What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 192 added, 91 removed, 241 unchanged (54% of the section changed)

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or the “Company”) is a leading provider of senior health care services.

We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,463 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital and 35 homecare programs.

We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,473 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 28 hospice agencies.

We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units.

We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others.

In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities.

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In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization.

The COVID-19 virus spread rapidly, with every state in the United States (“U.S.”) having confirmed cases.

The rapid spread resulted in authorities around the U.S.

implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns.

As a provider of healthcare services, we are significantly exposed to the public health and economic effects of the COVID-19 pandemic. 

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We continue to follow all guidance from the Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations. 

The financial results for the three months ending March 31, 2021 have been materially impacted by COVID-19 with census in our skilled nursing facilities averaging 76.8% during the first quarter of 2021 compared with 91.4% for the three months ending March 31, 2020. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020.

As of March 31, 2021, each of our 75 skilled nursing facilities have hosted at least three vaccination clinics onsite for our patients and partners (employees).

As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.  Despite the COVID-19 cases significantly declining during the first quarter of 2021, our operating expenses remained elevated with incentive compensation being paid to our frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite COVID-19 disrupting operations, our capital and financial resources, including our overall liquidity, remain strong.

We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020.

As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.  With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase.

The census in our skilled nursing facilities has risen every month in the first and second quarters of 2021 and increased approximately 7.5% from January 1, 2021 through June 30, 2021. 

Despite the COVID-19 cases significantly declining during the first and second quarters of 2021, our operating expenses remain elevated with incentive compensation being paid to our frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong.

Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

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government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic.

The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund.

The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the CARES Act. Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enactment Act, the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund.

The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19. 

During the three months ending March 31, 2021, we received additional disbursements from the Provider Relief Fund which totaled $30,191,000.

These funds come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19.

The Company recorded $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2021. 

The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19.

The Company recorded $15,126,000 and $24,648,000 of government stimulus income from the Provider Relief Funds for the three months ended June 30, 2021 and 2020, respectively.

The Company recorded $37,875,000 and $24,648,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 2021 and 2020, respectively. 

The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.

The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S.

Department of Health and Human Services (“HHS”).

As of March 31, 2021, amounts not recognized as income are $23,510,000 and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds).

As of June 30, 2021, amounts not recognized as income are $10,429,000 and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds).

We anticipate incurring additional COVID-19 related expenses or lost revenues in the future;

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Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program.

The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies.

We received approximately $51,253,000 as part of this program.

These funds will begin to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds.

During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments.

During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments.

Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent.

These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds.

Recoupment of the accelerated payments began in the second quarter of 2021.

As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

As of June 30, 2021, $40,121,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.

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. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021.

On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

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The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

At March 31, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes. 

At March 31, 2021, half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet. 

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 three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

At June 30, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes. 

Summary of Goals and Areas of Focus

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities.

The overall census in owned and leased skilled nursing facilities for the three months ending March 31, 2021 was 76.8% compared to 91.4% for the same period a year ago. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021.  

The overall census in owned and leased skilled nursing facilities for the six months ending June 30, 2021 was 78.9% compared to 87.9% for the same period a year ago. For the three months ended June 30, 2021, overall census in our owned and leased skilled nursing facilities was 81.1%% compared to 84.3% in the second quarter of 2020.

The census in our skilled nursing facilities for the second quarter of 2021 increased approximately 4% from April 1, 2021 through June 30, 2021.

The census in our skilled nursing facilities increased approximately 7.5% from January 1, 2021 through June 30, 2021.  

Due to the pandemic, as well as the increased availability of assisted living facilities and home and community-based services, the challenge of maintaining desirable patient census levels has been amplified.

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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 March 31, 2021:

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of June 30, 2021:

Industry Ratings

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Our accrued professional liability and workers’

compensation reserves totaled $101,481,000 at March 31, 2021 and are a primary area of management focus.

compensation reserves totaled $101,850,000 at June 30, 2021 and are a primary area of management focus.

We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’

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Skilled Nursing Facilities

On July 29, 2021, CMS released a final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which begins October 1, 2021.

The fiscal year 2022 rule results in an increase of approximately $410 million in Medicare Part A payments to SNFs in 2022. 

