expected to increase across all states as a result of the increases in costs of care and the increase in population eligible for Medicaid benefits.

For example, California projected its Medicaid spending to increase from current levels through the state’s 2028-2029 budget period.

However, the increased Medicaid spending may not directly translate into rate increases for care.

Additionally, we have seen that some state budgets continue to be pressured by budget shortfalls.

For example, in Colorado, recent budget shortfalls have caused the state to propose provider compensation that is stagnant despite increases in costs for the 2025-2026 budget period.

This is an area we monitor closely and will continue to follow as it affects the success of our independent facilities and overall business.

Medicare — Medicare is a federal program that provides healthcare benefits to individuals who are 65 years of age or older or are disabled.

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For beneficiaries who do not meet the coverage criteria for Part A services, rehabilitation services may qualify for the services to be provided under Medicare Part B.

Managed Care and Private Insurance — Managed care patients consist of individuals who are insured by certain third-party entities, or who are Medicare beneficiaries who have assigned their Medicare benefits to a senior managed care organization plan.

Another type of insurance, long-term care insurance, is also becoming more available to consumers, but is not expected to contribute significantly to industry revenues in the near term.

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Rental Revenue — Real estate rental revenue is generated by leasing post-acute care properties that we acquired to healthcare operators under triple-net lease arrangements, whereby the tenant is solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions.

The following charts sets forth our total service revenue by payor source generated by our consolidated operations and skilled services segment as a percentage of total revenue for the year ended December 31, 2023 and 2022, respectively:

CONSOLIDATED SERVICE REVENUE BY PAYOR

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The payments are based on negotiated patient per diem rates or a negotiated fee schedule based on the type of service rendered.

Reimbursement for Senior Living — Senior living facility revenue is primarily derived from private pay patients at rates we established, with only a small portion of such revenue derived from state-specific programs such as Medicaid.

Reimbursement for Senior Living — Senior living facility revenue is primarily derived from private pay patients at rates we established, with the secondary source of revenue derived from state-specific programs such as Medicaid.

Reimbursement for Other Ancillary Services — Other ancillary revenue, such as mobile diagnostics and medical transportation, is primarily derived from Medicare Part B, Medicaid, managed care and private payors at rates we establish based upon the services we provide and market conditions in the area of operation.

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Furthermore, our leaders are motivated to help local operations within a defined “cluster” and "market," which is a group of geographically proximate operations that share clinical best practices, real-time financial data and other resources and information.

Staff and Leadership Development — We have a company-wide commitment to ongoing education, training and professional development.

Staff and Leadership Development — We have a culture that believes ongoing education, training and professional development is essential.

Accordingly, our operational leaders participate in regular training.

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In addition, we offer weekly cultural and interactive educational topics including leadership development, our values, updates on Medicaid and Medicare billing requirements, updates on new regulations or legislation, infection control, emerging healthcare service alternatives and other relevant clinical, business and industry specific coursework.

Additionally, we encourage and provide ongoing education classes for our clinical staff to maintain licensing and increase the breadth of their knowledge and expertise.

We also encourage and provide ongoing education classes for our clinical staff to maintain licensing and increase the breadth of their knowledge and expertise.

We believe that our commitment to, and substantial investment in, ongoing education will further strengthen the quality of our operational leaders and staff, and the quality of the care they provide to our patients and residents.

Innovative Service Center Approach — We do not maintain a corporate headquarters;

rather, we operate a Service Center to support the efforts of each operation.

rather, we operate service centers to support the efforts of each operation.

Our Service Center is a dedicated service organization that acts as a resource and provides centralized information technology, human resources, accounting, payroll, legal, risk management, educational and other back-office support services, so that local leaders can focus on delivering top-quality care and efficient business operations.

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We generally have between 55 and 65 prospective administrators progressing through the various stages of this training program, which is generally much more rigorous, hands-on and intensive than the minimum 1,000 hours of training mandated by the licensing requirements of most states where we do business.

Once administrators are licensed and assigned to an operation, they continue to learn and develop in our operational Chief Executive Officer Program (CEO Program), which facilitates the continued development of these talented business leaders into outstanding operational chief executive officers, through regular peer review, our Ensign University and on-the-job training.

In addition, our Chief Operating Officer Program (COO Program) recruits and trains highly qualified Directors of Nursing to lead the clinical programs in our operations.

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Our overall occupancy is impacted significantly by the number of facilities acquired and the operational occupancy on the acquisition date.

We historically have acquired operations with lower occupancy and skilled mix.

Therefore, consolidated occupancy will vary significantly based on these factors.

Our average occupancy rates for our skilled nursing facilities were 78.5% and 75.3% for the years ended December 31, 2023 and 2022, respectively.

Our average occupancy rates in 2023 continue to rebound from pandemic levels and as we shift to an endemic, we anticipate the return of our seasonal occupancy and skilled mix.

Throughout most of our history, our seasonality trends for skilled nursing occupancy and skilled mix typically included the greatest growth during the first and fourth quarters and softening in the second and third quarters.

Our average consolidated occupancy rates for our skilled nursing facilities were 80.5% and 78.5% for the years ended December 31, 2024 and 2023, respectively.

Throughout most of our history, our business is affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year.

For skilled nursing occupancy and skilled mix, our historic seasonal trend tends to show stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters.

We also believe we can generate organic growth by improving operating efficiencies and the quality of care at the patient level.

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We seek to manage our labor costs by improving staff retention, improving operating efficiencies, maintaining competitive wage rates and benefits and reducing reliance on overtime compensation and temporary nursing agency services.

The Service Center's Chief Human Capital Officer, together with its Diversity, Equity and Inclusion (DEI) and Environmental, Social and Governance (ESG) Committees, oversee the following human capital initiatives:

The Service Center's Chief Human Capital Officer, together with the Unity Committee, oversee the following human capital initiatives:

Our Culture — The operation of our skilled nursing and senior living facilities requires a large number of highly skilled healthcare professionals and support staff.

Our employees are at the heart of our Company and we are committed to their health, professional development and workplace satisfaction.

Our core values, which focuses on developing our employees, fostering an ownership mentality and allowing for intelligent risk taking, guide us in our decision making and inspire us to be better people, both professionally and personally.

Our core values, which focus on developing our employees, fostering an ownership mentality and allowing for intelligent risk taking, guide us in our decision making and inspire us to be better people, both professionally and personally.

Compensation and Benefits — The healthcare industry as a whole has been experiencing shortages of qualified professional clinical staff.

We believe that our ability to attract and retain qualified professional clinical staff stems from our ability to offer attractive wage and benefits packages, a high level of employee training, an empowered culture that provides incentives for individual efforts and a quality work environment.

Diversity and Inclusion — We value diversity in our recruiting, hiring and career development practices.

Unity — Our commitment to inclusion is deeply rooted in our core values, including Love One Another , where we foster a welcoming and supportive environment for residents and their families and ensure that every individual—whether resident, family member, or team member—feels valued, informed, and comfortable to work together.

Our commitment is to provide equal opportunity and fair treatment to all individuals based on merit and without discrimination.

In 2022, we formed our DEI Committee, a multidisciplinary group led by our Chief Executive Officer, to advance our DEI initiatives throughout the organization.

Our teams enable us to be a more relevant, competitive, and resilient organization.

These efforts are supported by our Unity Committee, a multidisciplinary group led by our Chief Executive Officer.

Training and Development — We provide training and development to all employees.

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We aim to have an enduring impact on the communities in which we live and work.

Elevate Charities is a non-profit organization that is dedicated to elevating the condition and quality of life for members of the senior healthcare community - employees, caregivers, family members, patients and residents.

We partner with Elevate Charities, a non-profit organization that is dedicated to elevating the condition and quality of life for members of the senior healthcare community, employees, caregivers, family members, patients and residents.

Elevate Charities has three unique funds:

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Through grants and scholarships, the fund helps these qualified professionals gain the education needed to advance in the field of senior-focused healthcare.

Since 2019, we awarded 191 scholarships to employees in our workforce.

Lastly, the Emergency Fund is a way of passing the hat to help our co-workers whose lives are affected by tragedy.

Since 2018, we have partnered with public charities who have awarded 244 scholarships to employees in our workforce.

Lastly, the Emergency Fund is a way of passing the hat to help long term care staff whose lives are affected by tragedy.

This program is funded for our team members by our team members.

All team members can contribute to the fund either through a one-time donation or by recurring payroll deduction.

In 2023, approximately 86% of those employed by our independent subsidiaries contributed to the Emergency Fund.

In 2023, we distributed approximately $3.2 million in grants to members of our independent subsidiaries.

All team members are encouraged to contribute to the fund either through a one-time donation or by recurring payroll deduction.

In 2024, approximately 90% of those employed by our independent subsidiaries contributed to Elevate Charities Emergency Fund.

