What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 160 added, 70 removed, 235 unchanged (49% of the section changed)

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the competitive environment in which we operate;

our need to make investments continually in our processes and information systems to protect the privacy of patients, partners and other persons and reduce the risk of successful cybersecurity attacks;

damage to our reputation, regulatory penalties, legal claims and liability under state and federal laws that we could suffer upon any cybersecurity or privacy breaches;

the ability to maintain and increase census levels;

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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 9,456 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 29 hospice agencies.

We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,447 licensed beds, 24 assisted living facilities, five independent living facilities, three behavioral health hospitals, 35 homecare agencies, and 29 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.

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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. 

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 in 2021.  

Despite the COVID-19 cases significantly declining during 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.

We began our first vaccination clinics in our skilled nursing facilities in 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, as well as a significant decrease in the adverse health events related to COVID.

Despite the COVID-19 cases and adverse health events from COVID declining, our operating expenses have remained elevated with incentive compensation being paid to attract and retain 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.

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2022. 

The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts. 

The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and the broader economy, including future government stimulus efforts. 

We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date. 

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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 unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19. 

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 $10,620,000 and $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2022 and 2021, respectively.

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

The Company recorded $320,000 and $15,126,000 of government stimulus income from the Provider Relief Funds for the three months ended June 30, 2022 and 2021, respectively.

The Company recorded $10,940,000 and $37,875,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 2022 and 2021, 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.

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

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

In the second quarter of 2020, we received approximately $51,253,000 in 2020 as part of this program.

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, 2022, $5,003,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.

As of June 30, 2022, $586,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022.

The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent.

Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022.

The full 2% reduction is scheduled to go back into effect July 1, 2022.

The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

Beginning April 1, 2022, the sequestration reductions were 1% from April 1, 2022 through June 30, 2022.

The full 2% reduction went back into effect July 1, 2022.

The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%. 

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would have been due between March 27, 2020 and December 31, 2020.

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, 2022, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. 

At June 30, 2022, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. 

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, 2022 was 82.7% compared to 76.8% for the same period a year ago. 

The overall census in owned and leased skilled nursing facilities for the six months ending June 30, 2022 was 83.3% compared to 78.9% for the same period a year ago.  For the three months ended June 30, 2022, overall census in our owned and leased skilled nursing facilities was 84.0% compared to 81.1% in the second quarter of 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, 2022:

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of June 30, 2022:

Industry Ratings

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Placed in Service

Tullahoma, TN

Behavioral Health Hospital

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Our accrued professional liability and workers’

compensation reserves totaled $101,413,000 at March 31, 2022 and are a primary area of management focus.

compensation reserves totaled $102,663,000 at June 30, 2022 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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The net increase includes a 2.7% market-basket update that is offset by a 0.7% productivity adjustment and a 0.8% market-basket forecast error adjustment since the difference between the projected and actual market basket for FY2020 exceeded its threshold.

In April 2022, CMS released its proposed rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2022.

The fiscal year 2023 proposed rule equates to a net decrease of 0.7%, or approximately $320 million, in Medicare Part A payments to SNFs in fiscal year 2023 compared to 2022 levels. 

The proposed rule includes a 2.8% market basket rate increase, a 1.5% increase for forecast error adjustment, and a 0.4% decrease for multifactor productivity adjustment for a net update of 3.9%.

But, CMS also proposes to offset the 3.9% increase with a downward adjustment to payment rates by 4.6%, or $1.7 billion, to achieve budget neutrality from the aggregate fiscal year 2020 Medicare payments under the new Patient Driven Payment Model.

For the first three months of 2022, our average Medicare per diem rate for skilled nursing facilities increased 1.2% as compared to the same period in 2021. 

In July 2022, CMS released its final rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2022.

The fiscal year 2023 rule provided for an approximate 2.7% increase, or $904 million, compared to 2022 levels.

The net increase includes a 3.9% market-basket increase plus a 1.5% market basket forecast error adjustment, less a 0.3% productivity adjustment, less a 2.3% decrease in the FY 2023 SNF PPS rates as a result of the recalibrated parity adjustment, which is being phased in over two years.