This estimate reflects an update to payment rates of 1.2%, which is based on a 2.7% SNF market basket update, less a 0.8% forecast error adjustment and a 0.7% productivity adjustment.

These impact figures do not incorporate the SNF Value-Based Program reductions that are estimated to be $184.3 million in FY2022.

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 final rule reflected 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.

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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. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

On April 8, 2021, CMS released a proposed rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which would begin October 1, 2021.

The fiscal year 2022 proposed rule provided for an approximate 1.3% increase, or $444 million, compared to 2021 levels.

For the first three months of 2021, our average Medicare per diem rate for skilled nursing facilities increased 6.3% as compared to the same period in 2020. 

On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through June 30, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

For the first six months of 2021, our average Medicare per diem rate for skilled nursing facilities increased 4.2% as compared to the same period in 2020. 

Medicaid –

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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 first three months of 2021, our average Medicaid per diem increased 8.5% compared to the same period in 2020.

We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency.

We have recorded $7,094,000 and $3,858,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2021 and 2020, respectively.

We have recorded $11,049,000 and $5,532,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2021 and 2020, respectively.

For the first six months of 2021, our average Medicaid per diem increased 8.4% compared to the same period in 2020.

We face challenges with respect to states’

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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.

In June 2021, CMS released its proposed rule outlining fiscal year 2022 Medicare payment rates.

CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by 1.7%, or $310 million, based on proposed policies.

Additionally, CMS proposed plans to expand the Home Health Value-Based Purchasing (HHVBP) model nationwide by the start of 2022.

The CMS Innovation Center developed the HHVBP demonstration in an effort to create financial incentives for better quality of care.

Medicare –

In July 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates.

CMS issued a rate increase of 2.4%, or $540 million, effective October 1, 2020.

The hospice cap amount for the 2021 cap year is equal to the FY 2020 cap amount updated by the FY 2021 hospice payment update percentage of 2.4 percent, or $30,683.93.

In Apil 2021, CMS released its proposed rule outlining fiscal year 2022 Medicare payment rates.

CMS issued a proposed rule to update hospice payment rates for fiscal year 2022 with a 2.3%, or $530 million, net increase to payments as compared to FY 2021.

This includes a 2.5% market basket update and a 0.2 percentage point cut for productivity.

Segment Reporting

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(1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital;

and (2) homecare services.

and (2) homecare and hospice services.

These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

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The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands ):

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Net patient revenues

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Non-operating income

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

Income before income taxes

Three Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

Other revenues

Government stimulus income

Net operating revenues and grant income

Costs and expenses:

Salaries, wages, and benefits

Other operating

Depreciation and amortization

Total costs and expenses

Income (loss) from operations

Non-operating income

Unrealized gains on marketable equity securities

Income before income taxes

Three Months Ended March 31, 2020

Six Months Ended June 30, 2021

Revenues and grant income:

Net patient revenues

Other revenues

Net operating revenues

Government stimulus income

Net operating revenues and grant income

Costs and expenses:

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Total costs and expenses

Income from operations

Income (loss) from operations

Non-operating income

Gain on acquisition of equity method investment

Unrealized gains on marketable equity securities

Income before income taxes

Six Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

Other revenues

Government stimulus income

Net operating revenues and grant income

Costs and expenses:

Salaries, wages, and benefits

Other operating

Depreciation and amortization

Total costs and expenses

Income (loss) from operations

Non-operating income

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

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Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities not at full capacity, share-based compensation expense, and any gains on the acquisitions of equity method investments is helpful in allowing investors to more accurately access the Company’s operations.

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2021 include facilities that began operations from 2019 to 2021, which is one memory care facility.

For the three months ended March 31, 2020, included are facilities that began operations from 2018 to 2020, which is one memory care facility.

The operating results for the newly constructed healthcare facilities not at full capacity for the three and six months ended June 30, 2021 include facilities that began operations from 2019 to 2021.

For the three and six months ended June 30, 2020, included are facilities that began operations from 2018 to 2020.

For all of the 2021 and 2020 periods presented, there is one memory care facility that is included in the reconciliation.

In June 2021, the gain on the acquisition of an equity method investment is from the acquisition of Caris HealthCare, L.P.

See Note 4 for additional detail describing the Caris acquisition.

In February 2020, the gain on the acquisition of an equity method investment is from the acquisition of a skilled nursing facility in Knoxville, Tennessee where we owned a prior 25% non-controlling ownership interest before acquiring the remaining 75% ownership interest.