In 2024, the public charity distributed approximately $4.8 million in grants to members of our independent subsidiaries.

To date, the Emergency Fund has distributed over 19,400 grants totaling almost $20.6 million to members of our independent subsidiaries in their time of need.

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The operations must pass these inspections to remain licensed under state laws and to comply with Medicare and Medicaid provider agreements and applicable Conditions of Participation.

The operations can only participate in these third-party payment programs if inspections by regulatory authorities reveal that the operations are in substantial compliance with applicable state and federal requirements.

The operations can only participate in these third-party payment programs if unannounced inspections by regulatory authorities reveal that the operations are in substantial compliance with applicable state and federal requirements.

In the ordinary course of business, federal or state regulatory authorities may issue notices to the operations alleging deficiencies in certain regulatory practices, which may require corrective action to regain and maintain compliance.

In some cases, federal or state regulators may impose other remedies including imposition of civil monetary penalties, temporary admission and/or payment bans, loss of certification as a provider in the Medicare or Medicaid program, or revocation of a state operating license.

In some cases, federal or state regulators may impose other remedies including imposition of directed in-service training, state monitoring, civil monetary penalties, temporary admission and/or payment bans, loss of certification as a provider in the Medicare or Medicaid program, or revocation of a state operating license.

We believe that the regulatory environment surrounding the healthcare industry subjects providers to intense scrutiny.

In the ordinary course of business, providers are subject to inquiries, investigations and audits by federal and state agencies related to compliance with participation and payment rules under government payment programs.

These inquiries may originate from HHS, Office of the Inspector General (OIG), state Medicaid agencies, state Attorney Generals, local and state ombudsman offices and CMS Recovery Audit Contractors, among other agencies.

These inquiries may originate from the Department of Health and Human Services (HHS), Office of the Inspector General (OIG), state Medicaid agencies, state Attorney Generals, local and state ombudsman offices and Centers for Medicare and Medicaid Services (CMS) Recovery Audit Contractors, among other agencies.

In response to the inquiries, investigations and audits, federal and state agencies continue to impose citations for regulatory deficiencies and other regulatory penalties, including demands for refund of overpayments, expanded civil monetary penalties that extend over long periods of time and date back to incidents prior to surveyor visits, Medicare and Medicaid payment bans and terminations from those programs, which may be temporary or permanent in nature.

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Proposed, Anticipated and Recently Issued Rulemaking and Administrative Actions

The federal government, through CMS rulemaking, Presidential executive actions or Congressional legislation, and state and local governments have recently released the following proposed rulemaking or administrative actions that may have an impact on our independent Skilled Nursing Facilities (SNFs) or assisted living facilities:

Biden-Harris Administration's Nursing Home Care Priorities — The Biden-Harris Administration is seeking reform around reimbursement, staffing levels, standards of care, increased transparency and public disclosure of ownership, and enhanced civil remedies as a means of enforcement against those facilities that do not satisfy CMS’s standards.

Proposed rules based on these directives have already been published in 2023, including those highlighted below and observers expect additional rules to be issued this year and in the future.

Final rules will follow publication of these proposed rules after a notice-and-comment period required by law.

Ownership Transparency Final Rule — On November 15, 2023, CMS published its final rule requiring SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships.

The final rule requires disclosures to include the identity of any person or legal entity that:

Biden-Harris Administration's Nursing Home Care Priorities — The Biden-Harris Administration sought reform around reimbursement, staffing levels, standards of care, increased transparency and public disclosure of ownership, and enhanced civil remedies as a means of enforcement against those facilities that do not satisfy CMS’s standards.

Through rules that were proposed and finalized beginning 2023, including those highlighted below, the Biden-Harris Administration directed the government to exercise greater oversight of SNFs and ALFs receiving federal reimbursement.

For example, the SNF PPS FY 2025 Final Rule grants CMS greater sanctioning authority for ongoing or persistent deficiencies in Medicare-participating SNFs.

These increased sanctioning authorities will take effect in the 2025 federal fiscal year, beginning October 1, 2024.

With the new administration, it currently is unknown whether any of these rules will be reduced in their scope or application, or whether they will be increased in any respects.

The individuals anticipated to be nominated to serve as the Secretary of HHS and Director of CMS, respectively, have not yet provided any indication what their priorities of anticipated future actions would be in this area.

Ownership Transparency Final Rule — CMS' final rule published in November 2023 requires SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships, including the identity of any person or legal entity that:

(1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services;

(2) leases or subleases real property to the facility, or owns 5% or more of the real property’s total value;

and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to the SNF.

and (3) provides any management or administrative services (or consults regarding the same), or provides accounting or financial services to SNFs.

The rule also expands ownership and control interest disclosures to include information about each member of the facilities governing body, individuals or entities serving as officers, directors, members, partners or managing employees, and a comprehensive breakdown of the organizational structure of any additional disclosable party that is not a natural person along with a description of their relationships with the facility.

This rule’s disclosure requirements came into effect throughout 2024, with all SNFs required to comply by November of 2024.

Certain states have adopted laws reflecting their concerns regarding ownership transparency.

For example, in July 2023, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency.

Additionally, in July 2023, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued a notice of proposed rulemaking containing regulations that would implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — On March 9, 2023, the Home and Community-Based Services (HCBS) Access Act was introduced to expand access to and resources available for HCBS.

This bill provides Medicaid funding to individuals who provide direct home- and community-based care to adults over the age of 60 or people who have disabilities.

For example, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency in 2023.

Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — The Home and Community-Based Services (HCBS) Access Act (Access Act) was introduced in 2023 to expand access to and resources available for HCBS.

The Access Act ensures that Medicaid funding is made available to individuals who provide direct home- and community-based care to adults over the age of 60 or people who have disabilities.

This bill also provides financial resources for the training of these direct care providers, who are intended to provide services to the elderly or disabled that range from advocacy and community integration to transportation and daily assistance tasks ranging from bathing and laundry to meal preparation and housekeeping.

As of the date of filing, no further action has been taken on the HCBS Access Act since its introduction and referral to the House of Representatives committees.

On October 24, 2023, the HCBS Relief Act was introduced to provide additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services.

Under the HCBS Relief act, states would receive a temporary 10% increase in the applicable Federal Medical Assistance Percentage (FMAP) under Medicaid for certain approved home and community-based services that are provided during FY 2024 through FY 2025.To qualify for the enhanced rate, a state much commit to initiatives aimed at improving the provision of services.

This includes offering additional advantages to home health aides and assisting individuals in transition from nursing facilities back to their homes.

In addition, the HCBS Relief Act introduced in 2023, provides additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services.

To qualify for the enhanced rate, a state must commit to initiatives aimed at improving the provision of services.

As of the date of this filing, no action has been taken on the HCBS Relief Act since its introduction and referral to the Senate Committee on Finance.

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In the past, California had discussed issuing proposed regulations on direct care spending requirements that may have affected our business and SNFs operating within that state.

These proposals have included requirements for healthcare facilities certified by CMS, including SNFs, to report all annual revenues to the State of California by June 30 of each year and certify that a stated percentage of all non-Medicare revenues should be used for direct patient-related services, including staffing and operational costs.

On October 13, 2023, the California Governor signed into law a bill that impacts the minimum wages of healthcare workers.

Effective June 1, 2024, the law raises the minimum wage for California healthcare employees and sets a new wage threshold for those who are considered exempt healthcare employees.

The bill only becomes effective for SNFs if a patient care minimum spending requirement bill is also passed.

We anticipate that a minimum spending bill will be proposed in the near future.

Final Rule Fiscal Year 2024 Skilled Nursing Facility Prospective Payment System (SNF PPS) — On July 31, 2023, CMS published its final rule updating the Medicare payment rates within the SNF PPS for FY 2024 (SNF PPS FY 2024 Final Rule).

The SNF PPS FY 2024 Final Rule modifies the SNF Quality Reporting Program (QRP) and the SNF Value-Based Purchasing (VBP) Program.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in the 2024 fiscal year.

The SNF PPS FY 2024 Final Rule increases the Medicare payment rate aggregate net market basket by 4.0%.

The increase includes a 6.4% net market basket update to the payment rates of 3.0%, plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3% in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration.

The net effect of these changes is expected to be an overall 4.0% increase in payments to SNFs in FY 2024.

This final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures.

Additionally, the SNF PPS FY 2024 Final Rule makes changes to the SNF VBP Program.

Specifically, this final rule adopts four new measures:

These proposals have included requirements for healthcare facilities certified by CMS, including SNFs, to report all annual revenues to the State of California and certify that a stated percentage of all revenues should be used for direct patient-related services, including staffing and operational costs.

California has also signed into law a bill that impacts the minimum wages of healthcare workers.

