What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-29 compared with 2024-10-24 · 319 added, 567 removed, 782 unchanged (53% of the section changed)

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The use of "Ensign," "Company," “we,” “us,” “our” and similar verbiage in this Quarterly Report on Form 10-Q is not meant to imply that any of our affiliated operations, the Service Center, the captive insurance subsidiary or Standard Bearer are operated by the same entity.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes included in this Quarterly Report.

We are a provider of health care services across the post-acute care continuum.

We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare related properties and ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare related properties and ancillary businesses located in Alabama, Alaska, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

Our independent subsidiaries, each of which strive to be the operation of choice in the communities they serve, provide a broad spectrum of services.

As of September 30, 2024, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 322 skilled nursing and senior living facilities.

As of March 31, 2025, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 340 skilled nursing and senior living facilities.

Our real estate portfolio includes 140 owned real estate properties, which includes 107 facilities operated and managed by us, 33 operations leased to and operated by third-party operators and the Service Center 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.

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of September 30, 2024:

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of March 31, 2025:

Owned and Operated Leased (with a Purchase Option) Leased (without a Purchase Option) Total for Facilities Operated

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Refer to Results of Operations for further discussion.

Operational Expansions — During the nine months ended September 30, 2024, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 24 stand-alone skilled nursing operations and two campus operations.

Of these additions, Standard Bearer acquired the real estate of nine of the operations, all of which were leased back to our independent subsidiaries.

These new operations added a total of 2,565 operational skilled nursing beds and 202 operational senior living units to be operated by our independent subsidiaries.

We also invested in new ancillary services that are complementary to our existing businesses.

Subsequent to September 30, 2024, we expanded our operations and real estate portfolio with the addition of one campus operation.

Standard Bearer acquired the real estate of this operation, which was leased back to our independent subsidiary.

The new operation added 83 operational skilled nursing beds and 20 operational senior living units to be operated by our independent subsidiary.

Refer to Note 6, Standard Bearer, for additional information on the purchases of real estate properties.

Common Stock Repurchase Program — On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

We did not repurchase any shares during the three months ended September 30, 2024.

Expansion into a New State — In 2024, we expanded our operations into the state of Tennessee with the addition of three stand-alone skilled nursing operations.

Operational Expansions — During the three months ended March 31, 2025, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 11 stand-alone skilled nursing operations, one stand-alone senior living and one campus operation.

Of these additions, Standard Bearer acquired the real estate of seven of these operations, which were leased back to Ensign affiliated entities.

These new operations added a total of 1,365 operational skilled nursing beds and 132 operational senior living units to be operated by our affiliated operating subsidiaries.

Subsequent to March 31, 2025, we expanded our operations through a combination of long-term leases and real estate purchases , with the addition of two stand-alone skilled nursing operations and one stand-alone senior living operation.

Of these additions, Standard Bearer acquired the real estate of one stand-alone skilled nursing operation, which was leased back to Ensign affiliated entities.

This new operation added 241 operational skilled nursing beds and 68 operational senior living units to be operated by our affiliated operating subsidiaries.

Additionally, we added one stand-alone senior living facility to our real estate portfolio, which is leased to a third-party operator.

For further discussion of our real estate properties and expansions, see Note 6 and 7, Standard Bearer and Operation Expansions in the Notes to the Interim Financial Statements.

Expansion into New States — In the first quarter of 2025, we expanded our operations into the states of Alabama, Alaska and Oregon with the addition of three stand-alone skilled nursing operations and one campus operation.

These expansions are part of our strategic vision to further strengthen our growing national presence in both existing and new attractive markets.

Standard Bearer Update — Standard Bearer Healthcare REIT, Inc.

(Standard Bearer), our captive REIT, is a holding company with subsidiaries that own a majority of our real estate portfolio.

We expect the REIT structure to allow 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.

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

During the three months ended March 31, 2025, Standard Bearer added $147.8 million of real estate associated with eight stand-alone skilled nursing operations, one stand-alone senior living operation and two campus operations.

Four of the acquisitions were related to exercising purchase options from CareTrust REIT, Inc.

(CareTrust) lease arrangements, our independent subsidiaries were already operating and managing these locations.

The remaining real estate acquisitions were leased back to our independent subsidiaries.

Subsequent to March 31, 2025, Standard Bearer added $24.8 million of real estate associated with two stand-alone skilled nursing operations, where one stand-alone skilled nursing facility was leased back to our independent subsidiaries and the remaining one real estate acquisition was leased to a third-party operator.

Our existing relationships with third-party operators within our industry have allowed us to expand our growing REIT structure to operators outside of our organization.

Common Stock Repurchase Program — On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025.

During the three months ended March 31, 2025 and subsequently, we purchased 157 shares of our common stock for $20.0 million.

Facility Information

The following table sets forth the location of our operated and owned facilities by type as well as the number of beds and units located at operated and owned facilities as of September 30, 2024:

TX CA AZ CO UT WA ID SC NE IA KS NV WI TN

Number of operated facilities

Skilled nursing operations

78 67 31 31 19 15 11 9 4 6 3 3 2 3 282

Senior living operations 1 — 1 5 2 1 — — 1 — — — — — 11

The following table sets forth the location of our facilities and the number of operational beds and units located at our skilled nursing, senior living and campus facilities as of March 31, 2025:

Facility Counts Bed / Unit Counts

Skilled Operations Senior Living Communities Campus Operations (1)

Total Skilled Operational Beds Senior Living Units Total Beds / Units

Texas 79 1 5 85 10,240 604 10,844

California 67 — 3 70 6,673 197 6,870

Arizona 33 1 6 40 5,009 891 5,900

Colorado 31 5 1 37 3,369 633 4,002

19 2 1 22 2,071 163 2,234

Number of owned and operated facilities

Skilled nursing properties

Washington 16 1 — 17 1,491 98 1,589

Idaho 11 — 1 12 993 21 1,014

Tennessee 11 — — 11 1,120 — 1,120

Kansas 3 — 8 11 828 251 1,079

South Carolina 9 — — 9 1,126 — 1,126

Nebraska 4 1 3 8 496 199 695

Iowa 6 — 2 8 530 31 561

Nevada 3 — — 3 483 — 483

Wisconsin 3 — — 3 182 — 182

Alaska 1 1 — 2 146 82 228

Alabama 1 — — 1 91 — 91

Oregon — — 1 1 98 50 148

297 12 31 340 34,946 3,220 38,166

Senior living communities 1 — — 3 — — — — 1 — — — — — 5

(1) Campuses represent facilities that offer both skilled nursing and senior living services.

The following table provides summary information regarding the location of our owned and operated real estate properties as of March 31, 2025:

Facility Counts Bed / Unit Counts

Skilled Operations Senior Living Communities Campus Operations (1)

Total Skilled Operational Beds Senior Living Units Total Beds / Units

Texas 22 1 4 27 3,075 574 3,649

Arizona 12 — 5 17 2,044 494 2,538

California 10 — 1 11 1,190 42 1,232

Colorado 6 3 — 9 592 369 961

8 — — 8 764 — 764

Number of operated beds/units

Operational skilled nursing beds 10,074 6,671 4,639 3,379 2,071 1,378 1,002 1,126 413 526 828 483 100 349 33,039

Senior living units 604 197 891 633 163 98 21 — 183 31 251 — — — 3,072

Number of owned and operated beds/units

Owned skilled nursing beds

Kansas 1 — 5 6 440 167 607

South Carolina 5 — — 5 544 — 544

Washington 5 — — 5 504 — 504

Idaho 5 — — 5 470 — 470

Nebraska 1 1 1 3 171 160 331

Tennessee 3 — — 3 300 — 300

Wisconsin 3 — — 3 182 — 182

Alaska 1 1 — 2 146 82 228

Iowa 2 — — 2 162 — 162

Oregon — — 1 1 98 50 148

84 6 17 107 10,682 1,938 12,620

Owned Senior living units 538 42 494 369 — — — — 144 — 167 — — — 1,754

Real estate properties leased to third party (2)

Skilled nursing and senior living properties 6 2 1 — — 1 — — — — — 1 19 — 30

(1) Campuses represent facilities that offer both skilled nursing and senior living services.