The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):

Three Months Ended

Net income/(loss) attributable to National Healthcare Corporation

Six Months Ended

Net income attributable to National Healthcare Corporation

Non-GAAP adjustments

Unrealized (gains)/losses on marketable equity securities

Gain on acquisitions of equity method investments

Gains on acquisitions of equity method investments

Operating results for newly opened facilities not at full capacity

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Unrealized (gains)/losses on marketable equity securities

Gain on acquisitions of equity method investments

Gains on acquisitions of equity method investments

Operating results for newly opened facilities not at full capacity

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Results of Operations

The following table and discussion set forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues and grant income for the three months ended March 31, 2021 and 2020.

Percentage of Net Operating Revenues and Grant Income

Three Months Ended

Six Months Ended

Net operating revenues and grant income

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Non–operating income

Gains on acquisitions of equity method investments

Unrealized gains/(losses) on marketable equity securities

Income/(loss) before income taxes

Income tax (provision) benefit

Net income/(loss)

Income before income taxes

Income tax provision

Net income attributable to noncontrolling interest

Net income/(loss) attributable to stockholders of NHC

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Results for the quarter ended March 31, 2021 compared to the first quarter of 2020 include a 2.0% decrease in net operating revenues and grant income and a 3.7% decrease in income from operations. Excluding the unrealized gains in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended March 31, 2021 was $16,592,000 compared to $17,070,000 for the first quarter of 2020, which is a decrease of 2.8%.

Net income attributable to stockholders of NHC

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Results for the quarter ended June 30, 2021 compared to the second quarter of 2020 include a 0.6% increase in net operating revenues and grant income and a 9.9% increase in income from operations. For the quarter ended June 30, 2021, GAAP net income attributable to NHC was $104,883,000 compared to $28,324,000 for the same period in 2020.

The large increase in our reported GAAP net income for the second quarter of 2021 is primarily due to the gain recorded from the acquisition of Caris, a hospice provider.

Excluding the gain on the Caris acquisition, as well as the unrealized losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended June 30, 2021 was $15,077,000 compared to $14,177,000 for the second quarter of 2020, which is an increase of 6.4%.

Net operating revenues and grant income

Net patient revenues decreased $27,240,000, or 11.2%, compared to the same period last year.

Included in net patient revenues for the three months ending March 31, 2021 and 2020 is $3,955,000 and $1,674,000, respectively, of COVID-19 supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the public health emergency.

The total census at owned and leased skilled nursing facilities for the quarter averaged 76.8%, compared to an average of 91.4% for the same quarter a year ago. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021.

Net patient revenues increased $11,305,000, or 5.0%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the quarter averaged 81.1%, compared to an average of 84.3% for the same quarter a year ago.

With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase. 

The census in our skilled nursing facilities for the second quarter of 2021 increased approximately 4% from April 1, 2021 through June 30, 2021.

Overall, the composite skilled nursing facility per diem increased 7.8% compared to the same quarter a year ago.

Our Medicare per diem rates increased 2.0% and managed care per diem rates increased 4.2% compared to the same quarter a year ago.

Medicaid and private pay per diem rates increased 8.5% and decreased 1.6%, respectively, compared to the same quarter a year ago.

Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 6.9% compared to the same quarter a year ago.

In February 2020, the Company acquired the remaining 75% ownership interest in a 166-bed skilled nursing facility in Knoxville, Tennessee.

For the three months ended March 31, 2021, this skilled nursing facility increased net patient revenues approximately $1,670,000 compared to the first quarter of 2020.

Medicaid and private pay per diem rates increased 8.2% and 3.7%, respectively, compared to the same quarter a year ago.

The Medicaid per diem rate increased significantly due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic.

For the three months ending June 30, 2021 and 2020, respectively, $7,094,000 and $3,858,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing of $3,712,000 for the three months ended June 30, 2021 compared to the second quarter of 2020.

Our homecare operations had an increase in net patient revenues of approximately $3,121,000 for the three months ended June 30, 2021 compared to the second quarter of 2020.

In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri.

For the three months ended March 31, 2021, the sale of this facility decreased net patient revenue by $2,233,000 compared to the first quarter of 2020.