Effective October 16, 2024, the law raised the minimum wage for California healthcare employees and set a new wage threshold for those who are considered exempt healthcare employees.

The bill only becomes effective for SNFs if a direct care minimum spending requirement bill is also passed.

While the existing requirement bill has not seen any traction, we anticipate a minimum spending bill could be proposed in the future, including the next California legislative session that begins in 2025.

On April 24, 2024, the California Department of Health Care Access and Information (HCAI) announced that the Office of Health Care Affordability’s Board approved a statewide healthcare spending target of 3%, which represents a long-term reduction of current levels of statewide healthcare spending.

The spending target will be phased in over time, initially starting at 3.5% for 2025 and 2026, the target will be lowered to 3.2% for 2027 and 2028 before ultimately reaching 3% for 2029 and beyond.

Final Rule Fiscal Year 2025 Skilled Nursing Facility Prospective Payment System (SNF PPS) — CMS released the final rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 Final Rule) in July 2024 to update the Medicare payment rates within the SNF PPS and provide significant enhancements to CMS’s enforcement capabilities within nursing homes.

This final rule results in a net 4.2% increase in SNF payments under Medicare Part A in fiscal year 2025, which started on October 1, 2024 and will run through September 30, 2025.

The net increase is based on the SNF market basket of 3.0%, plus a 1.7% market basket forecast error adjustment, and a negative 0.5% productivity adjustment.

This increase does not include the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP.

CMS also revised the SNF market basket base year from the 2018 base year to the current 2022 base year and updated the payment rates used under the SNF PPS based on the FY 2025 market basket increase factor, which is adjusted by both the productivity adjustment and forecast error correction.

Within this rule, CMS also updated the SNF PPS wage index using core-based statistical areas (CBSAs) to reflect regional wage costs.

The SNF PPS FY 2025 Final Rule also includes significant enhancements to CMS’s enforcement capabilities within nursing homes, aiming to reinforce the safety and quality of care.

The rule broadens CMS’s ability to use financial penalties to ensure sustained remediation of health and safety infractions, thereby motivating facilities to quickly comply with CMS regulations.

The rule eliminates the restrictions of per instance (PI) for isolated violations or per day (PD) for ongoing non-compliance restrictions, allowing for more flexible imposition of both PD and PI penalties, which would not exceed statutory daily limits.

This change is intended to provide CMS with enhanced tools to address violations more effectively and reflect the severity of the impact on residents’ health and safety.

Additionally, the SNF PPS FY 2025 includes updates to the QRP to better account for social determinants of health, adding items to be reported regarding these social determinants of health—living situation, food, and utilities—in the minimum data set each SNF is required to report to CMS.

The SNF PPS FY 2025 also contains an update to the SNF Value-Based Purchasing (VBP) Program, including how its measurements are retained or removed from use in evaluating quality of care, updates to technical measures so that measures can be updated using a sub-regulatory process, and administrative policies for updating and correcting data CMS relies on in calculating its measurements.

2025 Home Health and Hospice Payment Rules Affecting SNFs — CMS’s final payment rules for other modalities of care delivery also affect the operations of SNFs.

The 2025 Home Health PPS Final Rule requires long-term care facilities, including SNFs, to make at least weekly reports to CMS regarding respiratory illnesses, including facility census, resident vaccination status for specified respiratory illnesses, confirmed resident cases and residents hospitalized from such illnesses.

Final Rule Fiscal Year 2024 SNF PPS — The SNF PPS FY 2024 Final Rule, which was effective October 1, 2023, updated the Medicare payment rates and modified the SNF QRP and the SNF VBP Program.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in fiscal year 2024, which started on October 1, 2023 and ran through September 30, 2024.

The net effect of these changes was an overall 4.0% increase in payments to SNFs in FY 2024.

The increase included a 6.4% net market basket update to the payment rates of 3.0%, plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3% in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration.

In addition, this final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures.

Additionally, the SNF PPS FY 2024 Final Rule made changes to the SNF VBP Program, specifically adopting four new measures:

the nursing staff turnover measure, the discharge function score measure, the long stay hospitalization measure per 1,000 resident days and the percent of residents experiencing one or more falls with a major injury (long stay);

the existing SNF 30-day all-cause readmission measure (SNFRM) is replaced with the SNF within stay potentially preventable readmissions (SNF WS PPR) measure beginning in FY 2028.

the existing SNF 30-day all-cause readmission measure (SNFRM) is replaced with the SNF within stay potentially preventable readmissions measure beginning in FY 2028.

SNF PPS FY 2024 Final Rule adopted the Nursing Staff Turnover (NST) measure for the SNF VBP program beginning with the FY 2026 program year.

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It starts with a baseline quarter and the first two quarters of the performance period to identify eligible employees.

Then, it uses the next four quarters to find the number of employment cycles that ended in turnover.

Then, uses the next four quarters to find the number of employment cycles that ended in turnover.

Finally, the data from the sixth quarter is validated to identify gaps in days worked that began in the last 60 days of the fifth quarter used for the measure.

The measure score is then calculated by comparing the total number of eligible employees with 60-day gaps in working during the specified periods.

Proposed CMS Minimum Staffing Mandate — On September 1, 2023, CMS issued its proposed rule that would establish minimum staffing standards for long-term care facilities.

This proposed rule contains three primary staffing proposals:

1) minimum staffing standards of 0.55 hours per resident per day (HPRD) for registered nurses (RNs) and 2.45 HPRD for certified nurse aids (CNAs);

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, including a possible hardship exemption for select facilities.

As this is a proposed rule, CMS has requested and received stakeholder feedback on all components of this regulation so that these comments may be considered prior to CMS's publication of a final rule.

Additionally, the proposed rule would increase the reporting and transparency of Medicaid payments made to a facility for its direct care, including state-level reporting requirements and provisions for states and CMS to make information about payments made to long-term care facilities public.

Facility self-assessments would also be enhanced under this proposed rule.

CMS proposes that the facility self-assessment be updated regarding staffing to contain or clarify:

1) that facilities must use evidence-based methods when planning for resident care, including accommodation of behavioral health needs;

2) requiring facilities to use the self-assessment to assess the specific needs of each resident, with adjustments made for changes in the resident population;

3) requiring that facilities include the input of staff, including leadership, management, nurse staff and other direct care providers who render other services to residents;

4) requiring that the staffing plan maximize recruitment and retention of staff in a manner consistent with the President’s April 2023 Executive Order on increasing access to high-quality care and supporting caregivers.

A hardship exemption for CMS’s proposed minimum staffing standards is also set forth in the proposed rule.

Long-term care facilities could qualify for a temporary hardship exemption from new minimum staffing ratios upon meeting specific criteria that demonstrate:

1) workforce unavailability based on an absence of providers relative to individuals in the age group of recipients within a specific geographic location;

2) a facility’s good faith efforts to hire and retain staff through a recruitment and retention plan;

and 3) a financial commitment to staffing by documenting the total annual amount spent on direct care staff.

A survey would be required to assess the residents’ health and safety before CMS would consider granting such a hardship exemption.

Any facility that received a hardship exemption from the minimum staffing requirement would have this exemption noted on the Care Compare website rating skilled nursing facilities.

Further, facilities would not be eligible to receive an exemption if they:

1) failed to submit their data to the payroll-based journal system;

2) have been identified as a special focus facility;

or 3) have been identified at any time within the preceding 12 months as having insufficient staffing that was either widespread or a pattern, with resulting actual harm to residents, or receiving an immediate jeopardy citation regarding insufficient staffing.

Even after receiving an exemption, a facility would still be required to maintain sufficient staff around-the-clock to provide care and monitor resident health.

If finalized, this proposed rule would have a staggered and phased implementation over a period of three years, with the phases differentiated between rural and non-rural facilities.

For facilities in urban areas, the final rule’s facility assessment requirements would become effective within 60 days of the final rule’s publication, with the proposed rule’s round-the-clock on-site RN requirement becoming effective two years after the final rule’s publication;

and the above-referenced minimum staffing of 0.55 HPRD for RNs and 2.45 HPRD for NAs would take effect three years after the final rule’s publication.

For rural facilities, the final rule’s facility assessment requirements would still become effective within 60 days of the final rule’s publication but the proposed rule’s round-the-clock on-site RN requirement would become effective three years after the final rule’s publication, and the above-referenced minimum staffing of 0.55 HPRD for RNs and 2.45 HPRD for NAs would take effect five years after the final rule’s publication.

This minimum staffing proposed rule also seeks further information from stakeholders regarding alternative policies for establishing minimum nurse staffing standards.

In particular, CMS seeks comment on an alternative total nurse staffing standard of 3.48 HPRD (among other alternatives), which would include minimum individual standards of 0.55 HPRD for RNs and 2.45 HPRD for NAs, in addition to other nurse staffing as needed to attain a total of 3.48 HPRD across all nurse types.