For the first six months of 2022, our average Medicare per diem rate for skilled nursing facilities increased 2.2% as compared to the same period in 2021. 

Medicaid –

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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 $5,538,000 and $3,955,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2022 and 2021, respectively.

For the first three months of 2022, our average Medicaid per diem increased 4.8% compared to the same period in 2021.

We have recorded $5,001,000 and $7,094,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2022 and 2021, respectively.

We have recorded $10,539,000 and $11,049,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2022 and 2021, respectively.

For the first six months of 2022, our average Medicaid per diem increased 2.2% compared to the same period in 2021.

We face challenges with respect to states’

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The increase reflects the effects of the home health payment update percentage of 2.6%, an estimated 0.7% increase that reflects the effects of the updated fixed-dollar loss ratio, and an estimated 0.1% decrease in payments due to the changes in the rural add-on percentages for 2022.

In June 2022, CMS released its proposed rule outlining fiscal year 2023 Medicare payment rates.

CMS projects payments to home health agencies in fiscal year 2023 will decrease in aggregate by 4.2%, or $810 million.

The decrease reflects the effects of the home health payment update percentage of 2.9%, permanent behavioral assumption adjustment resulting in a decrease of 7.7%, and an estimated 0.2% decrease that reflects the effects of a proposed update to the fixed-dollar loss ratio used in determining outlier payments.

Medicare –

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The cap amount for FY2022 is $31,298.

In July 2022, CMS released its final rule outlining fiscal year 2023 Medicare payment rates.

CMS issued a rate increase of 3.8%, or $825 million, effective October 1, 2022.

The increase is the result of a 4.1% inpatient hospital market basket increase reduced by a 0.3% productivity adjustment.

The FY2023 hospice payment update also includes an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually.

The cap amount for FY2023 would be $32,487.

Segment Reporting

The Company has two reportable operating segments:

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

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

and (2) homecare and hospice services.

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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, 2022

Three Months Ended June 30, 2022

Revenues and grant income:

Net patient revenues

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Non-operating income

Unrealized gains on marketable equity securities

Unrealized losses on marketable equity securities

Income/(loss) before income taxes

Three Months Ended June 30, 2021

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

Income before income taxes

Three Months Ended March 31, 2021

Six Months Ended June 30, 2022

Net patient revenues

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Non-operating income

Unrealized losses on marketable equity securities

Income before income taxes

Six Months Ended June 30, 2021

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 gains on marketable equity securities

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The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

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, and share-based compensation expense is helpful in allowing investors to assess the Company’s operations more accurately.

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2022 include facilities that began operations from 2020 to 2022, which is two behavioral health hospitals that will be licensed and operating during the second quarter of 2022.

For the three months ended March 31, 2021, included are facilities that began operations from 2019 to 2021, which is one memory care facility.

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 or start-up operations not at full capacity, share-based compensation expense, and any gains on the acquisitions of equity method investments is helpful in allowing investors to assess the Company’s operations more accurately.

The operating results for the newly constructed healthcare facilities or agencies not at full capacity for the three and six months ended June 30, 2022 include facilities or offices that began operations from 2020 to 2022, which is two behavioral health hospitals, one homecare agency, and one hospice agency.

For the three months and six months ended June 30, 2021, included are facilities that began operations from 2019 to 2021, which is one memory care facility.

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

Three Months Ended

Six Months Ended

Net income attributable to National Healthcare Corporation

Non-GAAP adjustments

Unrealized gains on marketable equity securities

Operating results for newly opened facilities not at full capacity

Unrealized (gains)/losses on marketable equity securities

Gain on acquisition of equity method investment

Operating results for newly opened facilities or agencies not at full capacity

Share-based compensation expense

Provision of income taxes on non-GAAP adjustments

Benefit of income taxes on non-GAAP adjustments

Non-GAAP Net income

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Non-GAAP adjustments

Unrealized gains on marketable equity securities

Operating results for newly opened facilities not at full capacity

Unrealized (gains)/losses on marketable equity securities

Gain on acquisition of equity method investment

Operating results for newly opened facilities or agencies not at full capacity

Share-based compensation expense

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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, 2022 and 2021.