For the three months ended June 30, 2021, the sale of this facility decreased net patient revenue by $2,171,000 compared to the second quarter of 2020.

Other revenues decreased $267,000, or 2.4%, compared to the same quarter last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

During the three months ended March 31, 2021, we recorded $22,749,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

During the three months ended June 30, 2021 and 2020, respectively, we recorded $15,126,000 and $24,648,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

See Note 3 - Coronavirus Pandemic for additional information.  

Total costs and expenses

Total costs and expenses for the three months ended March 31, 2021 compared to the same period of 2020 decreased $4,568,000, or 1.9%, to $235,751,000 from $240,319,000.

Total costs and expenses for the three months ended June 30, 2021 compared to the same period of 2020 increased $270,000, or 0.1%, to $249,363,000 from $249,093,000.

Salaries, wages, and benefits decreased $110,000, or 0.1%, to $156,804,000 from $156,914,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 57.8% compared to 57.6% for the three months ended March 31, 2021 and 2020, respectively.

The primary reason for salaries and wages decreasing was the continued initiative of controlling expenses among our operations to mitigate our occupancy decline among our skilled nursing and assisted living facilities.

The expense controlling measures were offset by the incentive compensation, or "combat pay", paid to our frontline partners in fighting the COVID-19 pandemic.

We incurred approximately $3,348,000 and $827,000 in incentive compensation related to COVID-19 for the three months ended March 31, 2021 and 2020, respectively.

Excluding the COVID-19 related compensation, our salaries, wages, and benefits decreased 3.3% for the three months ended March 31, 2021 compared to the first quarter of 2020.  

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 59.6% compared to 60.0% for the three months ended June 30, 2021 and 2020, respectively.

With the COVID-19 cases significantly declining during the second quarter of 2021, the COVID-related incentive pay (or combat pay) was significantly reduced in the second quarter of 2021 compared to the same quarter a year ago.

But, we continue to face tremendous wage pressure and inflation to retain and attract new partners (employees).

Therefore, the wage pressure and inflation increases offset any reduction in salaries and wages from the decreasing of the COVID-related incentive pay.

Our Caris acquisition increased salaries, wages, and benefits $1,905,000 in the second quarter of 2021 compared to the same quarter a year ago.

Other operating expenses increased $1,182,000, or 1.7%, to $72,043,000 for the 2021 period compared to $70,861,000 for the 2020 period.

Other operating expenses as a percentage of net operating revenues and grant income was 27.4% and 27.1% for the three months ended June 30, 2021 and 2020, respectively.

Our Caris acquisition increased other operating expenses $771,000 in the second quarter of 2021 compared to the same quarter a year ago.

Non–operating income decreased by $368,000 compared to the same period last year, as further detailed in Note 7 to our interim condensed consolidated financial statements.

Gain on acquisition of equity method investments

In June 2021, a gain of $95,202,000 was recorded on the acquisition of the remaining ownership interest of Caris.

We previously held a noncontrolling interest in the partnership.

See Note 4 for additional detail describing the Caris acquisition.

The income tax provision for the three months ended June 30, 2021 is $2,764,000 (an effective income tax rate of 2.6%).

The $95.2 million gain from the Caris acquisition is a non-taxable event and is the primary driver of our effective tax rate being lower than expected.

Excluding certain items, we expect our corporate (federal and state) income tax rate for 2021 to be approximately 26.0%. 

Noncontrolling interest

The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets.

The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations.

The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders.

The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Results for the six months ended June 30, 2021 compared to the first six months of 2020 include a 0.7% decrease in net operating revenues and grant income and a 2.3% increase in income from operations. For the six months ended June 30, 2021, GAAP net income attributable to NHC was $126,150,000 compared to $1,472,000 for the same period in 2020.

The large increase in our reported GAAP net income for the 2021 six-month period compared to the same period in 2020 is primarily due to the gain recorded from the acquisition of Caris, a hospice provider.

Excluding the gain on the Caris acquisition, as well as the unrealized gains and losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the six months ended June 30, 2021 was $31,669,000 compared to $31,245,000 for the first six months of 2020, which is an increase of 1.4%.

Net operating revenues and grant income

Net patient revenues decreased $15,935,000, or 3.4%, compared to the same period last year. 

The total census at owned and leased skilled nursing facilities for the six months averaged 78.9%, compared to an average of 87.9% for the same period a year ago. With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase.