CMS also seeks stakeholder comments regarding the benefits and trade-offs of using different standards, evidence, or methodologies used by states that have adopted minimum nursing standards to inform its own standard-setting.

Since the minimum staffing rule was proposed, there have been two bills (one in the House and a companion bill in the Senate), that were introduced that would block the rule from taking effect.

The Senate bill has garnered broad bi-partisan support and is endorsed by over 90 organizations.

These bills reason that the proposed minimum staffing standard would endanger rural nursing facilities, subjecting them to potential fines and closures for failure to comply and might require them to discharge residents or limit the number of residents they accept in an effort to meeting the requirements of the bill.

It is uncertain which if any of these bills will pass and we will ultimately need to comply with the any final rules congress enacts.

In March of 2020, in an effort to promote efficient care delivery and to decrease the spread of COVID-19, federal, state and local regulators implemented new regulations and waived, (in some cases temporarily), certain existing regulations, including those discussed below.

These new regulations and waivers of the other regulations expired on May 11, 2023.

Temporary suspension of certain patient coverage criteria and documentation and care requirements — CMS issued a series of temporary waivers, rules, and guidance, suspending various Medicare patient coverage criteria as it related to the COVID-19 pandemic to ensure patients continued to have adequate access to care, notwithstanding the burdens placed on healthcare providers HHS also waived requirements specific to SNFs.

During this time, CMS also suspended and reduced the priority of standard audit activities in order to focus on patient care.

While all of these waivers expired with the termination of the PHE on May 11, 2023, others were terminated at various points in 2021 and 2022 during the PHE.

Certain rules, such as requirements for COVID-19 reporting, testing, and vaccination remained in place through the end of the PHE.

Testing requirements — Beginning in April 2020, authorities in several states in which our independent subsidiaries are located began to mandate widespread COVID-19 testing at all SNFs and assisted living facilities based on guidance from the Centers for Disease Control and Prevention (CDC).

During the PHE, CMS issued revised parameters for testing, requiring routine testing of only unvaccinated staff and then further revised its guidance in September of 2022 to specify only symptomatic individuals and their close contacts, (including staff and residents), should be tested for COVID-19.

On June 5, 2023, CMS published a final rule containing changes to COVID-19 vaccination, reporting, testing, and other requirements (Omnibus Final Rule), which took effect August 4th, 2023, and ended the COVID-19 testing and reporting requirements for SNFs and assisted living facilities imposed during the PHE.

All of the federal, state and local government vaccines mandates have been rescinded since the end of the PHE.

Changes to Medicaid Reimbursement — In March of 2020, the Families First Coronavirus Relief Act (FFCRA) provided a 6.2% increase to the Federal Medicaid Assistance Percentage (FMAP) during the PHE.

The FFCRA also imposed conditions restricting the disenrollment and standards for re-enrolling Medicaid beneficiaries to promote continuous care of beneficiaries during the PHE.

The Consolidated Appropriations Act of 2023 (CAA 2023) amended these Medicaid enrollment protections and increased FMAP funding provided in the FFCRA.

In the first quarter of 2023, the FMAP increase CMS provides to the states remained elevated by 6.2%, but this amount decreased to 5% for April through June 2023, 2.5% for July through September 2023, and 1.5% for October through December 2023 before tapering to 0% by the end of 2023.

The ultimate amount of Medicaid funding provided from each state varied substantially based on each state's policies.

Under the CAA 2023, states were allowed to begin disenrolling Medicaid beneficiaries and resuming Medicaid eligibility determinations beginning on April 1, 2023 upon satisfying conditions that include reviewing Medicaid beneficiaries' eligibility and have begun doing so.

On August 30, 2023, CMS advised all 50 states in a letter to their respective Medicaid administrators to observe federal Medicaid regulations in making these redeterminations, including requirements to make eligibility determinations on an individual basis rather than a per-household basis.

CMS has worked with 12 states regarding their respective redetermination and disenrollment processes, and previously paused policy in six states.

As a result of this activity, the redetermination and disenrollment period that began on April 1, 2023 has not proceeded as rapidly as some may have expected.

Medicare presently accounts for approximately 27.5% of our skilled nursing services revenue year-to-date, being our second-largest payor.

After submission, CMS may audit the data and if discrepancies are found, the consequences may include penalties, decreased ratings and suppression of metrics for the trailing 6 quarters.

CMS Minimum Staffing Standards Final Rule — CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule) in April 2024.

The Staffing Rule contains three primary staffing requirements and provides for a staggered and phase implementation over the next several years following the Staffing Rule’s publication.

The initial phase, effective 90 days from the Staffing Rule's publication, which is August 8, 2024, requires facility self-assessment, which enhances the current assessment that all SNFs must perform and document annually and on an as-needed basis.

The Staffing Rule’s requirement for enhanced self-assessments requires the following:

1) facilities must use evidence-based methods when planning for resident care, including accommodation of behavioral health needs;

2) facilities to use their self-assessment to assess the specific needs of each resident, with adjustments made for changes in the resident population;

3) facilities include the input of staff, including leadership, management, nurse staff and other direct care providers who render other services to residents;

and 4) the facility’s staffing plan maximizes recruitment and retention of staff in a manner consistent with the President Biden’s April 2023 Executive Order on increasing access to high-quality care and supporting caregivers.

The second phase, effective within two years of the Staffing Rule's publication, which is May 2026 for non-rural facilities, requires that all SNFs have a registered nurse (RN) available to provide direct resident care onsite 24 hours per day, seven days per week (24/7).

The rule states that administrative nurses may satisfy this requirement, provided that the nurse is available to provide direct resident care.

In addition to the 24/7 RN, the Staffing Rule requires facilities to provide a minimum of 3.48 hours per resident per day (HPRD) of direct nursing care to residents.

The third phase, effective within three years of the Staffing Rule's publication, which is May 2027 for non-rural facilities, requires that the HPRD are satisfied through RNs providing 0.55 HPRD, nurse aides (NAs) providing 2.45 HPRD, and any combination of RNs, licensed practical nurses (LPNs), licensed vocational nurses (LVNs), or NAs to account for the final 0.48 HPRD.

The Staffing Rule finalized the hardship exemption for the HPRD requirements.

A facility can qualify for a temporary hardship exemption from the new minimum staffing ratios and 24/7 RN onsite staffing requirement (the self-assessment standards must still be satisfied) if it is in an area where the supply of RN, NA, or total nursing staff is insufficient to meet the needs of that area.

This exemption is based on the provider-to-population ratio for the nursing workforce, which must be at least 20% below the national average as calculated by CMS.

Additionally, the Staffing Rule provides a one year extension of deadlines to rural facilities on Phases 2 and 3.

The Staffing Rule also enhances transparency for the use of Medicaid payments for facility services, referenced as Medicaid Institutional Payment Transparency Reporting provisions (MIPTR).

The MIPTR provisions within the Staffing Rule require States to report to CMS the percentage of Medicaid payments for nursing facility services spent on direct care workers and support staff, regardless of whether such payments are made under a fee-for-service or managed care model.

Prior to the publication of the Staffing Rule, two bills, named the Protecting America’s Seniors’ Access to Care Act and Protecting Rural Seniors’ Access to Care Act (one in the House and a companion bill in the Senate) were introduced to block the Staffing Rule from taking effect.

Both bills have been referred to committee and are pending further action.

These bills reason that the minimum staffing standard would endanger rural nursing facilities, subjecting them to potential fines and closures for failure to comply and might require them to discharge residents or limit the number of residents they accept in an effort to meet the requirements of the bill.

It is uncertain if any of these bills or other legislative action will pass as well as their potential impact on the Staffing Rule.

The Staffing Rule has been met with further opposition and proposed legislation to halt its implementation.

On May 23, 2024, the American Health Care Association (AHCA) filed a lawsuit in the Northern District of Texas against HHS and CMS, alleging that the Staffing Rule exceeds the scope of CMS’s statutory authority and violates the Administrative Procedure Act.

The State of Texas brought suit and was granted consolidation of its lawsuit with AHCA's in the same venue arguing the rule is “arbitrary and capricious” and in violation of the Administrative Procedure Act.

Subsequently, over 20 additional states have filed similar suits in opposition to the rule, as well as industry groups including Leading Age and the South Dakota Association of Healthcare Organizations.

On May 10, 2024, a joint resolution was introduced in the House of Representatives under the Congressional Review Act to overturn the Staffing Rule, which was referred to the House Ways and Means committee and its Subcommittee on Health on May 17, 2024, with no further action taken on the joint resolution since then.

Related to the pending proposed legislation regarding the Staffing Rule, the Long-Term Care Workforce Support Act was introduced in both the Senate and House of Representatives in April of 2024 and both versions of the bill were subsequently referred to the Senate Committee on Finance and the House Ways and Means committee and its Subcommittee on Health, respectively, by April 19, 2024, with no action taken on either bill since then.