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

Unrealized gains on marketable equity securities

Gain on acquisition of equity method investment

Unrealized gains/(losses) on marketable equity securities

Income before income taxes

Income tax provision

Net income attributable to noncontrolling interest

Net (income)/loss attributable to noncontrolling interest

Net income attributable to stockholders of NHC

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Results for the quarter ended March 31, 2022 compared to the first quarter of 2021 include an 11.2% increase in net operating revenues and grant income and a 6.6% decrease in income from operations. For the quarter ended March 31, 2022, GAAP net income attributable to NHC was $15,318,000 compared to net income of $21,267,000 for the same period in 2021.

Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended March 31, 2022 was $14,081,000 compared to $16,592,000 for the same period in 2021. 

The decrease in adjusted net income for the first quarter of 2022 compared to the first quarter of 2021 was primarily due to less government stimulus income recorded during the current quarter, as well as higher inflationary pressures on labor costs.  

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Results for the quarter ended June 30, 2022 compared to the second quarter of 2021 include a 3.1% increase in net operating revenues and government stimulus income and a 65.7% decrease in income from operations. The net patient revenue increase was driven by the continued occupancy increase in our skilled nursing facilities and the June 2021 Caris hospice acquisition.

But, the net patient revenue increases were offset by the reduction in government stimulus income of $14.8 million during the second quarter of 2022 compared to the same period a year ago.

For the quarter ended June 30, 2022, GAAP net income attributable to NHC was $3,203,000 compared to net income of $104,883,000 for the same period in 2021.

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

Excluding the gain on Caris, as well as excluding the unrealized losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended June 30, 2022 was $7,172,000 compared to $15,077,000 for the same period in 2021. 

The decrease in adjusted net income for the second quarter of 2022 compared to the second quarter of 2021 was primarily due to less government stimulus income recorded during the current quarter. We also continue to incur inflationary wage pressures within all areas of our operations. 

Net operating revenues and grant income

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The total census at owned and leased skilled nursing facilities for the quarter averaged 84.0%, compared to an average of 81.1% for the same quarter a year ago.

Overall, the composite skilled nursing facility per diem increased 2.9% compared to the same quarter a year ago.

Overall, the composite skilled nursing facility per diem decreased 0.3% compared to the same quarter a year ago.

Our Medicare per diem rates increased 3.1% and managed care per diem rates increased 1.2% compared to the same quarter a year ago.

Medicaid and private pay per diem rates increased 4.8% and 9.2%, respectively, compared to the same quarter a year ago.

For the three months ended March 31, 2022 and 2021, respectively, $5,538,000 and $3,955,000 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 $17,785,000 for the three months ended March 31, 2022 compared to the first quarter of 2021.

Other revenues increased $657,000, or 5.8%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the three months ended March 31, 2022 and 2021, respectively, we recorded $10,620,000 and $22,749,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund.

Medicaid and private pay per diem rates decreased 0.2% and increased 4.7%, respectively, compared to the same quarter a year ago.

For the three months ended June 30, 2022 and 2021, respectively, $5,001,000 and $7,094,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $14,137,000 for the three months ended June 30, 2022 compared to the same quarter last year.

Other revenues decreased $94,000, or 0.9%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the three months ended June 30, 2022 and 2021, respectively, we recorded $320,000 and $15,126,000, respectively, 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, 2022 compared to the same period of 2021 increased $29,015,000, or 12.3% to $264,766,000 from $235,751,000.

Total costs and expenses for the three months ended June 30, 2022 compared to the same period of 2021 increased $17,445,000, or 7.0% to $266,808,000 from $249,363,000.

Salaries, wages, and benefits increased $11,068,000, or 6.8%, to $174,936,000 from $163,868,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 61.2% compared to 59.4% for the three months ended March 31, 2022 and 2021, respectively.

Our Caris acquisition increased salaries, wages, and benefits $10,224,000 in the first quarter of 2022 compared to the same quarter a year ago.

