NATIONAL HEALTHCARE CORP 10-K

ITEM 1. BUSINESS   National HealthCare Corporation, which we also refer to as NHC or the Company, began business in 1971. Our principal business is the operation of skilled nursing facilities, assisted living facilities, independent living facilities, homecare programs and a behavioral health hospital. Our business activities include providing sub–acute and post–acute skilled nursing care, intermediate nursing care, rehabilitative care, memory and Alzheimer’s care, senior living services, and home health care services. We have a non–controlling ownership interest in a hospice care business that services NHC owned health care centers and others. In addition, we provide management services, accounting and financial services, as well as insurance services to third party operators of health care facilities. We also own the real estate of 13 healthcare properties and lease these properties to third party operators. We operate in 10 states, and our owned and leased properties are located in the Southeastern, Northeastern, and Midwestern parts of the United States.   Description of the Business     The following table summarizes our operations by ownership status as of December 31, 2020:     Owned   Leased   Managed   Total   Skilled Nursing Facilities                         Number of facilities   27     39     9     75   Percentage of total   36.0 %   52.0 %   12.0 %   100.0 % Licensed beds   3,460     4,968     1,035     9,463   Percentage of total   36.6 %   52.5 %   10.9 %   100.0 %                           Assisted Living Facilities                         Number of facilities   13     8     3     24   Percentage of total   54.2 %   33.3 %   12.5 %   100.0 % Units   964     203     43     1,210   Percentage of total   79.7 %   16.8 %   3.5 %   100.0 %                           Independent Living Facilities                         Number of facilities   1     3     1     5   Percentage of total   20.0 %   60.0 %   20.0 %   100.0 % Retirement apartments   93     245     137     475   Percentage of total   19.6 %   51.6 %   28.8 %   100.0 %                           Homecare locations   35     –     –     35     We also operate a 16-bed behavioral health hospital. This hospital specializes in geriatric behavioral health.   We have a 75.1% non–controlling ownership interest in Caris Healthcare, LP (“Caris”), a business that specializes in hospice care services in NHC owned health care centers and in other settings. Caris provides hospice care to over 1,000 patients per day in 28 locations in Georgia, Missouri, South Carolina, Tennessee, and Virginia   3 Table of Contents   Net Patient Revenues. The services we provide include a comprehensive range of health care services. In fiscal 2020, 95.0% of our net operating revenues were derived from such health care services. Highlights of health care services activities during 2020 were as follows:     ● Skilled Nursing Facilities. The most significant portion of our business and the base for our other health care services is the operation of our skilled nursing facilities (“SNF’s”). In our facilities, experienced medical professionals provide medical services prescribed by physicians. Registered nurses, licensed practical nurses and certified nursing assistants provide comprehensive, individualized nursing care 24 hours a day. In addition, our facilities provide licensed therapy services, quality nutrition services, social services, activities, and housekeeping and laundry services. Revenues from the 66 facilities we own or lease are reported as net patient revenues in our financial statements. Management fee income is recorded as other revenues from the nine facilities that we manage. We generally charge 6% of facility net operating revenues for our management services.   The following table shows the occupancy rates for our owned and leased skilled nursing facilities:       Year Ended December 31,       2020     2019     2018   Overall census     83.6 %     90.3 %     89.8 %     ● Rehabilitative Services. We provide therapy services through Professional Health Services, a subsidiary of NHC. Our licensed therapists provide physical, speech, respiratory and occupational therapy for patients recovering from strokes, heart attacks, orthopedic conditions, neurological illnesses, or other illnesses, injuries or disabilities. We maintained a rehabilitation staff of over 1,400 highly trained, professional therapists in 2020. Most of our rehabilitative services are for patients in our owned and managed skilled nursing facilities. However, we also provide services to 68 additional health care providers. Our rates for these services are competitive with other market rates.     ● Medical Specialty Units. All our skilled nursing facilities participate in the Medicare program, and we have expanded our range of offerings by the creation of center–specific medical specialty units such as our memory care units and sub-acute nursing units. Our trained staff provides care for Alzheimer’s patients in early, middle and advanced stages of the disease. We provide specialized care and programs for persons with Alzheimer’s or related disorders in dedicated units within many of our skilled nursing facilities. Our specialized rehabilitation programs are designed to shorten or eliminate hospital stays and help to reduce the cost of quality health care. We develop individualized patient care plans to target appropriate medical and functional planning objectives with a primary goal where feasible for a return to home or a similar environment.     ● Assisted Living Facilities. Our assisted living facilities provide personal care services and assistance with general activities of daily living such as dressing, bathing, meal preparation and medication management. We perform resident assessments to determine what services are desired or required and our qualified staff encourages residents to participate in a range of activities. In 2020, the rate of occupancy was 73.9% compared to 81.4% in 2019. Certificates of Need (“CONs”) are not required to build these projects in most states and we believe overbuilding has occurred in some of our markets.     ● Independent Living Facilities. Our independent living facilities offer specially designed residential units for the active and ambulatory elderly and provide various ancillary services for our residents, including restaurants, activity rooms and social areas. Charges for services are paid from private sources without assistance from governmental programs. Independent living facilities may be licensed and regulated in some states, but do not require the issuance of a CON such as is required for skilled nursing facilities. We have, in several cases, developed independent living facilities adjacent to our nursing facilities. These units are rented by the month; thus, these facilities offer an expansion of our continuum of care. We believe these independent living units offer a positive marketing aspect to all our senior care offerings and services.   We have one independent living facility which is a "continuing care community", where the resident pays a substantial entrance fee and a monthly maintenance fee. The resident then receives a full range of services, including skilled nursing and home health, without additional charge.     ● Homecare Programs . Our home health care programs (“homecares”) assist those who wish to stay at home or in assisted living residences but still require some degree of medical care or assistance with daily activities. Registered and licensed practical nurses and therapy professionals provide skilled services such as infusion therapy, wound care and physical, occupational and speech therapies. Home health aides may assist with daily activities such as assistance with walking and getting in and out of bed, personal hygiene, medication assistance, light housekeeping and maintaining a safe environment. Under the Medicare reimbursement payment system, we receive a prospectively determined amount per patient per 30-day period of care. Under our managed care contracts, we may receive a period of care payment or be paid by a per-visit payment model. In 2020, we served an average census of 2,972 patients and provided 352,648 visits.     ● Pharmacy Operations. At December 31, 2020, we operated four regional pharmacy locations (two locations in Tennessee and one location each in South Carolina and Missouri). These pharmacies primarily service our patients that are in an inpatient setting using a central location to deliver pharmaceutical supplies. Our regional pharmacies bill Medicare Part D Prescription Drug Plans (PDPs) electronically and directly for inpatients who have selected a PDP.     ● Institutional Special Needs Plan (“I-SNP”). Our I-SNP, which is called NHC Advantage, is a managed care insurance company that restricts enrollment to Medicare Advantage eligible individuals who, for 90 days or longer, have had or are expected to need the level of services provided in a skilled nursing facility. We believe the I-SNP benefits our patients by providing nurse practitioners and care-coordination teams that continue to enhance the patient-centered experience and our quality of patient care. The I-SNP receives a per member, per month premium from Medicare which covers the members same health care benefits as original Medicare, as well as additional benefits including preventive screenings and routine vision coverage. At December 31, 2020, the I-SNP operated in the states of Tennessee and Missouri with over 900 members enrolled in the plan.   4 Table of Contents   Other Revenues. We generate revenues from management, accounting and financial services to third party operators of healthcare facilities, from insurance services to our managed healthcare facilities, and from rental income. In fiscal 2020, 5.0% of our net operating revenues were derived from such sources. The significant sources of our other revenues are described as follows:     ● Management, Accounting and Financial Services. We provide management services to skilled nursing facilities, assisted living facilities and independent living facilities operated by third party operators. We typically charge 6% of the managed centers’ net operating revenues as a fee for these services. Additionally, we provide accounting and financial services to other healthcare operators. As of December 31, 2020, we perform management services for thirteen healthcare facilities and accounting and financial services for 20 healthcare facilities.     ● Insurance Services. NHC owns a Tennessee domiciled insurance company that provides workers’ compensation coverage to substantially all of NHC's owned and managed healthcare facilities. A second wholly owned insurance subsidiary is licensed in the Cayman Islands and provides general and professional liability coverage in substantially all of NHC’s owned and managed healthcare facilities.     ● Rental Income. The healthcare properties currently owned and leased to third party operators include nine skilled nursing facilities and four assisted living communities.    Government Stimulus Income.   We received government stimulus funds during 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").  