(2) Excludes three subleases to third parties in California.

The following table provides summary information regarding the location of our owned real estate properties as of March 31, 2025:

Owned and Operated by Ensign (1)

Owned and Leased to Third-Party Operators (1)

Service Center Total Properties (1)

Wisconsin 3 22 — 25

Arizona 17 1 — 18

Colorado 9 — — 9

Washington 5 1 — 6

Kansas 6 — — 6

Idaho 5 — — 5

South Carolina 5 — — 5

Nebraska 3 — — 3

Tennessee 3 — — 3

Alaska 2 — — 2

Oregon 1 — — 1

Nevada — 1 — 1

(1) One senior living operation in Texas, which is owned by an independent subsidiary of Ensign and leased to a third-party operator, is located on the same real estate property as a skilled nursing facility that we own and operate.

In this situation, the senior living operation is included in the total under "Owned and Leased to Third Party Operators" and the skilled nursing operation is included in the total under "Owned and Operated by Ensign", however, the amount reflected under "Total Properties" only recognizes the operation as a single property.

Key Performance Indicators

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• Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.

These rates exclude additional state relief funding, which includes the American Rescue Plan Act (ARPA), the Family First Coronavirus Response Act (FFCRA) and other state specific relief programs.

• Occupancy percentage (operational beds) — The total number of patients occupying a bed in a skilled nursing facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.

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The following table summarizes our overall skilled mix from our skilled nursing services for the periods indicated as a percentage of our total skilled nursing routine revenue and as a percentage of total skilled nursing patient days:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Days 31.4 % 31.0 %

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The following table summarizes our overall occupancy statistics for skilled nursing operations for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Occupancy for skilled services:

2024 2023 2024 2023

Operational beds at end of period 34,946 31,169

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The following tables set forth our total service revenue by payor source generated by our skilled services segment and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):

Three Months Ended September 30,

Skilled Services All Other (4)

Total Service Revenue

2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

$ 416,190 $ 367,079 $ 9,452 $ 7,759 $ 425,642 $ 374,838

Medicare 263,594 237,531 — — 263,594 237,531

Medicaid-skilled 65,907 62,452 — — 65,907 62,452

Subtotal $ 745,691 $ 667,062 $ 9,452 $ 7,759 $ 755,143 $ 674,821

Managed care 202,528 170,747 — — 202,528 170,747

Private and other (3)

84,894 65,158 33,527 24,598 118,421 89,756

TOTAL SERVICE REVENUE $ 1,033,113 $ 902,967 $ 42,979 $ 32,357 $ 1,076,092 $ 935,324

Three Months Ended September 30,

Skilled Services All Other (4)

Total Service Revenue

2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

40.3 % 40.7 % 22.0 % 24.0 % 39.6 % 40.1 %

Medicare 25.5 26.3 — — 24.5 25.4

Medicaid-skilled 6.4 6.9 — — 6.1 6.6

Subtotal 72.2 % 73.9 % 22.0 % 24.0 % 70.2 % 72.1 %

Managed care 19.6 18.9 — — 18.8 18.3

Private and other (3)

8.2 7.2 78.0 76.0 11.0 9.6

TOTAL SERVICE REVENUE 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the three months ended September 30, 2023.

(2) Private and other in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

(3) All Other incorporates intercompany eliminations.

Nine Months Ended September 30,

Three Months Ended March 31,

Skilled Services All Other (3)

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2025 2024 2025 2024 2025 2024

Medicaid (1)(2)

$ 443,411 $ 382,118 $ 10,429 $ 8,045 $ 453,840 $ 390,163

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TOTAL SERVICE REVENUE $ 1,123,554 $ 969,602 $ 43,486 $ 34,883 $ 1,167,040 $ 1,004,485

Nine Months Ended September 30,

Three Months Ended March 31,

Skilled Services All Other (3)

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2025 2024 2025 2024 2025 2024

Medicaid (1)(2)

39.5 % 39.4 % 24.0 % 23.1 % 38.9 % 38.8 %

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(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the nine months ended September 30, 2023 .

(2) Private and other in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

(3) All Other incorporates intercompany eliminations.

Skilled Services — Within our skilled nursing operations, we generate revenue from Medicaid, private pay, managed care and Medicare payors.

We believe that our skilled mix, which we define as the number of days Medicare, managed care and other skilled patients are receiving services at our skilled nursing operations divided by the total number of days patients are receiving services at our skilled nursing operations, from all payor sources (less days from senior living services) for any given period, is an important indicator of our success in attracting high-acuity patients because it represents the percentage of our patients who are reimbursed by Medicare, managed care and other skilled payors, for whom we receive higher reimbursement rates.

We participate in supplemental payment programs and quality improvement programs in various states that provide supplemental Medicaid payments for skilled nursing facilities that are licensed to non-state government-owned entities such as city and county hospital districts.

A number of our independent subsidiaries have entered into transactions with various hospital districts providing for the transfer of the licenses for those skilled nursing facilities to the hospital districts.

Each affected independent subsidiary agreement between the hospital district and our subsidiary is terminable by either party to fully restore the prior license status.

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

As of September 30, 2024, our real estate portfolio within Standard Bearer is comprised of 116 real estate properties.

Of these properties, 87 are leased to our independent subsidiaries and 30 are leased to facilities wholly-owned and managed by third-party operators.

Of those 30 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

During the three and nine months ended September 30, 2024, we generated rental revenues of $24.4 million and $70.0 million, respectively, of which $20.2 million and $57.4 million, respectively, was derived from our independent subsidiaries and therefore eliminated in consolidation.

Other — Within our senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid payors or through other state-specific programs.

Payment for these services varies and is based upon the service provided.

The payment is adjusted for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk.

Critical Accounting Estimates

Our Interim Financial Statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.

The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, cash flows, revenues and expenses, and related disclosure of contingent assets and liabilities.

See Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report for further discussion of critical accounting estimates.

There have been no material changes to our critical accounting policies with which the estimates are developed since December 31, 2023.

Industry Trends

The post-acute care industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population, increasing life expectancies and the trend toward shifting patient care to lower cost settings.

The industry has evolved in recent years, which we believe has led to a number of favorable improvements in the industry, as described below:

• Shift of Patient Care to Lower Cost Alternatives — The growth of the senior population in the U.S.

continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs.

In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as skilled nursing facilities, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals and other post-acute care settings.

As a result, skilled nursing facilities are generally serving a larger population of higher acuity patients than in the past.

• Significant Acquisition and Consolidation Opportunities — The skilled nursing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers.

Due to the increasing demands from hospitals and insurance carriers to implement sophisticated and expensive reporting systems, we believe this fragmentation provides us with significant acquisition and consolidation opportunities.

• Improving Supply and Demand Balance — The number of skilled nursing facilities has declined modestly over the past several years.

We expect that the supply and demand balance in the skilled nursing industry will continue to improve due to the shift of patient care to lower cost settings, an aging population and increasing life expectancies.

• Increased Demand Driven by Aging Populations — As seniors account for an increasing percentage of the total U.S.

population, we believe the demand for skilled nursing and senior living services will continue to increase.

According to the census projection released by the U.S.

Census Bureau in early 2020, between 2016 and 2030, the number of individuals over 65 years old is projected to be one of the fastest growing segments of the United States population, growing from 15% to 21%.

The Bureau expects this segment to increase nearly 50% to 73 million, as compared to the total U.S.

population which is projected to increase by 10% over that time period.

Furthermore, the generation currently retiring has accumulated less savings than prior generations, creating demand for more affordable senior housing and skilled nursing services.

As a high-quality provider in lower cost settings, we believe we are well-positioned to benefit from this trend.

• Value-based Care and Reimbursement Reform — In response to rising healthcare spending in the United States, commercial, government and other payors are generally shifting away from fee-for-service (FFS) payment models towards value-based models, including risk-based payment models that tie financial incentives to quality, efficiency and coordination of care.