We continue to face tremendous workforce and labor shortages within all of our operations, which increases wage pressure and inflation in regard to retaining and attracting qualified healthcare partners (employees).

With the workforce environment being so challenging, the largest expense increase from a labor standpoint is in our agency nurse staffing. 

Our agency nurse staffing expense increased $12,435,000 for the first quarter of 2022 compared to the same quarter a year ago.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 64.5% compared to 62.3% for the three months ended June 30, 2022 and 2021, respectively.

Our Caris acquisition increased salaries, wages, and benefits $7,946,000 in the second quarter of 2022 compared to the same quarter a year ago.

We continue to face workforce and labor shortages within all of our operations, which increases wage pressure and inflation in regard to retaining and attracting qualified healthcare partners (employees).

The labor and workforce challenges have resulted in us contracting with agency nurse staffing companies. 

The agency nurse staffing companies charge inflated hourly rates;

therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing within our healthcare operations.

Other operating expenses increased $6,332,000, or 9.7%, to $71,311,000 for the 2022 period compared to $64,979,000 for the 2021 period.

Other operating expenses as a percentage of net operating revenues and grant income was 26.6% and 26.3% for the three months ended March 31, 2022 and 2021, respectively.

Our Caris acquisition increased other operating expenses $5,104,000 in the first quarter of 2022 compared to the same quarter a year ago.

Other operating expenses as a percentage of net operating revenues and grant income was 26.3% and 24.7% for the three months ended June 30, 2022 and 2021, respectively.

Our Caris acquisition increased other operating expenses $3,691,000 in the second quarter of 2022 compared to the same quarter a year ago.

We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.  

Non–operating income decreased by $3,065,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

The income tax provision for the three months ended March 31, 2022 is $5,193,000 (an effective income tax rate of 25.3%).

Excluding certain items, we expect our corporate (federal and state) income tax rate for 2022 to be approximately 26.0%. 

The income tax provision for the three months ended June 30, 2022 is $1,362,000 (an effective income tax rate of 38.7%).

We expect our corporate (federal and state) effective income tax rate for 2022 to be approximately 26.0%. 

Noncontrolling interest

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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, 2022 Compared to Six Months Ended June 30, 2021

Results for the six months ended June 30, 2022 compared to the same period of 2021 include a 7.0% increase in net operating revenues and grant income and a 34.7% decrease in income from operations. The net patient revenue increase was driven by the continued occupancy increase in our skilled nursing facilities and the June 2021 Caris hospice acquisition.

But, the net patient revenue increases were offset by the reduction in government stimulus income of $26.9 million for the first six months of 2022 compared to the same period a year ago.

For the six months ended June 30, 2022, GAAP net income attributable to NHC was $18,521,000 compared to net income of $126,150,000 for the same period in 2021.

The large increase in our reported GAAP net income for the 2021 six-month period was primarily due to the gain recorded from the acquisition of Caris.

Excluding the gain on Caris, as well as excluding the unrealized gains and losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the six months ended June 30, 2022 was $21,253,000 compared to $31,669,000 for the same period in 2021. 

The decrease in adjusted net income for the six-month period of 2022 compared to the same period of 2021 was primarily due to less government stimulus income recorded during the year. We also continue to incur inflationary wage pressures within all areas of our operations.

Net operating revenues and grant income

Net patient revenues increased $62,583,000, or 13.8%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the six-month period averaged 83.3%, compared to an average of 78.9% for the same period a year ago.

Overall, the composite skilled nursing facility per diem increased 1.3% compared to the same period a year ago.

Our Medicare per diem rates increased 2.2% and managed care per diem rates increased 4.0% compared to the six-month period a year ago.

Medicaid and private pay per diem rates increased 2.2% and 6.8%, respectively, compared to the same period a year ago.

For the six months ended June 30, 2022 and 2021, $10,539,000 and $11,049,000, respectively, have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $31,922,000 for the six months ended June 30, 2022 compared to the same period of 2021.

Other revenues increased $563,000, or 2.5%, compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the six months ended June 30, 2022 and 2021, respectively, we recorded $10,940,000 and $37,875,000 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, 2022 compared to the same period of 2021 increased $46,460,000, or 9.6% to $531,574,000 from $485,114,000.