The CARES Act provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities.  The CARES Act appropriated $175 billion to the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund.  During 2020, we received disbursements from the Provider Relief Fund that totaled $63,573,000. Of the $63,573,000 of funds received, the Company recorded $47,505,000 of government stimulus income for the year ended December 31, 2020.  As of December 31, 2020, amounts not recognized as income are $16,068,000 and are reflected in the current liability section of our consolidated balance sheet (provider relief funds).   Non–Operating Income. We generate non–operating income from equity in earnings of unconsolidated investments, dividends and realized gains and losses on marketable securities, interest income, and other miscellaneous non–operating income. The significant source of non–operating income is described as follows:   Equity in Earnings of Unconsolidated Investments . Earnings from investments in entities in which we lack control but have the ability to exercise significant influence over operating and financial policies are accounted for on the equity method. Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris, a business that specializes in hospice care services in NHC owned health care centers and in other settings. Caris currently has 28 locations serving five states (Georgia, Missouri, South Carolina, Tennessee, and Virginia).     Quality of Patient Care   Centers for Medicare and Medicaid Services (“CMS”) introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating of between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.   The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of December 31, 2020:       NHC Ratings     Industry Ratings   Total number of skilled nursing facilities, end of period   75         Number of 4 and 5-star rated skilled nursing facilities   61         Percentage of 4 and 5-star rated skilled nursing facilities   81%     49%   Average rating for all skilled nursing facilities, end of period   4.19     3.28       Development and Growth   We are undertaking to expand our post–acute and senior health care operations while protecting our existing operations and markets. The following table lists our recent construction and purchase activities.   Type of Operation   Description   Size   Location   Placed in Service Skilled Nursing   Bed Addition   30 beds   Springfield, MO   April 2018 Behavioral Health Hospital   Acquisition   14 beds   Osage Beach, MO   August 2018 Memory Care   New Facility   60 beds   Farragut, TN   January 2019 Memory Care   Acquisition   60 beds   St. Peters, MO   June 2019 Skilled Nursing   Acquisition   166 beds   Knoxville, TN   February, 2020 Assisted Living   Bed Addition   20 beds   Gallatin, TN   September 2020 Skilled Nursing   Bed Addition   30 beds   Kingsport, TN   December 2020 Behavioral Health Hospital   New Facility   16 beds   St Louis, MO   Under Construction Behavioral Health Hospital   New Facility   64 beds   Knoxville, TN   Under Construction   5 Table of Contents    Business Segments   The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and the one behavioral health hospital, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 in the notes to the consolidated financial statements for further disclosure of the Company’s operating segments.     Customers and Sources of Revenues   No individual customer, or related group of customers, accounts for a significant portion of our revenues. We do not expect the loss of a single customer or group of related customers would have a material adverse effect.   Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:       Year Ended December 31,   Source   2020     2019     2018   Medicare   33%     34%     35%   Managed Care   11%     12%     12%   Medicaid   31%     27%     26%   Private Pay and Other   25%     27%     27%   Total   100%     100%     100%     We attempt to attract an increased percentage of Medicare, managed care, and private pay patients by providing rehabilitative and other post–acute care services. These services are designed to speed the patient's recovery and allow the patient to return home as soon as it is practical.   Medicare is a health insurance program for the aged and certain other chronically disabled individuals operated by the federal government. Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a discharge from an acute care hospital. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.   Medicaid is a medical assistance program for the indigent, operated by individual states with the financial participation of the federal government. The states in which we operate primarily use a cost–based reimbursement system. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program. Seniors who enter skilled nursing facilities as private pay patients can become eligible for Medicaid once they have substantially depleted their assets. Medicaid is generally the largest source of funding for most skilled nursing facilities.   Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Although payment rates vary among these sources, market forces and costs largely determine these rates. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the center's charges or specifically negotiated contracts.   We contract with over 60 managed care organizations ("MCO's") and insurance carriers for the provision of healthcare services by our owned and managed healthcare facilities.     