We believe that patient-centered outcomes driven reimbursement models will continue to grow in prominence.

Many of our operations already receive value-based payments, and as valued-based payment systems continue to increase in prominence, it is our view that our strong clinical outcomes will be increasingly rewarded.

A significant goal of U.S.

federal health care reform is to transform the delivery of health care by changing reimbursement to reflect and support a focus on equity, payment for value and efficacious delivery of person-centered care.

Reimbursement models and demonstrations that increase accountability and provide financial incentives to encourage efficiency, affordability and high-quality care, have been developed and implemented by government and commercial third-party payers.

Special focus is placed on increasing the number of beneficiaries in care relationships with accountability for quality and total cost of care, improvements in care coordination, reducing inequities at the population level and supporting care innovation to close care gaps and increase access.

The most prominent value-based models designed to accomplish these aims include Accountable Care Models (e.g., MSSP ACOs, ACO REACH) and Disease-Specific & Episode-Based Models (e.g., BPCI Advanced, GUIDE Model, CJR).

These models, alongside State & Community, Statutory and Health Plan Models, are aimed at alignment across payers and care settings, leveraging effective clinical tools, outcomes-focused payment approaches and stakeholder-led policy development.

Reimbursement methodology reform includes Value-Based Purchasing (VBP), in which a portion of provider reimbursement is redistributed based on relative performance, or improvement on designated economic, clinical quality and patient satisfaction metrics.

These reimbursement methodologies and similar programs are likely to continue and expand, both in government and commercial health plans.

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

The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing services.

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.

GOVERNMENT REGULATION

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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 programs, 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.

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.

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 the 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 may 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.

We vigorously contest each such regulatory outcome when appropriate;

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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 (ALFs):

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.

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.

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

Biden-Harris Administration's Nursing Home Care Priorities — Prior to the change in Presidential Administration in 2025, 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.

These rules are still in effect and enforceable.

For example, the SNF PPS FY 2025 Final Rule granted 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, which began on 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 appointed 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:

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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.

As of November of 2024, all SNFs are required to comply with this rule’s requirements, which industry observers have noted have had adverse effects on some SNFs and their Medicare recertification.

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

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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.

No further action was taken on the Access Act during the 118th Congress and that congressional session ended without the Access Act being passed into law.

Comparable legislation has not yet been introduced in the 119th Congress, which began in January of 2025.

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.

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 fiscal year (FY) 2024 through FY 2025.

To qualify for the enhanced rate, a state must 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.

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.

No further action was taken on the HCBS Relief Act during the 118th Congress and that congressional session ended without the HCBS Relief Act being passed into law.

Comparable legislation has not yet been introduced in the 119th Congress.

The Improving Care and Access to Nurses Act (I CAN Act) was introduced to the Senate on February 13, 2025.

The I CAN Act expands the role of nurse practitioners (NPs) in SNFs and nursing homes by allowing them to certify, oversee, and supervise care under Medicare and Medicaid without requiring physician oversight, subject to state law.

If enacted it would grant NPs the authority to certify patient admissions, manage care plans, and provide supervision in SNFs and intermediate care facilities.

These proposed changes could potentially reduce reliance on physicians, streamline patient transitions from hospitals to long-term care, and increase access to care particularly in rural and underserved areas.

Under the direction of the Trump Administration, Congress is considering major cuts to federal spending on Medicaid.

One of the options under consideration is to limit the amount of federal Medicaid funding they receive by levying taxes on providers and thereby increasing their reimbursement rates.

Restricting these “provider taxes” would create financing gaps for states which could result in higher state taxes, reductions in Medicaid eligibility, lower provider payment rates, and fewer covered benefits.

State Legislation — Many states in which our independent subsidiaries operate have introduced or passed legislation that would create or change laws and regulations related to our business and industry.

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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.

While the existing requirement bill has not seen any traction, we anticipate a minimum spending bill could be proposed in the future.

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 3.0%, 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 2024 Skilled Nursing Facility Prospective Payment System (SNF PPS) — The SNF PPS FY 2024 Final Rule, which was effective October 1, 2023, updated the Medicare payment rates and modified 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, 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 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.

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 makes 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.

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.

This is a structural measure that has been collected and publicly reported on Care Compare, and the measure assesses the stability of the staffing within a SNF using nursing staff turnover.

The NST measure uses facility-reported, electronic data from CMS’ Payroll-Based Journal (PBJ) system to calculate annual turnover rates for nursing staff, including RNs, LPNs, and nurse assistants.

Facilities would begin reporting this measure in FY 2024, with payment effects beginning in FY 2026.

The NST measure looks at six consecutive quarters of data.

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.

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.

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 FY 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.

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

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

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’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 weeks (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 intended to block the Staffing Rule from taking effect.

The Senate version of the Protecting Rural Seniors’ Access to Care Act garnered broad bipartisan support and is endorsed by over 90 organizations.

Since being introduced and referred to the Senate Finance Committee in December of 2023, the Senate has not taken action on this bill.

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.

In addition, the Staffing Rule finalized the hardship exemption for the HPRD requirements and also enhanced transparency for the use of Medicaid payments for facility services, referenced as Medicaid Institutional Payment Transparency Reporting provisions (MIPTR).

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

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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 increase legal challenges under the new doctrine.

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

On January 16, 2025, the United States District Court for the Northern District of Iowa rejected a motion for preliminary injunction filed by the plaintiff states and LeadingAge affiliates.

Litigation over the Staffing Rule remains ongoing and no final decision has yet been entered.

On April 7, 2025, the U.S.

District Court for the Northern District of Texas issued a ruling to vacate the Biden Administration’s federal staffing mandate for nursing homes that was to be phased in starting in 2026.

The court found that CMS lacks authority to issue a regulation that replaces Congress’s preferred minimum staffing hours with its own.

While the Trump Administration can appeal the ruling, as of April 28, 2025, there has been no indication of an intent to do so.

Tariffs — On April 2, 2025, President Trump signed the executive order to impose a variety of tariffs to the global trading partners of the United States.

These tariffs have the potential to increase costs on goods that are imported into the United States.

As it pertains to our independent subsidiaries, tariffs on medical supplies may lead to higher costs to providers and the federal government through the Medicare and Medicaid programs and may impact the formulas used to calculate federal reimbursements.

Medicare presently accounts for approximately 25.6% of our skilled nursing services revenue year-to-date, being our second-largest revenue payor.

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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.

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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 proposes that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF VBP Program.

Additionally, CMS requires that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF Value-Based Purchasing (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.

On July 29, 2022, CMS issued a final rule for fiscal year 2023 that increased the Medicare payment rates to aggregate net market basket by 2.7%.

The increase results from the 5.1% update to the market basket, which is based on a 3.9% current year market basket increase plus a 1.5% market basket error adjustment, less a 0.3% productivity adjustment and a negative 2.3% adjustment as a result of the recalibrated parity adjustment.

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.

For fiscal year 2026, CMS proposes updating SNF PPS rate by 2.8%, which will start on October 1, 2025 and will run through September 30, 2026.

The net increase is based on a 3.0% market basket adjustment to account for inflation, plus a 0.6% forecast error adjustment and a negative 0.8% 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.

In addition, CMS is proposing updates to the SNF VBP and SNF Quality Reporting Program (QRP) to simplify methodology and remove certain patient assessment data elements.

Final Rule Fiscal Year 2025 SNF PPS - CMS' final rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 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 was 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.

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.

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% adjustment in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration.

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

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.

This is a structural measure that has been collected and publicly reported on Care Compare, and the measure assesses the stability of the staffing within a SNF using nursing staff turnover.

The NST measure uses facility-reported, electronic data from CMS’ Payroll-Based Journal (PBJ) system to calculate annual turnover rates for nursing staff, including RNs, LPNs, and nurse assistants.

Facilities began reporting this measure in FY 2024, with payment effects beginning in FY 2026.

The NST measure looks at six consecutive quarters of data.

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

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.

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.