These companion bills were introduced in order to increase the direct care workforce and improve pay, by increasing the federal match for Medicaid by up to 10% for each state across 10 years.

The recent Supreme Court decision in Loper Bright Enterprises v.

Raimondo ("Chevron" decision) gives courts greater authority to challenge federal agencies' statutory interpretations.

As such, the Staffing Rule may see increased legal challenges under the new doctrine.

(For further discussion of the Chevron case and its implications see "United States Supreme Court Decisions" section below.)

Medicare presently accounts for approximately 25.9% of our skilled nursing services revenue year-to-date, being our second-largest revenue payor.

The Medicare program and its reimbursement rates and rules are subject to frequent change.

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Implementation of these and other types of measures has in the past, and could in the future, result in substantial reductions in our revenue and operating margins.

Patient-Driven Payment Model (PDPM)

The SNF PPS Rule became effective October 1, 2019.

The SNF PPS Rule included a new case mix model that focuses on the patient’s condition (clinically relevant factors) and resulting care needs, rather than on the volume of care provided, to determine Medicare reimbursement.

The case mix model is called the PDPM, which utilizes clinically relevant factors for determining Medicare payment by using diagnosis codes and other patient characteristics as the basis for patient classification.

PDPM utilizes five case-mix adjusted payment components:

Patient-Driven Payment Model (PDPM) — The SNF PPS Rule included a case mix model called PDPM that focuses on the patient’s condition (clinically relevant factors) and resulting care needs to determine Medicare reimbursement.

PDPM utilizes clinically relevant factors for determining Medicare payment by using diagnosis codes and other patient characteristics as the basis for patient classification.

PDPM makes effective use of five case-mix adjusted payment components:

physician therapy, occupational therapy, speech language pathology, nursing and social services and non-therapy ancillary services.

It also uses a sixth non-case mix component to cover utilization of SNFs' resources that do not vary depending on resident characteristics.

PDPM replaces the existing methodology and is intended to achieve a more value-based, unified post-acute care payment system.

PDPM is intended to achieve a more value-based, unified post-acute care payment system.

For example, PDPM adjusts Medicare payments based on each aspect of a resident’s care.

Under the SNF PPS PDPM system, the payment to SNFs and nursing homes is based heavily on the patient’s condition rather than the specific services provided by each SNF.

Skilled Nursing Facility - Quality Reporting Program (SNF QRP)

The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) provided data reporting requirements for certain Post-Acute-Care (PAC) providers.

Skilled Nursing Facility - Quality Reporting Program (SNF QRP) — The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act) provided data reporting requirements for certain Post-Acute-Care (PAC) providers.

If a SNF does not submit required quality data as required by the IMPACT Act, its payment rates are reduced by 2.0% for each such fiscal year, which may result in payment rates for a fiscal year being less than the preceding fiscal year.

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CMS's rulemaking often identifies new data elements to be reported.

In July of 2022, CMS announced revisions to calculating its five-star ratings for the Nursing Home Compare website.

Under this new calculation, points are assigned to a SNF based on its performance across six measures:

CMS revised the calculation of its five-star ratings for the Nursing Home Compare website.

Under this methodology, points are assigned to a SNF based on its performance across six measures:

(1) case-mix adjusted total nurse staffing levels (including registered nurses, licensed practical nurses, and nursing aides), measured by hours per resident per day;

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These six measures will be measured on a quarterly basis.

These six new measures were included in the five-star rating in October 2022.

These six new measures were included in the five-star rating starting in October 2022.

In addition, CMS also implemented a planned increase to the quality measure reporting thresholds, increasing each threshold by one-half of the average improvement of quality measure scores since CMS last set quality measure thresholds.

Going forward, CMS plans to implement similar rating threshold increases every six months.

On July 29, 2022, CMS announced the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs.

This measure will be determined by the percentage of SNF healthcare personnel who receive an influenza vaccine any time from when it first becomes available through March 31 of the following year.

SNFs began submitting this data on October 1, 2022.

On July 31, 2023, CMS published the SNF PPS FY 2024 Final Rule, which included changes to the SNF QRP, including adopting, removing and modifying specific measures.

The final rule also includes policy changes and the public reporting of four measures.

The final rule adopts the Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score.

CMS has continued to refine the QRP including various measurements such as the adoption of a process measure for influenza vaccination coverage among healthcare personnel within SNFs and a Discharge Function Score (DC Function) measure, which determines the functional condition of residents by examining the proportion of SNF residents who achieve or surpass a projected discharge functionality score.

The assessment includes consideration of mobility and self-care, utilizing data from the Minimum Data Set (MDS).

The DC Function will replace the current process and is scheduled to go into effect for the FY 2025 SNF QRP.

CMS will adopt two measures for the SNF QRP starting in FY 2026.

The SNF PPS FY 2024 Final Rule also modified the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure.

The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations.

The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.

Under the SNF PPS FY 2024 Final Rule, CMS will adopt two measures for the SNF QRP starting in FY 2026.

First, CMS will raise the Data Completion Thresholds for the MDS.

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This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.

The SNF PPS FY 2024 Final Rule also modifies the SNF QRP’s Healthcare Professional (HCP) Covid Vaccine Measure.

The measure will track the proportion of healthcare staff vaccinated for COVID-19 and have kept their vaccination status current per the CDC recommendations.

Previously, SNFs were only obligated to disclose whether their healthcare workers had completed the initial vaccination series for COVID-19.

Now, there is an added requirement to report the total count of healthcare employees who have maintained their COVID-19 vaccination status in line with CDC recommendations.

The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.

CMS stated the decision stemmed from two primary reasons:

first, the consistently high-performance levels among SNFs make it challenging for CMS to identify significant advancements;

and second, the DC Function measure aligns more closely with the preferred functional outcomes for residents.

Medicare Annual Payment Rule

CMS is required to calculate an annual Medicare market-basket update to the payment rates.

On July 31, 2023, CMS issued the SNF PPS FY 2024 Final Rule, which will result in a net increase of 4.0% in Medicare payments to SNFs in fiscal year 2024.

CMS’s SNF PPS FY 2025 Final Rule adopts several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data.

Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS.

Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF VBP Program.

Also beginning in fiscal year 2027, SNFs participating in the SNF QRP program must participate in a validation program similar to that used for SNFs participating in the SNF VBP Program.

Medicare Annual Payment Rule — CMS is required to calculate an annual Medicare market-basket update to the payment rates.

The SNF PPS FY 2025 Final Rule, issued on July 31, 2024 increased the Medicare payment rates to SNFs in fiscal year 2025 by 4.2%, which is based on a market basket of 3.0% plus a 1.7% market basket forecast error adjustment and a negative 0.5% productivity adjustment.

On July 31, 2023, CMS issued the SNF PPS FY 2024 Final Rule that increased Medicare payment rates by 4.0% to SNFs in fiscal year 2024.

This increase results from the 6.4% net market basket update to the payment rates, which is based on a 3.0% SNF market basket increase plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment and a negative 2.3% adjustment as a result of the recalibrated parity adjustment.

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The recalibrated parity adjustment is being phased in at a rate of 2.3% per year on both the SNF PPS FY 2024 and FY 2023 Final Rules.

Sequestration of Medicare Rates

The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration.

Sequestration of Medicare Rates —The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called sequestration.

Medicare FFS claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments through at least 2023, unless Congress takes further action.

Under the CARES Act, there was a temporary suspension of the 2.0% reduction of Medicare claim reimbursements as a result of the COVID-19 pandemic which lasted until June 2022.

Under the CAA 2023, a further 4.0% cut to Medicare spending that would have been required under the Statutory Pay-As-You-Go Act of 2010 (PAYGO) was waived for fiscal years 2023 and 2024.

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The CAA 2023 also offset planned Medicare sequestrations that would have been as high as 4.0% and instead maintained fee schedule cuts of approximately 2.0%.

Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program

The SNF-VBP Program rewards SNFs with incentive payments based on the quality of care they provide to Medicare beneficiaries, as measured by a hospital readmissions measure.

Absent a further act by Congress, such as a consolidated appropriations act for 2025 or other bill addressing spending in fiscal year 2025 (including retroactively), the sequestration of Medicare FFS claims is expected to take effect in fiscal year 2025.

On October 29, 2024, the Medicare Patient Access and Stabilization Act of 2024 (MPASA) was introduced in the House of Representatives, seeking to increase the amount paid to physicians under Medicare by 4.73%.

MPASA was referred to the House Ways and Means Committee and House Committee on Energy and Commerce on October 29, 2024, referred to the Subcommittee on Health on December 17, 2024 and no further action has been taken on this bill.

Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program — The SNF-VBP Program rewards SNFs with incentive payments based on the quality of care they provide to Medicare beneficiaries, as measured by a hospital readmissions measure.

CMS annually adjusts its payment rules for SNFs using the SNF-VBP Program.

The program also introduced quality measures to assess how health information is shared and adopted a number of standardized patient assessment data elements that assess factors such as cognitive function and mental status, special services and social determinants of health.

The program also introduced quality measures to assess how health information is shared and adopted several standardized patient assessment data elements that assess factors such as cognitive function and mental status, special services and social determinants of health.

CMS uses regulations to specify how it measures the performance for SNFs as well as the data that SNFs are to report to CMS.

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Additionally, the SNF WS PPR measure's calculations use two years of Medicare claims data to generate a provider-specific risk-standardized readmission rate.

Part B Rehabilitation Requirements

Some of our revenue is paid by the Medicare Part B program under a fee schedule.

The SNF PPS FY 2025 Final Rule adopted several operational and administrative updates to the SNF VBP Program.

The SNF rule adopted a policy to select, retain and remove measurements to ensure the VBP Program’s evaluation metrics remain relevant and effective for assessing care quality, as well as policies for updating technical measures and policies for reviewing and correcting data CMS relies upon to calculate its measures.

The rule allows CMS to update the case-mix methodology for the Total Nurse Staffing measure, and its policies to allow the review and revise measures, as well as review and correct data, allow SNFs to review and correct Payroll-Based Journal (PBJ) data from fiscal year 2026 and MDS data from fiscal year 2027, allowing CMS to fashion more accurate measures based on updated data.

Part B Rehabilitation Requirements — A portion of our revenue is paid by the Medicare Part B program under a fee schedule.

Part B services are limited with a payment cap by combined speech-language pathology services (SLP), physical therapy (PT) services and a separate annual cap for occupational therapy (OT) services.

Part B services are limited by a payment cap as there is one amount for physical therapy (PT) services and speech-language pathology (SLP) services combined and a separate amount for occupational therapy (OT) services.

On November 1, 2024, CMS issued the Calendar Year (CY) 2025 Physician Fee Schedule (PFS) Final Rule (2025 PFS Final Rule).

The Bipartisan Budget Act of 2018 (BBA) establishes coding modifier requirements to obtain payments beyond certain payment thresholds, discussed below and reaffirms the specific $3,000 claim audit threshold requirements for Medicare Administrative Contractors.

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and (2) providers in private practice, including speech-language pathologists, who perform and bill for multiple services in a single day.

Through the end of coverage year 2024, certain of our Part B services provided through telehealth will still qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF.

During the PHE, CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR.

Through the end of CY 2024, certain of our Part B services provided through telehealth would qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF.

During the Public Health Emergency (PHE), CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR.

The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration.

On November 2, 2023, CMS published the CY 2024 Physician Fee Schedule (CY 2024 PFS Final Rule), which changes Medicare payments under the Physician Fee Schedule (PFS) and other Medicare Part B components.

The CY 2024 PFS Final Rule contains a conversion factor of $32.74, which is a decrease of $1.15 from the calendar year 2023 PFS conversion factor of $33.89.

This CY 2024 conversion factor is 3.4% lower than the CY 2023 conversion factor.

Under the CY 2024 PFS Final Rule, overall payment rates for Medicare Part B services are to be reduced by 1.25% compared to calendar year 2023.

The CY 2024 PFS Final Rule contains provisions to make payments when physicians and certain non-physician practitioners, such as physician assistants, nurse practitioners, physical therapists, occupational therapists and clinical psychologists, involve caregivers in implementing an individualized plan of treatment or therapy.

These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers through participation in licensed healthcare providers’ course of care for patients and residents.

The American Relief Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months.

Under the 2025 PFS Final Rule, the 2.93% increase to the CY 2024 PFS Conversion Factor (CF) expired and CMS seeks to impose an estimated 0.05% adjustment based on changes in work relative value units (RVUs) for certain services.

As a result, the 2025 PFS Final Rule implements a reimbursement reduction of 2.83%, with a CF of $32.35, which is a reduction from the CY 2024 CF of $33.29.

The 2025 PFS Final Rule adopts a 3.6% increase to the threshold for coding modifier requirements for PT and SLP combined, totaling $2,410 for CY 2025 with the same threshold for OT services.

The threshold for targeted medical review for PT and OT (combined) and SLP is expected to remain at $3,000 through CY 2027.

The 2025 PFS Final Rule also adopts a regulatory change that allows physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, allowing greater flexibility in billing for those assistants’ services.

Additionally, the 2025 PFS Final Rule excepts a therapist-established initial plan of care (POC) for PT, OT, or SLT services from requiring a physician or non-physician provider’s (NPP’s) signature, provided that (1) the patient’s physician or NPP referred the patient to the therapist and (2) the therapist has evidence that the POC was transmitted to the patient’s physician or NPP within 30 days of the patient’s initial evaluation.

This flexibility applies only to the initial certification.

Finally, the 2025 PFS Final Rule reduces COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025.

Under this final rule, certain restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect:

most geographic and site-of-service restrictions to telehealth will return, while physicians can still provide telehealth from home, and can provide audio-only telehealth communication in specific circumstances where the patient is unable to use video technology.

CMS is also establishing new coding and payment for caregiver training services, including training services provided through eligible telehealth means.

On October 29, 2024, MPASA was introduced in the House of Representatives, seeking to increase the amount paid to physicians under Medicare by 4.73%.

MPASA was referred to the House Ways and Means Committee and House Committee on Energy and Commerce on October 29, 2024, and no further action has been taken on this bill.

On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93% update to the CY 2024 PFS CF for dates of service March 9, 2024 through December 31, 2024.

This replaced the 1.25% update provided by the Consolidated Appropriations Act, 2023.

The 2024 PFS Final Rule was finalized in November 2023, which changed Medicare payments under the PFS and other Medicare Part B components.

The CY 2024 PFS Final Rule contained a conversion factor of $32.74, which was a decrease of $1.15 from the CY 2023 PFS conversion factor of $33.89.

This CY 2024 conversion factor was 3.4% lower than the CY 2023 conversion factor.

The billing period started on January 1, 2024 and ran through December 31, 2024.

The 2024 PFS Final Rule made payments when physicians and NPPs, involve caregivers in implementing an individualized plan of treatment or therapy.

These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers.

For PT and SLP combined, the threshold for coding modifier requirements increases to $2,330 for CY 2024 with the same threshold for OT services.

The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records.

A new Caregiver Education Code has been made available to therapists providing face-to-face education to patient caregivers.

The CY 2024 PFS Final Rule will allow for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services.

This change may affect the rate of reimbursement for PT and OT services in the future and may affect the desirability and utilization of physical therapy assistants and occupational therapy assistants for certain patient services.

Additionally, the CY 2024 PFS Final rule adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for CY 2024.

The final rule also adds risk assessments for social determinants of health to the list of telehealth services Medicare will reimburse on a permanent basis.

The 2024 PFS Final Rule allowed for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services.

This change may affect the rate of reimbursement for PT and OT services in the future.

Additionally, the 2024 PFS Final Rule added certain health and well-being coaching services that Medicare reimbursed on a temporary basis for 2024.

The final rule also added risk assessments for social determinants of health to the list of telehealth services Medicare would reimburse.

Programs of All-Inclusive Care for the Elderly

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Further, non-physician primary care providers can provide certain services in place of primary care physicians.

On February 1, 2023, CMS issued its final rule, which takes effect on April 3, 2023, requiring the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits.

The final rule, which went into effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits.

The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.

In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA).

The additional PDE information must be submitted beginning January 1, 2025.

In June of 2024, CMS also updated its statement of rights for PACE participants.

Decisions Regarding Skilled Nursing Facility Payment

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Patient Protection and Affordable Care Act

Various healthcare reform provisions became law upon enactment of the ACA.

Various healthcare reform provisions became law upon enactment of the Patient Protection and Affordable Care Act (ACA).

The reforms contained in the ACA have affected our independent subsidiaries in some manner and are directed in large part at increased quality and cost reductions.

Several of the reforms are very significant and could ultimately change the nature of our services, the methods of payment for our services and the underlying regulatory environment.

The Inflation Reduction Act of 2022 (IRA), which continued and expanded certain provisions of the ACA, extended the premium subsidies paid by the federal government, until the end of 2024, resulting in subsidies being available to offset or reduce the costs of private health insurance policies for qualifying individuals.

The IRA, which continued and expanded certain provisions of the ACA, extended the premium subsidies paid by the federal government, until the end of 2024, resulting in subsidies being available to offset or reduce the costs of private health insurance policies for qualifying individuals.

This may aid older patients in obtaining or keeping their health insurance in order to pay for long-term care services.