Government Regulation   General     Health care is an area of extensive regulatory oversight and frequent regulatory change. The federal government and the states in which we operate regulate various aspects of our business. These regulatory bodies, among other things, require us annually to license our skilled nursing facilities and other health care businesses. To operate nursing facilities and provide health care services we must comply with federal, state and local laws relating to the delivery and adequacy of medical care, distribution of pharmaceuticals, equipment, personnel, operating policies, fire prevention, rate–setting, building codes and environmental protection.  Changes in the laws or new interpretations of existing laws as applied to the skilled nursing facilities, assisted living facilities, home health, or other components of our health care businesses, may have a significant impact on our operations.    Governmental and other authorities periodically inspect our skilled nursing facilities and home health agencies to assure that we continue to comply with their various standards. We must pass these inspections to continue our licensing under state law, to obtain certification under the Medicare and Medicaid programs, and to continue our participation in the Veterans Administration program. We can only participate in other third–party programs if our facilities pass these inspections.   From time to time, we, like others in the health care industry, may receive notices from federal and state regulatory agencies alleging that we failed to comply with applicable standards. These notices may require us to take corrective action and may impose civil money penalties and/or other operating restrictions. If our skilled nursing facilities and home health agencies fail to comply with these directives or otherwise fail to comply substantially with licensure and certification laws, rules and regulations, we could lose our certification as a Medicare and Medicaid provider and/or lose our licenses.   6 Table of Contents   Local and state health and social service agencies and other regulatory authorities specific to their location regulate, to varying degrees, our assisted living facilities. Although regulations and licensing requirements vary significantly from state to state, they typically address, among other things, personnel education, training and records; facility services, including administration of medication, assistance with supervision of medication management and limited nursing services; physical plant specifications; furnishing of resident units; food and housekeeping services; emergency evacuation plans; and resident rights and responsibilities. If assisted living facilities fail to comply with licensing requirements, these facilities could lose their licenses. Most states also subject assisted living facilities to state or local building codes, fire codes and food service licensure or certification requirements. In addition, the manner and extent to which the assisted living industry is regulated at federal and state levels are evolving.   In all states in which we operate, before a skilled nursing facility can make a capital expenditure exceeding certain specified amounts or construct any new skilled health care beds, approval of the state health care regulatory agency or agencies must be obtained, and a Certificate of Need issued. The appropriate state health planning agency must review the Certificate of Need according to state specific guidelines before a Certificate of Need can be issued. A Certificate of Need is generally issued for a specific maximum amount of expenditure and the project must be completed within a specific time period. There is no advance assurance that we will be able to obtain a Certificate of Need in any instance. In some states, approval is also necessary in order to purchase existing health care beds, although the purchaser is normally permitted to avoid a full-scale Certificate of Need application procedure by giving advance written notice of the acquisition and giving written assurance to the state regulatory agency that the change of ownership will not result in a change in the number of beds, services offered and, in some cases, reimbursement rates at the facility.   While there are currently no significant legislative proposals to eliminate Certificates of Need pertaining to skilled nursing care in the states in which we do business, deregulation in the Certificate of Need area would likely result in increased competition and could adversely affect occupancy rates and the supply of licensed and certified personnel.   Health Care Reform     In recent years, the U.S. Congress and certain state legislatures have passed a large number of laws and regulations intended to effect major change within the U.S. health care system, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "ACA").   Since a significant goal of federal health care reform is to transform the delivery of health care by holding providers accountable for the cost and quality of care provided, Medicare and many commercial third-party payors are implementing Accountable Care Organization ("ACO") models in which groups of providers share in the benefit and risk of providing care to an assigned group of individuals. Other reimbursement methodology reforms in which we are participating or expect to participate in include value–based purchasing, in which a portion of provider reimbursement is redistributed based on relative performance on designated economic, clinical quality, and patient satisfaction metrics. Also, CMS is implementing demonstration programs to bundle acute care and post–acute care reimbursement to hold providers accountable for costs across a broader continuum of care. These reimbursement methodologies and similar programs are likely to continue and expand, both in public and commercial health plans. Providers who respond successfully to these trends and can deliver quality care at lower costs are likely to benefit financially.   