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 CAA 2023, a further 4% 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.

Under the Consolidated Appropriations Act of 2023 (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.

Instead, the CAA 2023 deferred any further Medicare sequestration under PAYGO until fiscal year 2025.

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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, and referred to the Subcommittee on Health on December 17, 2024, with no further action taken on the bill, which did not pass into law before the end of the 118th Congress in December of 2024.

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.

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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.

CMS previewed these proposed changes in the SNF PPS FY 2024 Final Rule, with a focus on how CMS will now calculate performance scores and collect data on the new quality measures related to nursing staff turnover, infection prevention and control, and nursing care hours.

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

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.

On July 31, 2024, CMS published the calendar year (CY) 2025 Physician Fee Schedule (PFS) Proposed Rule (2025 PFS Proposed Rule), which contained several reductions from the current CY 2024 Physician Fee Schedule Final Rule (2024 PFS Final Rule).

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.

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 CY 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.

Under the 2025 PFS Proposed Rule, the 2.93% increase to the CY 2024 PFS Conversion Factor (CF) will expire 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 Proposed Rule proposes a reimbursement reduction of 2.80%, with a proposed CF of $32.35, which is a reduction from the CY 2024 CF of $33.29.

The 2025 PFS Proposed Rule proposes 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 proposed to remain at $3,000 through CY 2027.

The billing period starts on January 1, 2025 and will run through December 31, 2025.

The 2025 PFS Proposed Rule also suggests a regulatory change that would allow 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 proposed rule seeks to except 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 proposed flexibility applies only to the initial certification.

Finally, the 2025 PFS Proposed Rule proposes the discontinuation of COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025.

Under the proposed rule, restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect.

CMS’s proposed inclusion of telehealth services in the 2025 PFS Proposed Rule extended to audio-only, two-way, real-time audio communication technology for services furnished in a patient’s home if the distant site provider is technically capable of using an interactive telecommunications system, but the patient is not capable of, or does not consent to, the use of video technology.

CMS also proposed the addition of caregiving training services to the reduced Medicare-eligible telehealth services list on a provisional basis.

The American Relief Act, 2025 extended some but not all telehealth flexibilities for an additional 3 months through March 31, 2025.

On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 that Congress passed on March 14, 2025, which extended these pandemic-era telehealth waivers for Medicare beneficiaries through September 30, 2025.

Under the Calendar Year (CY) 2025 Physician Fee Schedule (PFS) Final Rule (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, which would have taken effect without the above described acts of Congress.

Under this final rule, absent the subsequent Congressional acts, 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 replaces the 1.25% update provided by the Consolidated Appropriations Act, 2023.

The 2024 PFS Final Rule was finalized in November 2023, which changes Medicare payments under the 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 CY 2023 PFS conversion factor of $33.89.

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

The billing period started on January 1, 2024 and runs 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.

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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.

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

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 adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for 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.

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.

The final rule, which takes 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 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.

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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.

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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, included, but not limited to 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.

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

CMS distributed these updates to surveyors and state agencies to enhance responses to resident complaints and reported incidents.

This guidance focuses on:

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

(1) resident abuse and neglect;

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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’ focused infection control survey item, which CMS had removed in favor of standard infection control survey measures.

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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CMS can recover overpayments from health care providers up to six years following the year in which payment was made.

In 2021, the OIG released the result of an audit finding that Medicare overpaid millions of dollars for chronic care management (CCM) services.

The OIG's 2021 report found that in calendar years 2017 and 2018, Medicare overpaid millions of dollars in CCM claims.

In 2022, the OIG released an audit revealing that CMS had not collected $226 million, or 45%, of identified overpayments within that period, potentially affecting SNFs.

Over the years, the OIG have released the result of audit findings of Medicare overpayments, potentially affecting SNFs.

These investigatory actions by OIG demonstrate its increased scrutiny into post-hospital SNF care provided to beneficiaries and may encourage additional oversight or stricter compliance standards.

In 2023, representatives of the DOJ speaking at certain industry events, including the American Health Law Association’s Fraud and Compliance Forum, have indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic.

The DOJ has indicated that its healthcare enforcement trends would emphasize opioid prescribing, Medicare Advantage and managed care plan fraud, and COVID-19 related fraud, including under various relief programs available during and in conjunction with the pandemic.

In November of 2023, OIG added to its work plan an audit of nursing homes' nurse staffing hours reported in CMS's payroll-based journal, for which OIG expects to issue a report in FY 2025.

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

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.

In 2024, the OIG added to its work plan a series of studies that include:

(a) the use of the National Background Check Program (NBCP) in conducting background checks of prospective long-term care provider employees 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;

(b) the use of 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;

and (3) the assessment of 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.

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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 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.

Additionally, the Nursing Home Compare website publishes 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.

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.

In January of 2025, CMS unfroze four of its quality measures that it previously froze with its April 2024 refresh.

CMS updated these measures to reflect recent changes in the minimum data set collected from SNFs.

First, the measure of percentage of SNF residents who are at or above an expected ability to care for themselves and move around at discharge replaced the measure of percentage of residents who made improvements in function during a short stay.

Second, the following measures have been respecified:

(1) percentage of residents whose need for help with activities of daily living has increased during a long stay, and (2) percentage of residents whose ability to walk independently worsened during a long stay.

Finally, the measure of percentage of all residents with pressure ulcers (regardless of stay duration) will replace the measure of percentage of high-risk residents with pressure ulcers during a long stay.

Additionally, CMS recalculated the scoring cut points for these four measures to obtain an even distribution of scores.

Additionally, the quality measure rating cut points were also adjusted to maintain their same overall distribution of ratings across measured facilities.

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.

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(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.

and (4) percentage of high-risk residents with pressure ulcers (long stay), which would have been unfrozen and modified as of January 2025.

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:

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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.

Based on the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide update 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.

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.

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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.

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.

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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 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.

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.

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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.

The obligation to comply with the ADA and other similar laws is an ongoing obligation, and the independent subsidiaries continue to assess their facilities relative to ADA compliance and make appropriate modifications as needed.

On January 25, 2024, the Office for Civil Rights (OCR) for HHS issued guidance to hospitals and long-term care facilities, emphasizing their obligation under CMS regulations to ensure non-discriminatory visitation policies, especially during public health emergencies.

The Office for Civil Rights (OCR) for HHS issued guidance to hospitals and long-term care facilities, emphasizing their obligation under CMS regulations to ensure non-discriminatory visitation policies, especially during public health emergencies.

This guidance, part of the U.S.

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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 rulemaking completed under Section 1557 of the ACA.

Real Estate Investment Trust (REIT) Qualification

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REGULATIONS SPECIFIC TO SENIOR LIVING COMMUNITIES AND ANCILLARY SERVICES

As previously mentioned, senior living services revenue (approximately 2.1% 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 2.0% 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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RESULTS OF OPERATIONS

Since the first quarter of 2024, Same Facilities skilled nursing occupancy has surpassed pre-pandemic occupancy.

Our focus on rebuilding census resulted in Same Facilities occupancy of 81.7% during the three months ended September 30, 2024, an increase of 2.2% compared to the same period in 2023, demonstrating our ability to gain additional market share even at our more mature operations.

Our total revenue for the three months ended March 31, 2025 increased $162.9 million, or 16.1%, compared to the three months ended March 31, 2024, while our diluted GAAP earnings per share grew by 15.1%, from $1.19 to $1.37, compared to the three months ended March 31, 2024.

Our Same Facilities occupancy of 82.6% during the three months ended March 31, 2025, an increase of 2.9% compared to the same period in 2024, demonstrates our ability to gain additional market share even at our more mature operations.

Further, our Transitioning Facilities occupancy increased by 5.0% to 83.5% compared to the same period in 2024, highlighting our organic growth ability that results from transforming underperforming operations that we have acquired.

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.

Throughout most of our history, our business has been 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, we typically experience stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters.

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As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.