The census in our skilled nursing facilities has risen every month in the first and second quarters of 2021 and increased approximately 7.5% from January 1, 2021 through June 30, 2021. 

Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 7.4% compared to the same period a year ago.

Our Medicare per diem rates increased 4.2% and managed care per diem rates increased 3.7% compared to the same period a year ago.

Medicaid and private pay per diem rates increased 8.4% and 1.1%, respectively, compared to the same period a year ago.

The Medicaid per diem rate increased significantly due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic.

For the six months ending June 30, 2021 and 2020, respectively, $11,049,000 and $5,532,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $3,712,000 for the six months ended June 30, 2021 compared to the same period a year ago.

Our homecare operations had an increase in net patient revenues of approximately $3,625,000 for the six months ended June 30, 2021, compared to the same period a year ago.

In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri.

For the six months ended June 30, 2021, the sale of this facility decreased net patient revenue by $4,404,000 compared to the same period a year ago.

Other revenues decreased $927,000, or 4.0%, compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

During the six months ended June 30, 2021 and 2020, respectively, we recorded $37,875,000 and $24,648,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

See Note 3 - Coronavirus Pandemic for additional information.  

Total costs and expenses

Total costs and expenses for the six months ended June 30, 2021 compared to the same period of 2020 decreased $4,298,000, or 0.9%, to $485,114,000 from $489,412,000.

Salaries, wages, and benefits decreased $2,449,000, or 0.8%, to $301,934,000 from $304,383,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 58.7% compared to 58.8% for the six months ended June 30, 2021 and 2020, respectively.

With the COVID-19 cases significantly declining during the first and second quarter of 2021, the COVID-related incentive pay (or combat pay) was significantly reduced for the 2021 six-month period compared to the same period a year ago.

But, we continue to face tremendous wage pressure and inflation to retain and attract new partners (employees).

Therefore, the wage pressure and inflation increases offset most of the reduction in salaries and wages from the decreasing of the COVID-related incentive pay.

Our Caris acquisition in June 2021 increased salaries, wages, and benefits $1,905,000 in the second quarter of 2021 compared to the six-month period a year ago.

Other operating expenses decreased $333,000, or 0.2%, to $142,196,000 for the 2021 period compared to $142,529,000 for the 2020 period.

Other operating expenses as a percentage of net operating revenues and grant income was 28.0% for the three months ended March 31, 2021 and 2020, respectively.

During the first quarter of 2021 and 2020, we incurred approximately $5,153,000 and $948,000, respectively, in COVID-19 related expenses in purchasing personal protective equipment, nursing supplies, and lab and testing supplies. 

The expense controlling efforts have helped mitigate the increase in other operating expenses due to COVID-19.  Excluding the COVID-19 related expenses, other operating expenses decreased $5,720,000, or 8.1%, for the three months ended March 31, 2021 compared to the first quarter of 2020.

Other operating expenses as a percentage of net operating revenues and grant income was 27.7% and 27.5% for the six months ended June 30, 2021 and 2020, respectively.

Our Caris acquisition increased other operating expenses $771,000 in the six month period of 2021 compared to the same period a year ago.

Non–operating income decreased by $546,000 compared to the same period last year, as further detailed in Note 7 to our interim condensed consolidated financial statements.

The income tax provision for the three months ended March 31, 2021 is $7,233,000 (an effective income tax rate of 25.3%).

Gain on acquisition of equity method investments

In June 2021, a gain of $95,202,000 was recorded on the acquisition of the remaining ownership interest of Caris.

We previously held a noncontrolling interest in the partnership.

See Note 4 for additional detail describing the Caris acquisition.

In February 2020, a gain of $1,708,000 was recorded on the acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee.

We previously held a noncontrolling interest in the facility.

Upon acquiring the remaining ownership interest, we valued the business and our previously held equity position based upon the facility’s fair value.

The income tax provision for the six months ended June 30, 2021 is $9,997,000 (an effective income tax rate of 7.3%).

The $95.2 million gain from the Caris acquisition is a non-taxable event and is the primary driver of our effective tax rate being lower than expected.

Excluding certain items, we expect our corporate (federal and state) income tax rate for 2021 to be approximately 26.0%. 