Salaries, wages, and benefits increased $32,605,000, or 10.4%, to $345,630,000 from $313,025,000.

Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.8% compared to 60.9% for the six months ended June 30, 2022 and 2021, respectively.

Our Caris acquisition increased salaries, wages, and benefits $18,170,000 in the six-month period of 2022 compared to the same period a year ago.

The labor and workforce challenges have resulted in us contracting with agency nurse staffing companies. The agency nurse staffing companies charge inflated hourly rates;

therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing within our healthcare operations.

Other operating expenses increased $14,291,000, or 10.9%, to $145,396,000 for the 2022 period compared to $131,105,000 for the 2021 period.

Other operating expenses as a percentage of net operating revenues and grant income was 26.4% and 25.5% for the six months ended June 30, 2022 and 2021, respectively.

Our Caris acquisition increased other operating expenses $8,795,000 in the first six months of 2022 compared to the same period a year ago.

We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.  

Non–operating income decreased by $6,126,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

The income tax provision for the six months ended June 30, 2022 is $6,555,000 (an effective income tax rate of 27.2%).

We expect our corporate (federal and state) effective income tax rate for 2022 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.

Liquidity, Capital Resources, and Financial Condition

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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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Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022 was $27,457,000 as compared to cash provided by operating activities of $12,589,000 in the same period last year.

Net cash used in operating activities for the six months ended June 30, 2022 was $1,215,000 as compared to cash provided by operating activities of $40,122,000 in the same period last year.

Cash used in operating activities consisted of net income of $17,510,000 and adjustments for non–cash items of $25,388,000.

There was cash used for working capital needs in the amount of $52,250,000 for the three months ended March 31, 2022 compared to $16,899,000 for the same period a year ago. 

There was cash used for working capital needs in the amount of $44,552,000 for the six months ended June 30, 2022 compared to $12,871,000 for the same period a year ago. 

We also received cash distributions from our unconsolidated investments of $439,000 during the six months ended June 30, 2022, compared to $6,314,000 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 losses on our marketable equity securities, deferred taxes, and stock compensation.

Investing Activities

Net cash used in investing activities totaled $5,920,000 for the three months ended March 31, 2022, compared to $5,852,000 for the three months ended March 31, 2021.

Cash used for property and equipment additions was $8,962,000 and $4,327,000 for the three months ended March 31, 2022, and 2021, respectively.

The two behavioral health hospitals that are opening during the second quarter of 2022 were $4,430,000 of the property additions for the first quarter of 2022. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $2,818,000 for the three months ended March 31, 2022. 

For the three months ended March 31, 2021, proceeds from the sale of marketable securities, net of purchases, resulting in cash used in investing activities of $1,780,000.

Net cash used in investing activities totaled $8,163,000 for the six months ended June 30, 2022, compared to $31,995,000 for the six months ended June 30, 2021.

Cash used for property and equipment additions was $17,033,000 and $13,143,000 for the six months ended June 30, 2022, and 2021, respectively. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $5,917,000 for the six months ended June 30, 2022. 

For the six months ended June 30, 2021, proceeds from the sale of marketable securities, net of purchases, resulting in cash used in investing activities of $1,456,000.

Financing Activities  

Net cash used in financing activities totaled $10,450,000 for the three months ended March 31, 2022 compared to $9,148,000 for the three months ended March 31, 2021.

We made principal payments under our finance lease obligations in the amount of $1,147,000 and $1,081,000 for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in financing activities totaled $18,797,000 for the six months ended June 30, 2022 compared to $16,042,000 for the six months ended June 30, 2021.

We made principal payments under our finance lease obligations in the amount of $2,312,000 and $2,178,000 for the six months ended June 30, 2022 and 2021, respectively.

Cash used for dividend payments to common stockholders totaled $17,002,000 in the current year period compared to $15,990,000 for the same period a year ago.

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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, 2022, we do not have any long-term debt.

At June 30, 2022, 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.

8 unchanged sentences

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