Our total revenue for the three months ended September 30, 2024 increased $141.0 million, or 15.0%, compared to the three months ended September 30, 2023, while our diluted GAAP earnings per share grew by 20.7%, from $1.11 to $1.34, compared to the three months ended September 30, 2023.

Throughout the quarter, we continued to make progress on targeted initiatives related to increasing occupancy and the level of acuity and complexity of the patients we serve in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles.

During the nine months ended September 30, 2024, we added 26 new operations.

During the three months ended March 31, 2025, we added 13 new operations.

We consistently experience healthy growth in both revenue and overall results as we continue to work diligently with existing and recently acquired operations so that each can reach its full clinical and financial potential.

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The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Service revenue 99.5 % 99.4 %

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Interest income 0.6 0.6

Other income (expense)

0.4 (0.1) 0.2 0.1

OTHER INCOME, NET 0.4 % 0.7 %

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Net income attributable to The Ensign Group, Inc.

7.3 % 6.8 % 7.0 % 6.8 %

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

SEGMENT INCOME (1)

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Standard Bearer (2)

7,274 7,165 21,892 21,517

NON-GAAP FINANCIAL MEASURES:

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Adjusted EBT $ 118,730 $ 100,678

114,442 97,151 326,410 287,613

EBITDA 125,846 104,634

Adjusted EBITDA 137,385 115,675

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• stock-based compensation expense;

• litigation;

• acquisition related costs;

• costs incurred related to system implementations;

• loss on long-lived assets and gain on business interruption recoveries and

• depreciation and amortization of patient base intangible assets.

• litigation;

• impairment on long-lived assets;

• amortization of patient base intangible assets.

We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

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We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.

Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for depreciation and amortization of patient base intangible assets.

Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for amortization of patient base intangible assets.

Funds from Operations (FFO)

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The table below reconciles income before provision for income taxes to Adjusted EBT for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Consolidated statements of income data:

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Stock-based compensation expense

9,183 7,237 26,406 22,691

Litigation (a)

(555) 2,783 (1,425) 1,965

Loss on long-lived assets and gain on business interruption recoveries

486 (259) 2,335 (1,009)

Acquisition related costs (b)

239 150 518 722

Litigation (1)

Impairment of long-lived assets

Acquisition related costs (2)

Costs incurred related to system implementations

89 — 2,522 875

Depreciation and amortization - patient base (c)

236 135 449 182

Depreciation and amortization - patient base (3)

$ 118,730 $ 100,678

(a) Litigation relates to specific proceedings and adjustments arising outside of the ordinary course of business.

(b) Costs incurred to acquire operations that are not capitalizable.

(c) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.

(1) Represents specific proceedings arising outside of the ordinary course of business.

(2) Represents costs incurred to acquire operations that are not capitalizable.

(3) Represents amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.

The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Consolidated statements of income data:

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Net income attributable to noncontrolling interests

123 105 422 319

Interest income

7,607 5,259 21,151 12,785

Provision for income taxes

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Stock-based compensation expense 10,724 8,238

Litigation (a)

(555) 2,783 (1,425) 1,965

Loss on long-lived assets and gain on business interruption recoveries

486 (259) 2,335 (1,009)

Acquisition related costs (b)

239 150 518 722

Litigation (1)

Impairment of long-lived assets

Acquisition related costs (2)

Costs incurred related to system implementations

89 — 2,522 875

ADJUSTED EBITDA

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ADJUSTED EBITDAR

$ 178,676 $ 516,706

(a) Litigation relates to specific proceedings and adjustments arising outside of the ordinary course of business.

(b) Costs incurred to acquire operations that are not capitalizable.

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

(1) Litigation relates to specific proceedings arising outside of the ordinary course of business.

(2) Costs incurred to acquire operations that are not capitalizable.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Three Months Ended September 30, 2024

Three Months Ended March 31, 2025

Skilled services Standard Bearer All Other Eliminations Consolidated

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Segment income (loss) 143,931 8,583 (45,934) — 106,580

Loss on long-lived assets — — — — (486)

Income before provision for income taxes $ 106,580

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Skilled services Standard Bearer All Other Eliminations Consolidated

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Segment income (loss) 126,809 7,258 (42,620) — 91,447

Impairment of long-lived assets

Income before provision for income taxes $ 89,598

Our total revenue increased by $141.0 million, or 15.0%, compared to the three months ended September 30, 2023.

Our total revenue increased by $162.9 million, or 16.1%, compared to the three months ended March 31, 2024.

The increase in revenue was primarily driven by an increase in occupancy of 2.9% and 5.0% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

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Skilled Services

The following tables present the skilled services revenue and key performance metrics by category during the three months ended September 30, 2024 and 2023:

Three Months Ended September 30,

The following tables present the skilled services revenue and key performance metrics by category during the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

2025 2024 Change % Change

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Skilled mix by nursing revenue 50.2 % 49.9 % 0.3 % 0.6 %

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 Change % Change

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Skilled mix by nursing revenue 52.1 % 50.2 % 1.9 % 3.8 %

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 Change % Change

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Skilled mix by nursing revenue 51.5 % 49.9 % 1.6 % 3.2 %

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 Change % Change

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Skilled mix by nursing revenue 32.6 % 28.7 % NM NM

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 Change % Change

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(5) Facility Closed results represent one closed operation during 2024 due to the transitioning of an intermediate care facility program to group home setting, which is included in All Other category.

The operation revenue was excluded from Same Facilities results for the three months ended September 30, 2023 for comparison purposes.

Skilled services revenue increased by $130.1 million, or 14.4%, compared to the three months ended September 30, 2023.

The operation revenue was excluded from Same Facilities results for the three months ended March 31, 2024 for comparison purposes.

Skilled services revenue increased by $154.0 million, or 15.9%, compared to the three months ended March 31, 2024.

The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $67.5 million, or 15.2%, Medicare revenue of $22.2 million, or 8.3%, managed care revenue of $39.1 million, or 20.8% and private revenue of $25.2 million, or 35.7%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.0% to 80.9%, during the three months ended September 30, 2024 compared to the same period in 2023.

In addition, in the third quarter of 2024, we experienced an increase in skilled days, driven by steady growth in our managed care, Medicare and our Medicaid-skilled patients.

Revenue in our Same Facilities increased by $51.4 million, or 7.3%, compared to the same period in 2023, due to increased occupancy, skilled days and revenue per patient day.

Our Same Facilities occupancy and skilled mix by nursing days continue to surpass pre-pandemic levels.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.1%, mainly due to an increase in managed care days of 9.1% .

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment continues to accounted for a larger portion of the overall Medicare eligible population.

In addition, Medicaid revenue increased by $18.3 million or 5.5%, mainly from the increase in Medicaid days and revenue per patient day.

Revenue generated by our Transitioning Facilities increased by $9.0 million, or 7.5%, primarily due to increases in occupancy and revenue per patient day.

Our Managed Care revenue increased by 17.2%, Medicare revenue increased by 15.7% and private and other revenue increased by 10.0%, demonstrating our ability to focus on increasing occupancy across payer types.

Included in the three months ended September 30, 2023 is the revenue related to a facility that was not operating at full capacity starting in the first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by $70.8 million compared to the three months ended September 30, 2023 .

The increase was primarily due to 28 operational expansions between October 1, 2023 and September 30, 2024 across eight states.

Our consolidated occupancy increased by 2.2% to 81.9%, during the three months ended March 31, 2025 compared to the same period in 2024, as a result of an increase in skilled days, driven by steady growth in our managed care, Medicare and long-term care Medicaid patients.

Revenue in our Same Facilities increased by $44.0 million, or 5.6%, compared to the same period in 2024, due to increased occupancy from strong skilled days and revenue per patient day.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.4%, mainly due to an increase in managed care days of 8.9% and revenue per patient day of 3.8%.

Our Medicare revenue increased by 2.4% mainly due to an increase in Medicare days of 3.0%.

In addition, Medicaid revenue increased by $8.3 million or 2.3%, mainly from the increase in revenue per patient day.

Revenue generated by our Transitioning Facilities increased by $14.8 million, or 8.8%, primarily due to improved occupancy growth, increases in skilled mix days and revenue per patient day.