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The following is a summary of our sources and uses of cash flows (dollars in thousands) :

Three Months Ended

Three Month Change

Six Months Ended

Six Month Change

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period

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Cash used in investing activities

Cash used in/(provided by) financing activities

Cash used in financing activities

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2021 was $12,589,000 as compared to $7,754,000 in the same period last year.

Net cash provided by operating activities for the six months ended June 30, 2021 was $40,122,000 as compared to $154,727,000 in the same period last year.

Cash provided by operating activities consisted of net income of $126,638,000 and adjustments for non–cash items of $79,959,000.

There was cash used for working capital needs in the amount of $16,899,000 for three months ended March 31, 2021 compared to $19,547,000 for the same period a year ago.

We also received cash distributions from our unconsolidated investments of $5,897,000 during the three months ended March 31, 2021, compared to $2,349,000 for the same period a year ago.

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains/losses on our marketable equity securities, deferred taxes, stock compensation, and a gain on the acquisition of a 166-bed skilled nursing facility in Knoxville, Tennessee during the first quarter of 2020 in which we previously held a noncontrolling ownership interest.

There was cash used for working capital needs in the amount of $12,871,000 for six months ended June 30, 2021 compared to cash provided by working capital needs in the amount $102,187,000 for the same period a year ago.

We also received cash distributions from our unconsolidated investments of $6,314,000 during the six months ended June 30, 2021, compared to $6,901,000 for the same period a year ago.

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains on our marketable equity securities, deferred taxes, stock compensation, and gains on the acquisitions of equity method investments.

Investing Activities

Net cash used in investing activities totaled $5,852,000 for the three months ended March 31, 2021 compared to $16,225,000 for the three months ended March 31, 2020.

Cash used for property and equipment additions was $4,327,000 and $6,628,000 for the three months ended March 31, 2021 and 2020, respectively.

The Company collected notes receivable of $255,000 and $376,000 for the three months ended March 31, 2021 and 2020, respectively.

Purchases of marketable securities, net of sales, resulted in cash used of $1,780,000 and $2,950,000 for the three months ended March 31, 2021 and 2020.

The acquisition of the 166-bed skilled nursing facility in Knoxville, Tennessee resulted in cash used of $6,648,000 for the three months ended March 31, 2020.

Net cash used in investing activities totaled $31,995,000 for the six months ended June 30, 2021 compared to $18,567,000 for the six months ended June 30, 2020.

Cash used for property and equipment additions was $13,143,000 and $12,517,000 for the six months ended June 30, 2021 and 2020, respectively.

The acquisition of Caris resulted in cash used of $28,713,000 for the six months ended June 30, 2021.

The Company collected notes receivable of $8,405,000 and $1,139,000 for the six months ended June 30, 2021 and 2020, respectively.

Sales of marketable securities, net of purchases, resulted in positive cash flow of $1,456,000 for the six months ended June 30, 2021 compared to $69,000 for the six months ended June 30, 2020.

Financing Activities  

Net cash used in financing activities totaled $9,148,000 for the three months ended March 31, 2021 compared to net cash provided by financing activities of $31,641,000 for the three months ended March 31, 2020.

We made principal payments under our finance lease obligations in the amount of $1,081,000 and $1,019,000 for the three months ended March 31, 2021 and 2020, respectively.

Net cash used in financing activities totaled $16,042,000 for the six months ended June 30, 2021 compared to net cash used in financing activities of $26,391,000 for the six months ended June 30, 2020.

We made principal payments under our finance lease obligations in the amount of $2,178,000 and $2,052,000 for the six months ended June 30, 2021 and 2020, respectively.

Cash used for dividend payments to common stockholders totaled $15,990,000 in the current year period compared to $15,948,000 for the same period a year ago.

We made borrowings under our credit facility of $40,000,000 during the three months ended March 31, 2020.

Short –

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We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities.

In addition to cash flows from operations, our current cash on hand of $134,107,000 and our marketable securities of $184,738,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. 

In addition to cash flows from operations, our current cash on hand of $134,692,000 and our marketable equity and debt securities of $162,317,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. 

Long –

term liquidity

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $134,107,000 and our marketable securities of $184,738,000.

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $134,692,000 and our marketable equity and debt securities of $162,317,000.

We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities.

At March 31, 2021, we do not have any long-term debt.

At June 30, 2021, we do not have any long-term debt.

Our ability to meet our long–term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance.

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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