The CAA 2023 revised the funds available to fund Medicare in 2023 and deferred the PAYGO sequestration of Medicare expenses.

The 2024 presidential election may significantly alter the current regulatory framework and impact our business and the health care industry, including any further extensions or expansions of certain ACA provisions, namely recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions.

The changes in the presidential administration may significantly alter the current health care regulatory framework, payment activity, and impact our business and the health care industry, including any repeals, curtailments, extensions or expansions of certain ACA provisions, included, but not limited to recent rulemaking activity regarding ACA Section 1557's anti-discrimination provisions.

We continually monitor these developments so we can respond to the changing regulatory environment impacting our business.

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CMS has issued guidance and direction around arbitration that must be satisfied for any agreement to be enforceable and which may result in adverse consequences for our business if not followed.

Congress has routinely introduced, but not passed, legislation addressing the issue of arbitration agreements used by SNFs.

While legislative action is possible in the future, federal regulations and state/federal laws remain our primary source of authority over the use of pre-dispute binding arbitration agreements.

On June 29, 2022, CMS announced updated guidance for Phase 2 and 3 of the Requirements of Participation.

CMS distributed these updates to surveyors and state agencies in order to, among other things, enhance responses to resident complaints and reported incidents.

This guidance focuses on the following topics:

(1) resident abuse and neglect (including reporting of abuse);

Phase 2 and 3 of the Requirements of Participation focuses on:

(1) resident abuse and neglect;

(2) admission, transfer and discharge;

(3) mental health and substance abuse disorders;

(4) nurse staffing and reporting of payroll to evaluate staffing sufficiency;

(5) residents’ rights (including visitation);

(4) staffing sufficiency;

(5) residents’ rights;

(6) potential inaccurate diagnoses or assessments;

(7) prescription and use of pharmaceuticals, including psychotropics and drugs that act like psychotropics;

(7) prescription and use of pharmaceuticals;

(8) infection prevention and control;

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(10) psychosocial outcomes and related severity;

and (11) the timeliness and completion of state investigations to improve consistency in the application of standards among various states.

On July 29, 2022, CMS updated the Medicare Requirements of Participation for SNFs, which includes the modification of requirements associated with a facility's physical environment to minimize unnecessary renovation expenses in order to avoid closure of SNFs due to the related expense.

and (11) the timeliness and completion of state investigations.

In 2022, CMS updated the Medicare Requirements of Participation for SNFs, to modify the requirements associated with a facility's physical environment to minimize unnecessary renovation expenses and avoid closure of SNFs due to the related expense.

CMS "grandfathered" certain facilities and will allow SNFs that were participating in Medicare before July 5, 2016 and that previously used the Fire Safety Evaluation System (FSES) to continue using the 2001 FSES mandatory values when determining compliance with applicable standards.

CMS also updated the Requirements of Participation to revise existing qualification requirements for directors of food and nutrition services in SNFs, while "grandfathering" in directors with two or more years of experience and certain minimum training in food safety so they may continue in that role without satisfying further educational requirements.

On February 17, 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation.

This revision incorporated the recent changes to CMS’ focused infection control survey item, which CMS had removed in favor of standard infection control survey measures.

These changes were made to the most recent revision of long-term care facility survey documents that CMS had last revised in October of 2022.

In 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation.

This revision incorporated changes to CMS’s focused infection control survey item, which CMS had removed in favor of standard infection control survey measures.

These updates provided more information for state surveyors to utilize when evaluating SNFs’ compliance with the Medicare Requirements of Participation, as well as included guidance for facilities on operationalizing compliance with these requirements based on how surveyors would measure and evaluate facility performance.

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

The Biden-Harris Administration has also signaled an increasing focus on nursing home performance and the reimbursement nursing homes receive from federal healthcare payment programs.

The Biden-Harris Administration had also signaled an increasing focus on nursing home performance and the reimbursement nursing homes receive from federal healthcare payment programs.

The change in the presidency following the 2024 presidential elections may result in a change to this focus, in whole or in part.

There has not yet been public disclosure of the priorities of the new Presidential Administration, in addition to those of the anticipated new leaders of HHS and CMS, as they relate to SNFs and long-term care facilities.

Many states also have a false claim prohibition that mirrors or closely tracks the federal FCA.

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and (4) supporting federal monitoring of nursing homes to mitigate risks to residents.

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.

In February of 2024, the OIG added to its work plan a study regarding the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees.

The purpose of this study will be to prepare a report regarding the cost of background checks, number of applicants who received background checks, and disqualification of employees during and after NBCP participation.

This report will also include information regarding the cost of background checks and any unintended consequences experienced as a result of using this program.

In April of 2024, the OIG updated its work plan to study and determine whether and how states used Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit.

The OIG further updated its work plan in June 2024 to study and assess the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.

Our business model, is based in part on serving higher acuity patients.

Over time our overall patient mix has consistently shifted to higher acuity in most facilities we operate.

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The Nursing Home Compare website is updated monthly with CMS’s refresh of survey inspection results on that website.

Additionally, in April of 2022, the Nursing Home Compare website began publishing the ownership information for Medicare-enrolled nursing facilities based on disclosures made to CMS from 2016 through 2022 due to mergers, acquisitions, or other changes in ownership, to allow for the identification of common ownership of nursing facilities.

Additionally, in 2022, the Nursing Home Compare website began publishing the ownership information for Medicare-enrolled nursing facilities based on disclosures made to CMS from 2016 through 2022 due to mergers, acquisitions, or other changes in ownership, to allow for the identification of common ownership of nursing facilities.

In addition, the Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.

Based on the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide updated in 2023, CMS will be auditing schizophrenia coding within the MDS reported to CMS, with adjustments to quality ratings based on any inaccuracies in this schizophrenia-related data.

Additionally, the outcome of citations that a facility has informally disputed will only be included in the calculation of a facility’s star rating once the dispute is completed and the underlying survey considered final.

CMS also 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.

Importantly, the new guidelines limit only 10% of nursing facilities can receive a five-star rating in the state where it operates.

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’s data.

This freeze is implemented to accommodate changes to the MDS so that information that will be added to the MDS can be gathered.

For three months, until the July 2024 refresh of the Nursing Home Compare website rankings, CMS will freeze the staffing level measures for all SNFs.

Beginning with the July 2024 refresh, CMS will change the staffing case-mix adjustment methodology to a model based on PDPM, which is discussed above.

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

To incentivize SNFs to submit accurate staffing data, CMS will revise the staffing methodology to penalize SNFs that fail to submit staffing data, or submit erroneous data, by awarding them the lowest possible score for those measures beginning in April of 2024.

In July of 2024, CMS updated the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide to identify and explain a change in staffing case-mix methodology to adopt a model based on PDPM, changing the measures that CMS previously froze in April of 2024.

This update to the Technical Users’ Guide also extended the gap period (during which no work hours are reported) for defining nurse staffing turnover from 60 days to 90 days.

As a result of this update, for the three staffing turnover measures, individuals who no longer work in the nursing home are defined as eligible individuals who have a period of at least 90 consecutive days in which they do not work at all, increased from 60 days.

CMS also updated the risk-adjustment models for the four claims-based measures to reflect measures of functional abilities and goals, rather than residents’ functional status.

Finally, CMS revised the thresholds for the staffing measures and claims-based quality measures to maintain the same distribution by points for affected staffing and quality measures, maintaining the same proportions of available five- and four-star ratings for facilities.

In April of 2024, CMS updated its Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide in several respects.

First, CMS froze four of the quality measures from any changes:

(1) percentage of residents who made improvements in function (short stay);

(2) percentage of residents whose need for help with activities of daily living has increased (long stay);

(3) percentage of residents whose ability to move independently worsened (long stay);

and (4) percentage of high-risk residents with pressure ulcers (long stay).

All of these measures will be frozen until January 2025, while the short-stay functional improvement measure is replaced in October of 2024 with a new cross-setting function measure used in the SNF QRP.

CMS also updated the staffing level case-mix adjustment methodology and froze three staffing level measures until July of 2024:

(1) adjusted RN staffing (HPRD);

(2) adjusted total nurse staffing (HPRD);

and (3) adjusted total nurse staffing on weekends (HPRD).

These frozen measures will not affect staff turnover measures.

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

Under these guidelines, only 10% of nursing facilities can receive a five-star rating in the state where it operates, with the bottom 20% receiving a one-star rating and the remaining 70% receiving a distribution of two-, three-, and four-star ratings.

State Legislation Concerning Nursing Home Supervision — California passed into law a bill which changes the limitations, or “caps,” on non-economic damages that can be awarded in medical negligence cases filed against healthcare providers (including skilled nursing and long-term care facilities).

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The new limits on non-economic damages apply prospectively to lawsuits filed on and after January 1, 2023.

On September 27, 2022, California’s Governor signed into law the Skilled Nursing Facility Ownership and Management Reform Act of 2022.

In 2022, California’s Governor signed into law the Skilled Nursing Facility Ownership and Management Reform Act of 2022.

This law increases the oversight authority of the California Department of Public Health, and changes several provisions regarding SNF licensing in the State of California.

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This law also requires SNF license applicants to disclose additional information in connection with a license application and evaluates more data regarding the applicant’s prior operations, including prior citations, CMS sanctions and legal proceedings against the applicant or other facilities owned or managed by the applicant before issuing a license.

United States Supreme Court Decisions – On June 8, 2023, the United States Supreme Court issued its opinion in Health and Hospital Corporation of Marion County, Indiana (HHC) v.

Talevski , which pertained to claims of mistreatment in a nursing home.

The nursing home was publicly owned by the government county where it operated, rather than privately owned.

The question before the Supreme Court was whether the Nursing Home Reform Act, passed as part of the Omnibus Budget Reconciliation Act of 1987, gave Talevski the right to sue HHC for a violation of his civil rights under 42 U.S.C.

§ 1983, a specific statute that allows for claims against persons who act for and on behalf of any government entity.

The Supreme Court held that Talevski’s civil rights claim against HHC could proceed.

While the facts of this case are of limited precedential value to our independent subsidiaries, which are not owned by and do not act on behalf of any government entity, this decision may draw wider public interest into claims against SNFs and assisted living facilities generally.

Monitoring Compliance in Our Facilities

United States Supreme Court Decisions – On June 28, 2024, the United States Supreme Court issued its opinion in Loper Bright Enterprises v.

Raimondo , deciding to vacate and remand decisions by the United States Courts of Appeals that relied on the Supreme Court’s own 1984 precedent in Chevron U.S.A.

Natural Resources Defense Council, Inc.

, which sometimes required courts to defer to “permissible” agency interpretations of the statutes those agencies administered and enforced—a legal doctrine known as the “Chevron doctrine.” In Loper , the Supreme Court had to decide whether it should overrule or clarify the Chevron doctrine based on its application more than 40 years after its creation, and the Supreme Court chose to overrule it.

The Chevron doctrine required courts to use a two-step process to interpret statutes administered by federal agencies.

After determining that the Chevron doctrine may apply to a dispute before it, a federal court must assess whether Congress has directly spoken to the precise question at issue.

If (and only if) the congressional intent of the statute is clear, that is the end of the inquiry as to the statute’s meaning.

If the court determines that the statute is silent or ambiguous regarding the issue at hand, then the Chevron doctrine requires the court to defer to the agency’s interpretation if it “is based on a permissible construction of the statute.”

The Supreme Court’s Loper decision found that the Chevron doctrine is incompatible with the federal Administrative Procedure Act’s requirement for courts to exercise their independent judgment in deciding whether a federal agency has acted within its statutory authority.

It further held that courts may not defer to an agency interpretation of a statute merely because the statute is ambiguous, as it is the responsibility of the court, rather than an agency that administers or acts under a statute, to discern the statute’s meaning.

The Supreme Court reasoned that allowing agencies to interpret the laws they enforce or act under, rather than reserving that activity for the courts, was an impermissible delegation of an activity reserved to the courts.

While the decisions at issue in Loper pertained to fishing regulations promulgated by the Department of Commerce, the Chevron doctrine’s significance to the highly regulated field of healthcare is profound.

The Chevron doctrine is frequently implicated in litigation over healthcare regulation, ranging from rules concerning staffing requirements and the validity of arbitration provisions, to requirements for healthcare workers to be vaccinated.

Subsequent analysis has focused on the limits of the Loper decision, including any deference that courts may still afford to administrative agencies when based on agency fact-finding and policy-making, particularly where such power is expressly delegated to the agency by statute.

The Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.

Monitoring Compliance in Our Independent Subsidiaries

Governmental agencies and other authorities periodically inspect our independent subsidiaries to assess compliance with various standards, rules and regulations, with potential fines, sanctions and other penalties for noncompliance.

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Accordingly, facilities that have poor regulatory histories before acquisition by our independent subsidiaries and that develop new deficiencies after acquisition are more likely to have sanctions imposed upon them by CMS or state regulators.

In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the special focus facility (SFF) initiative.

In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the Special Focus Facility (SFF) program.

SFFs receive heightened scrutiny and more frequent regulatory surveys.

Failure to improve the quality of care can result in fines and termination from participation in Medicare and Medicaid.

A facility “graduates” from the program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.

On October 21, 2022, CMS issued a Memorandum identifying the changes it intends to make in connection with the oversight of those facilities that fall under the SFF Program, including increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.

A facility “graduates” from the SFF program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.

In October 2022, CMS increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.

Sanctions such as denial of payment for new admissions often are scheduled to go into effect before surveyors return to verify compliance.

Generally, if the surveyors confirm that the facility is in compliance upon their return, the sanctions never take effect.

Generally, if the surveyors confirm that the facility is in compliance upon their re-evaluation, the sanctions never take effect.

However, if they determine that the facility is not in compliance, the denial of payment goes into effect retroactive to the date given in the original notice, leaving operators with the task of deciding whether to continue accepting patients after the potential denial of payment date--risking the retroactive denial of revenue.

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This development and potential new guidance regarding DOJ and FTC antitrust policy increases risk and uncertainty regarding transactions that may be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants.

Americans with Disabilities Act

Further change is expected with respect to the DOJ and FTC’s antitrust policies due to the outcome of the 2024 presidential election, including as to how they relate to healthcare.

As a result, these changes to the DOJ and FTC’s antitrust policies may be changed materially, not implemented, or reverted to prior statements that were withdrawn in February of 2023.

Americans with Disabilities Act (ADA)

Our independent subsidiaries must also comply with the ADA, and similar state and local laws to the extent that the facilities are "public accommodations" as defined in those laws.

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OCR offers assistance to facilities to obtain compliance with these standards and encourages residents and other affected individuals to file complaints with OCR for potential administrative or civil action in cases of civil rights violations.

OCR has been increasingly involved in the monitoring and enforcement of patient and resident rights, particularly under ongoing rulemaking under Section 1557 of the ACA.

Real Estate Investment Trust (REIT) Qualification

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

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

federal income tax purposes.

Standard Bearer's qualification as a REIT will depend upon its ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code, relating to, among other things, the sources of its gross income, the composition and value of its assets, distribution levels to its shareholders and the concentration of ownership of its capital stock.

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REGULATIONS SPECIFIC TO SENIOR LIVING COMMUNITIES AND ANCILLARY SERVICES

As previously mentioned, senior living services revenue (approximately 2.0% of total revenue) is primarily derived from private pay residents, with a small portion of senior living revenue derived from Medicaid funds.

As previously mentioned, senior living services revenue, which accounted for 2.1% of total revenue, is primarily derived from private pay residents and senior living revenue derived from Medicaid funds.

Thus, some of the regulations discussed above applicable to Medicaid providers, also apply to senior living.

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• Identifying the potential financial impact of transition risks, physical risks and climate-related opportunities.

• Developing and implementing our strategy, which focuses on monitoring environmental policy and on-going developments, ensuring community resiliency, evaluating usage of energy management systems and tools, building operational and emergency response systems, performing hazard vulnerability assessments and tracking and responding to developing natural disasters.

• Developing and implementing our strategy, which focuses on monitoring environmental policy and on-going developments, ensuring community resiliency, evaluating usage of energy management systems, building operational and emergency response systems, performing hazard vulnerability assessments and tracking and responding to developing natural disasters.

Ensign's environmental management team (EMT) is part of our ESG Committee.

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• Providing structure and support to our independent subsidiaries that are led by local operators to make decisions on their capital expenditure projects at their facilities.

The team advises our local field operators on best practices and identifies opportunities for them to assess priorities of projects that may be chosen to be executed.

• Overseeing environmental programs which include the evaluation and installation of LED lighting, solar panel, improved doors and insulation, automated HVAC controls and thermal efficiency projects related to micro-turbine, demand control ventilation.

• Development of target goals for reduction of carbon emissions, savings and ENERGY STAR scores.

The team advises our local field operators on best practices and identifies opportunities for them to assess priorities of projects.

• Development of targets for reduction of carbon emissions, and increase ENERGY STAR scores.

• Tracking and monitoring of currently available environmental metrics such as utility usage and development of an energy management system that tracks greenhouse gas emissions and more.

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However, we cannot assure you that we will not encounter liabilities with respect to these regulations in the future, and such liabilities may result in material adverse consequences to our operations or financial condition.

For additional information on the EMT and our environmental sustainability efforts, please see our ESG report, which is available on our website at www.ensigngroup.net.

AVAILABLE INFORMATION

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

What changed 10-K

Item 1. Business