The increases in revenue were derived from increasing in Managed Care revenue of 21.1%, Medicaid revenue of 8.5% and private revenue of 19.8%.

These increases demonstrate our ability to focus on increasing occupancy across payer types.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $95.7 million compared to the three months ended March 31, 2024 .

The increase was primarily due to 38 operational expansions between April 1, 2024 and March 31, 2025 across 13 states.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth.

Included in our metrics for Recently Acquired Facilities are 17 facilities we acquired in California in 2023 that were more mature and accordingly, had higher occupancy rates, higher skilled mix days and higher skilled mix revenue than our typical acquisitions.

In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of facilities and operations that we acquire.

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Three Months Ended September 30,

Three Months Ended March 31,

Same Facility Transitioning Acquisitions Total

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$ 419.26 $ 399.73 $ 417.77 $ 395.16 $ 369.69 $ 335.11 $ 413.94 $ 398.06

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 and state relief funding during the three months ended September 30, 2023.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 4.5% and 3.0%, respectively, compared to the three months ended September 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023, a shift to higher acuity patients and changes in patient payer-mix.

For example, we continue to see a shift from Medicare to Medicare Advantage in states that have higher acuity patients, such as Arizona.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.0% and 4.3%, respectively, compared to the three months ended March 31, 2024.

The increase is attributable to the 4.2% net market basket increase that became effective in October 2024, and a shift toward higher acuity patients.

Our average Medicaid rates increased 3.6% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states and changes in Medicaid mix.

For example, we continue to have an increase in Medicaid days in states with higher rates, such as California.

For example, we continue to have increases in Medicaid days in states with higher rates, such as California.

Payor Sources as a Percentage of Skilled Nursing Services.

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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Three Months Ended September 30,

Three Months Ended March 31,

Same Facility Transitioning Acquisitions Total

9 unchanged sentences

100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Three Months Ended September 30,

Three Months Ended March 31,

Same Facility Transitioning Acquisitions Total

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The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

2 unchanged sentences

Cost of services related to our skilled services segment increased by $123.9 million, or 16.1% from the same period in 2024.

Cost of services as a percentage of revenue increased to 79.8% from 79.0% due to increased labor cost as a result of new acquisitions with higher expenses in the turnaround stage, increased healthcare costs and general and professional liability reserves and increased expense related to the deferred compensation investment program of $2.3 million compared to the three months ended September 30, 2023.

Cost of services as a percentage of revenue increased to 79.4% from 79.2% due to increased costs from our new acquisitions which are in the turnaround stage, increased insurance expenses, offset by decreased expense related to the deferred compensation investment program.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

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$ 17,059 $ 14,087 $ 2,972 21.1 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $3.4 million, or 16.4%, to $24.4 million, compared to the three months ended September 30, 2023.

The increase in revenue is primarily attributable to 10 real estate purchases, as well as annual rent increases since the three months ended September 30, 2023.

FFO — Our FFO increased by $1.2 million, or 8.6%, to $14.8 million, compared to the three months ended September 30, 2023.

The increase in rental revenue of $3.4 million was offset by increases in interest expense of $2.1 million associated with the intercompany agreements between Standard Bearer and us as we continue to grow our real estate portfolio.

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $6.2 million, or 27.9%, to $28.4 million, compared to the three months ended March 31, 2024.

The increase in revenue is primarily attributable to 27 real estate purchases, as well as annual rent increases since the three months ended March 31, 2024.

FFO — Our FFO increased by $3.0 million, or 21.1%, to $17.1 million, compared to the three months ended March 31, 2024.

The increase in rental revenue of $6.2 million was partially offset by increases in interest expense of $2.8 million associated with the agreements between Standard Bearer and us as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $12.0 million, or 30.7%, to $51.1 million, compared to the three months ended September 30, 2023.

Our other revenue increased by $9.9 million, or 23.1%, to $52.4 million, compared to the three months ended March 31, 2024.

Other revenue includes senior living revenue of $24.0 million, revenue from other ancillary services of $25.4 million and rental income of $3.0 million.

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This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization expense as a percentage of revenue remained consistent at 1.9%.

Other income, net — Other income, net as a percentage of revenue increased by 0.7%.

Depreciation and amortization expense as a percentage of revenue increased 0.2%, to 2.1%.

Other income, net — Other income, net as a percentage of revenue decreased by 0.3%.

Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net increased by $7.1 million due to the increase in interest income from our investments and gains in our deferred compensation plan which incurs gains or losses depending on market performance.

During the three months ended September 30, 2024 and 2023, the deferred compensation plan had a gain of $3.2 million and a loss of $1.4 million, respectively.

We also recorded an offsetting expense and reduction in expense allocated between cost of services and general and administrative expenses.

Provision for income taxes — Our effective tax rate was 20.4% for the three months ended September 30, 2024, compared to 22.0% for the same period in 2023.

Other income, net decreased by $2.2 million due to losses in our deferred compensation plan which incurs gains or losses depending on market performance.

During the three months ended March 31, 2025 and 2024, the deferred compensation plan had a loss of $0.3 million and a gain of $2.4 million, respectively.

We also recorded a reduction in expense and an offsetting expense allocated between cost of services and general and administrative expenses for the respective periods.

Provision for income taxes — Our effective tax rate was 24.6% for the three months ended March 31, 2025, compared to 23.0% for the same period in 2024.

The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation.

See Note 13, Income Taxes , in the Notes to the Interim Financial Statements for further discussion.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Nine Months Ended September 30, 2024

Skilled Services Standard Bearer All Other Eliminations Consolidated

Total revenue $ 2,994,000 $ 69,984 $ 141,055 $ (76,806) $ 3,128,233

Total expenses, including other income, net

2,616,517 48,092 257,759 (76,806) 2,845,562

Segment income (loss) 377,483 21,892 (116,704) — 282,671

Loss on long-lived assets

Income before provision for income taxes $ 280,336

Nine Months Ended September 30, 2023

Skilled Services Standard Bearer All Other Eliminations Consolidated

Total revenue $ 2,638,090 $ 60,611 $ 114,574 $ (64,298) $ 2,748,977

Total expenses, including other income, net

2,289,921 39,094 242,680 (64,298) 2,507,397

Segment income (loss) 348,169 21,517 (128,106) — 241,580

Loss on insurance recoveries from real estate

Income before provision for income taxes $ 241,480

Our total revenue increased by $379.3 million, or 13.8%, compared to the nine months ended September 30, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.2% and 2.9% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

Additionally, our skilled services in Recently Acquired Facilities increased total revenue by $185.6 million, when compared to the same period in 2023.

Skilled Services Segment

The following tables present the skilled services revenue and key performance metrics by category during the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

2024 2023 Change % Change

TOTAL FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 2,994,000 2,638,090 $ 355,910 13.5 %

Number of facilities at period end 282 258 24 9.3 %

Number of campuses at period end (1)

29 26 3 11.5 %

Actual patient days 6,962,308 6,363,107 599,201 9.4 %

Occupancy percentage — Operational beds 80.4 % 78.3 % 2.1 % 2.7 %

Skilled mix by nursing days 30.2 % 30.7 % (0.5) % (1.6) %

Skilled mix by nursing revenue 48.8 % 50.6 % (1.8) % (3.6) %

Nine Months Ended September 30,

2024 2023 Change % Change

SAME FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 2,244,572 $ 2,096,752 $ 147,820 7.0 %

Number of facilities at period end 193 193 — — %

Number of campuses at period end (1)

Actual patient days 5,157,784 5,000,020 157,764 3.2 %

Occupancy percentage — Operational beds 81.2 % 79.0 % 2.2 % 2.8 %

Skilled mix by nursing days 31.8 % 32.1 % (0.3) % (0.9) %

Skilled mix by nursing revenue 50.2 % 51.6 % (1.4) % (2.7) %

Nine Months Ended September 30,

2024 2023 Change % Change

TRANSITIONING FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 374,989 $ 350,048 $ 24,941 7.1 %