Patient Confidentiality   We are also subject to laws and regulations enacted to protect the confidentiality of patient health information. The U.S. Department of Health and Human Services ("HHS") has issued rules that govern our use and disclosure of protected health information. We have established policies and procedures to comply with HIPAA privacy and security requirements. We maintain a company-wide HIPAA compliance plan, that we believe complies with the HIPAA privacy and security regulations. The HIPAA privacy and security regulations have and will continue to impose significant costs to the Company in order to comply with these standards. Our operations are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary and could impose additional penalties for privacy and security breaches.   Medicare and Medicaid Participation   All skilled nursing facilities, owned, leased or managed by us are certified to participate in Medicare. All but eight (seven owned and one managed) of our affiliated skilled nursing facilities participate in Medicaid. All our homecare agencies participate in the Medicare and Medicaid programs, with Medicare comprising the majority of their revenue.   During the fiscal years, we received payments from Medicare and, if participating, from Medicaid. We record as receivables the amounts we ultimately expect to receive under the Medicare and Medicaid programs and record into profit or loss any differences in amounts received at the time of interim or final settlements. There have not been any adjustments that have had a material adverse effect on the Company within the last three years.       Medicare Legislation and Regulations   Skilled Nursing Facilities   Medicare is uniform nationwide and reimburses skilled nursing facilities under a fixed payment methodology called the Skilled Nursing Facility Prospective Payment System ("SNF PPS"). Effective October 1, 2019, CMS issued a new case-mix model under the SNF PPS, called the Patient-Driven Payment Model (“PDPM”), which focuses on a resident’s condition and care needs, rather than the amount of care provided to determine reimbursement levels. PDPM utilizes clinically relevant factors for determining Medicare payment by using ICD-10 diagnosis codes and other patient characteristics as the basis for patient classification. PDPM utilizes five case-mix adjusted payment components: physical therapy (“PT”), occupational therapy (“OT”), speech language pathology (“SLP”), nursing and social services and non-therapy ancillary services (“NTA”). It also uses a sixth non-case mix component to cover utilization of skilled nursing facility (“SNF”) resources that do not vary depending on resident characteristics.   7 Table of Contents   On July 31, 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2020. The fiscal year 2021 final rule provided for an approximate 2.2% increase, or $750 million, compared to fiscal year 2020 levels. The final rule continues to reflect the commitment to shifting Medicare payments from volume to value, with the continued implementation of PDPM and value-based purchasing to improve interoperability, operational quality, and safety.     The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension.  On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021.    Homecares ( “ HHAs ” )   Medicare is uniform nationwide and reimburses homecare agencies under a fixed payment methodology, named the Home Health Prospective Payment System ("HH PPS"). Generally, Medicare makes payments under the HH PPS based on a standardized episodic payment, which is adjusted for case mix and geographical wage index. Payment rates are updated at the beginning of each calendar year.   In November 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2021 will increase in aggregate by 1.9%, or $390 million. The increase reflects the effects of the 2.0% home health payment update percentage and a 0.1% decrease due to reductions made by the rural add-on policy. The rule also updates the home health wage index, limiting any decrease in a geographic area’s wage index value to no more than 5% next year.   Effective January 1, 2020, CMS set forth the implementation of the Patient-Driven Groupings Model (“PDGM”) and a 30-day unit of payment as mandated by the Bipartisan Budget Act of 2018 (“BBA”). The new rule ended request for anticipated payments ("RAP"), or prepayments, and these will be completely phased out by 2021.  Under PDGM, the initial certification of patient eligibility, plan of care, and comprehensive assessment remains valid for 60-day episodes of care, but payments for home health services will be made based upon 30-day payment periods. These changes focus on providing value over volume of services to patients. Home health payments will no longer be based on the number of visits provided, but rather the patient’s medical condition and care needs.    Medicaid Legislation and Regulations   Skilled Nursing Facilities   State Medicaid plans subject to budget constraints are of particular concern to us. Changes in federal funding coupled with state budget problems and Medicaid expansion under the Affordable Care Act have produced an uncertain environment. Some states will not keep pace with post-acute healthcare inflation. States are currently under pressure to pursue other alternatives to skilled nursing care such as community and home–based services.   Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans.  Most state Medicaid payments are made under a prospective payment system or under programs which negotiate payment levels with individual providers.  Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards.   Effective July 1, 2020 and for the fiscal year 2021, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $1,500,000, or $375,000 per quarter   Effective October 1, 2020 and for the fiscal year 2021, the state of South Carolina implemented specific individual nursing facility rate changes. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $3,600,000 annually, or $900,000 per quarter.   We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the year ended December 31, 2020, we have recorded $26,179,000 due to these supplemental Medicaid payments. We have recorded these payments in net patient revenues in our consolidated statements of operations.      Competition   In most of the communities in which we operate health care facilities, we compete with other health care facilities in the area. We operate 75 skilled nursing facilities located in nine states, all of which require a certificate of need prior to the opening of any new skilled nursing facilities.  There are hundreds of operators of skilled nursing facilities in each of these states and no single operator, including us, dominates any of these state’s skilled nursing care markets, except for some small rural markets which might have only one skilled nursing facility. In competing for patients and staff with these facilities, we depend upon referrals from acute care hospitals, physicians, residential care facilities, church groups and other community service organizations. The reputation in the community and the physical appearance of our facilities are important in obtaining patients since members of the patient’s family generally participate to a greater extent in selecting skilled nursing facilities than in selecting an acute care hospital. We believe that by providing and emphasizing rehabilitative, as well as patient-centered skilled care services at our facilities, we can broaden our patient base and to differentiate our facilities from competing skilled nursing facilities.   As we continue to expand into the assisted living and senior living communities, we monitor proposed or existing competing senior living communities. Our development goal is to link our skilled nursing facilities with our assisted living facilities, thereby obtaining a competitive advantage for both.   Our homecare agencies compete with other home health agencies (HHA’s) in most communities we serve. Competition occurs for patients and employees. Our homecare agencies depend on hospital and physician referrals and reputation to maintain a healthy census.   8 Table of Contents   Human Capital   Employee s   As of December 31, 2020, we had 13,432 full-time and part-time employees (“partners”) through our Administrative Services Contractor (National Health Corporation). None were represented by a collective bargaining agreement. We believe relations with our partners are good. Our partners are guided by NHC’s Code of Conduct and they take pride in their work. The Company’s partners appreciate different perspectives and embrace the opportunity to work with those of diverse backgrounds.   Culture   At NHC, our values underpin our inclusive culture, drive our growth, nurture innovation, and inspire the great experiences we create for our patients and partners we serve.  Our signature "Better Way" service culture encourages each partner to be responsive, respectful, and deliver great experiences to our customers, patients, partners, communities, and to each other.  As a leader in health care, the Better Way culture seeks to do just what it says - continually searching for a better way to improve person-centered care and quality outcomes, while at the same time finding better ways to deliver care in a more efficient and effective way.  The twenty "Better Way" promises align with our core values of integrity, care, respect, and compassion.  These promises are embedded at all levels of our Company.     Career Development   Our partners' career development is instrumental to our long-term success of attracting, rewarding, and retaining the best team members and a top priority of the Company.  We actively seek to identify and develop talent throughout the Company and provide a variety of learning experiences for a diverse learning audience.  This includes on-the-job training, effective performance evaluations and timely feedback, as well as formal programs such as:     ● An "Administrator in Training" program, which is 24 months in duration, that is for the professional training of administrators. Presently, we have five (two female and three male) full–time individuals in this program. Two of our three regional senior vice presidents, four regional vice presidents, and 53 of our 75 health care center administrators are graduates of this program.   ● A robust educational tuition reimbursement program (through a Company sponsored not-for-profit Organization) that includes tuition and textbook reimbursement for continuing nursing education.  This program currently supports approximately 200 partners in over 50 local communities.   ● An American Dietetic Association-approved internship program that trains qualified individuals to become dietitians, with an emphasis in geriatric nutrition.  Accredited in 1982, the program includes rotations in hospitals and skilled nursing facilities, as well as community experiences.     ● Certified Nurse Assistant training classes throughout the Company, as well as funding provided to local vocational programs, technical schools, and universities across the country to help increase the quality of education in the field of geriatrics.   Total Rewards   To attract and retain top talent, we believe we must offer and maintain competitive total rewards for our partners. These rewards include not only wages and salaries, but also health, welfare, and retirement benefits. Our partners accrue earned time off (“ETO”) with the flexibility to use this time at their discretion. We offer comprehensive health insurance coverage to all eligible partners as well as a partner and family sick time program which allows partners to accrue paid sick time based on hours worked and to use that time for themselves or family members in need of care. We offer a 401(k) plan which includes matching company contributions. Also, to foster a stronger sense of ownership, we offer an Employee Stock Purchase Plan where partners may purchase company stock through payroll deduction.   We regularly utilize third-party consultants to conduct anonymous surveys to seek feedback from our partners on a variety of topics, including but not limited to, confidence in company leadership, competitiveness of our compensation and benefits package, career growth opportunities and improvements on how we can continue to make our company an employer of choice. The results are shared with our partners and reviewed by senior leadership, who analyze areas of progress or deterioration and prioritize actions and activities in response to this feedback to drive meaningful improvements in partner engagement.   Health and Safety   The health and safety of our partners is our highest priority. We focus on safety training in order to maintain a safe work environment and minimize work-related injury. When the pandemic began, we ensured and continue to ensure that our partners have access to masks, thermometers, protective gloves, sanitizing supplies, and all personal protective equipment needed in order to protect themselves. We closely followed the recommendations of the World Health Organization, the U.S. Centers for Disease Control and local governments, and we took action to ensure our partners were safe. Some of the preventative measures we implemented included:     ● increased hygiene, cleaning and sanitizing procedures at all locations;   ● provided additional personal protective equipment to partners;   ● restricted travel and encouraged quarantine upon return;   ● encouraged employees to take time off for illness;   ● established strict protocols and screening for outside guests; and   ● enabled partners to work from home where possible.   Community   We have a long and proud history of investing in the communities where we live and work. Through the National Health Foundation (the “Foundation”) and The Foundation for Geriatric Education (“TFGE”) we give back by providing grants and funding to various nonprofits, high schools, technical schools, and universities across the country. We are proud to be recognized annually as a significant contributor to the Alzheimer's Association, where we also participate in the Alzheimer's Association annual Walk to End Alzheimer's.  We also have a Compassion Fund which is used to help support partners in times of need. Many of our partners make a positive impact in the communities in which they live by donating their time and talent by volunteering and serving on boards of charitable organizations.   9 Table of Contents   Diversity and Inclusion   A diverse and inclusive workforce adds value to our Company and helps us succeed in an ever-changing environment.  By embracing diversity and fostering inclusion, we aim to enable each partner to contribute fully to the Company.  We believe diversity is important because varied perspectives expand our ability to bring unique experiences to our business.  We also believe our workforce reflects the relative diversity of the available talent in the communities we serve.     While we are making progress with our diversity and inclusion goals, we know we can do more.  This year, the Company's Board of Directors ("the Board") approved amendments to the Company's Nominating Committee charter to directly address diversity.  The Board also adopted Corporate Governance Guidelines that included a section on Board diversity and the Board recently adopted a Diversity Statement that included a best-efforts commitment to place at least one female on the Board by the 2022 shareholders' meeting.     Environmental Sustainability   We are working diligently to minimize our effect on the environment by conserving energy and protecting our natural resources.  We are focusing on being more energy efficient and reducing our water use and wastewater discharges while continuing to provide a healthy environment for our patients, partners and visitors.  We are committed to adhering to applicable federal, state and local environmental regulations.  Our goal is to minimize environmental risks to our patients and in the communities which we operate.    Through recycling programs, we are working to reduce the amount of waste sent to landfills.  Our electronic waste is recycled through a zero-landfill recycling company.      Available Information   The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at  www.nhccare.com , as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains these reports as well as proxy statements and other information regarding issuers that file electronically. The SEC's website is at  www.sec.gov . NHC's website and its content are not deemed incorporated by reference into this report.