Number of facilities at period end 40 40 — — %

Number of campuses at period end (1)

Actual patient days 995,438 969,585 25,853 2.7 %

Occupancy percentage — Operational beds 75.5 % 72.6 % 2.9 % 4.0 %

Skilled mix by nursing days 21.7 % 20.9 % 0.8 % 3.8 %

Skilled mix by nursing revenue 38.4 % 38.7 % (0.3) % (0.8) %

Nine Months Ended September 30,

2024 2023 Change % Change

RECENTLY ACQUIRED FACILITY RESULTS:

(Dollars in thousands)

Skilled services revenue $ 373,865 $ 188,216 $ 185,649 NM

Number of facilities at period end 49 24 25 NM

Number of campuses at period end (1)

Actual patient days 807,004 379,708 427,296 NM

Occupancy percentage — Operational beds 82.0 % 85.2 % NM NM

Skilled mix by nursing days 30.3 % 38.3 % NM NM

Skilled mix by nursing revenue 51.0 % 61.2 % NM NM

Nine Months Ended September 30,

2024 2023 Change % Change

FACILITY CLOSED RESULTS:

(Dollars in thousands)

Skilled services revenue $ 574 $ 3,074 $ (2,500) NM

Actual patient days 2,082 13,794 (11,712) NM

Occupancy percentage — Operational beds 52.6 % 90.7 % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services.

Revenue and expenses related to skilled nursing and senior living services have been allocated and recorded in the respective operating segment.

(2) Same Facility results represent all facilities purchased prior to January 1, 2021.

(3) Transitioning Facility results represent all facilities purchased from January 1, 2021 to December 31, 2022.

(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2023.

(5) Facility Closed results represent a closed operation during the nine months ended September 30, 2024 due to the transitioning of an intermediate care facility program to group home setting, which is included in All Other category.

The operation revenue was excluded from Same Facilities results for the nine months ended September 30, 2024 and 2023 for comparison purposes.

Skilled services revenue increased $355.9 million, or 13.5%, compared to the nine months ended September 30, 2023.

The increases in skilled services revenue were across all payer types including increases in Medicaid revenue of $158.3 million, or 12.8%, Medicare revenue of $54.7 million, or 7.5%, managed care revenue of $93.2 million, or 19.1%, and private revenue of $49.7 million, or 27.5%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.1% to 80.4% during the nine months ended September 30, 2024 compared to the same period in 2023, as a result of an increase in long-term care Medicaid patients and an increase in managed care skilled days.

Revenue in our Same Facilities increased $147.8 million, or 7.0%, compared to the same period in 2023, due to increased occupancy from long-term care patients and revenue per patient day and strong skilled days.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.6%, mainly due to increases in managed care days of 6.5% and revenue per patient day of 4.0%.

In addition, Medicaid revenue increased by $68.8 million or 7.0%, mainly from the increases in Medicaid days and revenue per patient day.

Our skilled mix days and revenue declined mainly due to our non-skilled patients days and revenue growth outpacing our skilled days and revenue.

Revenue generated by our Transitioning Facilities increased $24.9 million, or 7.1%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Managed Care and private revenue increased by 29.8% and 20.0%, respectively, demonstrating our ability to focus on increasing occupancy across payer types.

Included in the nine months ended September 30, 2023 is the revenue related to a facility that was not operating at full capacity starting in the first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $185.6 million compared to the nine months ended September 30, 2023.

The increases were primarily due to 28 operational expansions between October 1, 2023 and September 30, 2024 across eight states.

In addition, we acquired 17 operations in February 2023 that contributed to the year over year increase.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth.

The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

SKILLED NURSING AVERAGE DAILY REVENUE RATES

Medicare $ 748.98 $ 713.73 $ 698.74 $ 670.68 $ 846.75 $ 859.42 $ 759.90 $ 724.85

Managed care 550.36 529.39 524.39 518.66 585.08 613.87 550.73 532.41

Other skilled 623.28 592.05 516.66 494.20 610.19 480.91 613.37 576.60

Total skilled revenue 632.93 610.20 599.35 588.55 736.74 751.07 641.47 618.43

Medicaid 295.40 272.75 270.47 248.33 303.66 286.80 292.35 269.05

Private and other payors 280.71 262.31 249.88 237.21 331.04 347.78 281.39 261.99

Total skilled nursing revenue

$ 401.33 $ 380.01 $ 339.45 $ 318.15 $ 437.60 $ 469.52 $ 396.61 $ 375.58

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 4.9% and 4.2%, respectively, compared to the nine months ended September 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023 and a shift toward higher acuity patients.

Our average Medicaid rates increased 8.7% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states and changes in Medicaid mix.

For example, we continue to have an increase in Medicaid days in states with higher rates, such as California.

Payor Sources as a Percentage of Skilled Nursing Services — We use our skilled mix as a measure of the quality of reimbursements we receive at our independent skilled nursing facilities over various periods.

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

PERCENTAGE OF SKILLED NURSING REVENUE

Medicare 20.7 % 22.9 % 19.5 % 21.4 % 33.4 % 43.4 % 22.1 % 24.2 %

Managed care 20.4 20.1 14.2 12.1 13.1 13.4 18.7 18.5

Other skilled 9.1 8.6 4.7 5.2 4.5 4.4 8.0 7.9

Skilled mix 50.2 % 51.6 % 38.4 % 38.7 % 51.0 % 61.2 % 48.8 % 50.6 %

Private and other payors 7.2 7.5 8.7 8.8 7.8 6.2 7.5 7.6

Medicaid 42.6 40.9 52.9 52.5 41.2 32.6 43.7 41.8

TOTAL SKILLED NURSING 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

2024 2023 2024 2023 2024 2023 2024 2023

PERCENTAGE OF SKILLED NURSING DAYS

Medicare 11.1 % 12.2 % 9.5 % 10.2 % 17.2 % 23.7 % 11.6 % 12.6 %

Managed care 14.9 14.4 9.2 7.4 9.8 10.2 13.5 13.1

Other skilled 5.8 5.5 3.0 3.3 3.3 4.4 5.1 5.0

Skilled mix 31.8 % 32.1 % 21.7 % 20.9 % 30.3 % 38.3 % 30.2 % 30.7 %

Private and other payors 10.4 11.0 12.0 11.8 10.3 8.3 10.6 10.9

Medicaid 57.8 56.9 66.3 67.3 59.4 53.4 59.2 58.4

TOTAL SKILLED NURSING 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Cost of Services

The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Nine Months Ended September 30, Change

2024 2023 $ %

Cost of service $ 2,383,742 $ 2,081,107 $ 302,635 14.5 %

Revenue percentage 79.6 % 78.9 % 0.7 %

Cost of services related to our skilled services segment increased by $302.6 million, or 14.5%, from the same period in 2023.

Cost of services as a percentage of revenue increased to 79.6% from 78.9%, due to increased labor costs as a result of new acquisitions with higher expenses in the turnaround stage, increased health insurance, worker compensation and general and professional liability reserves and increased expense related to the deferred compensation investment program of $2.6 million compared to the nine months ended September 30, 2023.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Nine Months Ended September 30, Change

2024 2023 $ %

(Dollars in thousands)

Rental revenue generated from third-party tenants $ 12,588 $ 11,576 $ 1,012 8.7 %

Rental revenue generated from Ensign's independent subsidiaries

57,396 49,035 8,361 17.1

TOTAL RENTAL REVENUE $ 69,984 $ 60,611 $ 9,373 15.5 %

Segment income 21,892 21,517 375 1.7

Depreciation and amortization 21,479 18,528 2,951 15.9

FFO $ 43,371 $ 40,045 $ 3,326 8.3 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $9.4 million, or 15.5%, to $70.0 million, compared to the nine months ended September 30, 2023.

The increase in revenue is primarily attributable to 10 real estate purchases as well as annual rent increases since the nine months ended September 30, 2023.

FFO — Our FFO increased by $3.3 million, or 8.3%, to $43.4 million, compared to the nine months ended September 30, 2023.

The increase in rental revenue of $9.4 million is offset by increases in interest expense of $5.7 million associated with the intercompany debt arrangements between Standard Bearer and us, as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $26.5 million, or 23.1%, to $141.1 million, compared to the nine months ended September 30, 2023.

Other revenue for the nine months ended September 30, 2024 includes senior living revenue of $65.9 million, revenue from other ancillary services of $66.3 million and rental income of $8.9 million.

The increase in other revenue is primarily attributable to our other ancillary services.

Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.2% to 5.1%, as our operational expansions included a higher mix of real estate purchases.

General and administrative expense — General and administrative expense increased by $13.1 million or 8.4%, to $169.5 million.

This increase was primarily driven by additional headcount due to acquisition activity and system implementation costs.

General and administrative expense as a percentage of revenue decreased by 0.3% to 5.4%.

Depreciation and amortization — Depreciation and amortization expense increased by $8.5 million, or 15.9%, to $61.6 million.

This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization expense as a percentage of revenue remained consistent at 1.9%.

Other income, net — Other income, net as a percentage of revenue increased by 0.4%.

Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net increased by $13.9 million due to increases in interest income from our investments and gains in our deferred compensation plan which incurs gains or losses depending on market performance.

During the nine months ended September 30, 2024 and 2023, the deferred compensation plan had gains of $6.1 million and $1.1 million, respectively.

We also recorded an offsetting expense allocated between cost of services and general and administrative expenses.

Provision for income taxes — Our effective tax rate was 22.0% for the nine months ended September 30, 2024, compared to 22.1% for the same period in 2023.

The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses, including non-deductible compensation.

See Note 14, Income Taxes , in the Interim Financial Statements for further discussion.

Liquidity and Capital Resources

Our primary sources of liquidity have historically been derived from our cash flows from operations and long-term debt secured by our real property and our Credit Facility.

Our liquidity as of September 30, 2024 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Our principal sources of liquidity have historically been derived from our cash flows from operations and long-term debt issuance secured by our real property and borrowings under our revolving Credit Facility (defined below).

Our liquidity as of March 31, 2025 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations.

Cash paid to fund acquisitions was $87.2 million for the nine months ended September 30, 2024 compared to cash paid of $54.0 million for the nine months ended September 30, 2023.

Total capital expenditures for property and equipment were $110.1 million and $77.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Cash paid to fund acquisitions was $194.2 million for the three months ended March 31, 2025 compared to cash paid of $2.9 million for the three months ended March 31, 2024.

Total capital expenditures for property and equipment were $42.9 million and $29.4 million for the three months ended March 31, 2025 and 2024, respectively.

We currently have approximately $150.0 million budgeted for renovation projects in 2025.

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We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Our cash and cash equivalents as of September 30, 2024 consisted of bank term deposits, money market funds and U.S.

Treasury bill related investments.

In addition, as of September 30, 2024, we held investments of approximately $154.5 million.

We believe our investments that were in an unrealized loss position as of September 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

Our cash and cash equivalents of approximately $282.7 million as of March 31, 2025 consisted of bank deposits and money market funds.

In addition, as of March 31, 2025, we held investments of approximately $219.1 million.

We believe our investments that were in an unrealized loss position as of March 31, 2025 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

As mentioned above, our primary source of cash is from our ongoing operations.

Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders.

We currently anticipate that existing cash and total investments as of September 30, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

On August 29, 2023, the Board of Directors previously approved a stock repurchase program pursuant to which we could repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2023, which program terminated by its terms on August 31, 2024 and is no longer in effect.

We did not purchase any shares pursuant to the stock repurchase programs during the nine months ended September 30, 2024.

We currently anticipate that existing cash and total investments as of March 31, 2025, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

Share Repurchases

On February 21, 2025, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from March 26, 2025.

During the three months ended March 31, 2025, we repurchased 84 shares of our common stock for $10.8 million.

Subsequent to March 31, 2025, we repurchased 73 shares of our common stock for $9.2 million.

On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we could repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

We did not purchase any shares pursuant to the stock repurchase program before the repurchase program was cancelled on February 21, 2025.

Under these repurchase programs, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws.

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The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

NET CASH PROVIDED BY/(USED IN):

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Financing activities (10,348) 1,556

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

$ (181,932) $ 2,213

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Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.

The $44.7 million decrease in cash provided by operating activities for the nine months ended September 30, 2024 compared to the same period in 2023 w as due primarily to the timing of income tax payments.

In 2023, the U.S.

Internal Revenue Service and California provided disaster-area tax relief for the deferral of federal and California estimated tax payments until the fourth quarter of 2023.

As of the third quarter of 2023, the Company deferred approximately $50.0 million of 2023 federal and California estimated tax payments that were paid in the fourth quarter of 2023.

During the nine months ended September 30, 2024, we paid $82.0 million in income tax payment compared to $8.5 million during the nine months ended September 30, 2023.

This cash outflow was partially offset by an increase in operational performance.

The $36.9 million increase in cash provided by operating activities for the three months ended March 31, 2025 compared to the same period in 2024 w as due to an increase in operational performance and timing of payments and accounts receivable collections.

Investing Activities

Investing cash flows consist primarily of capital expenditures, investment activities, insurance proceeds and cash used for acquisitions.

The $85.7 million increase in cash used in investing activities for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily used for operational expansions and capital expenditures as well as increased investment activity as part of our capital strategy.

The $209.1 million increase in cash used in investing activities for the three months ended March 31, 2025 compared to the same period in 2024 was primarily used for acquisitions and capital expenditures as well as increased investment activity as part of our capital strategy.

Financing Activities

Financing cash flows consist primarily of cash provided by the issuance of common stock upon exercise of stock options, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, payment for share repurchases and the noncontrolling interest activity.

The $1.2 million increase in cash provided by financing activities for the nine months ended September 30, 2024 compared to the same period in 2023, was primarily due to stock option exercises offset by the purchase of non-controlling interest in one of our ancillary businesses.

The $11.9 million increase in cash used by financing activities for the three months ended March 31, 2025 compared to the same period in 2024, was primarily due to $10.8 million of share repurchases as part of our stock repurchase program in 2025.

Credit Facility with a Lending Consortium Arranged by Truist

We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability of up to $600.0 million in aggregate principal amount.

We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability of up to $600.0 million in aggregate principal.

The maturity date of the Credit Facility is April 8, 2027.

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Mortgage Loans and Promissory Note

As of September 30, 2024, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $147.7 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

As of March 31, 2025, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $146.0 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

The mortgage loans bear effective interest rates at a range of 3.1% to 4.2%, including fixed interest rates at a range of 2.4% to 3.3% per annum.

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Operating Leases

As of September 30, 2024, 231 of our facilities are under long-term lease arrangements, of which 99 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

As of March 31, 2025, 233 of our facilities have long-term lease arrangements, of which 96 of the operations are under eight triple-net Master Leases with CareTrust.

The Master Leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography.

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If we elect to renew the term of a Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Master Lease.

Additionally, four of the 100 facilities leased from CareTrust include an option to purchase that we can exercise starting on December 1, 2024.

During the three months ended March 31, 2025, we, through Standard Bearer, exercised the option to purchase the real estate of the four facilities from CareTrust for $44.6 million.

We also lease certain facilities and our administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years and are subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage.

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Most of these leases contain renewal options, certain of which involve rent increases.

Ninety of our independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 14 separate master lease arrangements.

Our 96 independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 15 separate master lease arrangements.

Under these master leases, a default at a single facility could subject one or more of the other independent subsidiaries covered by the same master lease to the same default risk.

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Labor, supply expenses and capital expenditures make up a substantial portion of our cost of services.

Those expenses can be subject to increase in periods of rising inflation and when labor shortages occur in the marketplace.

Those expenses can be subject to increase in periods of rising inflation, tariffs enforcement and when labor shortages occur in the marketplace.

To date, we have generally been able to implement cost control measures or obtain increases in reimbursement sufficient to offset increases in these expenses.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis